Wednesday, February 27, 2013

Buying Beach Front for Bird's Eye View of the Flood

Perhaps the next most pointless intellectual endeavor after writing a blog is getting into a Facebook debate.  Facebook is great for those smarmy little political cartoons that, in the spirit of tolerance, try to smear in some way anyone with the opposite political view.  A friend recently posted a cartoon with the teacher from the Simpson’s, lit cigarette in hand, and this caption:
Bad Teaching 101: A New Bill in Kansas Would Require State School Teachers to Question The Existence of Climate Change
My friend added the following remark: “Really?! You may debate cause. You may not debate the evidence.”  A mutual friend then made two successive comments: “unbelievable …” followed by “I take that back … too easily believed …”
I seemed to have adopted the anti-Andrew Carnegie approach to Facebook, which is to lose friends and influence no one, so I made the following comment regarding the believability:
“You are right, it is too easily believed, but not because it's true; it's too easily believed because of a little cognitive shortcoming called confirmation bias - you want to believe it is true about us knuckle draggers, so you accept it at face value. But a five second google search shows that the language of the statute is "climate science," not "climate change", even though the blog I found the wording on also made the swap of "change" for "science," probably due to the same cognitive shortcoming. It's a distinction that is a big difference. It allows, for instance, about debates over cause. All that said, there is nothing simple about climate science - if it is taught at all, it should be part of an AP course, and honestly very few people with a bachelor's degree teaching high school science are capable of understanding the nuance of it. For that reason, it is more likely that what you would be taught is what the teacher wants to believe.”  
Which beckoned the counter:
“…let's be honest the debate is not over whether or not our climate is at some sort of tipping point but rather over whether or not man is contributing to the causes or speed of the change and therefore whether human action can be legislated. This Kansas legislation is very political in nature, and I do see this sort of legislation as spearheaded by knuckle-draggers... these are not people looking to debate the cause/speed of climate change but rather are deniers.... and denial is simply not upheld by hard science. Politics aside, I know you are a scientist, led by models and proof, so am surprised if you feel climate science is controversial... but I do NOT see all Republicans as knuckle-draggers...
My reply:
“I have to be honest with you, I would support this legislation 100 percent as a second best option to not touching the subject at all in grade school or high school. It is in no way shape or form a "fundamental" science, in the sense that I want my kids learning biology, chemistry, and physics. It is a sub-specialty of a sub-specialty of a sub-specialty, and therefore its presence in the curriculum itself is very political in nature. If you want to argue that it is worth teaching because of its policy relevance, then you: 1) prove my point; and 2) should instead consider a curriculum that teaches some fundamental economics, which has far more policy relevance. And actually the debate is over both whether we're at a tipping point and whether humanity has contributed to the situation or not.
This put in mind of a correspondence I had with the author of Big Questions, Steven Landesburg.  In that book, the author makes the argument that no one really believes in God, because given the known deterrent effects of punishment, and the prospect of eternal damnation, we would essentially see far less sinning.  I asked him at the time if he ever thought about the same argument relative to catastrophic global warming, adding that very few professed believers personally cuts back their "footprint" dramatically enough on an individual basis to lead to an aggregate result that would do anything even if all believers and non-believers followed suit. I acknowledged, however, that this could be a free-rider problem, with the share of non-believers being too big for any efforts of the believers to matter, and so the believers go ahead and spew out as much CO2 as the rest of us.
His reply was interesting: “It seems to me that an even better indicator is this: How many of the professed believers are buying up land in areas where land will become more valuable if their predictions are true? (E.g. cold climates, inland cities, etc.)”  He is absolutely correct that this is a better indicator, because unlike my indicator, it doesn’t suffer from the free rider problem of the deniers doing nothing to counter global warming.  In fact, it relies upon the deniers doing nothing for speculative purposes.  The logic is this – right now there are all these deniers out there who don’t realize that Manhattan will be flooded, and that Minneapolis will soon become a tolerable climate, so I can sell what is now over-priced land in Manhattan to buy land on the cheap in Minneapolis.  Once the reality hits, and the deniers are under water in Times Square, this speculative investment pays off big time.  Why did all of this come to mind?  Because the person who is worked up about the knuckle dragging deniers just bought beach front property.
I really don’t want to debate global warming, which is as you may have noticed a very passé term, replaced by climate change, which clearly allows for ups and downs – the change in term is probably an indication of retreat from a rigid position that I am guessing no longer enjoys true support.  It is a fashionable smear on Republicans to say now that they are anti-science.  But there is merit in being skeptical about the claims of a fairly new science; history is replete with examples of false scientific theories that enjoyed the consensus of the brightest scientific minds of the time – whether we are discussing spontaneous generation, the earth-centered universe, the list can go on and on. 
There is no point in history where scientists suddenly as a group become immune to mistaken adherence to incorrect theories.  What we do know is this – 1) the predictions of the models that formed the basis of the global warming alarmists have been way way off; 2) the scientists who have been at the head of the global warming alarmism have been caught with significant egg on their faces – withholding data and black-balling legitimate scientists that are skeptical; 3) global warming alarmism has been a career-maker for many scientists – absent the purported policy implications of their theories, government funding for their work would be a fraction of what it has been over the last 2 decades; and 4) for every industry that has a vested interest in denying global warming that seeks to fund scientists to reach a foregone conclusion, there is an equal and opposite industry that has a vested interest in inflating the occurrence or damage of global warming which also seeks to hire scientists to reach a foregone conclusion (witness the parade of green energy companies getting government subsidies).  For someone who may not be competent to judge the merit of the different positions in the debate or the ability to pick which experts are trustworthy, or who otherwise does not have the time to educate himself to make their own informed decision, these four facts do not lend themselves to blind adherence to global warming alarmism.  The second point especially seems almost damning to the global warming crowd, and it gives the lie to the idealized version of science being an open and disinterested search for truth.  It seems the knuckle draggers are not alone in trying to avoid debating the cause/speed of climate change.
Professional scientists are very smart people, but they are not immune to ethical problems or to severe confirmation bias in their work.  In the long run, the scientific process usually corrects the errors of past theories, but in the short run claims to certainty are almost certainly overblown.  And, in fact, the tide is beginning to turn on the false “consensus” about catastrophic global warming: only 36 percent of geoscientists and engineers believe that humans are creating a warming crisis; the remainder either believe nature is the primary cause or that future warming will not be a big problem (  Not buying it?  Sell your Manhattan real estate for something in Minneapolis and laugh at us knuckle draggers all the way to the bank!

