Gramp's Grumps

The paradox of the economic impact of rising production costs

2011-09-17T14:48:00.002+10:00

In my previous post I claimed that the impact of Peak Oil arose from the change of production cost of oil, rather than the change in price. I still think that is correct. However the detail of how it was expressed was wrong.

In the case where the price rises with no production change, there is just a transfer of money and consumption from buyers to sellers with no net economic change. But then I said that when there is a change of production cost then the extra cost of production disappears out of the economy. That is clearly wrong. Money flows to the producers, but instead of flowing on to consumer purchases it flows on to production expenses, like oil rigs and oil workers. But in so far as it flows to more oil workers it is no different to when it flowed to the owners of the oil resevoir. Similarly when it flows to the workers and owners making oil rigs.

Either way the money flows through the oil production process. So what difference does it make to the economy whether it flows through to owner consumption, or it flows through to production costs?

Obviously I think it does make a big difference, though not in the simplistic terms of the previous post. My intuition is that it flows through with more resistance when it flows through to production costs instead of owner consumption.

So my challenge to economic theorists is to find a way of talking about the economics of resource, and particularly energy, production and use that correctly explains the impact of rising production costs on the economy. If it is only comprehensible to mathematicians that will be better than nothing, but bonus marks will be awarded if it is comprehensible to politicians and voters (and me).

How Peak Oil destroys the world economy

2011-08-19T12:54:00.001+10:00

Having expected Peak Oil to seriously impact the world economy, I was not surprised when high oil prices were followed closely by economic problems in 2008. Surely now the world would wake up. But no, the economic problems were attributed to malfunctions in the the financial system. And we Peak Oil believers struggled to put a coherent case.

It is tempting to focus on the high price, but consider what happened when the price went rapidly from $130/barrel to $140/barrel in 2008. Obviously this made consumers, and importing nations, poorer. But it made producers richer by an exactly equal amount, and what can they do with that windfall but spend it, or recycle it by lending it to others to spend? So the net effect on the total world economy is zero, and that is what economists perceive.

Even though the price is now around $100/barrel, as it was in 2008, still most oil comes from old fields that used to profitably produce at $20/barrel, and still could. However all of these big cheap oilfields are past their peak. They produce less every year. Oil production continues to struggle along on a plateau of constant production. But this is made up of increasingly less of the cheap oil, and increasingly more of the expensive oil from newer fields.

Now imagine what happens when we lose a barrel of oil that cost $10 to produce, and replace it with a barrel that costs $60 to produce. That is $50 worth of productive effort that was available for consumption or building new infrastructure. Now that $50 of productive effort is used and lost.

The world consumes about 30 billion barrels per year. The depletion rate on existing oil wells is about 5%. As a rough guess, perhaps 1.5 billion barrels/year (5% of 30 billion) is being replaced by much more expensive barrels each year. In that case, multiplying by $50, it amounts to $75 billion/year lost to the world economy. Perhaps Kjell Aleklett and his team can come up with the right number. Whatever it is it is certainly big enough to cause major disruption to our growth-oriented economy.

So far the economy has managed to grow by: switching to energy alternatives; using petrol more efficiently; and turning to less energy intensive ways of working and playing. This is going to get harder as we come off the plateau and start the actual descent.

Demographics

2011-04-20T06:50:00.000+10:00

Chatham House has an article on Demographics which set me thinking. How important is the ageing population for its effect on the environment (e.g. global warming)? Old people consume but don't produce. However governments see full employment as a key goal. When an old person dies that reduces consumption. But the matching fall in production doesn't happen. Either automatic processes or government action restores production (making everyone else richer).

Of course this will be irrelevant in many possible future circumstances where production is limited by energy not labour shortages. In that case population at any age is irrelevant to pollution.

global warming impacts viticulture: irrelevant

2011-04-18T07:51:00.000+10:00

Viticulture! I can't believe the way people who want the world to stop burning fossil fuel think it is some sort of minor matter, so that it is worth mentioning all sorts of trivia like the impact on tourism here or increased disease there. If we stopped burning fossil and nuclear fuel tomorrow (as the lunatic fringe wants) then the carrying capacity of the world would be much less than a billion people. At least they'd all be living close to nature: too close for comfort.

IF we find something cheaper than coal for energy (our only chance to stop burning coal) then just the cost of changing infrastructure will be huge and mostly hit the poor. How much are people prepared to pay to save the world? A major Australian mining union has said "not one job". America has no interest in growing food instead of transport fuel despite the visible impact of rising food prices on world stability. Just the minor rise in energy costs, from initial (ill-advised) renewable subsidies and requirements, has annoyed the Australian electorate enough that the latest polls suggest the government will be wiped out in the next election, if they make it that far.

The world needs cheap energy. It can only come from Nuclear. Nuclear design is a nightmare since elements keep changing and having different chemical and physical characteristics. And clearly we need to prove safety, since "just trust us" isn't going to work. The way to prove safety is to make lots of identical small reactors so that we can test them in extreme conditions [on a remote island]. And this needs to be done in a very open way. "OK, here's our simulation of what will happen when we do this. Now let's actually do it, and everyone can watch live on the Internet".

sorry about the rant.

[response to Azimuth project discussion entry]

Make maths useful: response to Baez blog post

2011-03-21T10:11:00.001+11:00

For a decade and more my wife complained about word processing people, and I kept telling her: you'll never get documents created as you want in a timely fashion unless you do it yourself. Programming is a bit like that too: and spreadsheet programming shows that people want to program if the environment is accessible enough. It is nice when sophisticated mathematics makes a difference. It is nice when real mathematicians can cooperate with people in other fields and use semi-sophisticated mathematics to help them. Yet I feel that the real need is for everybody to understand unsophisticated mathematics enough so that when they have a problem amenable to mathematical treatment they at least recognise that and look for help. The Internet seems a wonderful tool for educating people about mathematics, but I feel there won't be much progress until the educational authorities stop regarding mathematics as an optional skill. At any rate one of the issues seems to be that mathematicians love to generalize, but the implications of the general theorems don't percolate down. I remember an memoir by a famous mathematician (perhaps Arnold) complaining about papers published on how to solve particular types of PDE, when they were just special cases of a "well known" general theorem. Unless mathematicians are also involved in the real world, or at least the less unreal world, then they won't know how their understanding can make the difference it should.
If plants keep their leaf pores smaller, that means that particular plant types can grow in drier conditions. At the edge (if rainfall stays the same) that means more tree covered areas which is a negative feedback on CO2. In other places I presume it means that you eventually get different trees (basically because trees which are adapted to relatively dry conditions lose out to trees that don't have those adaptations where those adaptations aren't necessary). So its tricky. And isn't this typical of so much relevant stuff. You see a summary of a result and you wonder: "did they allow for this or that?". It would be interesting to develop an oracle (like Watson?) which could absorb a lot of information and answer questions like that.

Democracy and the war on drugs

2011-02-26T10:10:00.001+11:00

The Arab world wants democracy. It seems like an unstoppable force. This is perhaps unrealistic, because the end of cheap oil is making everything expensive and democratic regimes are also going to feel that. But at least the people have the safety valve of the ballot. This would work better if terms were shorter, like Australia’s 3 years and America’s 2 (for the House of Reps).
But many countries are going backwards because of the corrupting influence of drug money: most noticeably Afghanistan and Mexico. It is essential to take the profit out of selling drugs, and there is a natural way to do that. Drug pushers start by providing drugs cheaply, then make their profit from those subsequently addicted. Making it illegal for addicts to get there drugs is highly counterproductive. Here’s the alternative:

Continue to ban the supply and sharing of drugs, with severe penalties particularly to the supplier, but also to anyone receiving or possessing;
Allow addicts to register;
Registered addicts can receive supply, for their own use only, from a government channel;
Supply is guaranteed, not requiring immediate payment, so addicts are not forced into crime;
For more dangerous drugs, users might be required to consume under supervision.

This will remove the financial incentive for drug crime. Rich addicts will still get their drugs illegally, but the big market for poor addicts will be largely eliminated. The cost saving will be immense:

End the war on drugs;
Remove the malign influence of drug barons on politics in many places;
Getting into contact with addicts in this way will enable cures in many more cases.

thinking about interconnected information

2011-01-14T10:00:00.000+11:00

Natural language is designed to be a good way to represent internal mental states. And internal mental states are where we exploit the brain's amazing capabilities to do parallel search for interconnections. So natural language has to be at the core of communication of clear thought. However when you get a real lot of natural language, like a large text book, I wonder how easy it is to get that into a good internal brain structure.
Anyway this set me wondering whether one might try to copy the brains internal structures a bit. The idea is to have nodes that are connected in multiple ways and amenable to computer processing. The text is unambiguous (as far as possible) because the ontology and parsing is specified. Nodes can link to other nodes in various ways, including:

(parameterized) Bayesian network specifying the probability of a node given another (when meaningful);
software module interaction for nodes with associated software;
just links;
...

The hope would be that you could put in a statement (like the economics one given partially above) and it would search around, find other relevant stuff, find data which might bear on the matter, code that might let you do relevant calculations on the data, and other useful stuff. This would be linked to information relevant to the individual. Individuals can specify how much they understand nodes, how much they agree with them. If you want to understand something new then it would lead you through other stuff you need to understand first. And it could do lots of other useful things to help you understand the subject...

Australian Cricket mismanaged

2010-12-27T11:33:00.000+11:00

Australia is never going to be as successful at sport as we used to be. The rest of the world is more interested and with more opportunity. Meanwhile our interests have switched to more sedentary activities. Still the current state of Australian Cricket (hitting an amazing low on the first day of the MCG test) seems to be significantly caused by mismanagement.

Ricky Ponting showed why he is such a bad and unsuccessful captain at the start of the England innings. He held a huddle to gee everyone up. Richie Benaud was immediately critical. It was essential that the bowlers stayed calm and put the ball in the right spot. Instead they tried too hard and immediately sprayed the ball around. We can well imagine that this has been a feature of Ponting's captaincy. It is also bad for the batsmen. We need them to bat a long time, and you can't do that if you are trying too hard. We need batsmen who can still focus while staying calm.

Some of the coaching staff do know what they're doing, as we saw when they took Mitchell Johnson out for one test and sorted him out for Perth. Still we need to restore calmness in the coaching department. Let's start by making Mark Taylor head coach.

The tendency of players to play on and on has destroyed the natural rhythm of the team making it too hard to bring in young players. This also involves players playing with injuries. That might work in a 1 day game, but you can't bowl long spells or bat for a long time with a crook back. Shane Warne showed what a break from the game can achieve. I'd like to see Ponting take a big break. He might bat on for many years after that.

I fancy Cameron White for Australian captain, why else would Warwick Armstrong be reincarnated? However there are a few things against it, including the fact that he is probably not good enough to make the team. I think Shane Watson could be good, though he is another one who is not as calm as he seems.

Mathematics is "Thinking clearly about problems"

2010-12-19T18:11:00.002+11:00

Robert Krulwich's NPR blog has comment on a wonderful Vi Hart video: http://www.npr.org/blogs/krulwich/2010/12/16/132050207/this-is-for-the-i-hate-math-crowd-not-after-this-you-won-t. However it (and Vi Hart) are misguided about what is needed to improve maths education. We don't need to provide more stimulation for people for whom maths is (or might be) a recreational/cultural activity. What we need to do is make teacher and student appreciate the importance of mathematics for problem solving in every field. This is my comment on their blog:

The subject matter of Mathematics is "Thinking clearly about problems" (not counting most problems related to understanding and relating to human behaviour and culture). Teachers can't teach maths well without having this focus. It isn't (mostly, and for most people) a cultural activity like music. Math tends to invent a terse language to help express itself, but teaching the language without clearly relating it to problem solving is what makes math seem weird and pointless to many students.

If we could base mathematics education on this definition then we would see many immediate benefits:

Teachers and students would know why they were learning mathematics;
A problem based approach would help everyone see the difference between the important and the merely conventional aspects of the language and methods of mathematics;
It would be clear why mathematics should be compulsory, and why efficacy should be a key requirement for higher education courses (outside the Humanities);
It would integrate mathematics with computer education to the benefit of both.

To make the definition comprehensible it is important to tell teachers and students how mathematics supports understanding data of all sorts (using probability and statistics); how the real world (and hence engineering) is only clearly understood using mathematics; how computer programming is becoming a mathematical science instead of a black art.

Update:

In John Baez's blog I appended this to a comment I made:

My New Year’s resolution is to have another go to sell the idea that “The subject matter of Mathematics is how to think clearly about problems (mostly excluding human interaction issues like culture)”. Teachers and students are hopelessly confused by an education system that treats mathematics as a collection of facts (about Platonic entities) which is sometimes useful in the real world. My definition will give Mathematics its rightful place in the core of a modern education. I’m not going to make any progress until I can find a real Mathematician to endorse the idea.

And I got an endorsement from John Baez himself. Initially his comment was (as wordpress emailed it to me): "I hereby endorse your idea. Please make progress.". But now the reply reads:

I hereby endorse your idea.

When I go back to UC Riverside in the fall of 2012 and start teaching math again, I’m going to teach it in a new way, informed by everything we’ve been discussing on this blog. I think the kids will enjoy it. I never taught math as a collection of ‘facts’, and that’s probably why the students liked my classes, but now I’m more keen on real-world examples that illustrate the big problems facing our civilization, rather than examples of the sort that pure mathematicians (like my former self) most enjoy.

Sometime before that, I plan to write a paper with the mild-mannered title “How Mathematicians Can Save the Planet”. I’ll put drafts here, and I’d appreciate your comments.

I'll continue this subject area in a new post soon.

critique of "Ecotechnic Dictatorship"

2010-12-12T06:41:00.000+11:00

Difficult times always bring out the desire for dictatorship. Plato kick started it all with his vision of the philosopher king. But it never works. Instead when democracy fails then the looniest sociopath takes over. He has no concern for the future or for the environment. His obsession is always his own grip on power.

Anatoly Karlin's writing displays a nostalgia for dictatorship that infects a large minority of folk from/in the former Communist countries. As such he is more looking to justify his position than make an honest case. This is particularly clear in his treatment of nuclear power. He first says, correctly, that it is the only hope for continuing our current high level of energy use. Surely this should induce him to thoroughly investigate and understand that issue. But no. Instead he quickly dismisses it with quick comments about Uranium running out which don't reflect any honest attempt to understand that issue. [Uranium is a very common mineral, as we see from the amount that has got into the ocean. Thorium is more common and has more energy (though not soluble so not in the ocean).]

Peak Oil doesn't mean "running out of oil". It does mean rationing by price and the huge costs of changing infrastructure to an electricity based one. Difficult times are guaranteed and the push to dictatorship will be on from well meaning folk as well as the sociopaths who will win any successes in that direction. The price of liberty is eternal vigilance. Democratic institutions need to be improved not dismantled. People who genuinely want to save the world need to get involved with politics not acquiesce or support the destruction of politics.

on the dangers of giving humans lots of energy

2010-12-06T07:23:00.001+11:00

Atomic Insights Blog: A video that Tim "The Tool Man" Taylor would love. More power! What can 1 pound of uranium per day do? has a video of a Russian nuclear powered ice breaker going to the North Pole through the ice at high speed. It makes Rod Adams think of all the benefits of nuclear power. It makes me think that humans with lots of energy will do lots of mindless (and sometimes deliberate) destructive things.

Before the Industrial Revolution we felt powerless in the face of nature. Actually some of our worst human environmental disasters had already happened: the destruction of the megafauna outside Africa; deforestation of Britain and many other places. With fossil fuels the potential for destruction became so great that we invented the National Park. With nuclear power we need to aim even higher: the restoration of most of the Earth to its natural condition (plus intervention to compensate for the lack of megafauna). Let's let the rivers flood as they are meant to, and the oceans and rivers be free of industrial fishing. Let's use our biological skills to get rid of introduced species in many places.

Of course it is a bit premature to worry about a world with too much energy.

Sign Language

2010-12-05T06:49:00.001+11:00

NextBigFuture speculated that no one will learn second languages soon because of machine translation. This misses quite a lot of the way we use language that machine translation can never do (such as using esoteric or group-specific features of a language as a way of establishing membership of a group). However my posted comment concentrated on one of my pet theories:

Human brains are designed to know multiple languages and some bits of the brain don't develop properly if not (which we know because people with one language have more trouble learning a new language than people who learn more than one when very young). And there is a second language that everyone should learn early: sign language. Reasons: (a) Talk in noisy environments; (b) Easier to have a private conversation because light waves are easier to block than sound waves; (c) Babies can learn sign language earlier (and parents are very frustrated till they can communicate with their kids). Sign language was our ancestors first language: we needed a language first to justify all the voice box changes needed for language.

Liebig and the carbon price

2010-11-12T14:25:00.001+11:00

Economics is dynamic. All my ways of trying to understand it are static, like EROEI. So I often wonder whether I really understand. We get this in the EROEI discussion. So what happens to the money the company pays to the janitor (or the CEO). They spend it, and there is energy embodied in the stuff they receive. And the people receiving the money spend it and ...

This seems to have something to do with Liebig's Law. The thing that is in short supply is what counts. For 200+ years that thing has been skilled labour. Now, maybe temporarily, it is oil. So that suggests that for our infinite regression on the janitor's salary, each step has some embodied oil. And the sum of all those bits of embodied oil limits how much value you can get out of the dollar. Well this conveniently forgets that there is some time delay between receiving and spending money: the velocity of money.

So let's take a case relevant to saving the world: our carbon tax (whether it is done with a market or not). Proponents of this mostly say that it should be revenue neutral. All the money raised is returned to the public in some wonderfully fair way. Let's assume we have a closed system: Not much point if we just move the carbon emissions to another country. So the public buy energy (directly or indirectly) and part of the price is carbon tax. Then they get that back and they buy more stuff with embodied energy. Then they get that tax back. Well its doubtful if you can buy anything that doesn't have embodied energy, but only a proportion is carbon intensive. So how does this cycle play out? Are the infinities relevant or can we normalize or zenoize them?

importance of Liebig's law of the minimum

2010-11-11T10:04:00.000+11:00

Recently Paul Krugman showed in his blog a graph of commodity costs: Big spike in 2008 and back to normal levels. But of course commodity prices as a whole are suppressed in this ongoing financial mess. He is failing to take into account Liebig's Law.

Liebig's Law applies in its original form to plants. Let's just consider the 3 standard ingredients: NPK. A particular type of plant will need a particular ratio. The growth of a particular plant in a particular location will be constrained by whichever is in shortest supply (taking the preferred ration into account). There will then be unused amounts of the other 2. Now we can imagine that the plants of that type in that area will be evolving towards making more balanced use of the resources available there. However long before much progress is made in that direction the area is likely to be overrun by a different species that is already better adapted to the NPK ratio there.

We need to understand the corresponding situation in economics. Global production requires resources. The key resource is the one in short supply. Naturally there is an excess availability of the ones that aren't in short supply, and their price is driven down. There is only so much that society can spend on resources as a whole, so not surprisingly the total cost of resources stays steady. The key is the one in short supply. Currently, and for the next decade, that is oil.

There is pressure on us to evolve: to use oil more efficiently and to use other things where possible. However our current technology mix is the wrong "plant" for the new environment. The correct answer is to switch to an electric instead of an oil economy.

Getting back to Krugman's post. The key commodity for global production is the one in short supply, where the substitutability is almost used up. That's oil. Total/average commodity costs are not the important thing.

P.S. On previous occasions I've misspelt this Lieberg.

Comment on water allocations (in The Australian)

2010-10-16T07:28:00.000+11:00

We need to get back to first principles. The amount of water available varies and is often zero for extended periods. So: (A) We need to have agricultural capability out there to take advantage of the water when it comes; and (B) We can't have plants, like fruit trees, that will die if they don't get a minimum allocation every year. So actually rice is a great crop to plant when there's lots of water, as long as it isn't allowed to take water when it is scarce. If you want a market mechanism to do this, I'm happy to give my "Hedging the Weather" talk to anyone who's interested, from the abstract: "Modern radar systems deployed by the Bureau of Meteorology may be able to give an unbiased and reasonably accurate report of how much rain has fallen and where, in areas covered by such radar. This can form the basis of an insurance system to allow farmers and others in those areas to hedge against the weather." This system would give farmers the averaged income they need to keep the regional towns going during droughts.

Need for a 4th arm of government

2010-10-04T12:57:00.002+11:00

[response to Andre Joyal at nCategory Cafe]

There isn’t a problem with democracy. The problem is this: The facts are going to influence policy, and that is going to determine who makes money and who doesn’t. This always results in a morass of conflicting claims about the facts. Parliament is not a good place to debate the facts. It is the right place to debate the policy implications of the facts. Democracy needs an independent, vigorous, ongoing, open enquiry into the facts for all matters impacting public policy. That enquiry needs to have the power to acquire evidence, and the financial resources to do its own investigations. The leading investigators need to be seen to have the technical skills to do the job (in particular mathematical skills) plus the right amount of status (like a Judge), independence, and the right personality to stand up to the most powerful people and organizations. Hmm, not easy to find such people. Particularly because it is important that people and organizations who have been associated with promulgating or even condoning statements intended to be misleading need to be excluded from taking up the investigators time, and that process has to also be open. Still it doesn’t sound a lot harder than being an important Judge.

