Snarky Behavior

Entries tagged as ‘america’

Dropping Knowledge: The Economics and Ethics of Carbon Abatement

May 20, 2008 · Leave a Comment

This past semester I took an interesting (albeit frustrating) class on the “Risks of Globalization,” taught by an economist who was involved in the incipient development of the Kyoto protocol. 

Fundamentally, the risks of climate change are as follows:

1.      Overwhelming scientific evidence shows that the earth is becoming progressively warmer, and that this trend is accelerating.  People who still argue this fact are known in most circles as “dumb fucks.”

2.      Significant evidence suggests that this warming is anthropogenic, primarily due to Carbon emissions (CFC, CO2, and CH4).  People who argue this fact are known as Republicans.

3.      The atmosphere is treated as a global public good.  That means it is non-rival and non-exclusive (everyone enjoys it for free without diminishing anyone else’s right to enjoy it).  Also important to note is that gases disperse evenly throughout the atmosphere.  Hence the “global” part.

4.      Because the atmosphere is treated as free for everyone, it is subjected to what is known as “the tragedy of the commons.”  In economic terms, this means that because no single person (or nation) can reap the benefits of a clean atmosphere, no single entity will incur the costs to do so.  Another way to think of this is: a public toilet that everyone uses but nobody cleans up.    

5.      Generally, when dealing with the market of public good provision, we would say that the sum of everybody’s preference for clean air (instead of carbon-based energy consumption) should equal the rate at which we as a society choose that tradeoff.  That is another way of saying, if you want to reduce your individual carbon footprint, and I want to reduce my individual carbon footprint, and so on for every person in the world, the total amount we reduce carbon emissions will be equal to the global rate of change between a public good (clean air) and a private good (energy production).   

6.      The problem here is that there is significant reason to believe that we cannot afford to make that tradeoff at its current rate, because it results in insufficient abatement. 

This is where the majority of people who think about solutions to this problem begin to diverge significantly.  The consensus is that we either need some mechanism to increase the individual incentives to abate (i.e. a carbon market), or to decrease the benefits of polluting (i.e. a carbon tax).

In theory, a market (which allocates property rights or permits to emit, which are then priced and traded for competitively) provides certainty for the outcome of the tradeoff (since emissions are capped), without providing certainty for the costs.  A tax provides near certainty in costs (by internalizing the cost of the tax), without providing certainty for emissions (since there is no cap).

What makes these options trickier is the underlying game theory.  Since the policies are directly tied to energy consumption, which is directly tied to domestic output, self-imposed “carbon constraints” in a global economy put early adopters at a competitive disadvantage.  Carbon markets that aren’t global essentially introduce a “black” market in non-participating nations, who continue to treat the air as free.

Even if we can get beyond the competitive issue with present rivals, the issue becomes even more complex when we consider future generations.  As this article from Scientific America highlights, there is a fundamental ethical question surrounding inter-temporal dynamics:      

The costs of mitigating climate change are the sacrifices the present generation will have to make to reduce greenhouse gases.  The benefits are the better lives that future people will lead: they will not suffer so much from the spread of deserts, from the loss of their homes to the rising sea, or from floods, famines and the general impoverishment of nature.

I think that this way of framing the problem (sacrificing today for the benefit of tomorrow) complicates the issue unnecessarily. 

First of all, if we indeed create the incentives to reduce current consumption, we should compensate ourselves by treating this reduction as an immediate increase in investment.  As such, we (current generation) should be entitled to a return from future beneficiaries—through financing for alternative energy sources today.   

Future generations will expect a cleaner and energy independent future, and will pay for it by an increased debt burden.  This is a fair and just expectation, unlike the expectations to bear the costs of the reckless and unjust invasion of Iraq.

The problem after all isn’t energy consumption per se… it’s carbon emissions.  If we can invest in and/or subsidize immediate alternatives to coal/oil/natural gas, then we can consume all of the energy we want (hypothetically speaking).    

Second, I believe that the idea of sacrifice for future beneficiaries undervalues the costs we are currently facing from not only climate change, but fluctuating commodities.  As long as coal and oil are the most cost competitive sources for energy, we will use them, and build our infrastructure around them.  Clearly these are not viable long term investments, so the risks to the investments, and therefore the incentives to remain committed to those inputs of production, increase.

 

If you take oil off the table, there is no longer speculation on what the future holds or when it will get here.  It is not a matter of reducing current consumption.  It is a matter of leveraging the future.