Friday, February 22, 2013

The Midas Touch

This week a facebook friend who is a scientist posted this quote from the state of the union address:

"Every dollar we invested to map the human genome returned $140 to our economy. Today, our scientists are mapping the human brain to unlock the answers to Alzheimer's; developing drugs to regenerate damaged organs; devising new material to make batteries 10 times more powerful. Now is not the time to gut these job-creating investments in science and innovation. Now is the time to reach a level of research and development not seen since the height of the space race."

Because arguing with strangers on Facebook is the best part of Facebook, I posted this rejoinder: “As a scientist, you should be skeptical about a claim that $1 of investment in anything has ever yielded $140 of benefit, or that it would continue to do so in the future. He could have claimed we've finally discovered a perpetual motion machine, and you would have laughed your ass off. You should be doing the same with this claim. (That said, I am a proponent of funding the sciences, but I am not a proponent of crazily stupid claims to get others to buy in).”

And that is when it got interesting, because someone with 30 seconds more time on their hands posted in a comment a link to a study with the subtitle: “How a $3.8 billion investment drove $796 billion in economic impact.”   (  That’s a ratio slightly over 200, which suggests that Obama was understating the case for government funded R&D.  Damn fact checkers!  That’s always my first thought.  But I am way too skeptical of my mad skills, as the kids these days say.  

The key here is the distinction between “economic impact” (the subject of the study) and “return,” which is what is stated in the speech.  The return consists of the combination of benefits to consumers (called consumer surplus) added to any corporate profits (producer surplus) derived from new products that have stemmed from such initial research efforts (assuming there are corporate profits, this implies that the costs of the investment and any production costs are recovered in the price of new products that arise out of that research). Follow-up research efforts would form part of the economic impact, but have nothing to do with the "return" on the initial investment.  