Comment on Krugman post comparing economic theories

2010-10-03T05:09:00.000+11:00

I'd be a lot happier with theories that clearly distinguished between price increases caused by general inflation and price increases caused by the increasing scarcity of some universally used resource input. To rephrase that: if you don't think about money at all, then one expects there to be pain when transitioning a large part of society's infrastructure from one technology to a different one, particularly if it is less efficient. Indeed there have to be a lot of inefficiencies associated with running parallel technologies (like maybe cars and horses in the 30s?). So how do we expect that sort of thing to play out?

Discussion added to EROEI entry at Azimuth wiki

2010-10-02T12:55:00.000+10:00

Energy for workers. The janitor’s refrigerator uses energy. Actually all the money paid to all the workers will be spent in ways that cause energy to be consumed. If this is included in EROEI calculation then we can see what happens when there is declining EROEI. The EI can be reduced by reducing wages (in real terms). This can only happen if all wages in the community drop, otherwise the energy business can’t hire. So this is the last resort way of reducing the EI and improving the EROEI.
Oil is an energy carrier. In the proposal for a Hydrogen Economy the Hydrogen is just an energy carrier. Similarly oil and its distillates are energy carriers, particularly useful for the transport industry. Recently oil’s price has decoupled from other energy sources (electricity and natural gas). The extra price represents the value of oil as an energy carrier. So it is difficult to use EROEI calculations directly on oil. Ultimately we will still be producing a lot of oil when the EROEI is less than 1, using up non-oil energy in the process.
Energy’s reign. It is possible to view the production of goods and services as requiring energy and (skill-weighted) workers. When we spend money, then the services we get use up energy and worker time. The recipients of the money spend it and use up more energy and worker time. Ultimately the money’s circulation uses up some of both. The two have to come into balance. The industrial revolution meant that energy was plentiful and skilled workers were scarce. So energy prices were driven to the floor and wages rose creating the middle class. If energy is in short supply then energy prices will get off the floor and wages will be driven down to restore balance. All of which amounts to an argument that cost/price is the best measure of total energy in or out at any point in time. EROEI calculations that exclude pay and dividends are the way to look at the crucial limit case.

Comment on Stephanomics on Oil

2010-09-29T06:44:00.000+10:00

IF the world were stimulated enough to get back to full employment, then how much oil would the world need? This is not an impossible question since the close connection between total production and oil production has been visible for decades. Now suppose that the world simply can't pump that much oil at the moment. What are the economic implications of that?
To answer that you have to look at where the world is heading. The price of oil has decoupled from the general price of energy. That means that the price includes a component for the energy, and a component for the extra value of oil as a convenient energy carrier (particularly in our world with so much oil-dependent infrastructure, like trucks, cars, petrol supply chains). This means that (a) Where possible (stationary situations) everyone is moving to other energy sources; and (b) We can increasingly use energy to get oil and still make a profit (this opens up options like tar sands, heavy oil, and in the long run we can even make oil out of thin air, perhaps using algae [I'm not suggesting that algae will ever make cheap oil]).
Other energy will never be as convenient as oil that flows out of the ground under its own pressure. Lack of convenience won't matter if it's cheap enough. The Green view that the cost of energy is unimportant is completely wrong. So the required recipe is clear:
(A) Stimulus must be used to build cheap electricity, not to try to restart "business as usual".
(B) We need to actually suck up any resulting excess liquidity in private hands to prevent us smashing again into the current limit of oil production: e.g. Energy Crisis Bonds in the style of War Bonds.

comments on Azimuth wiki startup

2010-09-28T05:41:00.000+10:00

Paul Krugman has some relevant things to say in his blog today (http://krugman.blogs.nytimes.com/2010/09/27/the-power-of-conventional-wisdom/):

When everyone – tout le monde, as Tom Wolfe used to put it, meaning a relative handful of people, but everyone who supposedly matters – is saying something, it takes a real effort to step outside and say, wait a minute, how do we know that? It’s especially hard if you spend most of your time hanging out with other Very Serious People; I know that I myself have a hard time saying that people I know personally are talking nonsense, even when they are. The VSP effect is one reason smart bloggers, both on economics and on politics, have generally been a better guide to what’s really happening in America than famous reporters: their distance, their lack of up close and personal insights, is actually an advantage.

Then lower down:

This is what you need to know: important people have no special monopoly on wisdom; and in times like these, when the usual rules of economics don’t apply, they’re often deeply foolish, because the power of conventional wisdom prevents them from talking sense about a deeply unconventional situation.

Hmm. On the other hand we need genuine subject-matter expertise, which Krugman provides on Economics. On the other hand it is very easy for experts to be too narrowly focussed. I keep asking questions on his blog along the lines of "If world-wide demand were raised by world-wide government action to the level necessary to get unemployment down, then how much oil production would the economy need, and can we produce that much oil at the moment?". My point is that (a) we need government stimulus directed to produce cheap energy to be an (imperfect) substitute for oil; and (b) we need to also soak up private demand (energy crisis bonds?) to prevent smashing (again) into the limit of oil production and crashing the economy. But am I right? As Krugman and others point out, things are very similar to Japan 15 years ago when there was no energy or other shortage. We are missing any way to think clearly about these things. Just different groups of people using lots of adjectives and doing lots of arm-waving (yes there are lots of numbers being thrown around, but their implications are far from clear).

Which brings us back to the question of who has a special monopoly on wisdom. I claim that the subject matter of mathematics is how to think clearly about problems. Yes mathematicians spend time thinking about unimportant problems that they just happen to be able to describe succinctly. And also trying to understand mathematics itself better. But the real problems that drive mathematics are in the real world. Inference is a universal aspect of clear thinking, and this has to involve Bayesian analysis and using maximum entropy to understand what we know before we look at the evidence and how the evidence modifies what we know [and I'm not saying these are easy tools to use]. But this doesn't get us very far in understanding real world economic and environmental problems. I'd be rash to comment but I feel that the place to look has to be flows in configuration space, and the principle of Maximum Entropy Production will be the key to understanding that.

Transport Fuel is an Energy Carrier

2010-09-27T06:30:00.000+10:00

What’s the best fuel for interstellar travel? The answer is anti-matter. Insanely difficult and expensive to produce and manage. But the advantage is that you get 100% conversion of mass into energy as you burn it. All the costs take place in the stationary manufacturing plants. There is no shortage of stationary energy. What there is a shortage of is energy for transport.

A similar situation is energy for mobile devices (PDAs, laptops, mobile phones). Here we see that energy carriers can justify being expensive if they can be light and compact. These are exactly the requirements for energy carriers for transport.

At the moment the world depends on oil which combines the qualities of energy source and energy carrier. Once we get beyond that we can perceive a world where there is a lot of cheap energy from Nuclear Power (assuming that something turns up from all the thought that is going into manufacturing nuclear power plants that are of shippable size). For transport we will then convert that to an energy carrier. Given the massive investment a fair amount of that will be done by producing diesel, and that will mostly be done by converting inconvenient natural sources like Alberta tar sands and numerous sources of very heavy oil. Eventually, hopefully soonish, it will be possible to make fuel from thin air using algae and this will be competitive if the carbon price is high enough. However while all that is going on we’ll also be seeing a transition to other energy carriers for transport.

Conversation on Terry Tao's Buzz

2010-08-27T10:13:00.000+10:00

Robert Smart - This is an aspect of Jevon's Paradox. We need to look at the total picture: tax on light bulbs (or electricity or carbon) means less tax on something else which provides money that will use energy when spent. Energy and production are closely linked (including embodied energy of imported goods). The core question is: Does the government want to reduce energy use or move energy use to a different source? If the latter, then renewables will not do the job. Another mathematician (Prof David MacKay) wrote a book (Sustainable Energy: Without the Hot Air -- free on web). I read early versions where Nuclear was classed as unsustainable, but in the final version it is one of the options and actually it is hard to get the sums to add up without it.
By the way, as I pointed out to John Baez, one of the problems we have in addressing all these questions is that there are no good models of the economy. A good model would have to understand the flows of some funny things like people and sentiment. It would have to deal with money in a sophisticated way since it is peculiar stuff (because governments can and do print it, and maybe unprint it).

Edward Mehrez - @Willie: ....deleted...

@Robert: Jevon's paradox is a great observation, much of the policies enacted by the government tend to have limited scope and thus only fix problems that arise in a partial equilibrium framework whereas Jevon's paradox extends the analysis to other markets in which the government participates through it's expenditures of its tax income and thus considers a more general equilibrium framework. However, whether or not the government will use the income to purchase or manufacture goods that expend as much, if not more, energy than the energy use that was taxed is unclear to me. In a perfect information setting where the government is perfectly informed as to the utilities of all generations and considers the welfare implications of the externalizes on all generations (perhaps discounting future generations to some extent), Jevon's paradox does not occur; but, the real world is a different story...9:00 am

Robert Smart - Edward: Consider another law, Lieberg's Law of the Minimum. That says that the currency of life is whatever is in short supply. Now consider our situation. Before the Industrial Revolution energy was in short supply and wages were driven to the floor (leading to large wealth disparity). Since then the thing in short supply has been skill-weighted workers. So we've seen the rise of the middle class and energy prices have been driven to the floor. Now we are temporarily back to energy being in short supply. Don't believe me? Look at what happens to the price of oil whenever there is a hint of economic recovery. That means that Lieberg's law applies and money is energy. Suppose that the government gives everybody free haircuts. Not much energy in that right? But the barber has money to spend then, and everyone has more money because haircuts were free. And if you follow the cycles and the epicycles and the epiepicycles of that you'll get to energy. Well we'd have more confidence in that if we had a good model of the economy.
Does Terry mind us having a private conversation under his buzz? Apologies if so.10:10 am

Rethinking Peak Oil

2010-08-26T02:52:00.002+10:00

The concerns about Peak Oil are often exaggerated. I've been guilty myself. The reason is that oil has two important characteristics, and it is easy to get confused.

The most immediate characteristic is as a source of energy. However once the price of oil gets above a certain level then we stop using oil just for energy. The first step in this process was when people stopped using oil for electric power generation, which happened 40 years ago. The next step, which is happening rapidly in North America, is that people stop using heating oil to heat their houses in winter. We are not running out of energy. Indeed it seems certain that we will get Nuclear Power working and producing cheap electricity well before there is any shortage of coal or natural gas. Claims that we might run out of Uranium are silly: it is precisely because there is so much cheap Uranium that we can't get more modern reactors up and running that would use much more of the nuclear fuel and leave much less residue.

The 2nd characteristic of oil is as an energy carrier. Liquid hydrocarbons are the ideal fuel for transport. And we have an enormous infrastructure using that. But the oil price has already disengaged from the price of energy. Natural gas is cheaper, electricity is cheaper if it doesn't come from silly renewable sources.

So Peak Oil folk talk about oil's declining EROEI: Energy Return on Energy Invested. We can see that EROEI is declining markedly. But this is now irrelevant. Oil is no longer being used mainly as an energy source. It is being used mainly as an energy transporter. The Peak Oil folk are quick to rubbish "The Hydrogen Economy". Hydrogen is not an energy source at all, and it is easy to see that it is a very silly energy transporter. Time to wake up and rethink oil as energy transport, and stop worrying about its EROEI.

Once we stop worrying about its EROEI, we can see that it doesn't matter if Canadian tar sands or very heavy oil requires a lot of energy to extract. We could even make oil out of thin air, using algae for example. The EROEI no longer matters.

This is not to say that we aren't going to have a nasty decade or two. At the end the successful countries will be the ones that make Nuclear Power work. Certainly India and China agree on that point.

Response to Google/Verizon fair Internet proposal

2010-08-10T05:01:00.001+10:00

When there is congestion there has to be some algorithm to determine whose packets get dropped. There isn't any obvious "fair" way to do this. How about: Each source (/destination?) company gets equal throughput? That could be fair. The way to build a fair Internet that innovates is to have per packet (and/or byte) charging on each transit network, paid by either source or destination or some combination. Endpoints need to specify routes and need to ensure that intermediate networks have credit for packets matching the spec. For individuals and smaller organizations ISPs would handle this for customers. This is tough but doable. (Transit networks might charge based on sampled rather than all traffic).Update: To be more explicit. The idea of fairness they are pushing is that when you can't fit packets down the output link then packets are dropped at random. This strongly favours those (like google) with a big pipe leading to/from the point of contention. Another fairness scheme is to give all streams equal weight (assuming streams can be identified at all). This encourages people to break work into multiple streams, and this has been happening for a long time. To repeat: any scheme other than per packet charging will invite contrived workarounds and hit the small honest players.

Technology Summary for cheap electricity

2010-08-02T05:25:00.000+10:00

LFTR is a research project. There are projects with funding that are also very promising for cheap safe nuclear energy. The ones I like are: (1) accelerator based nuclear power which generates neutrons externally (with a linear accelerator) and so doesn't need refined and bomb-useful nuclear fuel; and (2) fusion using a self-organizing tight plasma beam (like gamma ray bursts come from a chaotic situation leading to a self-organized beam). But existing nuclear power is cheap enough to do the job, and we should get on with that ASAP (and obviously lots of people are trying to make that happen and a different lot are resisting). Even if we have cheap electricity all our infrastructure is wrong for that, though with cheap enough energy you can make liquid fuel. We're in for a nasty decade at the best, however most expenditure in Western countries is postponeable, and the trick is to leverage that without causing mass unemployment.

Solving a 30 Year Puzzle

2010-07-24T21:14:00.000+10:00

I have been interested in programming languages for over 30 years. One of the first programming languages I was interested in was Algol 68. Indeed I have always been annoyed that all subsequent languages get some things wrong that Algol 68 got right. More on that later.

One thing Algol 68 gets wrong is that it conflates variables and pointers. For clarity I’ll use more modern notation, only consider variables, and restrict arrays to 1 dimension: Var<X> for the type of X variables and Vect<X> for the type of 0-based 1-dimensional arrays of X. I’ll also show explicitly where parameterless functions are called.

What I have always liked about Algol 68 (that all other languages get wrong) is that identifiers stand for some sort of constant. The core declaration syntax is just “type identifier = value”.

Int three = 3;
Var<Int> i = loc<Int>();
Vect<Int> one2three = (1,2,3);

loc<Int> returns a Var<Int> entity (a box you can put an Int into) from the stack. The distinction between Int and Var<Int> is crucial for thinking clearly about programming. Note that Vect<Int> is a constant array of Int. We also note that the type denotation on the left is redundant, since it is just the type of the expression on the right, and a modern language would leave that out.

Constant arrays are undoubtedly useful, but mostly people will want traditional arrays that can be updated in place. This is where Algol 68 makes a delicate decision. The obvious decision is that an updateable array is a Vect<Var<X>>. However that seemed to imply passing around lists of addresses of variables. This seemed undesirable. So instead (actually: as well) they made special rules for Var<Vect<X>>. So if we have:

Var<Vect<Int>> vvi = loc<Vect<Int>>(3) := (1,2,3);

The rule is that normal Algol 68 dereferencing doesn’t happen when you write, for example, vvi[2]. Instead some magic happens and vvi[2] becomes a Var<Int> that allows you to update vvi in place.

This is really sad. Without this then we can easily regard an array as a procedure, with subscripting and slicing being normal procedure calls. Then a lot of stuff could be moved out of the core language into the standard library. It is always good if stuff can be done in the standard library, because it raises the chance that authors of other libraries will be able to achieve a good result.

Indeed it would be nice to get Var out of the core language. Var itself interacts horribly with type inclusion/coercion, being neither covariant nor contravariant in the underlying type. So if every X is a Y, and every Y is a Z, and a procedure takes Var<Y> parameter then you can’t consistently pass either a Var<X> or a Var<Z> to the procedure. Also standard variable semantics are unsuitable for the modern world where concurrency is exploited at all scales. It seems that we need multiple Var-like types with different concurrency guarantees.

Getting back to the problem. First we need to understand a couple of things.

Representing values at run time

How many bits do you need to represent the number 3 in a computer? If you didn't get 0 then try this one. How many bits does it take to represent a number that might be 17 or 18? Now it is more obvious that the answer is 1 bit: 0 for 17 and 1 for 18 (or vice versa). Of course it might result in a shorter and/or faster program if the number is represented by 17 for 17 and 18 for 18, but that might not be the case.

Maybe you think that this only applies when the values are known at compile time. But JIT compilers are becoming the norm, so that distinction is disappearing. In an Algol 68 style language where every identifier stands for a constant, it may not be necessary to actually materialize the value at run time at all. Indeed that is the norm for Var values, since they are normally just a fixed offset from the frame pointer, and machines typically support that conveniently in the hardware.

Assembly Language had it right

Most of my early programming was in various assembly languages. Assembly language is just a convenience veneer on the machines underlying instruction set. In assembler identifiers are created in two ways:

A define statement gives an identifier a fixed meaning as a bit string.
A label statement gives an identifier a fixed meaning as a memory address of some code or of some reserved memory.

This was right. The first languages (Fortran, Algol) used identifiers for changing values. Algol 68 tried to get back on track, but slightly got it wrong. After that it was downhill all the way in the mainstream. On the side we had functional programming, but that doesn’t solve the problem of handling Var types correctly, it just tries to eliminate them.

The right answer

Putting it together we see that we can implement a normal updateable array in the natural way as a Vect<Var<X>>. It can normally be a sequence of consecutive Var<X> boxes. The compiler can remember this and doesn’t need to materialize the addresses of the Var<X> boxes. We still want to write:

Vect<Var<Int>> vvi = loc<Vect<Var<Int>>>(3) := (1,2,3);

but now we need to enhance the := assignment operator to do parallel assignment.

But what happens when we want to pass a Vect<Var<X>> as a parameter to a procedure? Mostly we want to send that as a start memory address and a length, and perhaps a stride. But we don’t want to abandon the option to send a fully general list of Var<X>, i.e. of pointers to Xs in memory. Both these representations are valid and don’t change the semantics of Vect<Var<X>>.

We need to embrace this. Each type can have multiple representations defined in terms of other more low level types. At the bottom things have to be defined in terms of the capabilities of the raw machine, or some abstract machine. So for a given procedure there are a finite number of implementations covering the possible input representations, and indeed the possible output representations. There is no reason for this to get out of control in the era of JIT compilation. It is hard to believe that duplicated implementations of procedures can work out worse than the technique commonly used for traits/interfaces of passing a pointer to the object and a pointer to a list of implemented methods.

Well anyway it will be interesting to investigate. My concept of a nice programming language seems within reach for the first time. The name will be COPL, for Closure Oriented Programming Language.

Negative numbers for Finance

2010-07-20T10:58:00.002+10:00

Negative numbers for Finance

Negative numbers have been around for hundreds of years. It’s about time the world of finance got with this new development.

We are told that interest rates can’t go below zero in nominal terms. Why not? We’ve often had negative real interest rates, and that seems more significant. In periods of deflation, negative nominal interest rates might be positive in real terms anyway.

Consider the stock market. Currently people who expect inflation are buying stocks of companies with debt, expecting inflation to get rid of the debt. People who expect economic weakness and deflation are buying bonds at near 0 interest. Having this split market seems bad. It would be better if the people buying stocks also shorted bonds and people buying bonds were also shorting stocks. One way to do this would be to allow people to hold a negative amount of bonds. This would allow other people to hold more of positive amounts. Of course if you own a negative amount of a bond then every time there is a dividend then you have to pay that. This money then goes as normal dividend to the extra people with positive amounts of the bond. Negative holdings of stocks would be tricky because of the additional problems with voting and stock splits.

Unleashed submission

2010-07-19T06:48:00.004+10:00

Necessary Inflation

[Note that this is a based on earlier posts. The last two paragraphs have some new stuff.]

Paul Krugman keeps telling us that we need to keep stimulating the economy in America and Europe. What he rarely says too loudly is that there is a limit to how much this can be done by borrowing. The only possible source of money for that stimulation is to print it. Of course it isn't literally printed: it is all just numbers in computers.

When GFC/I hit, then central banks did start printing money. They called it "Quantitative Easing". They used the printed money to buy bonds, and they promised that they would later unprint the money by selling the bonds. Printing money is criticized for causing inflation. Commentators seem to have no trouble saying this with a straight face when the reality in America and Europe is damaging deflation. We can certainly agree that unprinting money at this time will add to deflation.