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If this isn’t “straight talk,” then what is?

April 13, 2008 · 1 Comment

Makes...me...ANGRY

At a recent fund-raiser in San Francisco, Obama was asked the question about voters in Pennsylvania:  Why doesn’t his campaign resonate with working class white voters?

You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing’s replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. And it’s not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.

While his response may have included some poorly-chosen words, for which he has since taken substantial criticism, it was at least an honest appraisal.   Consider the following:

America is often recognized for its diversity, but too often we consider this diversity as a melting pot (with the New York urban-ideal as the cognitive model) than as a heterogeneous hodge-podge of cultural identities.  Obama succinctly made this point at the 2004 DNC in his now famous “Red State-Blue State” speech (”we worship an awesome God in the blue states, and yes we’ve even got some gay friends in the red states”, etc.).

So for a wealthy donor from Marin county to understand the voting tendencies of a “fellow Democrat” pension-deprived ex-steel worker of Allentown, he/she needs an accurate explanation, and a good deal of empathy.  These donors are (in large part) the ones funding Obama’s campaign, which means they provide money for polling, focus grouping, message development, etc., and they have a right to expect an explanation of the results of that research

Right now we have a political system where the campaigns engage in election “strategies,” which CNN and others than attempt to decipher and decode, without explaining the underlying assumptions of those strategies.  It is taken for granted that Clinton “appeals” to blue-collar voters, because that is the demographic she is targeting (and resonating with).

When Barack Obama lets these donors peek inside the key-hole of voter research, he may seem like a detached social scientist professor– the Ivory Tower paradigm.  But the truth is that he cannot be all things to all people.  He can only try to understand and capture the concerns of the majority of the voters in his party, and assuming he wins the nomination, in the country.

It is not Ivory Tower to try to understand a group of voters with whom a candidate has no shared background, if the candidate’s efforts are genuine, so that he/she may better represent those voters.

On the other hand, nobody likes to be categorized and have their behavior and motivations analyzed.  The thing is, this happens all the time, in market research, in commercial advertising, and certainly in elections.

Is it a poor strategy to let people peek behind the curtain instead of relying on a lazy media as a proxy to interpret campaign messaging?  Haven’t the last few years taught us that “reality” is the favored-model of communication?

If this isn’t “straight talk,” then what is?

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That’s a Whole Lot of Money

April 9, 2008 · 1 Comment

Joseph Stiglitz has estimated the cost of the Iraq war to be $3 trillion dollars by 2017.

These cost estimates include:

  1. disability and compensation for veterans (1.7 million troops have been deployed to date, with 70,000 wounded or diseased and 120,000 having already sought mental health care);
  2. replenishing the military to its normal level of soldiers and equipment; and,
  3. repaying the debt (with interest) that was raised to pay for this war, which has been fully funded by borrowing.
  4. lost economic contributions of those who went to war
  5. the withdrawal from the economy of family members who quit work to care for loved ones injured in the war
  6. the cost to allies and to Iraq

Now, projecting cost estimates for a destructive exercise like war over long-term periods (including well into the future) can prove to be a debatable task, especially when you’re accounting for opportunity costs (i.e. the lost economic contributions of those who went to war) and significant unknown variables (price of oil, nature of military commitment).  We can’t even agree on civilian death tolls in that country, which should be a far easier task in simple accounting.   So it’s no surprise when such attempts are dismissed or attacked for their methodologies in arriving at such an absurdly large figure.

Most importantly– and this is where journalism tends to do the public a great disservice, I think– is that the figure of a trillion dollars (let alone three trillion) is an entirely unrelatable figure for our democratic republic, which is financing the operation.  (Note:  credit the New York Times for their efforts… although presenting the figure as “what else could we have spent this money on?”, while useful in explaining scale, widens the scope of the issue beyond “why are we spending this much on this particular effort?”)

$3 trillion may not be an “accurate” figure, but I’m willing to give the former chief economist of the World Bank the benefit of the doubt in his estimates. I haven’t read the report and am not sure if the valuation is in present dollar terms (although I assume it is, including future interest payments).  Keep in mind then, that the following calculations are going to be (very) fast and loose… it’s not intended as an exercise in social science, only one in wrapping your arms around the scale of what has transpired:

Our government spends $16 billion per month on military operations in Iraq and Afghanistan (excluding incurred interest), putting the annual figure at something around $200 billion.  The IMF estimated the nominal GDP of the World’s Economy in 2007 to be $53.35 trillion, $13.8 trillion of which is generated by the United States.  This means that as a share of the world’s economy, government spending on Iraq and Afghanistan amounted to 1.5% of the US’ GDP.  And for what?