The economic impact is really meaningless. Suppose, for example, that the government dug a $1 billion ditch in the wilderness under the mistaken impression that there was gold in that area, and that following this a multitude of private investors dug 140 ditches at a cost of $140 billion, and not one ditch yielded any gold. Now, the economic impact of the $1 billion spent by the government is 140 times its initial investment, but the entire investment of $141 billion is a loss of $141 billion. Why is it a loss? Because all of the $141 billion of resources that went to the hunt for gold would have otherwise been employed in more productive pursuits. The economic impact is simply a measure of the follow-on investments, which may or may not yield a combination of consumer and producer surplus that exceeds the initial investment amount. I am not suggesting that these investments will not yield a return (as in the gold example), only that what is measured in that article has nothing to do with the return.

Some may take issue with the claim that the resources that went to the hunt for gold would have otherwise been employed elsewhere in the economy, but during the time frame of the study, the economy was, but for some minor exceptions, running at full employment.  Usually when people speak of a stimulus effect of government spending, it is during periods of recession, although even then the “multiplier” effect – i.e. $1 of government spending yields more than $1 of additional GDP – is not universally accepted among economists (although it clearly is among politicians).  Professor Vic makes a living debunking these same specious arguments in relation to public subsidies for stadiums and sporting events.

In fairness to Obama, the report itself uses the term “return” in speaking of the impact of the human genome project.  But this is not a harmless matter of semantics, and it is somewhat startling that this line was left in the state of the union speech.  Taken to its logical extreme, it is an argument for taking the entire federal budget and spending it all on R&D.  As the federal budget has been running at roughly 25 percent of GDP for Obama’s term (up 5 percentage points from the historic average over the last 30 or so), if you dedicated that amount to R&D, that simple investment would increase GDP by a factor of 35 – we’d be 35 times richer as a country!  As for those wide-eyed fans of the President (the press), there is a halo effect at work that has them take this claim at face value – if this President can finally right the injustice of women having to pay for their own $7 a month birth control, than surely he can pick R&D investments that yield a 14,000 percent return on investment.  Forget about Midas, who merely turned everything he touched into gold, or Jesus with the miracle of the loaves and fish, we have Obama, who does both simultaneously. 

As with most of the content of Obama’s speeches, the R&D schtick is a straw man.  If you are against government funding of R&D, you are against the human genome project, because all government research is as valuable as the human genome project.  (Never mind that the beginning funding of the human genome project occurred in the Bush 1 years, and continued on through the Bush 2 years.)  The essence of his political speeches is to constantly suggest we can all have something for nothing (the one percent accepted of course), and that all that prevents this is Republican intransigence.  The truth is that there are very few pieces of fruit hanging low on the tree that we've simply failed to see, and now we can all sit down and enjoy; government is more about redistributing the fruit, and in the process it kills the tree. 

There is a legitimate potential benefit from government financing fundamental science – first off, although follow-up research coming from the findings of that fundamental research may yield commercially beneficial innovations, the cost and risk of the basic level science may be too large for a corporation to embark on such fundamental research.  Or, assuming that is not the case, it may be in the interest of the government to finance such research so that the intellectual property created by the fundamental research is in the public domain, which can allow for multiple parties to build on that base knowledge in deriving innovations with commercial value.  (Even in the case of the human genome project, there was a private company making the same efforts as funded by government.)  If all in the hands of one party, dissemination of such knowledge may be slower, leading to a slower pace of innovation or higher costs to consumers.  This is the theoretical case for a legitimate government role.

So much for theory – as a practical matter, not every government research project fits this mold or even has any potential commercial or policy value, and there is a real public choice problem regarding whether the most promising R&D possibilities will be funded, as opposed to those that are most arduously lobbied for. Witness all of the subsidies to alternative energy companies that are all going bust. These are monies channeled away from potentially more lucrative private sector R&D investment possibilities, which have yielded nothing for us commercially, but which have handsomely rewarded those who have supported Obama and the Democratic party.  Governments are generally not very good at “industrial policy” – picking certain industries to support – and to the extent inflated stories about the magic of R&D are used to justify de facto industrial policy in support of pie in the sky green energy, all they serve to do is make Al Gore rich.  It is much as I predicted about Obama back in January of 2009:

“Here’s my prediction – the Obama administration will do very little in connection to the environment. There will be some payola to the parties that benefit from the alarmism created by the wild claims, enough perhaps to keep them quiet. I would say it will take very little to keep them quiet once Obama is in office, and in fact a little extra their way will have them lauding the policies of Obama even if in fact they are mere lipstick on what we’ve been told for eight years is a pig. (I suspect he may go a little too far and choose a policy that reaps great economic harm without any real prospect of confronting seriously the devestation we are told is imminent.) We’ll see, in short, if Al Gore really drinks his own kool-aid, and I suspect that he doesn’t. If he is honest, the policies he will see should make him the Kierkegaard to Obama’s environmental church [i.e. he should be incensed], but something tells me he will quietly glide into the pew and keep quiet in exchange for the promised donuts in the parish hall. At the end of the day, it will be a moral posture that is good for business and the Democratic party, and nothing more. Like homeless people circa 1992, environmental problems will largely disappear.”