So why is everyone so hysterical about inflation? We are usually pointed at Germany's bout of hyperinflation in the early 1920s as a lesson in the bad things that can happen. But hang on: After their burst of hyperinflation sorted out their economy, Germany got its act together, and only 15 years later they nearly conquered the whole of Europe. Meanwhile their victorious opponents who were also basket cases in the early 1920s didn't have inflation, and they were still basket cases 15 years later. So we need to understand what inflation does that is helpful. But first a foray into politics.

Listen to the debate between the stimulators, led by Paul Krugman, and the deficit-reducers, led by right-wing parties everywhere, with the left too nervous to criticize. You would think that this was a purely technical debate about how best to run the economy in the national interest. Maybe not. When governments act they produce winners and losers. This has the unfailing effect of bringing out the engines of disinformation on both sides. And inflation makes losers of the most powerful people on the planet: lenders and people with cash in the bank.

Inflation makes it easy for borrowers to pay back their loans. This means that borrowers come to fully own the real physical assets that were the collatoral for the loan. They then lavish care and attention on those assets and make them as productive as they can be. Consider on the other hand what happens when the economy is weak and there is also deflation. The borrowers know that they can never repay that loan. They squeeze as much value as they can out of the assets without the ability or incentive to properly maintain them. The employees who know how to operate the equipment leave. Eventually the lenders get the assets but the value of those assets is substantially reduced.

So who wins from deflation and loses from a bit of inflation? Hardly anyone. Except that this misses some important human traits. One is that we hate seeing other people get something for nothing, and there is no doubt that debtors get that with inflation. Also humans see gains and losses in relative terms: we like to do better than others, particularly our neighbors. That's why increasing standards of living don't increase happiness. So the lenders rightly see inflation as transferring real wealth from them to debtors.

How much inflation do we need? Our main experience since WWII is that economies run well with about 3% growth and 2% inflation. This means about 5% growth in the nominal economy (the size of the economy in dollars, without taking into account the decline in the value of the dollar). It seems likely that this applies whatever the growth rate. If the real growth rate is 10% then a 5% deflation rate won't cause any problem. On the other side of the ledger, if the real economy is declining at 2% for some reason, then you need 7% inflation to keep the wheels of commerce moving. (Note that we should be taking population change into account, so that the required growth in the nominal economy is probably 3% per head of population, assuming the added people are statistically similar to the existing population. But I'll ignore this subtlety.)

Why do we need this nominal growth? Without it then people who just sit on their money, and don't try to use it to generate wealth, do nearly as well as, or perhaps better than, the people who are trying to move the economy along.

To understand why money isn't, and can't be, a store of value, it is important to understand that you can't move wealth into the future through money. This seems like a strange statement when we do it every day. We put money in the money box and much later we get it out and spend it. But what really happens is this. When we put money in our money box we reduce the amount of money circulating. There is less money chasing the same amount of goods and services. So each bit of circulating money can get a bit more than it could before. There is a very small amount of deflation. When you get the money out of the money box to spend, then there is more money chasing the same amount of real stuff. So this reduces the value of all the other money circulating at that time. That's how the value gets back into the money that you kept in the money box. We need to understand how our economy might work if it is declining instead of growing, and to do that we need to think clearly about how money works. The important point here is that individuals can move wealth into the future through money, but society as a whole cannot. Society as a whole needs to move wealth into the future to prepare for difficult times, but it does this by storing non-perishable commodities and by building productive infrastructure.

If, as I and many others now believe, oil production rates have reached a plateau and will tend to decline from now on, then we need to change the fundamental infrastructure of society. This will lead to economic decline while we switch infrastructure. We need to understand how to run a declining economy to be as productive as possible. And we need to direct that production as much as possible to the infrastructure switch: electrification of transport, heating, farming and everything else, and the production of cheap electricity. Yes we need stimulus, but not random stimulus. Let's use the stimulus to make capital investments now, like electrified rail, that will protect us from the economic decline in the future.

To help us understand the issue, consider what Paul Krugman has recently written in his blog (http://krugman.blogs.nytimes.com/2010/07/17/more-on-deficit-limits/) "there’s also no question that right now, the proposition that the government can 'create wealth by printing money', which some other commenters call absurd, is the simple truth: deficit-financed government spending, paid for with either debt or newly created cash, will put resources that would otherwise be idle to work." By "right now" he means the American situation with high unemployment and zero interest rate. What he writes would be true in the situation that existed through most of the 20th Century where workers and working infrastructure were the only constraints and energy was cheap. But now we have infrastructure that is geared to oil use, and oil production can not be raised significantly at any affordable price. So when we stimulate we create activity that needs oil. This raises the price of oil, which negatively impacts other activities. So the Right's claim that government activity, particularly stimulus, steals from the real economy is correct in our oil-constrained world. However the Right's assumption that the free market will get us where we need to go will only be correct in the long run. We can't afford to be trying to electrify transport when oil production is actually declining, which will be happening in 10 years. Government needs to steal from the rest of the economy to force the transition to an electric economy as soon as possible. That's why stimulus should be used for energy use change and energy production infrastructure, and not for anything else.

Another recent blog post by Krugman (http://krugman.blogs.nytimes.com/2010/07/14/nobody-understands-the-liquidity-trap-wonkish/) explains why the America and Europe can't easily prevent deflation by just printing money to buy bonds. Governments need to print money and spend it. They could alternatively send it to the voters to try to restart Business As Usual, but that would be a mistake in our current oil production constrained situation.

Response to Pettis on Real Economics

2010-07-05T06:43:00.000+10:00

Response to Pettis: http://mpettis.com/2010/07/what-do-banking-crises-have-to-do-with-consumption/.

Reading this excellent analysis one would hardly guess that money isn’t real wealth, and that the banks and other financial entities are merely facilitating the real economy. So what is going on in the real economy. Spending is a mix of people with the money (ex-savers) and people who intend to earn (who will be in debt after the spending). Also production is a mix of production for immediate consumption and creation of infrastructure for future production. The job of the financial system is to keep the balance between these things optimal. The situation today is that oil is getting harder, otherwise we wouldn’t be drilling at unmanageable depths. So we are perforce changing infrastructure (which started long ago when we stopped using oil for large electric power plants). So the optimal balance of activity needs to be skewed away from immediate consumption and towards creation of new infrastructure. It rather seems that our current financial system’s (unconscious) plan is to completely destroy the economy then rebuild it. Is this really necessary, or desirable?

Dear Julia (again)

2010-06-30T07:39:00.001+10:00

The discussion of the GFC has 2 orthogonal threads. The main one we hear is between those favouring more stimulation (led by Paul Krugman) and those favouring deficit reduction and to hell with the consequences. The other thread is whether the problem is just about finance (how the money goes round in circles) or is there some real physical problem that is causing economic problems. If you don’t look at both these questions together correctly then there is no chance of getting the right answer.

There is a real physical problem. The world’s economy is heavily dependent on oil. High oil prices have been unable to raise production over the last 5 years. We have started looking for oil in insanely expensive places. You only have to watch the markets. Whenever there is growth then the price of oil goes up. Whenever the price of oil goes up then growth stalls.

So Julia, please wander down the corridor and ask the Treasurer to get you a report on what will happen if world oil production starts declining at 2% a year. Don’t ask whether that is possible: they’ll just tell you “If the price of eggs is high enough then roosters will lay”. You need to talk to non-economists to figure out if it is possible. However economists should be able to tell you the economic effect of such a decline. I hope so. Oil production has been closely coupled to growth for 60 years. The question we need to understand is how quickly we can decouple.

The other issue is that without more stimulation then we will drift, or more likely plunge, into the Third Depression (recently so named by Paul Krugman: the first 2 started in 1873 and 1930).
We cannot stimulate economies back to “Business as Usual”. Until we decouple from oil, BAU is over. Nor do we need to look for shovel-ready stimulation. Things are going to be bad for a long time and we need to do the right thing, not any thing.

And the right thing is clear. We need to put all possible effort into decoupling from oil. To a large extent that means changing the driving engine of the economy from oil to electricity. Prof David MacKay (Chief Scientific Advisor to Britain’s Ministry of Energy) has worked out that getting of oil and natural gas means we will need 3 times as much electricity production as we have now. We also have to electrify a huge amount of infrastructure, particularly transport.

I hope that soon after your election victory you tell the Australian people: “I have just received a report from the Treasurer on the expected impact of the end of the era of cheap oil. It makes sobering reading.” And then you tell us what the government is going to do about it. I advise you to be very skeptical if your advice suggests that renewables can do a large part of the job, and seek independent verification of that. Oil works because it is cheap (still). Electricity is not as convenient for many purposes and needs to be even cheaper to maintain our current level of prosperity.

Dear Julia

2010-06-27T14:39:00.001+10:00

Dear Julia

What a pleasure it is to have a secular leader who is never likely to be influenced by loyalty to a higher power than the Australian people.

Let me make a point on climate change. A warmer world will almost certainly be wetter rather than drier. Warmer oceans evaporate more. Models suggest that Australia might be drier south of a line from Sydney to Perth, but this is really irrelevant. Addressing climate change has to be done by all countries, not just those that lose out. The results of climate change remain "uncertain and possibly very serious", as Prof MacKay, the Chief Scientific Advisor to the British Ministry of Energy and Climate, always says. So we can't build the public consensus on the basis of the negative effect on Australia, because that just invites the countries that expect to gain (such as Russia and Canada) to refuse to cooperate. It also opens the way for those opposed to action to say "Global warming is the reason Lake Ayre has filled two years in a row and the outback is blooming" and then the whole thing can become a battle between Northern and Southern parts of Australia. It is important to focus on the effect on the world.

Unfortunately it is tough to adopt a consistent position on climate change. If you run the climate models under various scenarios you find that there is only one variable that makes much difference over 50 years, and that is: the amount of coal that gets left in the ground. However the coal industry is very important for Australia domestically and for exports. And the coal industry unions are very powerful. The sensible place for a tax on carbon is: as it comes out of the ground.

But let's be realistic. It will be politically nearly impossible to raise the price of electricity in Australia, despite our prosperity. Our energy importing friends in the Western world are going to have far worse political issues with this. Realistically the one way to stop coal consumption is to find a cheaper source of electricity. And indeed there is. The German government has imposed a super profits tax on the companies that can produce carbon-free electricity very cheaply: the Nuclear Power industry. I urge you to conduct a thorough impartial investigation into Australia's energy future. Even if it is politically impossible to introduce Nuclear Power now, can we please at least enhance our engineering education and our R&D capability in the area.

There is no more easy oil to find on the world, and soon there will only be hard oil. We will never run out of oil, but that hard to get oil will be expensive. That is going to keep depressing the world economy for many years until we move to alternatives. There are also significant energy security concerns with oil. The world needs to move to electricity for transport, heating and a whole lot more. Let me assure you that this will work very badly if the electricity isn't cheap and reliable. The world is being seriously misled about the effectiveness of renewable energy. If anybody talks about generating "capacity" then they are trying to mislead, because wind and solar only operate at a fraction of their capacity (apart from their impact on the countryside). The key number to determine and keep in mind is how much extra electricity we need if we are to use electricity for transport and everything else. The answer determined by Prof MacKay is that Britain will need 3 times as much electricity as it currently produces. Our figure will be lower but still very big.

So the world as a whole has to move to nuclear power, and it will, and it is doing so. Maybe Australia can survive on renewables. But would that be wise? Here is a point that all Australians can understand: Even if it is possible to build an economy on renewable energy, there are inherent limitations that will eventually put a cap on prosperity. Once that limit is reached the countries running on nuclear power will become ever stronger than us. But actually, we can see, this will happen long before we get anywhere near that limit.

Understanding Inflation

2010-06-12T10:48:00.001+10:00

Understanding Inflation

Paul Krugman keeps telling us that we need to keep stimulating the economy in America and Europe. What he rarely says too loudly is that there is a limit to how much this can be done by borrowing. The only possible source of money for that stimulation is to print it. [Of course it isn't literally printed: it is all just numbers in computers.]

When GFC/I hit, then banks did start printing money. They called it "Quantitative Easing". They used the printed money to buy bonds, and they promised that they would later unprint the money by selling the bonds. Printing money is criticized for causing inflation. Commentators seem to have no trouble saying this with a straight face when the reality in America and Europe is damaging deflation. We can certainly agree that unprinting money at this time will add to deflation.

So why is everyone so hysterical about inflation? We are usually pointed at Germany's bout of hyperinflation in the early 1920s as a lesson in the bad things that can happen. But hang on: After their burst of hyperinflation sorted out their economy, Germany got its act together, and only 15 years later they nearly conquered the whole of Europe. Meanwhile their victorious opponents who were also basket cases in the early 1920s didn't have inflation and they were still basket cases 15 years later. So we need to understand what inflation does that is helpful. But first a foray into politics.

Listen to the debate between the stimulators (led by Paul Krugman) and the deficit-reducers (led by right-wing parties everywhere, with the left too nervous to criticize). You would think that this was a purely technical debate about how best to run the economy in the national interest. Nothing could be further from the truth. When governments act they produce winners and losers. This has the unfailing effect of bringing out the engines of disinformation on both sides. And inflation makes losers of the most powerful people on the planet: lenders and people with cash in the bank.

Inflation makes it easy for borrowers to pay back their loans. This means that borrowers come to fully own the real physical assets that were the collatoral for the loan. They then lavish care and attention on those assets and make them as productive as they can be. Consider on the other hand what happens when the economy is weak and there is also deflation. The borrowers know that they can never repay that loan. They squeeze as much value as they can out of the assets without the ability or incentive to properly maintain them. The employees who know how to operate the equipment leave. Eventually the lenders get the assets but the value of those assets is substantially reduced.

So who wins from deflation and loses from a bit of inflation? Hardly anyone. Except that this misses some important human traits. One is that we hate seeing other people get something for nothing, and there is no doubt that debtors get that with inflation. Also humans see gains and losses in relative terms: we like to do better than others, particularly our neighbors. That's why increasing standards of living don't increase happiness. So the lenders rightly see inflation as transferring real wealth from them to debtors. And the lenders are the most powerful people on the planet.

So how much inflation do we need? Our main experience since WWII is that economies run well with about 3% growth and 2% inflation. This means about 5% growth in the nominal economy (the size of the economy in dollars, without taking into account the decline in the value of the dollar). It seems likely that this applies whatever the growth rate. If the real growth rate is 10% then a 5% deflation rate won't cause any problem. On the other side of the ledger, if the economy is declining at 2% for some reason, then you need 7% inflation to keep the wheels of commerce moving. [Note that we should be taking population change into account, so that the required growth in the nominal economy is probably 3% per head of population, assuming the added people are statistically similar to the existing population. But I'll ignore this subtlety.].

Why do we need this nominal growth? Without it then people who just sit on their money, and don't try to use it to generate wealth, do nearly as well as, or perhaps better than, the people who are trying to move the economy along.

Many people think the world would work better if money was a store of value as well as being a medium of exchange. That wouldn't work. Still there is merit in society storing valuable commodities to prepare for difficult times ahead. The government could sell certificates representing a basket of stored commodities. This would act as an additional sort of money that was a store of real world value. It would be similar to the gold standard back when you really could change your notes for gold, but it would not be based on a single commodity. Certificates would be cashable for money at any time for the current market value of the commodities. When the government has less certificates than stored commodities it would sell the commodities to restore balance.

The basket of commodities would be chosen (and adapted over time) to reflect the manufacturing and direct consumption needs of society. As such it would not be a distortion of production. Compare this with people that want to restore the gold standard. This would take monetary policy out of the hands of people trying to make the economy work, and place it back into the hands of miners, alchemists and conquistadors.

MacKay video

2010-04-20T11:05:00.001+10:00

MacKay video

Prof David MacKay has been touring America giving a tak based on his book "Sustainable Energy: without the hot air". A recording of his talk at UC Berkeley is available from the Internet Archive: http://www.archive.org/details/2010_04_08_David_MacKay. This is well worth watching. The lack of brightness in the projected slides is fixed fairly early in the talk.

Prof MacKay provides the numbers and leaves it to us to reach our own conclusions. Mine are: (1) Renewables will damage the environment and never work; (2) Even nuclear will not work without improving the current technology for nuclear power; (3) There's going to be a tough decade before necessary changes can counteract the decline in oil production that I expect to start soon.

Meanwhile the British election is likely to end with 3 parties and no majority for any one. The Lib-Dems will block nuclear power if they are included in a coalition. So the only way for Britain to advance sensibly will be a Labour-Conservative coalition. Will politicians put their own interests ahead of their bitter personal animosities? Don't count on it. This is where the Head of State has a legitimate role in looking for a coalition that makes sense. They don't have to listen to party leaders if those leaders don't command a majority in the House.

Money for Energy

2010-03-22T05:39:00.001+11:00

Money for Energy

Here's my response to BNC on RAE report:

If we don't expand electricity to adequately cover declining use of fossil fuels, then we will have an energy disaster. To understand what that means you have to look at the key consequence of the Industrial revolution. When energy became cheap then (skill-weighted) labour became the scarce resource and wages rose to give our current prosperity, while energy prices were driven to the floor. Once there is a shortage of energy you go back to (or at least towards) the normal condition of mankind, where wages are driven to the floor because labour is not the scarce resource. Of course once labour costs go down then so do a lot of your costs of building and running energy production. So you get to a balance point, similar to a supply-demand balance point. We don't want to go there, and with nuclear power we don't need to. However it does mean that you can't be simplistic when talking about costs: they will be driven down if they have to be.

Interglacial Crash

2010-03-21T07:13:00.001+11:00

Interglacial Crash

In the last Interglacial the sea level rose steadily, and other indicators confirm that it kept getting warmer. Then at the end there was a relatively quick change. Sea level started falling at 1cm per year: which is a lot of ice building up somewhere. I've never heard of a climate simulation that demonstrated this crash. Well here's a picture of the current heat anomaly that I've nicked (the link to) from John Baez's Diary:

If the sea gets warm (and big) leading to lots of moisture [notwithstanding the silly predictions of warming leading to drought] then you get a lot of snow. Then maybe at some point the CO2 negative feedback starts to kick in [and they must exist: to claim otherwise is to claim that the previously stable CO2 level was an unstable equilibrium], CO2 drops but the water remains warm. Then maybe the sun goes quiet or there are a few big volcanoes in a row ["year without a summer"]. The snow persists and reflects. All seems too easy...

Direct impact of CO2 on flora

2010-03-17T18:51:00.001+11:00

Direct impact of CO₂ on flora?

Plants survive with difficulty in low rainfall areas. Without thinking much one would assume that the plants that are there would do better if there was a bit more rainfall. Nothing could be further from the truth. The plants that are there are adapted to the harsh conditions. If the conditions got wetter they would be out-competed by plants suited to the new conditions.

Which suggests the question: What is the direct impact of rising CO₂ on plant communities? Presumably those best specialized for the normal 280ppm are finding those genes less useful, and are being outcompeted by plants which have other advantages but which had been held back by less effective adaptation to the previously prevailing low levels of CO2.

We do know one effect of rising CO2. Plants open pores to let in CO2, which lets out moisture. As CO2 levels rise plants can open their pores less, and thus survive in drier conditions than previously.

Are the facts neutral?

2010-03-14T07:42:00.001+11:00

Are the facts neutral?

Responding to John Baez's latest, March 13, Diary entry (March 2010 diary):

It would be nice if the facts as presented were neutral and spoke for themselves. We would then have quite enough trouble understanding the implications of the facts and making correct, or at least reasonable, policy responses. The trouble is that once the facts have impact on public policy then we find lots of people who want to influence public policy for good and bad reasons. The engines of disinformation start running flat out on both sides of the debate. When people start looking for facts to support an argument, rather than to discover the truth, then they quickly do so.

Democracy needs an extra arm. It needs an open, vigorous, well-funded investigation of the facts on matters that relate to important public policy. It needs to evaluate the people giving evidence as well as the evidence itself, so that those who have made fraudulent or disingenuous claims about the facts are not allowed to waste everyone's time. It needs to have the powers of a Royal Commission (not sure what the American equivalent is), to acquire evidence and interrogate witnesses, and particularly to overcome the tendency of the sides in a debate to ignore each other's points. Most particularly the lead investigators need to be good mathematicians. They also need to have a good track record of being able to change their mind. They should be people whose prior recorded opinions on public policy have been measured rather than strident, and once they get the job they should keep those opinions to themselves.

To help the public understand why we need mathematical expertise just to understand the facts, it would be nice if Mathematicians would stop arguing about what Mathematics is about, and get behind this simple definition:

The subject matter of Mathematics is: how to think clearly about problems.

This would also encourage everyone to get as much maths as they can. It would also act as a good guide to educators about what should be taught [In particular Mathematics does not have facts the way other subjects do, though one does have to learn its language].

On the small difference between big n...