Some might argue that Keynesian deficit spending is necessary during a recession, but what percentage of the spending are we recapturing in our economy?  How much of that $16.6 billion per month can we actually count toward our own GDP?

What about the premium costs that war and instability have created in the pricing of oil?

What about the costs to our sluggish economy of higher energy prices?  Higher priced commodities (including food), all around?

The Bush administration initially estimated the reconstruction costs of Iraq in the $50-$100 billion dollar range, with only $1.6 billion required to rehabilitate the oil industry.  Oil revenues would help the reconstruction “pay for itself.”  Now projections suggest that this estimate was off by a scale of over 30 to 60 times the actual cost?

Can you imagine investing in a company where the CEO took on an extremely risky project, estimating tremendous (and long-term) returns, and then misses the capital expenditure by 30 to 60 times the projection?  And not only that, but the business model on which he hopes to rely on for future revenues is extremely volatile, and universally accepted as out of date and in dire need of overhaul within the next 10 years?

Now we find ourselves in a situation where on the one hand,  our country should be trying to develop new utility-scale energy sources (other than fossil fuels), and on the other hand, we’re entirely dependent on a global market for oil to recuperate the massive expenditures for the invasion, occupation, and reconstruction of Iraq.

I believe that’s what’s called “between Iraq and a hard place.”

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Make it Rain!

March 7, 2008 · 1 Comment

fat joe

So it looks like our country is facing a liquidity trap.  Not enough money to go around, banks won’t lend anyway because they’re writing off their losses, and there’s no way to introduce more money without causing inflation.

Milton Friedman’s answer to the liquidity trap was to bypass financial intermediaries and give money directly to consumers– a so-called “helicopter drop”.

I’m all for this.  Let’s replace Ben Bernake with Fat Joe and fly around Manhattan dropping dollars.  It’s more fun than getting a check from the IRS, and think of all of the excitement it will generate!  It’s like being in the money machine.

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Why is Tide the most expensive detergent? Is it worth it?

January 26, 2008 · 6 Comments

Waiting for the South Carolina results to come in, I am struck by how silly some of the pundit analysis comes across when dissecting voter preferences. 

Now that the field has been whittled down to two front-runners for each party, we are left with narrowly defined either/or considerations to explain the “rational choice” between Candidate A and Candidate B.  This reductive analysis seeks to find justifications for expressing preference between two similarly marketed products (i.e. Pepsi v. Coke). 

In fact, I just heard Keith Olberman refer to the “Clinton brand” as a potential panacea to the economic anxiety many voters are now experiencing.  Buying the Clinton “brand” thereby reinforces the voters’ self-image as someone whose primary concern for the future is economic security.

When people approach an election the same way they approach a consumer choice, it’s destructive to democracy.  It reduces the candidates, it atomizes the electorate, and it biases our “rational choice.”

But that’s neither here nor there… back to the question at hand.     

I ran across a conversation at Marginal Revolution asking the question:  Why is Tide so Popular? 

I thought… no really, why is Tide so popular?  Why do I buy Tide instead of Gain, which is cheaper?  What does Tide say about me, as a person? 

It’s more expensive, so I presume it’s the highest quality product.  I like to think that I can afford the highest quality, because I’d prefer that my clothes be as soft and clean and fresh as possible. 

But is that a reasonable assumption?  What if Proctor and Gamble just spends more on branding/marketing?  What if all laundry detergents are essentially the same mix of chemicals, with different bells and whistles? 

Well, here’s the breakdown, from the comments section.  VERY interesting stuff:

As a former market research service provider a Home and Beauty Care company most often butting heads with P&G in the Laundry Category, I have a lot of perspective on it based off findings. And bear with me, when it comes to market research I have pretty robust information:

* Echoing the sentiments and actual reports above of many, P&G detergents typically perform better in terms of both cleaning and the conditioning of clothing. Granted, we now wash clothes in modern america not to clean them per se, but to “refresh them”.