Hate to say I told you so.

Thursday, February 14, 2013

A Simple Test of Economic Justice

Hatcher’s two question test of economic justice:

1)      Scenario 1: one man has ownership of another as a slave, based on the announcement of the king.  Ownership entitles him to the following: he gets to extract all of the economic benefit of the man’s labor, less the cost to keep the slave alive (i.e. food, clothing, shelter).  The slave cannot do work of his choosing, instead having to follow the directions of the slave owner.  The slave also works the hours he is told to work, and leisure is restricted to the minimum time necessary to maximize the slave’s output. In order to exert this much control, the slave owner is able to restrict the man from ever leaving the slave owner’s estate, thus severely limiting his freedom of association, his freedom of speech, and his freedom to practice his religion.  (All such rights are limited to that which he can exercise among his fellow slaves.)  The slave owner uses the profit he derives from his slave for his own private consumption.

2)      Scenario 2: same as scenario 1, except that the slave owner allows the slave to pick from among various jobs needing to be done for the benefit of the slave owner.

3)      Scenario 3: same as scenario 2, except that the slave owner allows the slave the freedom during his leisure time to go where he sees fit.  (Assume, in all scenarios, that any privilege granted by the slave owner cannot result in the slave escaping to freedom, so that ownership and its prerogatives are always enforceable.)

4)      Scenario 4: same as scenario 3, except that the slave owner pays the slave a small wage above and beyond the subsistence costs incurred by the slave owner.  This wage, while small, is beneath what we assume the slave would be able to earn in the free market above and beyond the costs he would face to clothe, feed, and shelter himself.

5)      Scenario 5: same as scenario 4, except that the slave is able to choose his own level of work hours for a week, subject to the constraint that they are sufficient to cover the costs incurred by the slave owner for room and board. 

6)      Scenario 6: same as scenario 5, except that the slave is able to seek work outside of the plantation, where he can negotiate his own wage, but the slave has to pay a percentage portion of this wage (i.e. a tax) to the slave owner that exceeds the costs to the slave owner of room and board for the slave, so that there is still a profit for the slave owner.  Note that now enforcement of the slave owner’s rights requires that the slave owner is able to audit the slave’s economic relationships with his employers, whereas in contrast the slave owner’s economic relationships are private.

7)      Scenario 7: same as scenario 6, except that the slave is permitted to live and work where he wishes, and the tax is reduced by an amount equivalent to what the slave owner would have paid for the slave’s room and board, as these expenses are now assumed directly by the slave.  The profit for the slave owner, who now has no expenses related to the slave, is simply the amount of the tax.

8)      Scenario 8: same as scenario 7, except that instead of one person being the slave owner, the king names a consortium of many people as the collective slave owner, and these people evenly divide the tax paid by the slave.

9)      Scenario 9: same as scenario 8, except that instead of using the profit (tax) for personal consumption, the consortium redistributes all such profits to another set of persons the consortium considers to be in need.  (Assume that in the absence of such redistribution, the slaves would not have voluntarily transferred as much money to the group of recipients.)

10)  Scenario 10: same as scenario 9, except that instead of the king assigning the consortium of slave owners, that consortium is elected by a democratic process.

11)  Scenario 11: same as scenario 10, except that the slave can move out of California, and go to Texas, where the democratically elected consortium takes a slightly different view (13% income tax versus 0%).

Query 1: In the continuum from Scenario 1 to Scenario 10, at which scenario does the  relationship between slave owner(s) and slave become just?

Query 2: If a slave living in California makes a fortune as the pioneer of the Bro and/or Manzere(uh, wait a minute, an easy google search suggests that the more real world example would be a man making a fortune as a professional golfer), and the consortium of slave owners in California raise his taxes yet again, is he an uppity slave if he moves to Texas?

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