2010-03-13T16:54:00.001+11:00

On the small difference between big numbers

A comment on BraveNewClimate:

Well if we have trouble talking sensibly about the small difference between two very big numbers then we’re not alone. We get it all the time in discussion of company and national accounts. If you say that revenue doubled then that means a lot, but may not tell you anything about net profit. On the other hand it is meaningless to say “profit doubled” since profit is often close to zero in a bad year (indeed often negative in a bad year: and then doubling would have no meaning that ordinary folk would understand). [A change from 10% profit to 20% profit is best seen as a change from 110 to 120, rather than a doubling.]

This came from a Hansen comment that was (apparently) meant to mean that ice loss from Antarctica had doubled in 5 years. Even if Antartic Ice is constant over a longer term it is likely to go up and down. Get close to the beginning of a down period and get a small number. Then further into the period get a bigger number. Then make an announcement that sounds like we're in an exponential explosion.

Krugman on Oil

2010-02-23T09:39:00.002+11:00

Krugman on Oil

Krugman now says that resource constraints (particularly oil) will be a problem when we get a recovery. So I commented:

If oil resource constraint is a problem: how will that play out in the financial market? If it looks exactly the same as the GFC then how come all the economists maintain so strongly that the GFC was not about the oil resource constraint? All the semi-fraudulent financial activity moves the money around, but what brings the problem to light is when there is less total real wealth. How do we handle that? [Part of the answer is that the inflation rate has to be about 5% higher than the decline rate. This is also true when the decline rate is negative!]

Well this is another area where we need an open, vigorous, well-funded investigation of the facts. I commented on this in response to an Unleashed by a lawyer commenting on AGW. Here's my comment:

What we need to take out of this schmozzle is this: Any time you have facts dictating public policy, with winners and losers, then the engines of disinformation will run flat out on BOTH sides. It is crucial for public confidence that there be an open, vigorous, well-funded investigation of the facts led by people with mathematical skills who have no axe to grind. This is a core thing we need to add to the democratic process in the 21st century. And let us, with due respect to Ms Tranter, keep the lawyers out of it. [Why mathematical skills? The subject matter of mathematics is: thinking clearly about problems. We need more of it.]

Natural is orthogonal to Good

2010-02-23T07:23:00.001+11:00

Natural is orthogonal to Good

The wonderful "Australian Story" program (referenced here: http://www.abc.net.au/news/stories/2010/02/22/2826160.htm) emphasized that natural toxins are just as bad as unnatural ones. Maybe worse since they are intended to be toxic (plants are toxic to avoid being eaten). The Tassie government produced the traditional "natural so OK" response of the modern city dweller. Time's up on that. We expect the government to address natural problems as well as unnatural ones. Indeed we need to understand natural climate change as well as human induced climate change, since we can less afford a change to cold and dry than we can to warm and wet.

I declined to watch "4 Corners" since the subject matter sounded too depressing. But let us note that abuse of children is one of the evil parts of human nature. It is not true that human nature is innately good, with all evil being a malfunction. There is natural human evil, and it needs to be addressed by human means: Community-based resistance in various forms (such as education and punishment).

GP changing clientele not significant

2010-02-22T09:44:00.001+11:00

GP's changing clientele not significant

A Tasmanian GP saw an increase in cancer patients and investigated. The Tas government declared that there wasn't a significant increase in cancer in her area. What's going on?

Certainly it is a good thing that she is investigating this and other correlated things (like oyster problems in the bay). However it is easy to imagine why a GP might see a changing client base.

When they first get to the town they have a short waiting list or no waiting list. This attracts people who have an immediate minor problem. As they become better known, particularly if they are good and are a native speaker of English, then they attract more customers. This makes the waiting list longer. People who want a quick fix or prescription go to the imported doctor with the shorter waiting list. People with more complex problems that have developed over time and not immediately perceived as urgent, will put up with the longer waiting list to see the doctor with a good commend of English and/or other perceived virtues. So that GP will naturally see an increasing number of cancer patients.

Facts impacting Policy need vigorous ...

2010-02-18T21:43:00.001+11:00

Facts impacting Policy need vigorous review

Doesn't anybody else feel that the process linking scientific, engineering and technical investigation to the policy making process is bad. I mean really bad. Yes, scientists are often people who are not intrinsically suited to participating directly in the public debate. Still when the stakes are huge, as they are, then it is time to hold investigations where people are pushed outside their comfort zone. We need a vigorous, open, well-funded investigation into the facts, led by the best minds with a clear understanding of mathematics, and complete with substantial investigative powers. We need to identify people who are trying to deliberately mislead on both sides and get them out of the discussion. We need to make sure that the two sides address each others key points, even if they are not comfortable doing so. And in the end there is going to be uncertainty and we need to make decisions in that context, not invent fake certainty linked to various people's egos that becomes an obstacle to incorporating changing facts.

How big are the stakes? In many ways PO and AGW point the same way: electrification, nuclear [if only we could get on with those]. However surviving PO without massive depopulation may require using all the cheap energy we've got left. So the two issues need to be addressed together.

[Another TOD comment]

What money isn't good for

2010-02-18T21:38:00.001+11:00

What money isn't good for

Money does two things well: It allows us to exchange goods efficiently, and to compare the price of goods at one point in time. However it is used for other things that it does less well, particularly in times of economic turbulence. Specifically:

You can't move wealth into the future through money.

As a corollary, you can't effectively compare prices across time. This universal assumption of money as a store of wealth and as a way of talking about future prices is one of the "thinking" things that gets us into trouble.
[Of course we all do move wealth into the future through money. When you put $1000 in a suitcase under the bed then you reduce the money supply which makes everybody else's dollars worth more. When you take it out of the suitcase to spend it later then you get your wealth back by making everybody elses dollars worth less. This process works fine on short time frames relative to the economic volatility.]

To take the EROEI idea to its logical conclusion, perhaps the trick is to create an imaginary effective-energy "currency" for talking about future costs.

Building groups that work

2010-02-18T21:36:00.001+11:00

Building groups that work

In tribes of 100-150 everyone knows everyone. We have adaptations designed to allow us to form larger groups and identify group members in other ways: We are the group that dresses like this, wears our hair like that, can pronounce "th", believe X [where X is complex and something that no reasonable person could believe], understand arcane aspects of our native language/dialect, hold particular facial expressions, follow mysterious cultural behavior... So the trick is to be in the correct self-identifying group: the one where members will actually help each other, and be able to do so. And if you're in an attempt to build such groups (like Transition Towns) then I'd recommend working on all those human ways of making a group self-identifying. Of course this will make other people/groups hate you, so you need to keep a lot of it secret. Oops, this is starting to sound like a nightmare. No wonder we want growth to keep going, even though we haven't really enjoyed it and we know it's an environmental disaster.

[This was a comment in response to people trying to set up groups to prepare for Peak Oil]

In Praise of Speculation

2010-02-18T21:30:00.001+11:00

In Praise of Speculation

Markets work best when there are well informed speculators. There is a current move by various guilty or ignorant parties to demonize speculation in the oil market. So I thought I'd list some of the benefits that we should get from substantive expert speculation.

If the future price of oil at time T will be X, then speculators should ensure that the price of oil now is at least X minus the cost of storing the oil till T minus the interest on that money till T. This brings forward the rise in the price. This is good because:

Alternatives become cost effective sooner, encouraging innovation and investment in time. Without that one is trying to bring new technology infrastructure on line without adequate lead time.
The higher price reduces consumption, effectively saving the finite resource for the most important uses.
The higher price allows investment in more marginal oil sources.

The owner's of the oil are in a privileged position as potential speculators, since they can store oil at minimum cost by not pumping it. So it is nicely ironic that the Saudis have said they'll do exactly that, just as they are leading a push against speculation. In fact speculation is minimal so far, as shown by the lack of any stored reserves.

So let's encourage speculation. We should also demand transparency so that the speculation can be well informed.

On a slightly related note: Peak oil for the world is very different for peak oil for a particular country, since world peak oil affects the price much more. We also observe that when there is a sudden 1% drop in supply then the price has to go up enough to cause sufficient instant demand destruction. However that price rise will be too much, much too much, for a long term drop of 1% in demand. So, for example, at the current price of oil the reduction in economic activity will be too much, so the price of oil will fall back for a while. The reduction in supply is like a land slip under water, and the resulting wave is literally like a tsunami. So with supply falling and incipient demand still increasing and waves of demand destruction rippling, its going to be hard to see the signal for the noise. Lots of transparency and lots of well informed speculation will smooth this stuff out.

[This was a comment on The Oil Drum in mid 2008. It was right about the rise being followed by a fall, then a rise. However that was the end of the oscillation with prices stuck around $80].

Cold land, Warm ocean

2010-02-11T09:24:00.001+11:00

Cold land, Warm ocean

It's warm but there's lots of snow. According to "Watt's up with that" the land surrounding the Arctic ocean is cold, but the oceans are warm. Warm ocean means lots of precipitation falling as snow in winter. Now it is interesting to look at how the last Interglacial ended. The temperature rose (sea level fell) steadily and faster than during the current Interglacial. Then it crashed with the sea level falling at 1cm a year: That's a lot of snow and ice build up.
Maybe at the end of an Interglacial the ocean is warm, but then the Sun gets weaker, and/or lots of junk gets thrown into the atmosphere by volcanoes. So the land gets cold. Lots of snow. Not enough Summer melt. Bingo.

Coal bad Glass good

2010-02-03T07:50:00.001+11:00

Coal bad Glass good

I urge everyone to read Gregor Macdonald on “Coal and Treasuries” at http://www.theoildrum.com/node/6175. CO2 policy is about exactly one thing: leaving coal in the ground. Everything else is fluff. Nuclear is the only thing that can replace it. Australians need to understand this.

And here is a potential game changer, spray on very thin glass: Spray on Liquid Glass to Make Things Easier to clean and antimicrobial for Years and Can Increase Crop Yields. Need to be sure that fragments of it aren't more of a health hazard than the normal SiO2 dust we all live with. Just the seed protection alone seems likely to help us get through the peak oil food crisis.

What's coming up

2010-02-02T11:23:00.001+11:00

What's coming up

The New Year resolution to do a post a day is starting to fade. Let me try to inspire myself with some things I can write about.

I'm working on my Bridge bidding system, Smart Acol. I can post some stuff on that and the rationale.

I have my programming language, COPL (Closure Oriented Programming Language), and there is much to write about that.

I have an open source software project called CallHome. It is the simplest way to add low performance real time stuff to the web. I have an implementation in C. Will redo and improve using the new language Go. I need to write an Internet Draft. Plenty to write about here.

I have my Smart Workflow project which I'm trying to write using Google App Engine. I need to get back to that, and write about it. It needs real time.

My main obsession, that stops me getting anything done, is understanding the Energy Crisis and the consequent (in my opinion) financial crisis. Ideally this will all gel together into a book: Energy Crisis Economics. I need to be more organized.

I also have in mind a book "Respect your Genes, but stand up to them", subtitle "the secret of happiness". I can do more posts based on the ideas in that book.

I have a big interest in health. Maybe if I wrote more about that then I'd keep to my diet and exercise program better. I mostly favour balance, rather than looking for good things to do and bad things to avoid. I do believe that vitamin D is important, but also that sunshine has significant benefits in addition to vitamin D production.

Advice for mums of boys

2010-02-02T11:01:00.001+11:00

Advice for mums of boys

If you handle human life easily then you don't need to analyse. Still it is helpful for mums of boys to understand.

The first thing to understand about male behaviour is that we are optimized for primitive societies in which being a male is quite dangerous. In extreme examples of such societies, the sex ratio is 2:1, with the missing males victims of male-male violence.

The second thing is that girls don't evaluate boys in isolation. They evaluate them in the context of how they interact with other males. And boys are conscious of this. We concentrate on competing and cooperating with other boys. But we put our head up to see if the girls are noticing. Of course we compete and cooperate even when the girls aren't there, but too much of that is going to be unsatisfying.

Bridge was ideal for me. You have a partner you have to find, establish a relationship with, then cooperate with. There are opponents to compete against, and the sexes are mixed in varying degrees. It was nice that I was good at it, but it is more important to be able to cope with the competitive environment than to win.

Savings match lending

2010-01-31T08:51:00.001+11:00

Savings match lending

Consider this recent quote: "Rising savings in the US will collide with stubbornly high savings in China." (Financial Times: "Why trade war is very likely to break out this year" By Michael Pettis. Published: January 26 2010 20:20. http://www.ft.com/cms/s/0/3236fe3c-0ab2-11df-b35f-00144feabdc0.html).

Let's suppose that there is then too much saving. What does that mean?

In principle this means that interest rates will drop until people get less willing to save and borrowers get more willing to borrow. And that is what happened in the GFC lead up. All those petrodollars and sinodollars had to go somewhere and the price of borrowing them got so low that the developed world went on a debt spree.

But once the debt spree ends then we get in a situation where the people with the dollars don't want to spend them (on consumption). So they look for investments and you get bubbles.

It is essential, and eventually unavoidable, in such circumstances for the government to soak up the excess savings by issuing bonds. They also need to punish the savers by causing inflation. And this is particularly desirable and necessary in the American case where so many of the savers are foreigner rather than voters! However these two objectives are very hard to reconcile.

Pumping money into the economy by buying national debt just moves the money to people looking to invest rather than consume. These people will then go off and invest in a bubble, due to the lack of productive investments in a downturn. To put it another way: keeping interest rates low encourages investment, at a time when there is excess capacity and thus nothing much to invest in, so the investment is attracted to bubbles.

And the way to get inflation is, perhaps, to put less of the printed money into keeping interest rates down, and send money to the people (as Rudd did at the start of the GFC in Australia).

Devaluing the US Dollar

2010-01-31T08:04:00.001+11:00

Devaluing the US Dollar

To say that the US needs to devalue the dollar is to look at the mechanism as an end in itself. The desired end is to get production and consumption back in alignment to get back to full employment. America could do this by becoming a net exporter to finally repay the benefits it received for its years as a net importer. This isn't going to happen. Instead America is going to print money to reduce all debts. It will spend the money directly to pay national debt (buying bonds). It will keep buying private debt, turning it into national debt, and paying for it by printing. And eventually it will cause inflation which will reduce all debt: but that is not too bad since so much of that is owed to foreigners. In the end Americans are back working, though less wealthy, and foreigners will lick their wounds for a while, then go back to investing in a land of vast natural wealth where so many of the best and brightest people prefer to live.

[Posted comment to BusinessSpectator.com.au in response to an article saying that America needs to devalue and start exporting.]

Left Right Characterization

2010-01-29T06:52:00.001+11:00

Left Right Characterization

We can divide voters based on the following complementary questions:

We like to tell other people what to do

Some people seem to be gripped by an overwhelming desire to boss other people around in detail. These people migrated to socialism, and have since moved to the Green movement. Typical examples are the attempts to ban plastic bags and ordinary light bulbs. This is rarely the best way to achieve actual objectives and it seriously annoys significant sections of the population. The Green movement seems to have decided that we'd all be better living simpler lives, closer to Nature. This might be true (if it was possible). But it then raises the question of which comes first: the prescription that we all use less energy, or the problem that it is supposedly meant to solve (Global Warming). Weren't they advocating a poorer and simpler life for other reasons before they jumped on the AGW bandwagon?

On the other side some voters are easily convinced that the prescriptions provided are meant for the best and should be followed. Many other are seriously annoyed.

We like strong leadership

Some people are looking for a strong leader who will be confident about what needs to be done and identifies themself with the nation and drags everyone along in a tough way.

Other people would like a do nothing government that doubts itself and strives to determine the truth in a cooperative way, rather than impose a particular vision of the truth.

Somehow in democracies we get a messy combination. The facts are manipulated to push a particular view. Leaders pretend to be strong, but are careful what they strongly support. This might, as Churchill said, be the best one can hope for from government.

Nuclear in the Middle

2010-01-26T07:44:00.001+11:00

Nuclear in the Middle

Nuclear Power is caught between two stupid opponents that dominate the debate on the future.

On the Green-Left the tactic is to ignore Nuclear. Pretend it isn't there. And then statements like "growth can not continue" make perfect sense. I have a lot of sympathy for this position. Harnessing E=mc² gives man ever greater power for good or ill, and it is hard to be confident about how that will turn out in the end. And it promises to move humanity even further away from its natural position as part of nature. But its too late. We couldn't support the current 6 billion people with environment-friendly energy sources, even if the energy sources proposed fitted that bill, which they don't. Too many environmentalists dream of a world with 1 billion people, and are sanguine about the process to get there.

On the other side we have the "market is God" Right. They don't have a tactic. They just actually believe that money is important and will solve everything, while energy is just another commodity. They accidentally satirize their own position, as Glen Stevens did when responding to parliamentary questions he said "If the price of eggs gets high enough the roosters will lay". For them Nuclear isn't necessary. The market will provide. The GFC has really brought them out of the woodwork with a huge range of opinions about why the GFC was caused by money going around in the wrong circles. A funny thing is that they never consider the possibility that financial crises might be caused by real world events (like running out of cheap energy), even though every one of them would probably agree that if there was a sudden increase in the real cost of energy then that would have to effect the real economy, and the mechanism of that effect would be through the operation of world finances. They just assume that any gradual change can be accommodated without impacting "sustainable growth".

The reason we need to move to Nuclear Power is that there are too many humans on Earth. The only way that we can continue without massive loss of life, or massive environmental destruction, or both, is to utilize the one energy source that the rest of the natural world doesn't use.

Community Kid Minding

2010-01-25T19:00:00.001+11:00

Community Kid Minding

Having had some experience minding my grandchildren, I notice that it is very difficult for a single adult to mind children. The fact that you can't leave them, even briefly, is incredibly inconvenient. This is even worse with two kids. If you need to go to the shops you have to drag both kids along. It can be quite hard to control both of them. The mind boggles how a single adult could cope with 3 or more kids.

With two adults things become manageable. One can be left minding kids while the other goes to the shops or many other things. Two adults minding 10 kids works better than one minding one.

Modern life often doesn't work without a lot of effort.

Unreal Economics

2010-01-24T19:52:00.001+11:00

Unreal Economics

At one extreme of unreal economics we have the vision of politicians and economists. Current levels of productivity are established. Workers "earn" their income and there is no reason to expect their labour to be worth less in future. On the contrary we expect economic growth and per capita growth.

At the other extreme we see the doomers looking at all the debt in society, and other economic problems, and foresee the collapse of America.

What is real is this. America has lots of fertile soil and rain. It has huge stores of fossil fuels, including enough oil to cover high value requirements if things ever came to a big crunch. They have Nuclear power, with fuel and expertise. They have a powerful military which they use to protect their economic interests.

They owe the world a lot of money, but guess what: it is all denominated in US dollars. They are currently printing money to cover their national debts, and they are willing to move private debt into public debt then pay it with printed money. The fact that some Americans owe money to other Americans doesn't negatively affect the country as a whole.

So America will remain strong, though not the US dollar. American assets are overvalued at the moment (compared to commodities), because there will be a long period of economic weakness. Also American assets that depend on oil, like housing in the suburbs, are going to lose a lot of value. Changing infrastructure destroys the value of infrastructure and expertise. Everyone has to accept being poorer. The advantage America has is a flexible labour market with workers accepting wage reductions when necessary.

India and China can return to a more frugal lifestyle more easily than the West. Even so there seems potential for both of them and all other third world countries without natural resources to have catastrophic social problems.

Europe seems the most likely to be forced to accept a large drop in living standards, and to struggle to feed themselves with more expensive oil.

Economic Production = Energy + Workers

2010-01-23T17:38:00.003+11:00

Economic Production = Energy + Workers

We have recently been subjected to two overviews of economics that didn't mention energy.

Most recently Prime Minister Rudd has declared that production is what you get when you multiply workers by productivity. So all we need to do is improve productivity to get richer. This is what you get if you view the economy through the reverse telescope of bureaucratic statistics.

Before that we had Ross Gittens assess productive capacity as arising from workers and infrastructure. Yet both these pundits know that the rise in productivity that we have seen for two hundred years started with the Industrial Revolution which was built on fossil energy. Of course you need a lot of infrastructure to utilize that energy. Energy is subtle stuff, while infrastructure is big and obvious. So this is the common logical error of attributing cause to the most obvious change that precedes the effect.

The view that will lead to correct policy is that wealth creation comes from energy and expertise-weighted workers. Before cheap energy was available, production was limited by the cost of energy. This meant that wages were driven to the ground. When cheap energy became available then there was a shortage of workers to utilize the energy. This saw the rising power of workers and the rise of the general prosperity that has characterized 1st World economies. If the Green Left were to have its way and we moved to very low intensity energy sources then we would return to a world where energy is the the thing in short supply, and wages would be driven to the floor, as they used to be.

The most powerful and prosperous nations in the future will be those that have a lot of cheap energy. This can only be nuclear power after the coal runs out (or we decide to leave it in the ground). Currently it seems that China and India can build Nuclear power stations for 1/4 the cost in the West.