* The “mere refresh” needs as opposed to “Deep cleaning” being a priority opens the door for price segments in lower tiers for consumners: A&H, Xtra, Purex, Store Brands that do significant volume, even if dollars are more modest. Testimony to this is P&G has a 55-60% share of sales dollars, but a 40-45% volume share of sales since its products are premium largely.

* P&G manages their Fabric Cleaners, Conditioners (By the way, Downey is their brand and is by far number one conditioner), and Dryer Sheets (By the way, Bounce/Downey is the number one/two brand by far there too) as a massive portfolio, with each targeting certain segments:

** Tide is the best performer, most expensive, most high end benefits included.

** Gain is the experiential and frgrance brand, and has strong ethnic performance: quality and an experience. BTW, it challenges for status of 2nd biggest brand itself.

** Cheer is a the Color-Safe premium brand

** Dreft is the Baby, non-irritating brand

** ERA is the Budget Brand to compete in that segment

* Consumer segmentation studies and a Decision Trees suggests that with Laundry category the first decision is whether you are a Tide customer or not. Then, if not, you typically believe “All are the same”/”I am poor” and your decision is based on price. This harms mid-level brands such as ALL or Wisk that try and have a hybrid of some quality and innovation, but competitive mid-level pricing.

* Consumers pay more and get excited over high order benefits that Tide is a leader in providing new versions of on a yearly basis. What are those? High Efficiency, With Touch of Downey, With Bleach Alternative, With Color Protector, Free & Clear, Cold Wash, Scented, Various Sizes, etc. By the way, when you bu yany of these, note the number of loads per bottle changes (lower), even if bottle is same size. that’s their marging boosting! Only ALL sometimes comes out with benefits such as these first. (Small and mighty, anti-allergen)

* Shelf-Sets and sales are dictated by P&G due to their demanding share. If shelves were organized by TYPE rather than BRAND, it would help smaller brands and change consumer mentality about choice of product. Scented onlyt first, then High efficiencies, THEN with Bleaches, etc. Insrtead, you have the ubiquitous wall of orange taking up the whole section.

* Also, P&G’s budget for discounts and specials is much larger, as well as tie-ins with its other leading brands Febreze, Downey, and Bounce that synergistically boost each other.

This all said, the biggest challenge for Tide and P&G go-forward is the changing face of the US consumer (Hispanic, etc.), the rising costs of raw materials (partial petroleum basis for liquid detergents), sales rise only as population does (no new markets or consumers), quality ceasing to be a key differentiator.

People alluded to Heinz’s dominance as well – there are small chips in the facade, they always must remain vigilant. Remember, Heinz doesn’t compete with Ketchup only – it competes with all condiments. mayo, Vinegar, Ranch, Mustard…Staying relevant is important.

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Dropping Out of the Electoral College

January 16, 2008 · 3 Comments

It’s really incredible that it took our nation over 230 years to realize that this was a good idea:

Instead of a state awarding its electors to the top vote-getter in that state’s winner-take-all presidential election, the state would give its electoral votes to the winner of the national popular vote.

Of course, this just means the 2012 presidential campaign will run into the billions of dollars.  But at least it’s more democratic.

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Welcome to the 21st Century…

January 15, 2008 · 1 Comment

… where State Capitalism reigns supreme.

Less than two decades after the collapse of the Soviet Union and the West’s gleeful jig-dancing on the grave of communism, state capitalism is suddenly threatening the autonomy of the global “free” market. Wall Street’s elite banks, longtime freedom fighters for deregulation and scorners of all government intervention in the marketplace, are now begging, cup in hand, for aid from a gallery of regimes that includes some of the most authoritarian and undemocratic governments on the planet.

In Monday’s Financial Times, Jeffrey Garten, a professor of international trade and finance at the Yale School of Management, is distraught.

In the late 18th century, capitalism was replacing feudalism. In the 20th century, freer markets won the day. Now the world is flirting with another big transformation in the philosophy and rules of global commerce. Unlike the changes of the past, this new trajectory does not represent progress.

But is this change in philosophy really a huge surprise?  That people– especially people in relatively homogenous societies– are willing to sacrifice freedom in return for economic progress? 

Strong institutions beget strong economies.  Asia has recognized that the liberalization of trade in Latin America has not delivered what it promised, mostly because Latin America lacked the instititonal capacity to support the burden of free markets. 

More people in China have been brought out of abject poverty in the last 20 years than in the history of the world… combined.  Clearly there is some merit to the economic path China has chosen for itself.