Even if we were to start today to switch to nuclear power and the electrification of the infrastructure, we won't have time to avoid an extended period of energy shortage and ongoing economic weakness.

Therapeutic Sunshine

2010-01-22T19:21:00.001+11:00

Therapeutic Sunshine

Ultraviolet light has the well known benefit of creating vitamin D. We also know that it is useful for getting rid of two toxic substances that the body can't get rid of easily without UV: bilirubin and vitamin D. Yes UV creates and destroys vitamin D and too much vitamin D is toxic (but it is almost impossible to have that much vitamin D if you get any sun at all).

Well I have always suspected that there are much more toxic and semi-toxic inorganic molecules that sunlight helps to get rid or. So I was interested to hear about the person with a rare liver condition who is given 10 hours of blue (presumably UV) light a day. Now this is interesting to me because after a blood test my doctor said I had a mild liver problem that left some junk in the blood. Is that part of the reason that my health has been much better since I've been getting regular sunshine?

We also know that sunlight is good for various skin conditions, such as psoriasis, and I also noticed that a number of little skin problems disappeared when I started getting more sunshine.

I also think that if you have high levels of vitamin D, and you avoid tropical levels of sunlight, then you won't have high risk of skin cancer. It would be nice if medical researchers looked into stuff like this, but if there's no drug then there's no money.

Economic Fundamentals continued

2010-01-20T22:15:00.001+11:00

Economic Fundamentals continued

We've observed that most consumption is by people with old "right to consume" tokens, or by people who intend to generate matching "right to consume" tokens in the future. This works fine when the amount of production per person is rising. The old money fades into insignificance and the people promising future production activity are relatively easily able to do that.

When production is declining the system of "right to consume" tokens (money) gets more difficult. If the people with existing money expect to continue the same rate of spending, then this reduces the amount available for everyone else by an even higher decline rate. This reprises a previous post saying that the inflation rate needs to be greater than the decline rate. On the other side consider borrowers who are consuming against future income. In a declining economy it will be difficult to expect to produce as much in the future so it will be hard to repay the real value of the capital. However the lender may well accept low or negative returns (in real terms) if the alternatives are worse.

When there is a period of economic decline then governments need to get a firm hand on the reins. This means making forcible adjustments so that money continues to act as a good way of valuing and exchanging, but doesn't attempt to be a store of value over time. However it is very hard for anyone to know where the economy is headed.

The reason is that everything in the economy is finely balanced. If anybody is making too much money then competitors move in and drive the price down. All non-monopoly activity is on the point of collapse: even if it is an activity that is essential. And when circumstances change and some input becomes increasingly expensive then there is huge incentive for substitution. But by definition the substitutes were not profitable before. So they aren't in use. So we have no idea at what cost they will operate until it actually happens. This is the case with energy now: with hundreds of ideas for energy future, but we have little idea which will actually work. If any. This is true of many things, so that a capitalist economy is fertile ground for scaremongers. And sometimes they will be right.

Economic Notes

2010-01-18T13:02:00.001+11:00

Economic Notes

Wouldn't the world economy work a lot better if there was more openness and transparency? Well yes, the world as a whole would be better, but particular individuals and groups would be worse off. In particular people and groups doing criminal, unethical, or dubious things enjoy the cover of darkness, which they like to call privacy or commercial in confidence.

If countries were isolated from each other then they would definitely do better economically if they maximized openness and transparency. But they're not. So what happens when countries want to do naughty things to improve their position relative to other countries? Darkness descends. In the campaign Obama favoured transparency, but when he became president he found out what was going on and switched. What is going on is that the American economy operates, in part, rather like a giant Ponzi scheme, depending on new sucker money flowing in from outside the US. That was ok when the world was expanding, but with growth limited by resource shortages we get in the situation where Ponzi schemes become hard to sustain. So Obama has supported the coverups. Will the Congressional FCIC (Financial Crisis Investigating Committee) actually find out much? Or will it assist the coverups? I'm guessing the latter.

Another economic issue that caught my eye is that there is a lot of talk about how China's economic stimulus is being spent unproductively and that this will cause trouble later. This isn't necessarily true. In China most of the national profit goes to the government. If the government then spends it on a road to nowhere or an empty city, then this is not different to America where the people get most of the money and often spend it on unproductive assets like a yacht they never use, etc. It seems obvious that the Chinese people would be better off if they got to waste the money instead of the government wasting it for them. But this isn't necessarily true. People like to be better off relative to other people they interact with. But once you get past the basics of life, extra wealth for everyone doesn't help, and may make everyone more miserable if it weakens community, as it seems to do in the West.

China's money in the bank gives them the option to keep consuming and expanding, taking up a lot of the world's wealth creation as it goes. The more China decides to take the less is available for others. The most obvious case is oil. If China uses its money in the bank to buy oil, then it forces the price of oil up, and this makes other oil users (like America) poorer. China could do this for a long time, even if they were in deficit, and currently they are still in surplus.

Women create the game, men try to win

2010-01-18T12:56:00.001+11:00

Women create the game, men try to win

A BBC online news item on women in Syria has this line:

Surprisingly, in patriarchal societies like Syria, it is often mothers who reinforce discrimination against women.

To be surprised you have to imagine that there is a battle between men and women. What there is, instead, is a battle between groups of men and women together against other groups of men and women. The way that works in humans is that females generate the cultural rules, by talking endlessly to each other about who and what is good or bad, acceptable or unacceptable, etc. This interacts strongly with another human characteristic: male status is lowered if they allow themselves to be bossed in public, so women don't do that to their partners. Also a culture where females are repressed is good at maintaining the existing status hierarchy. So women with high status try to move things as much as possible in the direction of limiting female freedom of action and communication. Women who have concerns about their status prefer a society with greater apparent sexual equality. And a characteristic feature of the modern world is that all women are concerned about their status, since relative female status is only established by direct contact, and every woman is aware subconsciously of the existence of many important women that they have not settled their relationship with.

While women are making the rules and establishing their relative status, men are trying to figure out the rules and win the game. Our fluid society is more stressful in many ways than more rigid societies, but they are certainly more interesting and productive.

Skin Lesion Checking

2010-01-17T07:29:00.001+11:00

Skin Lesion Checking

This is the 21st Century. Why can't I go into a Skin Check place where:

I take my clothes off and stand in a standard pose;
Multiple high definition cameras take pictures of every inch of skin with overlap for matching [might need more than one standard pose];
Use the overlaps and clever software to get a complete 3D picture;
Compare picture to previous 3D pic from 3 months previously;
Bring lesion changes to attention of expert;
Contact me if further check needed;
Check back when cancers found to see if the lesion change could have been detected earlier without bringing up too many false positives.

The software to match up overlapping pictures is already in existence (e.g. Google Maps satellite view, but also for putting together a sequence of overlapping landscape pics). Human geometry is a bit tricky. Then comparing to the previous picture is tricky because people change, poses are not identical. Still most skin, certainly mine, has lots of skin features that aren't going to change much and can keep the mapping process in sync.

External National Assets

2010-01-15T09:58:00.001+11:00

External National Assets

Colonialism wasn't, mostly, about countries deciding to conquer colonies. It usually started with the colonial power buying assets, trading rights, etc, in the 3rd world country. Then some bad stuff would eventually happen. The assets would be attacked by the local government, or the local government would be unable to prevent others from attacking it. Either way the colonial assets would receive military protection, and the military would get into little fights and nearly always win and keep expanding.

We have to look at China's current attitude with concern. They are buying up assets around the world: companies, land, rights to raw materials. They are also buying US Treasury bonds. Their attitude to that might be indicative. They have expressed concern and complained about the US printing money and hence potentially eroding the value of China's investment. This is incredibly silly and ignorant, since monetary policy is an internal matter and in this particular case America has no choice but to print money to reduce the value of unfunded liabilities. If China doesn't like it then they should sell the Treasuries (which America would be forced to balance with more printing).

China can't, of course, influence America's monetary policy. But the fact that they feel belligerent about that really makes you wonder what will happen when, inevitably, bad things happen to their other external assets, or to Chinese people working on this external empire. The most dangerous ones will be long term contracts for oil and other energy when Peak Oil starts to bite. It seems that war over significant oil assets anywhere will have a Mutual Assured Destruction character once Oil gets scarce and expensive: Knocking out any bit of supply will then be very serious.

China needs to get its mind into gear and become part of the solution, instead of imagining that it can build a wall to protect itself from world-wide problems, and thus make those problems worse for everyone else.

Worm Theory

2010-01-13T06:25:00.001+11:00

Worm Theory

In ScienceDaily recently: "Humans may be susceptible to allergies, asthma, and autoimmune diseases because of increased hygiene, according to Kathleen Barnes of Johns Hopkins University. Without being exposed to intestinal worms and parasites, as our ancestors were, our immune systems are hypersensitive.".

I don't think "hypersensitive" is being used in any technical scientific sense here. Let's make a few relevant observation:

1. It is natural to think of parasites as having a wholly negative effect on the host. But look at it from the parasites point of view. The host is home. Do they want to destroy it? No. In fact if there is something that the parasite can do for the host without too much cost then they might do it. This won't mean much if the parasite is rare. But suppose it is common, as intestinal worms have historically been. Now if the parasite does some beneficial job, then the host has no selective pressure to maintain an independent capability to do that.

The good-bug/bad-bug dichotomy is often wrong. Heliobacter Pylori is a typical case. It was found to cause ulcers. Yet it is nearly universal in humans. So there is some deeper disease process happening when it causes ulcers. And getting rid of it might also cause other problems.

2. In support of the "hypersensitive" theory: It is true that human worms have learned to somewhat suppress the human immune system. So removing them may well make it hyperactive, and thus more likely to attack common environmental stuff, and self. I'll be surprised if this simplistic fact turns out to be the whole story or even the main story.

International Baseball

2010-01-12T08:57:00.001+11:00

International Baseball

I like Baseball. Lots of subtlety and complexity. On the negative side, it has a lot of luck. Any one game is a bit of a lottery.

MLB (American Major League Baseball) likes to be the only place where top level Baseball is played. It is really disappointing to me that International Baseball isn't allowed to reach its potential.

Single Baseball games often allow the weaker team to win. The best-of-7 (first to 4) series is the right way to play International Baseball. You need a series like that to test out the pitching staff and to bring out all the different situations that make Baseball so interesting. I really think that Baseball Australia could get good crowds and good TV income from 7 game series against countries like Japan, Korea, South American countries, etc. And since our summer is the MLB off season one might hope to get top players involved. Even if MLB doesn't allow that, I reckon International Baseball could still be popular.

Give us some Baseball to watch where we care about the result. There is no chance of getting club Baseball going in Australia. It is a sport like Rugby and Cricket and Athletics, where people aren't interested except at the International level.

Energy Crisis Economics

2010-01-11T21:16:00.001+11:00

Energy Crisis Economics

I haven't read a lot of Economics, but it seems from what I have read that economists are ill-prepared for the economic ramifications of an energy crisis. And this means that governments aren't getting good advice on the subject.

In a recent SMH article, Ross Gittins gave a summary of economics. This said that the things that determine GDP are skilled workers and infrastructure. Obviously we just have to keep training people and building more infrastructure and growth can go on forever. Not enough oil: you just need more oil producing infrastructure. He described a point of view which would never see an energy crisis coming and not recognize it when it hit.

I would go to the opposite extreme: not only include energy as a crucial input, but leave out infrastructure. You do need infrastructure, but it doesn't take that long to build it up, as we saw with huge growth among countries with educated populations in the years after WWII. What fueled that growth was the switch to oil-based energy, with cheap secure oil.

How do you run a steadily declining economy. Some believe it is impossible, but it is actually possible as long as the inflation rate is kept above the decline rate.

If your switching to a new energy source then you'll need different infrastructure. While you build that you have stop business as usual and put productive effort into infrastructure. This means soaking up purchasing power (with "Energy Crisis Bonds", similar to "War Bonds").

You have to lose the notion that people will demand that their investments break even in real terms. People will accept that this is impossible in a declining economy. What they want to do is maintain their relative wealth. Achieve that and you can run a decline just as well as growth.

Happiness versus Desire

2010-01-10T07:55:00.001+11:00

Happiness versus Desire

We are all unhappy to some extent, or at least less than perfectly happy. And we all have desires of various sorts: sex, cars, money, status. The connection seems obvious. "If I could have ... then I'd be happy" we think. But it isn't true. As we well know from following the lives of the people who have the things we want.

Our happiness and our desires come, indirectly, from our genes. They send us happiness when we are doing something that suits them and they want us to keep doing it. They send us desires when they want us to take risks to achieve something that suits their purposes. However their purposes aren't directly to make us happy, and can easily lead us to a less happy place. The fact that our genes don't want to make us happy, doesn't mean that we can ignore them. It is however possible to understand our genes well enough to get to places where they stop prodding us to do something new, and instead encourage us to keep on with what we're doing, which they do by making us happy.

Intelligence versus Motivation

2010-01-09T21:04:00.001+11:00

Intelligence versus Motivation

A recurring idea is that machine intelligence will grow, then at some point when they have intelligence comparable to humans they will acquire motivation. We see this in sci-fi with robots being portrayed as similar to humans. Then it is suggested that humans will be replaced by intelligent machines. This is all rubbish.

Machines will never have motivation unless it is explicitly given to them. Anyone creating machines with motivation leading them to wish to survive and reproduce would be committing a terrible crime. And they would get it wrong and the motivation would not sustain a non-human civilization. Human motivation is an incredibly subtle thing, built as it is on the different but related motivation of our immortal genes.

You don't have to have significant intelligence to have motivation. The simplest creatures seek out food and avoid predation. If you try to claim that this isn't motivation then you are going to tie yourself in knots talking about what those creatures are doing and why. Also you would have to pick some dividing line between motivated and non-motivated creatures and there isn't anywhere to put that dividing line that isn't arbitrary. Indeed, as I claimed in the previous paragraph, our genes, which have no intelligence, have recognizable motivation. We say, for example, that our genes want us to survive and reproduce. Since they are the wellspring of motivation, this seems to be more than a metaphor.

Representing Data in Programming Lang...

2010-01-08T10:41:00.002+11:00

Representing Data in Programming Languages

How many bits do you need to represent the number 3 in a computer?

If you didn't get 0 then try this one. How many bits does it take to represent a number that might be 17 or 18? Now it is more obvious that the answer is 1 bit: 0 for 17 and 1 for 18 (or vice versa). Of course it might result in a shorter and/or faster program if the number is represented by 17 for 17 and 18 for 18, but that might not be the case.

This is closely related to the question of when you turn a program into a more specialized version. Specialization can be for a specific machine or class of machines, or it can be for a specific execution (or range of executions) of a program. At any rate the fact that you know that a particular expression has value 3 might be because it is a constant in the program, but it might also be because the program has started executing and on this occasion the value is definitely going to be 3.

It is worth noticing that the distinction between data and program is getting blurry. If the user specifies some complex data, like a spreadsheet with formulas, then the boundary between data and program is hard to pick. This is a natural complement to the more general trend for compilation/specialization to occur at various and multiple times.

The specific thing that aroused this thought was the duck-typing style of interfaces in the new language Go. If a procedure parameter is an interface value then it is assumed to have a complex form, with a pointer to the value and pointers to relevant methods. This will often be inefficient and unnecessary. It will often be better to just replicate the procedure for each possible value type, and pass in the value rather than a pointer to the complicated standard Go interface value. To link that back to the initial point: Values can often be represented tersely at the expense of having a more complicated compiled program.

Teaching Mathematics

2010-01-07T21:35:00.001+11:00

Teaching Mathematics

I would like to get in the ear of every teacher who teaches Mathematics and make sure they understand this:

The subject matter of Mathematics is how to think clearly about problems.

There are no facts about reality in mathematics.

There are a lot of definitions, of terms and of notation, that make it easier to talk and reason about problems. There are particular techniques for particular types of problems, but it is highly counterproductive for students to learn techniques if they don't understand how they work. [Well it might conceivably help a student pass an exam which might help them in some way, but I am assuming here that we are learning Mathematics for some genuine reason.] Indeed if the student understands how a technique works then they will easily remember it, but they will probably not need to remember it.

There are particular facts about reality for which mathematical techniques are particularly useful. Dealing with measurement systems (like money, lengths, area) is a case. So such real world stuff often gets put in with mathematical education where it serves as a valuable source of useful examples. However the facts about coins or the metric system of measurement are not themselves part of Mathematics.

The particular case of beginning Primary School (and before) is important. Thinking clearly about integers is the core of Mathematics. Human thinking about integers is closely integrated with thinking about our fingers. Students need to go through the process of counting on their fingers. We know this because the part of the human brain that does arithmetic is heavily intertwined with the part that deals with the fingers. Before calculators students needed, for practical purposes to do sums quickly. Now it is more important that they make that crucial understanding step. Don't teach them their tables by rote. Teach them to do sums with their fingers.

Peak Production versus Peak Demand

2010-01-07T04:18:00.001+11:00

Peak Production versus Peak Demand

Those who refused to accept that the world was near the peak of oil production (Peak Oil) have started to talk about reaching peak demand for oil. Well it is true that demand always equals supply at the current price. But for oil this is not a reasonable way to look at it, it is just a way of refusing to acknowledge the accuracy of the people who predicted the peak of production.

A few years ago we saw the peak of production and of demand for 35mm film cartridges. In that case it is clear that technology moved on to something better. This was clearly a case of peak demand, with production being forced to comply. By contrast there is nothing better than oil. It is energy in a highly concentrated liquid form. The reason we are being driven to less convenient alternatives, like natural gas and electricity, and to simply doing without, is because of price increases for oil. This price increase is because the easy cheap oil has gone. In a case like this where there is a forced move to less convenient product then this is only naturally described as peak production.

We can look at Peak Oil in a simpler way that doesn't involve markets or money at all. The real cost, in labour and other resources, to produce a given quantity of oil is going up, because naturally we extracted the easy cheap oil first. As that real cost rises, then the range of things that you can sensibly do with that oil contracts. If you look at it that way then all the talk about the oil still in the ground is irrelevant. However it is nice to know that we'll never run out and there will always be enough oil for uses of high value.

Investigation Exchange: a future for ...

2010-01-06T20:53:00.001+11:00

Investigation Exchange: and the future for journalism

Investigations are an important part of civilized life. Scientists conduct investigations in order to understand aspects of reality. Police and other investigatory arms of government are joined by private investigators in investigating aspects of business and private life where the facts impact on legal decision making. Journalists conduct a wide range of investigations on matters of public interest. And all people and organizations conduct investigations to understand matters relevant to our activities, though this tends to involve more collation than primary investigation. Journalistic investigation is an important part of a free society and it is financed by sales of media or advertising. This revenue has been moving to the Internet and the Internet is yet to work out how to finance investigations.

This posting will describe an Investigation Exchange. While it can apply to any sort of investigation, it is particularly intended to be an Internet way of supporting journalistic investigations.

At a bare level the Investigation Exchange works like this. People or organizations that want investigations done put up proposals for investigations and commit to pay a certain amount to an accepted offer. Other people can add extra financial commitment to an existing investigation proposal. People or organizations that carry out investigations can just accept an existing proposal (including some standard legal boilerplate). However more commonly they will generate a combined or partial or compromise investigation proposal that fits with their investigatory skills, and try to get people with related requests to sign up to it. In practice something like this will always happen because the people requesting investigation have to accept the investigators, based on reputation or other consideration, and it will always be natural for the investigators to want to restructure the proposal to fit their particular skills and knowledge.

The Investigation Exchange can not be a simple market. It needs to a complex ecosystem with private and public communication between the participants. It may need brokers who can combine the skills of multiple investigators to address complex challenges. The results of the investigation can be public or private or some combination. For example media organizations might combine to pay for an investigation where what they want is the scoop, then after a short while the detailed result of the investigation can become public.

So come on Google: we need Google Investigations.

Slam Bidding

2010-01-05T21:55:00.001+11:00

Slam Bidding

The key to slam bidding is to be sure to have mechanisms to set the suit in all cases. Jumps in unbid suits are used to artificially set a suit and force to game. For example after:

1H	2C
2D	?

3H sets hearts

4C sets clubs

3S sets diamonds (3D would be weak)

Suit setting bids are game forcing natural bids and jumps in suits that can't be natural at that stage. When there are multiple denominations that you might want to set artificially then the cheapest bid shows the one closer above (in a cycle), etc.

Making suit setting a priority means that 4NT is freed to be a natural bid in most auctions where a fit has not been readily found.

Peak Oil and Energy Security

2010-01-04T19:04:00.001+11:00

"Peak Oil" and "Energy Security"

Peak Oil folk complain that governments refuse to endorse the concept. Governments are wise to do so while the meaning of "Peak Oil" remains slippery. Peak Oil folk want to claim that Peak Oil is a mathematical truism. And it is true that when you use up a finite resource then there must be a month (or year or other period) of peak production. Then Peak Oil proponents also want to claim that Peak Oil is a serious problem. Unfortunately they are trying to have it both ways. If the concept is just the mathematical truism then it is not, in itself, important. The peak might arrive because of increasing production problems, but it might also come because the economy finds better sources of energy and zooms off leaving oil behind. As Sheik Yemani said "The stone age didn't end because they ran out of stones". The mathematical truism can't be good or bad. So the real Peak Oil claim is a more complex claim about the real world. But even that might not matter much to individual countries, as long as they get their oil one way or another. Indeed we saw when the oil price skyrocketed in 2008 that Americans stopped recreational driving, but Malaysian fishermen were forced to idle their boats because the maximum price they could get for fish from their local customers couldn't cover the diesel fuel costs.

What governments do talk about is "Energy Security". If only we could get them to think more clearly about that. No its not just another commodity.

Truth in a Democracy

2010-01-03T20:39:00.001+11:00

Truth in a Democracy

Politicians in a democracy are famously economical with the truth. However there is a big difference between lying to the voters and lying for the voters. When America invaded Iraq most people knew that it was about oil. However the government had to steadfastly claim that it was about other things. Bush and co knew the voters didn't mind him lying and would support the war if it was intended to keep a lid on prices for petrol and heating oil. But what if some voters didn't get it. The government couldn't make its case directly. Then out of the blue, Rupert Murdoch makes his statement about $20 oil. We assume its a gaff, but was it? Fast forward to the recent Australian election. The opposition Labor party is criticizing the Iraq war, and the criticism makes sense based on the claimed reasons for the war. However most voters knew that the war was about oil, and supporting our great and powerful friend right or wrong. But what if some voters hadn't got the secret message and took the Liberal government's professed reasons literally. Something had to be done. So the Defence Minister says in an interview that the war was about oil. Government rushes to deny it. Everyone thinks it was a gaff. Was it?

We see the same thing with CO2 mitigation. The voters want their cheap coal power and the coal industry supports a lot of voters. So the government pretends it will reduce CO2 emissions by CCS and other magic, and the voters pretend to believe. Even worse lies are perpetrated by parties lying on behalf of their own supporters: particularly for support of racist actions.

Unleashed comment: dreams for 2010

2010-01-02T16:12:00.001+11:00

Ministry of Truth

Unleashed comment: dreams for 2010

I hope this is the year, or at least the decade, when we get serious about discovering the facts on matters affecting public policy. Is rising levels of CO2 a serious problem, and if so what, if anything will work to turn it around? Is the end of cheap oil something we need to address proactively, or will the market sort it out? How much vitamin D do people need and does sunlight have other health benefits to set against its dangers?

In all such cases there are winners and losers from any government policy response. And this starts up the engines of disinformation on both sides. Groups form who define themselves as "the people that believe X" thus trapping themselves in a social structure. Experts give opinions and are then unwilling to change their position. Politicians tie themselves in knots.

We need a Ministry of Truth. The literary reference reminds us of traps to avoid. It needs to be staffed my technical experts, particularly mathematicians. The subject matter of Mathematics is how to think clearly about problems. It needs to conduct open, vigorous, well-funded investigations of the facts, with substantial powers. It needs to get the two sides to address each others points instead of shouting past each other. Its investigators need to avoid having known opinions which they might be tempted to defend for ego reasons.

Two Science stories of 2009

2010-01-01T10:40:00.001+11:00

Two Science stories of 2009

Two science stories grabbed my attention in 2009.

Genetics of Britain

Not long ago an investigation of human genes showed that the people of Britain got there in 2 migrations corresponding to the two periods when there was a land bridge to Europe. The first arrivals were still in Cornwall, Wales and outer Scotland. The later arrivals were little changed by those arriving later by sea: Romans, Angles, Saxons, norsemen, Normans and others. The exciting discovery this year looked at genetic history of other mammals. It found exactly the same division with approximately the same boundaries. An older group in Cornwall, Wales and outer Scotland, and a newer group that came over during the period of the more recent land bridge. This is very nice because of the way it embeds humanity in the wider natural world.

Adjusting Temperatures

We are accustomed to think that we know there is global warming and it is just a question of what is causing it (with CO2 being an obvious culprit). However it emerged during the year that the data used to demonstrate global warming has been selected and adjusted from the raw data. Some were quick to claim that this has been done in a biased way intended to accentuate the appearance of global warming. Rebuttals have appeared claiming that it has all been done in a reasonable and unbiased way. I will be amazed if these rebuttals turns out to be substantiated. The energetic attempts to keep the raw data secret and the unprofessional aggressive and biased point of view of some of the researchers makes me believe that they will be found to have had a thumb on the scales. This will do more than damage the particular researchers and the climate change research community, it will damage Science itself.

Why Nuclear in Australia

2009-12-06T11:53:00.001+11:00

Why Nuclear in Australia

Renewables have under-analysed costs and impacts. They can't do the job of preserving prosperity.
Making an up-front payment now, to have cheap reliable energy later is the best way to use the wealth from the mining boom.

We need to bring in "stuff" to balance the "stuff" going out. If we don't bring in infrastructure of future value, then the dollar will rise so that we bring in goods of temporary value while simultaneously destroying our exporters and import-alternatives.

Nuclear is the future of world energy. Choosing to sit on the sidelines is a route to economic irrelevance.
Energy production uses water. Nuclear Power can be sited near the sea, and produce incidental fresh water. Coal Power is sited near the coal mines in good agricultural land. Geothermal, among other enormous difficulties, is sited in a very dry area.
Australia will be the safest place for traditional nuclear power. We have the raw materials for even safer next generation reactors.
For energy security we need to electrify because we lack oil. This requires a large increase in the amount of electricity. Coal is not an option. CCS is a fantasy.
Natural gas should be conserved for higher priority needs including essential fertiliser and in the future as an alternative transport fuel.
Natural gas generates 50% less CO2 than coal, but Nuclear generates none. So, for any given CO2 target, Natural Gas power has twice the impact on the continuing use of Coal power, compared to Nuclear.

Gift To The Future

2009-11-09T10:33:00.001+11:00

Gift To The Future

We, the people of the 20th Century and the beginning of the 21st are bequeathing our descendants a grim legacy: too many people, many resources running out (crucially and perhaps declining already: oil), and environmental damage (including a significant increase in atmospheric CO2 with unknown consequences that might be very serious).

We would like to fix these problems, but realistically many will get worse rather than better. The loss of resources has many people fearing a significant collapse of our civilization, perhaps in the form of a serious and ever worsening Depression. Rather than just aiming to solve all the problems, we need to also make a gift to the future which will help them cope with the problems that we don't completely solve.

For old folk like me, the Gift to the Future is for our grandchildren and for the preservation of our civilization. For younger readers there is an extra good reason to make a Gift to the Future: You'll be there.

The Plan

The detailed justification is provided in more technical sections below. The plan itself is very simple.

In the energy business, as in many important businesses, we can divide the costs of running a particular bit of that business into the initial up-front costs (mostly construction costs), and then on-going, marginal, costs. In a normal way money is borrowed to cover the initial cost, then revenue is used to cover the resulting interest payments and the ongoing costs. For the business to be profitable, and not go broke, the price has to be high enough to cover both. However the energy business can't typically set its own price, which is dictated by the market: by the amount of demand at each price point, and by the actions of other sellers. For the seller it is better to sell whenever the price at least covers the on-going costs, but normally that will send the seller broke if it doesn't cover interest payments.

It is very difficult for business to build energy infrastructure in the current and near future environment. Interest rates are uncertain, energy prices are uncertain and if the declining production of oil leads to economic decline then demand may be low. Yet failing to build energy infrastructure guarantees economic problems.

We need to cut this disastrous loop by making the initial up-front cost of new energy infrastructure as a Gift to the Future.

For America this will be a radical proposal, but for most countries it is just a return to normal. Most countries have traditionally run their energy infrastructure as a socialist part of a mixed economy. Energy infrastructure has been built by the central (or regional) governments from tax revenue and national borrowing. The radical aspect of the proposal is to get well ahead of obvious demand growth, to be ready to cover for reduced energy from fossil fuels.

There are however tricky aspects of the plan that are considered in the following technical sections.

The Energy Market

In the natural world, species are never content to enjoy a comfortable existence. If things are comfortable then the population increases until things aren't comfortable any more. Capitalist energy is like that. The most marginal oil producer is walking a fine line and can't afford any increase in costs or decrease in price. Consider an electricity supplier that owns its plant outright and is making a nice profit on the electricity sold over the marginal costs. In those circumstances modern management feels compelled, by threats of takeover, to mortgage the production facility, pay the cash to the owners (and managers) and continue on the edge with revenue having to cover interest as well as on-going costs.

Having the energy industry on a knife edge is worrying. There is no spare capacity at the current price. It is hard to know whether a rise in demand will be met in time by increased production. Indeed it is hard to know whether any significant increase in production is possible for some energy types. Occasionally we get a clue. The 2008 price spike in oil failed to bring significant extra sources on stream. It is very easy for electricity production to not be ready for rising demand, as we've seen in Pakistan, South Africa and many other places down the years.

Government intervention in Energy

Outside of America, government intervention in energy has been common. In European-style mixed economies, electricity and natural gas supply have been seen as natural monopolies and core infrastructure, and so have been commonly run as government services. In recent years governments have sold off energy infrastructure and most places are now in a similar situation to America.

Once infrastructure is in private hands it makes government initiatives tricky. If the government becomes a participant in the market, this is going to damage the private participants. Presumably compensation should be paid. This is particularly the case where the government has recently sold its previous infrastructure.

The straightforward way to proceed with the Gift to the Future is to (re)nationalize the electricity and natural gas industries. Then the addition of substantial non-carbon generating capacity can be done without consideration of the impact on other businesses. When the energy crisis is passed then governments may choose to privatize energy infrastructure again.

The Energy Crisis

The culture and prosperity of the modern world stems from the exploitation of fossil fuels, starting with coal in the Industrial Revolution. There is a limited quantity of these fossil fuels (coal, oil and gas) and naturally we have been using the best quality and most conveniently located first. So increasingly the fossil fuels we use are more expensive to acquire, and deploy. As the cost goes up we see a narrowing range of uses to which fossil energy can be cost-effectively deployed. And as a simple mathematical fact, as you use up a finite resource there must be particular months and years which represent the highest points of production. Whether you perceive this as peak demand or peak production doesn't matter. The world economy has expanded on increasing use of these fuels and must contract as use of these fuels contracts. That's the medium and long term crisis, but there is a more immediate problem.

Liquid fuel is the most convenient form and so oil has been the most important fossil fuel. The experts are unanimous that the days of easy cheap oil are past. Indeed 2005 was a recent peak of production of oil as it came out of the ground, though 2008 was slightly higher when you include liquid hydrocarbons obtained more indirectly. What we did see in 2007-2008 was that a massive run up in the price of oil was not able to induce significant extra production. Subsequent lower prices have seen the postponement of some exploration and development. It is not unlikely that the plateau from 2005-2008 will be the peak of oil production, and the practical impossibility of obtaining higher rates of flow represents a cap on world economic production for as long as so much infrastructure, particularly transport, is oil dependent.

Burning fossil fuels also creates a wide variety of serious pollution. One inevitable part of burning carbon-based fuel is the creation of CO2, and since it is a trace component in the atmosphere we have been able to make a significant change to the amount of CO2 in the air: from 280 to 380 ppm (parts per million). Most scientists think that it would be wise to stop increasing the level of CO2. Consequently significant sections of the populations of Western countries oppose the expansion of the coal power industry. This political fact is another part of the Energy Crisis.

The Electric Society

Non-carbon energy sources only produce electricity. You can do a lot with electricity. You can split out the hydrogen from water: and possibly use hydrogen as a portable fuel. Perhaps more sensibly one can make more manageable fuels like methanol. Or we can do a lot more things electrically: such as battery (plus capacitor) powered vehicles; railway electrification; heat pumps for heating and cooling.

Whether one generates fluid fuels or uses batteries, there is a substantial loss of energy compared to the magic of oil-derived fuel. So it is not going to be good enough to add electricity supply with equivalent energy to current fossil fuel energy. We need to add much more. We need to generate about triple the amount of electricity that we currently do.

It is crucial that we start this massive build up of carbon-free electric generating capacity as fast as we can. We don't have time to spend agonizing over whether the returns will cover the interest payment. If they do, that will be good. If they don't, that will be because the future is in even greater need of our gift.

Nuclear, wind and solar

Nuclear, wind and solar meet the criteria for the Gift to the Future. The majority of the expense is up-front. Once they are built they provide cheap power. Wind and solar have additional deployment costs associated with energy storage (since they are not always available) and an improved electric grid to cope with the level of variability.

The decision of how to implement the Gift to the Future is an engineering decision. Nuclear has to be in the implementation options for the Gift to the Future, because without that option it will be seen by a significant proportion of the population as yet another Green fantasy.

Notes

When individuals save for future problems they might save money. Society as a whole can't do that. Taking money out of the economy would cause deflation and force the central bank to create more money. Similarly if a substantial amount of money were brought back into circulation it would only cause inflation, it wouldn't deliver wealth to the future. Sometimes one country can try to save money in the currency of another, as China has by investing in America, but we can see that that has put them in a difficult position having lost control of the value of their savings.

We also note that the Gift to the Future would discourage private companies and individuals from investing in energy research. This is something that needs to be addressed, guaranteeing inventors that successful research and development will be well rewarded.

Summary

The Gift to the Future cuts through a lot of the argument about predicting the future. It is an insurance policy. You don't have to believe the climate computer models to worry about the significant change in atmospheric CO2 and other gases. You don't have to subscribe to the theory that Peak Oil is here now to believe that we need to prepare for an electricity-based future with energy security.

The worst that can happen is that we are unnecessarily poor now, as we construct more electric power generation than is immediately needed. The decision to be poorer now to save for the future is one that we all make at times in our lives. Society as a whole can't do that through saving money. We need to actually invest in core infrastructure. Energy is the most important infrastructure for our modern society. The Gift to the Future is a gift to ourselves. This is something everyone can understand.

For more information go to www.gifttothefuture.org.

Carbon politics after the ETS

2009-10-17T14:34:00.001+11:00

Carbon politics after the ETS

In all interesting team games the good players are thinking more than one move ahead, and the most interesting team game is politics. Consider the ETS. It is, in principle, a brick wall. We set a cap on our carbon emissions and emitters are forced to trade to stay below that. The assumption is that the magic of the free market will supply the best possible way of staying below the cap with minimal economic pain.

Does the free market have enough common sense to avoid running full speed into a brick wall? This was amply disproved in 2008 when the economy proved totally unable to prepare for the spike in oil prices which has been predicted for decades. We don't need the magic of the market to work out how to get over the ETS brick wall, because there is only one possible way.

Things that aren't going to work include: the hydrogen economy, carbon capture and storage, solar energy of any sort, covering the landscape with wind farms, building dams, switching agriculture to producing biofuels, geothermal, tidal dams, stopping cows from farting. Many of these involve mankind making a grab for ever more of the limited resources supporting life on Earth. It is a relief that they won't do the job, so that we will be forced to move to the one energy source that nature isn't interested in.

The only thing that will get us over that ETS brick wall without economic disaster is Nuclear Power. Which brings us back to the game of politics. Once Malcolm and the Coalition get the ETS signed up, then they can roll out the Nuclear solution. It will be trivial to use the Senate's powers of enquiry to tear all the alternative options to shreds. They can unwrap a Nuclear policy, complete with a proof that nothing else will do the job. And then suddenly the boot is on the foot. Nuclear Power will tear the ALP and the Greens to shreds, since so many of them think that the truth should never be allowed to get in the way of a good fantasy.

Is anybody in Australian politics thinking more than one move ahead? It is hard to know. You would think that such a plan would make it easy for Malcolm to get Senators to pass the ETS. However he may be wary of discussing it, given that many in his party hate his liberal views, and others are just too talkative to keep quiet about it. I suspect however that is is the clued up ALP that can see this possibility. They'd prefer to have the ETS fail. This avoids the problem. Once again such a cynical intention could not be shared with the rank and file MPs, so we are not likely to ever know. Still it will be interesting to keep this next move in mind while we follow the struggle for an ETS.

World Saving

2009-05-28T09:08:00.001+10:00

World Saving

During the boom, China saved for a rainy day. This now looks wise, but it was only possible because of western countries doing the opposite. We no longer hear Eastern leaders saying that "the West should save, as we do". I guess they've figured out that it is impossible for everyone to save money.

Money is funny stuff. You can't actually move wealth into the future through money. That seems silly, since we do it all the time. However what actually happens is that when you put your $100 in a jar under the bed, then you create a tiny bit of deflation that makes all other dollar holders richer. Then when you take it out and spend it ten years later you cause a tiny bit of inflation that makes all other dollar holders at that time poorer, and that wealth is transferred into your $100 as you spend it. If you doubt this think: is any real wealth lost if the money is accidentally destroyed?

A country can only move wealth into the future through money if it is some external currency. This however puts that country's savings in the hands of that external country, as China has found. And when the amount of money under the bed is in the trillions then the normally prosaic act of getting it out and putting it back in circulation becomes quite tricky. However that may turn out, the relevant point for this discussion is that:

The World as a whole cannot move wealth into the future through money.

And yet there are a number of reasons why the World as a whole should now be doing all it can to prepare for a rainy day. Even though things aren't too flash now, they will get worse on the peak oil down-slope, before we can get the inferior alternative energy sources operational. We need to save.

Saving means doing things now that don't translate into consumption now. This means less consumption now: the very reverse of trying to restart business as usual.

The simplest thing to do is to stockpile useful stuff that is, or embodies, energy. That's what China is doing now: saving oil and iron ore instead of saving money. But there's another name for that: "hoarding". It is an amazing feat of modern thinking to perceive a simple act of preparing for the future as a negative thing. The explicit value of hoarding oil is that it is much more valuable than the current price: quite valuable enough to justify long term storage costs. The act of hoarding raises the current price. This might annoy current consumers (hence the negative name), but this is something we need to do to sustain the oil industry and postpone a complete collapse of the oil industry and everything else. Of course the cheapest place to store it is to leave it where it is, hence Sarkozy's suggestion of a producer-consumer deal on prices, but this seems likely to be politically impossible.

Another thing to do is to build infrastructure now that will be useful later. There's a lot of infrastructure building going on, but a lot is seriously misguided: like extra freeways. The infrastructure we need is for energy and for electrification of transport. We need to build those things now, even though they aren't justified by current economic conditions. Businesses don't spend money to prevent social collapse: that's the government's job.

Using public transport and occasional taxis is cheaper than owning a car. However, once you have (rightly or wrongly) bought a car, it changes your decision process on transport. You can now undertake trips that wouldn't have been justified previously, based on the marginal cost of using the car. You don't include an allowance for the sunk cost of the car when deciding whether to use it for a particular trip. This brings me to the next point.

Having built our low marginal cost energy plants, and our wonderful double track electrified railway network, then we need to make maximum use of those resources. We need to let the price we charge for them drift low towards the marginal cost (including maintenance), not try valiantly to make enough money to cover our sunk upfront costs. If it was possible to cover those costs as well as the marginal costs then business might have built that infrastructure rather than the government.

So how would we actually do this? The aim is to reduce the amount of consumption for immediate use in order to have money and workers available for the infrastructure costs (and for stockpiling as well). The way to do this would be to follow the model of "War Bonds" during war time, and issue "Energy Crisis Bonds" to soak up money. What such bonds should promise to preserve is their value as a fraction of total national wealth. Since the activities are not designed to be rigorously economically justified, they might reduce total national wealth, and hence the value of the bonds, but people will actually be happy to accept that if it is up front. And indeed we know that national wealth will decline in real terms for quite some time for other reasons. People are actually more interested in keeping their share of the total pie, rather than taking risks to preserve value in absolute terms.

There are other ways of saving:

Useful education (small farming?);
Relevant research and development (forget going to the moon);
Cleaning up environmental problems rather than leaving them to our poorer descendants;
Building a low power, mostly text, mostly wireless, free Internet infrastructure for relevant applications (such as education and transport optimization);
...your ideas here...

If the government were to do as I suggest and build energy and transport and provide them cheaply it would undercut businesses trying to deliver these services. Apart from fairness concerns, there have to be serious doubts as to whether governments can make good decisions in these areas. But it seems clear that business perspective is too short term and won't move until too late. The traditional American answer is to provide carrots and sticks for business to move in the directions that government wants. This often seems to combine the worst of both worlds, with poor targetting (e.g. biofuels) and it is very difficult for government to walk the line between too little incentive to do the job and too much granting windfall profits. My feeling is that we need a bit of socialism for a while to have any chance of getting through the Peak Oil downslope to hopefully find the nuclear electricity plus natural gas upslope. Leaving the energy/financial crisis to private enterprise will eventually leave the world's important assets in the hands of a small number of men who are more noted for their ruthlessness than their public spirit.