Is state capitalism sustainable?  Probably not.  Eventually, a middle class wants political representation.  Eventually, hierarchical systems erode due to fraud, corruption and beauracracy. 

But is state capitalism a great means to play catch-up with the first world?  It sure looks like it.  Especially when American industry out-leverages its own markets with complicated debt instruments.

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The Power to Change

January 13, 2008 · 6 Comments

With all of the attention being paid to the presidential elections, it is easy to be misled into thinking that big problems can be solved by big institutions.

The reality is that the majority of problems that we face as Americans (an as human beings) are the result of individual decisions played out in the aggregate.  As Kant observes, the fundamental flaw of human nature, from which all other flaws flow, is the tendency of the individual to make exceptions for himself to rules (or norms) he expects others to observe.

We suffer collectively because we recognize that the efforts of a single individual to reform is insignificant if the masses do not also follow suit.  Many times, we become so pessimistic of others that we lower our expectations of ourselves.  We then put our hopes in large, sweeping, institutional efforts.

The game theory behind these rationales justify a status quo that is unacceptable.  It absolves the individual from personal responsibility to do what he or she can to make the world better.

Part of the reason I blog (I think) is that I like to believe that individual actors who are not yet embedded into institutional systems of power still have the capacity to drive progressive change by pushing forward normative arguments.
Our “spheres of influence” may be small, but opinions and attitudes are shaped based on the ties of interpersonal relationships.  The stronger the bond, the more pervasive the idea.  When integrated within established social networks, good ideas can spread like wildfire.

My (re)commitment to this blog, and to myself, is to act as an agent of change.  I want to identify and discuss problems that I can play a part in resolving, in my own small way.  I want to be an optimist of myself, because in the end I’m the only person I have direct influence over.

For me, this is the nuanced definition of “change” that Obama represents.  His soaring rhetoric asks us to raise our expectations of ourselves.  He carries Kennedy’s “Ask Not” torch into the new century.

There are too many people waiting for him to fail, to not be able to deliver on what he promises.

But hope and inspiration in politics are much like consumer confidence in economics.  If the consumer believes there will be a recession, he will stop spending, and there will be a recession.  It is a self-fulfilling prophecy.

If the voter believes our country holds the capacity to do better, he will act better.  And we will DO better, collectively, as a result.

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An Impulse I Never Understood:

January 10, 2008 · Leave a Comment

The call by Ron Paul and other Libertarians to “abolish the US Department of Education” and return the control of educational decisions to the local level, based on the 10th amendment.

(Granted I am biased, because I have worked in some capacity for the US Department of Education.  But I worked in the non-controversial branch — that is to say statistical data collection and analysis — not policy regulation and funding.)

I realize that we are a country founded on frontier schoolhouses and homeschooling.  But that tradition seems pretty antiquated in a modern, global context. 

Yes a more heterogeneous system may result in a healthier diversity, which is key to the concept of creative destruction and innovation in particular. 

But when we are competing against ethnically homogenous nations like China, Singapore, Japan, and to some degree India and most of Europe– and many of those countries have centrally planned educational systems resulting in a relative and absolute advantage in the percentage and number of highly-educated students… we lose.

The ironic take on this position is that Friedrich Hayek, one of the founding members of the Austrian School of economics that largely informs the libertarian position, observed that one of the results of the capitalist system and the labor specialization it entails is that as our society progresses technologically, the potential of any individual to retain a relative share of the totality of human knowledge must decrease. 

It therefore follows that the homeschooling impulse is misguided because unless a parent is a mental giant, his or her likilhood to better educate his or her children than might a trained, professional teacher, is extremely small. 

And it is national standards and accountability norms that result in highly trained professional teachers.  Federal standards raise the bar of what we expect our teachers to teach, and our children to know.  It’s really not that hard. 

The debate should be over where and how we set the bar, not whether it should be there at all. 

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You Mean, a State of 1.3 Million Shouldn’t Influence a Country of 300 Million?

January 10, 2008 · Leave a Comment

Kevin Drum finds this gem from the exit polls:

Why would voters who disapprove of the war overwhelmingly support McCain? Are they reacting to the fact that McCain is constantly claiming that he “disapproved” of the conduct of the war? Has McCain’s uber-hawkishness not gotten a lot of play? Or what?

Why indeed.  And this after some pretty convincing arguments that people in New Hampshire take their sacred right to first primary very seriously. 

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