Even if the details are wrong the fundamental point is right: One of the things we need to be doing is saving and the thing we need to be saving, in various ways, is energy.

Free Will

2009-05-20T12:08:00.003+10:00

Free Will
Many systems behave with very exact determinism. The circling planets and a sphere rolling down an incline were examples that attracted applied mathematical treatment in the early days of modern science. When it became apparent that humans were systems built from the same stuff as inanimate objects it came to be thought that the behaviour of humans must be exactly determined. If you could know the exact state of the person then that persons responses could be exactly calculated. This was interpreted to mean that people don't have free will.
Then came the quantum revolution. Systems don't have exact state. The state of a system and its evolution are only determined statistically, not exactly. This was seized on by some as restoring free will.. This never made any sense to me.
Instead of mapping out a persons exact future, we can instead only map out the probability of all possible futures. Or if you prefer the multi-worlds interpretation then we can map out all the person's futures and how frequently each occurs. It is a mystery to me why anyone feels that this bestows any more free will than the more exact Newtonian determinism.
The problem of free will comes from the intersection of the ideas of science with the idea of an infinite God. God is envisaged as being able to do infinite amounts of calculation at infinite speeds. If we remove the idea of an infinite God then the problem of free will disappears.
Lets suppose that we wish to solve the problem at the heart of the free will issue. We wish to enter the state of a person into some computing device and extract information about the future behaviour of that person. If a person was as simple as a perfect sphere rolling down an incline then we would expect an easy and definitive result.
One possible way to address the problem is to make an exact copy of the person and follow the behaviour of that copy. Effectively we are using a human as a calculating device giving back information about human behaviour. A key question is: can we do better? Can we build a simpler system which will predict the behaviour of the person. Science now understands the butterfly effect: where in unstable systems small changes to small parts rapidly expand their effect to alter the macro state of the total system. Mathematically we now also understand that most information, such as the information describing the state of a person, is incompressible -- it can't be described by a simpler system.[1]
It thus seems overwhelmingly likely that you can't build a simpler system to determine the evolving state of a person. What this means is that the only effective way to find out what a person will do in a given situation is to put that person in the situation and see what they do. To rephrase that:
Observing what a person does is the only way to find out what that person will do.
To me this expresses the fact that the person has free will. The person's actions are not "determined" in any physically meaningful sense.
There is a problem with this interpretation. It also applies to hurricanes and bacterium. Clearly a hurricane doesn't have free will because it doesn't have will at all. A becterium, like a person, does act purposefully to decrease local entropy. If you don't want to allow that a bacterium has free will then the next step up is to creatures which have specialized cells used for decision processes. It seems unlikely that this is a hard break. Probably as soon as there is some cell differentiation then some cells are more concerned with decision and others less. And from there to people there is no clear cut point where we could reasonably divide those with free will from those without.
Sadly even the break between life and non-life is not that clear cut. Perhaps we are forced to the straight forward view that some things have more will than others. Will is always free will because the extent to which a systems actions are predictable by a simpler system is also the extent to which we would not identify something as really displaying will at all. We thus return happily to the sensible view that prevailed before the imaginary monster of determinism arrived on the scene.
[1] somebody, probably Chaitin, proved "nearly all information is incompressible" or something like that.

The Crisis

2008-12-05T14:56:00.003+11:00

The Crisis

Overview
The current financial crisis is not understood correctly, and the proposed solutions are thus incorrect.

The crisis is caused by the inability of the modern economic system to deal with a declining economy. The declining economy is an expected consequence of the Energy Crisis. The fact that oil production is increasingly incapable of keeping up with the demands of a growing economy is the first phase of the Energy Crisis. Later phases will be even worse unless we prepare now.

The Crisis is not about confidence, it is about real underlying problems that need to be addressed. The desire of people to take steps to prepare for the future is correct. The desire of governments to restart business as usual is wrong. People prepare by saving money. This is not the correct way for society as a whole to respond.

This document will mention many actions by society that might contribute to a solution. There is not enough leeway for us to go down many wrong paths. We need to make decisions based on hard-headed numerical calculation and vigorous open debate. We need to minimize decisions based on sectional interests and hidden agendas.

We need to accept that there will be a period of greater central control of the economy, and greater public ownership of economic assets. A Republican administration in the US has found that it needs to acquire an insurance company, so this should be obvious. It needs to be done in a more organized way. We need to plan for Long Crisis Socialism, not just do one ad hoc nationalization after another.

The Crisis will be marked by oscillations between periods of decline and deflation, and periods of economic revival and inflation. We need a better way of dealing with deflation. Current proposals to combat deflation by printing money and spending it randomly will work out badly, particularly if politicians get their hands on the money without oversight.

We are going to be short of expertise for many things we need to do. We are going to have to proceed bravely using intelligence and knowledge, as we do in wartime. The Internet makes knowledge accessible, and is a key tool.

Preamble

We face multiple crises: an energy crisis, a financial crisis and an environmental crisis. Let's just call it The Crisis. We will emerge from The Crisis significantly poorer. But the majority of people in the developed world, the middle class, will be happier, because they will have reclaimed their lives from the incomprehensible and incompetent economic powers that have imposed the current massive economic inequality on society.

According to the statistics we have enjoyed 60 years of nearly uninterrupted economic growth. Surely the middle class has benefited enormously from that? Let's compare the median American 2 child family between 1972 and 2006. In inflation adjusted terms the 2006 family spends significantly less on food, on clothes, on appliances. However they spend 70% more on housing. Does this mean they live in a big new McMansion? No only richer folk do that. Our median couple live in a fractionally bigger house, 6.1 rooms instead of 5.8, but it is 20 years older. The 2006 couple is less likely to have health insurance. The other new cost is education for pre-school and then for college. The significant fall in wealth is despite the fact that in 2006 it is much more likely that both parents work, even with very young children. The two jobs necessitates 2 cars. The final straw is this: in 1972 our median couple was saving 11% of their income. In 2006 it is -1%. Our 2006 family is gradually sinking into debt at the rate of 1% of income per year.

America is, in fact, poorer in many ways than it was in 1972. The reason is that 1972 was the peak of US domestic oil production. Since then an increasing amount of oil has come in from the global oil market, with wealth pouring out in return. But wait, a lot of the outgoing money isn't spent, and returns to America in loans. A giant financial industry grows up, skimming off enormous wealth while selling the white powder of debt to the increasingly impoverished American middle class. It was in fact a giant Ponzi scheme, dependent on new borrowing to prevent a credit collapse. Then the world as a whole hit peak oil in the 2005-2008 period. The resultant oil price spike pricked the debt Ponzi-like scheme. The economic collapse continues as this is written (Dec 2008), with no end in sight.

Society needs to make massive changes in basic infrastructure. It is abundantly clear that the current capitalist financial system is going to fail to support this work. We don't have the resources to get this work done while preserving the extravagant frivolous lifestyle of the rich. And indeed we can see that the rich have not been making the constructive contribution to our society that has been claimed and which might justify their privileges. How the middle class responds politically will determine how we come out of this crisis in 20 years time. We can go through a period of socialism and planning to get the job done, then transition back to an improved free market system that is ponzi-proof and doesn't require the current excesses of social inequality. Or we can just let the crisis play out with endless unplanned government interventions supporting the rich, and finally emerge with the massive social inequality that prevailed before the Industrial Revolution. The middle class is big, and waking it up is not easy, but that is the only route to change we can believe in.

Socialism is a dirty word in much of the West, but even Republican America is doing ad hoc nationalizations now. What we need is serious well-planned socialism. I commend Mike Moore's plan to socialize the American car industry for the duration of the crisis, but it needs to be done in a much wider planning context.

We'll start by trying to understand The Crisis before getting back to solutions and how to get there.

Money

The first thing to understand is
money. Money is certainly funny stuff, and our understanding of it is
rather coloured by the way it used to be a redeemable stand-in for
some physical stuff (typically gold). As it currently operates money
does two things well, and is pressed into service for some other
things which it does less well, particularly in volatile times.

The
things money does well are:

Act as a medium of exchange to avoid the inconvenience of
barter;
Provide a measurement of the
relative value of things at a point in time.

Money is not so good at providing a
comparison of value across time. This is not just because of
inflation and deflation, but because the relative values of things
change, so that inflation and deflation are not well defined: they only make sense if you
know exactly what basket of goods and services you are considering,
and typically the basket that makes sense at one time is incorrect
for a different time.

Money is used by people and
organizations to move wealth into the future. We put dollars into a suitcase under the bed, and spend it at a later time. It seems as if
the money in the suitcase is a magical store of value, but that is
very misleading. What actually happens is this: when you put the
money in the suitcase you take it out of circulation. This reduces
the amount of money chasing the same amount of goods. This causes a
small amount of deflation, making everybody else holding dollars
minutely richer. Then when you get the money out of the suitcase
and put it back into circulation, that money acquires its value by
causing inflation and taking a small amount of value from all the
other circulating money.

It is important to see that this
process, which makes it possible to move wealth into the future
through money, only works for entities embedded in a relatively
stable wider environment. Society
as a whole can't move wealth into the future through money. We'll
come back to this point later. Real wealth isn't money, it is
useful physical stuff, and knowledge and expertise. Some of it can be
moved into the future, but most loses some or all of its value
in the process.

There is a real economy out there with real goods and
services and activities. One needs to think clearly about that, and
not think too much about money. That's what we'll be trying to do in
this document.

The Energy Crisis

The prosperity of the modern world has been built on cheap fossil
energy, starting with coal for the Industrial Revolution. This fossil
fuel is running out much more rapidly than estimates from official
geological sources. Oil, and particularly cheap good quality oil, is
evidently running out first. Even when the price was recently very high it was
not possible to expand supply. Demand is now down because of the
worldwide economic meltdown, but we are still using up this finite
resource at a great rate. By the time demand recovers, the maximum
available oil production rate will not be able to reach the plateau that
we've seen from 2005 to mid 2008. It is almost certain that the peak
of oil production is behind us and a long and bumpy decline lies
ahead. The core job of governments over the next 20 years is to
manage that decline and optimize the changeover to other sources of
energy. More on that later.

This document will assume that
we've passed peak oil, with peak natural gas and coal to follow
within a decade or two. If you don't agree with this then what
follows will describe a future rather than a current problem. That
would be great. There would be time to prepare and possibly avoid any
monumental economic catastrophe. But make no mistake: there has to be an end to exponentially
rising consumption of finite resources (in this case fossil fuels), and there will be
something like a bell shaped curve, with a peak followed by decline.

Oil use tracks the economy

The last 60 years have been the age of Oil, and the clearest
indicator of that is how closely the world's economic production has
tracked up and down with oil production. It makes no sense to ask
which causes which. We saw how quite small reductions in oil
production during previous oil shocks lead to matching economic
declines. Most of the time we've seen the reverse, with a rising
world economy demanding more oil, and until recently getting it.

The world's economic infrastructure, particularly transport, is
tuned to oil. The economy will decline with oil production, though at
times it won't be clear which is leading and which is following. As
we switch away from oil, the economy will eventually decouple. We
need to make sure that happens sooner rather than later. Some Peak
Oil commentators think that this won't happen until there is
something like a complete collapse of civilization. I don't believe that, but I do think the problem is very serious, and how bad things eventually get will be determined by the quality of our response now. If there was a break in the continuous thread of industrial civilization, then, with all the easily accessible resources used up, our
descendants would have a much tougher time rebuilding an industrial civilization
than our ancestors had in building it. Quite possibly there will be
no second chance.

The Tsunami Effect

Those likening the current economic problems to a tsunami are more
correct than they realize. The characteristic of a tsunami is that a
sudden change in the ocean floor requires the ocean to make a
matching change. But it can't make the change across the whole ocean
instantly. Instead it makes a much larger change locally, and that
change is communicated to the rest of the ocean in a series of waves.
Suppose there is a sudden uplift in a part of the ocean floor. Then
instead of lifting the whole ocean a minute amount, instead it lifts
the water just above the uplift by a lot. The top of that water is
then higher than the surrounding ocean and collapses outwards as a
spreading wave. It collapses so fast that it overshoots downwards
creating a local trough at the scene of the uplift. This then follows
the spreading wave with a following spreading trough. And so on, so
that we get the series of peaks and troughs that characterize the
tsunami.

Something similar happened during the recent rise in the oil
price. The underlying dislocation was the sudden appearance of an
unbridgeable gap between the demand for oil at the prevailing price
and the available supply at that price, and indeed supply was unable
to rise at any price. There was a need to reduce demand to match
supply. But it was impossible to reduce demand in a uniform way
across the whole economy, since so much activity was predetermined by
existing contracts and unavoidable use. So the bits of the oil demand
that were able to reduce needed to be hit extra hard. The price had
to go up enough to stop vacation and other optional driving across
the world, and other easily modified behaviour. To do this the oil
price overshot upwards by a lot. At the prices that were reached, many companies
were the living dead, continuing only on momentum and hope and
existing contracts.

The
effects
of the high price spread out like a wave, touching
enterprises that aren't obviously much affected by the oil price. At
the time of writing (December 2008) the economy is in free-fall. It has
already dropped
enough so that there is no shortage of oil, but it has much further
down to go before it rebounds. When it does recover it will once
again rise enough to hit declining oil production, the oil price will
again soar, and a new episode of economic collapse will start. These are the waves of the Peak Oil Tsunami.

The future promises to actually be messier than the picture above suggests. Jeremy Grantham, chairman at Grantham Mayo Van
Otterloo, an institutional money manager, said recently: "The global economy gives a good impression of having run at top speed
into a brick wall". It is doubtful if we will get up that head of steam again. So the next time we will run into peak oil at a slower speed, with some parts of the world economy going well, and others less well. The price break out will be less dramatic and the crash less catastrophic. Maybe we'll ride the wave down the slope for a while instead of wiping out.

The Financial Crisis

Many think that the economic meltdown is just a result of problems
in the financial system. It is certainly hard to disentangle these
issues, but we'll try.

Recycling Money

In a barter economy, if you wanted to save for the future then
you'd acquire durable stuff that would be useful later or
exchangeable later. In a money society we like to save money. But
money is funny stuff. If someone saves money then someone else has to
go in to debt, to balance it out. Maybe you think they could just put
it in a suitcase under the bed, but that would cause deflation and
the central bank would end up creating money to lend to balance it
out, aiming, as they do, for 2-3 percent inflation.

Unfortunately the world is cursed with some very determined
savers. This includes the Chinese government and, most relevantly to
us, some of the major oil producers. Hasn't it been a cosy deal. They
send us oil and we send them bits of paper: dollar bills, bonds,
equities. Much of this paper is turning out to be
worthless. A huge financial industry grew up to recycle oil money
back into the Western economies as loans. Hundreds of millions of
dollars, or more, was siphoned off as our enthusiastic savers were
connected to ever more dubious borrowers. “You mean I can live
in this house for nearly nothing for 2 years, then walk away when you
put the interest rate up?”; “Yep”. Then the lenders
borrowed more money using those mortgages as collateral. Wow.

Still, no real wealth is destroyed by this chicanery. A lot of
wealth has ended up in the wrong hands. The fact that banks and other
financial institutions (and even countries) are insolvent is a real
problem, but can be fixed, as we are seeing.

The real problem is that we have a declining economy and our
economic system is not designed to handle that correctly. The oil
price overshoot was always going to lead to an economic (and oil
price) crash. But the management of the crash is incorrect. In
particular allowing deflation is disastrous.

Deflation

The combination of economic decline with deflation is disastrous
for many reasons. With total output declining, wages need to go down
in real terms. Deflation means that wages are rising in real terms,
and this can be very hard to renegotiate. The result is rapidly
rising unemployment and companies going broke. Another problem is
that companies are unwilling to sell assets preferring to leave them
on the balance sheet at an inflated price, thus concealing the loss.

When we have a forced economic decline (and we need to get used to
that) then we would like to have that run smoothly, with everyone
getting poorer together. Deflation prevents that, causing the economy
to seize up. Deflation is actually easy to fix, but the important
thing is to do it in a way that addresses the underlying problems
rather than the symptoms.

It is crucial that independent central banks, not politicians,
address
deflation, just as they have the job of preventing inflation. The
solution to deflation is to print money and spend it. However it should
be done in ways that (a) are reasonably fair and automatic; and (b) is to a large extent
reversible when inflation reappears. It is also sensible for the government to requisition some of the printed money to spend addressing the underlying
structural problems which lead to the economic decline.

Printing money is
a tax. It is used by all governments in war time because it is so easy to
collect. It is a tax on people holding money and on lenders. Because it is a tax, the
central banks should provide the printed money to government for spending when there
is appropriate tax legislation. Other than that it should be constrained to spend the money in an automatic way that is reversible. In America the Fed buys up outstanding government bonds. Australia doesn't have any such, and I think even America may not be able to buy enough. Also pumping money into the bond market is a very indirect way of getting it into the general economy. I think the questions of how to reversibly spend the money needs to be considered more. My instinct tells me that the right approach is for the central bank to buy durable
stuff that it can expect to sell when the economy picks up. Why? Because this is what an individual in a pre-money society would do to prepare for the future.

In our current crisis Governments need to spend some of the printed money on
infrastructure to address the underlying problems, but this will turn
into a feeding frenzy of bad decisions if governments are allowed to
spend the printed money without the consent and oversite of the legislature.

Capital Destruction

We've seen how reaching Peak Oil requires some process to destroy
demand. More important than demand destruction is capital
destruction. Here I am referring to real capital: useful physical
assets, knowledge and expertise.

When we move to a new technology we destroy the capital associated
with previous technologies. A recent example is the move to mobile
phones. Suddenly all those pay phones weren't making any money. And
it wasn't just the pay phone booths that had lost value: behind that
was a whole lot of back office equipment and human expertise. Of
course we absorbed that particular capital loss with no widespread pain.
Switching from an oil based infrastructure will be extremely painful,
even if the replacement is just as good. And it won't be.

The Great Depression of the 30s has been portrayed as being about
nothing substantial: just economic mismanagement by Government and
Central Banks. However looking back we see that it was a time of
enormous change in the underlying infrastructure of the Western
world. Energy moved towards electricity, oil and natural gas.
Transport moved from horses to motorized vehicles. Communication moved to
the telephone. There was massive capital destruction, and the need to
build new and different capital. Having said that we can see that
things would have worked better if governments had not allowed
deflation and perhaps they could have done more to help get the new
infrastructure up and usable.

In our current crisis, the capital destruction caused by moving transport away from oil
is not just the obvious: vehicles, service stations, mechanic
expertise, airports, ... . It also includes a lot of things built on
the assumption of cheap transport, particularly the Western world's
sprawling suburbs. When we subsequently move away from fossil fuel
for electricity generation, that will also destroy the value of a lot
of energy infrastructure.

The Underlying Problem

Getting the financial issues sorted out will reduce the pain and
duration of the transition. Addressing the underlying energy problem
is more important.

The initial problem is the decline in amount and quality of oil
produced. Liquid energy has been particularly important for
transport. We need to transition as smoothly as possible to
alternatives. Boats and trains can transport for much less energy
than road vehicles. Train lines can be electrified. Larger vehicles and
boats can be run on compressed or liquefied natural gas. Cars can run
on batteries or hybrid engines. Large ships could return to coal or
even move to nuclear.

This is a huge change in infrastructure. Government will have to
lead. Good decisions need to be taken about what to do and in what
order.

Following uncomfortably soon we will see the worldwide peak and
then decline of all fossil fuels. This is hard to believe in
Australia where we have a lot of coal and gas, however there is no
doubt that we will sell this, at least to our traditional friends, in
an increasingly dangerous world. So the world, including Australia,
needs to prepare for a post carbon economy. Of course this is
pleasing for Australia which is predicted to be badly affected by
climate change. Our chances of co-operation on reducing use of fossil
fuels was never good, but it will turn out that the world has no
choice.

The bad news is that all our non-carbon options, nuclear and
various sorts of renewable, have significant up front capital costs
before they then deliver energy with low marginal cost. The exception
is biofuel which doesn't seem to deliver net energy at all, and will
not be considered here.

As with transport, the government is going to have to take the
lead in a huge capital investment during very difficult economic
times. There is no room for spin, pork or emotional consideration in
determining where to put that effort.

Energy for everything

It seems as if there are many inputs to our modern life, but all
of them can be replaced with enough energy. If you want fresh water
then energy can desalinate sea water and energy can transport the
water.

If we look at any physical thing shaped by human intention or any
human activity, then we can see that it was constructed using
existing infrastructure plus energy. If we look at that
infrastructure we can see that it, in turn, was constructed with
previous infrastructure and energy. This can conceivably be traced
backwards to when there was no infrastructure shaped by man at all.
Energy is everything.

There is one other essential ingredient: Suitably educated humans
to utilize the infrastructure.

Energy and Jobs

Energy and appropriately educated humans utilize existing
infrastructure to generate directly useful stuff plus new
infrastructure:

Note that our productive infrastructure is effectively decreasing
because it is tuned to an energy mix which is changing.
So total output is going to be reduced till that is fixed. To fix it
we need to devote a larger proportion of output to building new
infrastructure. So that is going to reduce the amount of useful
output even more. And then our productive infrastructure is not
optimized for its new job of building this new infrastructure, which
reduces its effective size still more.

With the Industrial Revolution, we learned to utilize an easily
expandable supply of cheap energy. This leads to ever more
sophisticated infrastructure, and a huge demand for educated workers
to drive that infrastructure. The relative shortage of workers drove
up wages and drove the price of energy down. In the following diagram
the icons are set so that a typical activity requires an equal number
of people (workers) and barrels (energy):

Because there was plenty of energy, energy prices were driven way
down. The fact that energy prices got off the floor over
the last few years shows that we aren't in this position any more.

If we get to the point where there is a significant shortage of
energy then we might go back to the way things were before the
Industrial Revolution, with wages driven to the floor:

This future destruction of the middle class is an additional reason that the middle class needs to wake up politically now. With this sobering possibility in the distance, we will turn to
the consideration of what needs to be done.

Navigating to a solution

There are no easy answers. That's why we must look at the process, not just grasp at possible solutions.

The Truth will set us free (or at least give us a
chance)

There is this idea that the economic issue is lack of confidence.
This is demonstrated in Australia by both sides of politics accusing
the other of not talking up the economy. Nothing is more destructive
of confidence than lies. Nothing would do more for confidence than
publicly identifying the real underlying issue, explaining what is
the best we can expect under the circumstances, having a plan to get
that best possible result. People will get behind that, if the plan
clearly identifies how it shares the pain as evenly as possible.

We don't only need more truth from government to people. We need
more information available about what people and organizations are
doing. We need more transparency.

The more transparency there is, then the better decisions the
markets and governments will take. This becomes much more important
in a long period of decline. People are going to be asked and
required to make sacrifices. They need to be able to see that
everyone else is also making sacrifices.

Since we need to make massive infrastructure changes at a time of
economic weakness, we can't afford to make mistakes about this. We
can't have politicians picking the most articulate advocate, or the
most politically advantageous option. We need independent scientific
and engineering teams with strong mathematical skills to conduct an
open and vigorous evaluation of the costs and benefits of different
options. This has to include substantial powers to investigate the
claims of companies with a commercial interest in government decisions. A nice name for this investigation team might be "The Ministry of Truth": reminding us of the novel "1984" and the destructive power of spin.

“Prepare for the future” mode

People are clearly showing that they want to save to prepare for a
difficult future. Meanwhile governments want their citizens to get back
to normal spending
patterns to get the economy back to business as usual. The people are
right.
We must go into “prepare for the future” mode. But
governments can't prepare for the future by saving money, except by
the beggar-my-neighbour tactic of saving some other safe currency,
and indeed there is no such currency.

To prepare for the future we have to stop spending money on
swimming pools, SUVs, eating out, etc. Instead the community as a
whole has to spend on new infrastructure for a changed future.

To encourage people to save, and to channel those saving where
they are needed it seems that we can learn from war time experience,
and issue “Energy Crisis Bonds”. These would logically
safeguard the value of the investment in real terms, as a proportion
of the nation's wealth. During the period of deflation there will also
be money available from unfunded spending (printed money) and that will
also be available for building infrastructure -- preferably with the consent and oversight of the legislature.

Clearly switching the working population to different activities
is going to cause a lot of dislocation, with massive unemployment
having to be absorbed into infrastructure construction. The
government will naturally make more labour-intensive infrastructure
development choices, because of the substantial cost in
unemployment benefits that is already effectively committed for each worker.

Happiness

Research,
and common experience, tell us that people will not be less happy when
they are poorer, as long as they feel that it is unavoidable, and as
long as they feel that everyone is suffering equally. This can not
plausibly be achieved without a higher level of transparency into
individual wealth than we have known recently. We remember Mrs Bennett
in "Pride and Prejudice" saying that Mr Bingley, who she hasn't met,
has "five thousand pounds a year". We don't need to get back to that level,
but we do need to have real statistical information published regularly
about how different groups in society are faring, about asset price
changes, and so on. Social harmony will be preserved if government responds
quickly when some groups are benefitting unfairly from the difficulties of
society as a whole.

Phases of the Energy Crisis

The first
phase of the energy crisis is peak oil, and that is happening now. Oil
will still be our major transport fuel for a decade and have continuing
use long after that. However the steady decline in maximum achievable oil
production puts a cap on maximum economic production. When we are near
that cap the price of oil will limit demand and initiate further
economic collapse. During this phase we are not short of energy, just
of liquid fuel, particularly hitting transport. During this phase it is
possible to make progress without improving efficiency, as long as
liquid fuel use is reduced. For example trams use much less energy than
electric trolley busses, but electric trolley bus systems are
cheaper and easier to install. Looking at longer routes, trains are
much more energy efficient than buses, but it is much easier to set up
a bus infrastructure with natural gas powered buses. But choosing the
less efficient quick solution should always be done with eyes open, and
with a plan to move beyond that choice.

The second phase of the
energy crisis will be the decline of natural gas. This will not hit the
world uniformly since natural gas is less likely to be
transported. The infrastructure for transporting gas is being built,
but will not be adequate for a fully global gas market for a long time:
so most places without gas will be forced to go to phase 3 early.
Natural gas does make a useful replacement as a transport fuel, even
though the handling issues are more difficult and potentially dangerous.

The
third phase is the decline in coal which will start within 10 or 20
years. We are used to hearing that coal will last for hundreds of
years. However already we see that the good quality coal and the easily
accessible coal is disappearing. While there is a lot of coal out
there, it is not much use if it takes nearly as much energy to get it
out and prepare it for use as you get out of it by burning it. The UK provides an example of what we might see with coal production: estimates of coal reserves in the UK were still being given as decades, until just before the coal industry collapsed in the 80s. We also hope to close down coal mining earlier than necessary in order to leave as much coal in the ground as possible, to reduce the
level of global warming.

Peak coal is the most important. If we
aren't well on the way to non-fossil energy sources by then, the
consequences will be drastic. The timing of peak coal is very
uncertain. There are other important reasons to want to leave coal in
the ground. So moving to carbon-free electricity generation must be
given very high priority, nearly as great as the priority we give to
dodging the bullet of peak oil by moving to transport options that
don't depend on oil derived fuel.

The key thing to understand
about phase 3 is that electricity is nice for some things, but it isn't
convenient for all things. A lot of energy conversions will have to be
done, a lot of batteries will have to be built. You can't just add the
current electric energy and the current oil and gas energy use and say
"that is how much electric energy we will need". Instead we will need
much more than that, just to stay in the same place. This at a time
when it is hard to get any sort of power station built at all.
Governments are going to have to ride roughshod over local objections
to every sort of power station.

Specific Actions

This section is meant to give an idea of the range of possible specific actions to address the Energy Crisis. Different ones harm or help different groups of people. So getting the right plan adopted and implemented expeditiously will require a lot of political energy. The problems will start with the evaluation of options and that needs to be done vigorously and transparently by engineers not politicians. However it is reasonable to expect that many actions can be identified as no-brainers that we can start on immediately. For others we can start on preliminary planning and initial work, without definitely committing to that action.

Transport

If all countries put a huge effort to move away from oil dependence
for transport, it won't come soon enough to prevent real problems
the next time the world economy gets going again. But the sad fact is
that some will make less effort, and oil exporting nations may make no
effort at all. So the countries that do make preparations need to do
even more:

Stockpile oil while its relatively cheap during economic down periods, to release when the price shoots up;

Strategic Petroleum Reserves need to be much larger than they currently are. Australia currently has the worst.

Convert
as much public transport as possible to electricity or natural gas (if
locally available), and where that is not possible, stockpile the fuel;

Busses and trucks can all be Natural Gas in Australia.

Expand public transport, and rail and coastal shipping freight, as rapidly as possible;

Now is a good time to buy ships;
Busses should have more right of way;
Car congestion taxes should be used to keep the roads unclogged;

Install
the infrastructure to support electric and natural gas vehicles and
keep raising taxes on petrol and diesel and on new petrol and diesel
vehicles;
Remove the duty and quickly fix any unnecessary standards issues to allow the import of electric and natural gas vehicles;
Install additional electric generating capacity to cover additional transport requirements;
Rezone land near railway stations for medium and high density housing and facilitate actual construction;
and lots of other stuff...

Energy

In the short run we need more energy, in order to support transport in various ways, heating, etc. The government needs to lead because, from a business point of view, there is less need for energy during the economic slump. Also alternative and nuclear energy have large up front costs which will be very hard for businesses to raise in the current credit squeeze.

Expand existing fossil fuel power stations where possible, to bridge the time gap to non carbon power;
Start to plan and build every sort of new power production, combining learning with doing: wind, geothermal, solar, nuclear;
Improve the electricity grid substantially in capacity and intelligence;

Need high capacity DC links from energy sources (like wind on west Tasmania) to customers;
Need to handle variable input better (like wind and solar);
Need to allow entepreneurs to safely connect and get reward from electricity generation and storage;

Provide government funded oil (and gas) exploration and development while oil prices are low;
and lots of other stuff...

Long Crisis Socialism

When there is a real crisis then everyone is a bit of a Crisis
Socialist. Wars and economic collapses cause all governments to engage
in the sort of economic activities that normally only Socialist
governments do. Even George Bush is a bit of a Crisis Socialist: his
administration has purchased the insurer AIG and some banks.

Normally it doesn't make sense to describe yourself as a Crisis
Socialist since it is only applies in temporary circumstances. This
time it's different. The Energy Crisis is going to be a very long
crisis, lasting decades, with other environmental and resource
limitation issues threatening to extend the crisis. The current
financial crisis is the first phase. Ad hoc crisis socialism is
happening everywhere, without any understanding of the nature of the
crisis. We need to do Crisis Socialism properly: understand the
problem, work out what needs to be done, and plan so that things are
done in the right order. When we get past the crisis we can denationalize
the socialized activities.

Socialism only works when people are in the mood to sacrifice for the
good of the community. It works in crises. Preserving the people's good
will and support is the essential ongoing requirement. This can only be
done with a high level of trustworthy transparency.

Politics

‘what is democracy but the stage immediately preceding
oligarchy?’ Aristotle

In the World's current circumstances Socialism is not extremism, it is just an inevitable practical step. There will be plenty of extremist voices in the months and years to come. To resist those calls we urgently need clear headed leadership that can sell the necessary sacrifice to the people.

Dealing with Deflation

2008-11-03T21:41:00.001+11:00

Dealing with Deflation

The prices of houses and other fixed assets are declining. The prices of commodities are falling. This is deflation. It hasn't made its way to the supermarket shelves yet, so official CPI figures are still registering inflation. That's a good reason why governments need to change their way of identifying inflation.

The combination of economic decline with deflation is disastrous for many reasons. With total output declining, wages need to go down in real terms. Deflation means that wages are rising in real terms, and this can be very hard to renegotiate. The result is rapidly rising unemployment and companies going broke. Another problem is that companies are unwilling to sell assets preferring to leave them on the balance sheet at an inflated price, thus concealing the loss.

When we have a forced economic decline, and we need to get used to that, then we would like to have that run smoothly, with everyone getting poorer together. Deflation prevents that, causing the economy to seize up. Deflation is actually easy to fix, but the important thing is to do it in a way that addresses the underlying problems rather than the symptoms. More on that later.

Decline leads to Deflation

Deflation occurs when there is less money chasing the available goods and services. Since the available goods and services are going down, it is not obvious why an economic decline leads to deflation. The reason is that money is not just the stuff the central bank prints. For practical purposes it includes credit.

In an expanding economy it is relatively easy to use borrowed money to do things which will bring in more money, or for the consumer to buy now expecting to earn money in the future to repay. In a declining economy, and particularly when switching from expanding to declining, we see that loans go bad, wiping out credit, and then lenders are unwilling to lend and borrowers are often unable to roll over their debt.

There's a chicken and egg problem here. To a large extent it is the deflation itself that stops lending, which in turn leads to more deflation. Only the first few percent of the current decline was caused by the contracting oil supply.

Why does deflation stop lending? I remember when I had a young family I bought a house on borrowed money. Then, after a bout of inflation, I was lucky to be able to repay it with much less valuable money. Deflation has the reverse effect. If you borrow money then you have to repay a larger amount in real terms. If you are trying to run an enterprise and you borrow money to buy the inputs, by the time you have a finished product to sell its price has gone down. Inflation hits those lucky enough to have money in the bank, but deflation hits the most vulnerable and the most productive.

Inflation makes real interest lower than nominal interest rates. Deflation has the reverse effect, making real interest rates higher than nominal. This is a problem for central banks, which try to stimulate the economy by reducing nominal interest rates, and they can't reduce nominal rates below zero.

Printing money

Deflation is easy to deal with. Just print enough money. It is hard to do this without distorting the economy. Even when you do want to distort the economy in a particular direction, it is a mistake to go too far, and most of the created money needs to be distributed in a way that does minimal distortion. More on that in the next section.

The next problem with printing money is that the extra money will tend to cause inflation as soon as the economy bottoms out and credit starts to rise again. So money needs to be put into the economy in a way that is substantially reversible. However it would be a good idea, particularly in our expected peak oil economic decline, to not allow the huge credit expansions of the past. This is what many advocates of sound money desire, but they want to get there by allowing deflation to run its course, and that would be a catastrophic and unnecessary mistake.

When governments print money they do it as a loan from a magic account, which then goes negative, to the spending agency. Repayments to the magic account represent money being "burnt", the reverse of "printed". It is important to understand that this is not a real loan in any sense. It is not "this generation spending money that furure generations will have to repay" or anything like that. Printing money is all about the here and now, and not about the future. It is a tax on people holding money and on lenders. It is the easiest tax to collect, which is why it is so popular in war time.

An alternative way for governments to raise money is to really borrow money, by selling bonds. This doesn't normally counteract deflation. However when people are just holding on to money, then that is deflationary and government can counteract that by selling ultra-safe bonds to soak up that money, then spending it. America particularly needs to do this because they buy a lot of oil and other stuff without sending equivalent amounts of goods and services in return. They should try to stop doing that, but until then they need to provide somewhere for all those dollars to go. Since the oil exporters and other savers have lost confidence in commercial opportunities it is necessary for the US Treasury to borrow that money so that it has somewhere to go, so that the wheels of commerce don't grind to a halt. The $700 billion expansion of US borrowing won't be enough. Now borrowing money like that really is a debt that future Americans will repay. However Americans worry unduly about this since they can obviously print money to repay the loan if necessary. This is not an option for most countries whose loans are denominated in a foreign currency, normally US dollars. Argentina might go broke and default, but the USA never needs to.

How to spend printed money

As with inflation, preventing deflation needs to be a central bank job, not a government job. Since the solution is to print money and spend it, the politicians would spend it on vote buying and that would distort and destroy the economy.

It is also wrong to do what we are seeing worldwide: Giving money to banks and encouraging them to lend it. This is an unjustified gift to bank shareholders and bondholders, and success would be just another credit bubble.

Deflation happens when people are sensibly battening down the hatches and preparing for the future. The government has to respond to this by shifting economic activity to things that will be useful in the expected difficult economic future. The matter needs to be given careful consideration and modelling. However to me the likely best answer seems obvious:

The central bank should counter deflation by printing money and spending that money to buy and store durable commodities. This has multiple positive effects:

It puts money into the economy to counteract the shortage of money caused by the collapse of credit;
It keeps up the price of those commodities and hence the products that are derived from them, counteracting the decline of prices;
It can be done in a fairly automatic way, with purchases being done to preserve normal relative levels of production uniformly across all durable commodities;
When the economy turns and there is a need to soak up that extra money put into the economy before it causes inflation, then all that needs to be done is to sell the commodities. This is doubly anti-inflationary since it soaks up the money and reduces the price of the commodity.
Stockpiling useful commodities really is a good way to prepare for various future difficulties such as wars and natural disasters interfering with supply.

Critics won't mind this when the commodity is produced locally. However it is important to cover the range of commodities evenly so that the central bank can do it in a very automatic way, just like setting the interest rate. In may ways it is even more important to stockpile essential stuff that can't be sourced locally.

When the central bank prints money and buys commodities that are sourced overseas then the local currency has to be converted into the sellers currency. This takes place in the currency market. The effect is to reduce the value of the local currency relative to others. This makes exports more competitive and imports more expensive. The import of the purchased commodities has to be matched by higher net exports (and/or higher foreign investment). Either way the money that seems to be spent on foreign stuff actually finances an equivalent amount of local activity.

Summary

Central banks need to have the job of fighting deflation as well as inflation. To do this they need to print money and pump it into the economy in a reversible way so that it can be removed when inflation reappears. A simple an automatic possibility will be to use printed money to buy and stockpile (and later sell) durable commodities in their normal ratio of use.

Garnaut and the Peak Oil Tsunami

2008-07-07T21:18:00.003+10:00

Garnaut and the Peak Oil Tsunami

Describing Peak Oil as a tsunami is actually a good analogy that goes beyond the scale and destructive power, here's why: In a tsunami an earthquake under water rapidly displaces water. But it can't spread the displacement of water across the whole ocean, so it does a larger local displacement. Then that raised water collapses spreading a wave of high water rolling outwards, followed by a trough, and so on. These waves constitute the tsunami. In the case of oil production we find that supply is unable to grow, being near its peak, while demand is increasing, so the gap at any given price keeps rising. If this gap had arisen slowly then the whole economy would slowly adapt. However it has arisen rapidly. So the price of oil has had to overshoot, rising enough to kill off the sort of demands, like vacation driving, that can easily be foregone. Meanwhile many businesses are continuing that are not viable at this oil price. They are just continuing on momentum and hope and existing contracts, and continuing to consume oil. What then happens, as we see throughout the world economy, is that those businesses die or contract. And since the oil price rise has overshot, this demand destruction will soon cause the price of oil to start falling. This will in turn overshot in a downward direction, resuscitating demand. This will then interact with the worsening supply problem to cause a new bout of demand destruction. So we see that the destruction of demand, that is necessary to bring demand into line with the long term decline in supply, will occur in waves. Each wave first hits the most easily destroyed demand, but reaches out to touch the whole economy.

If, as many have speculated, the recent increases in energy prices are already enough for us to meet our carbon emission targets, then there will be more emission certificates issued than are actually needed to meet our targets. So the market price of emission certificates will rapidly fall to zero, and there won't be any additional burden on the public. The Garnaut scheme is sufficiently flexible that we don't have to worry about whether it might be unnecessary. We must, however, look more deeply into the question of how peak oil and its related problems interact with carbon mitigation.

Some of the people who predicted the timing of Peak Oil so exactly, starting with M. King Hubbert in 1956, have also looked at natural gas and coal. Their deduction is that there is much less than is commonly supposed. The people who said until recently that there was no chance of an oil shortage, are the same people who say that natural gas and coal will last a very long time. Some of those who have been proved right on oil, believe that we will see the world peak of natural gas in 10 years and the peak of coal production in 25 years. Even the lowest scenario for carbon emissions in the IPCC report will never materialize, so the world temperature rise won't exceed 2 degrees (barring unmodelled positive feedbacks). It would however be nice if we could make the temperature rise even less.

The whole thrust of the Garnaut report is on reducing the rate of emissions worldwide to be aligned with the ability of nature to absorb that carbon. We can now see that that isn't going to be a problem. From a point of view of reducing the impact of carbon emissions the issue moves to this: As we move inevitably to a post fossil fuel era, can we leave some carbon in the ground? Clearly if, as I am convinced, those predictions are correct about peak natural gas and peak coal, then the world needs to move very rapidly to a post carbon economy. If we sensibly leave a bit of margin for error in that change, by moving more quickly than is entirely necessary, then we will, as a consequence, leave some carbon in the ground and suffer less climate change.

Garnaut encourages Australia to take the lead in mitigating climate change, since the modelling suggests that we will be the worst sufferers. Other countries are less negative about warming. Russians are publicly licking their lips. The Canadians are too polite. Many countries are too poor to consider any sacrifices. Garnaut himself has expressed pessimism about the whole enterprise. But the world has to respond to peak fossil fuel to lead us to a post carbon energy environment. If we do that as fast as we possibly can then we're still more likely to be late than early. If we're early and manage to leave some carbon in the ground that will be a bonus. If you're worried about climate change but don't actually believe that fossil fuel will peak, I'd still urge support for a world wide campaign to address peak fossil fuel, because that is more likely to actually move the world off carbon than appealing to moral sentiments and good will.

The aims of climate mitigation and overcoming peak fossil fuel are better aligned than they seem to be. Let's look at the two most obvious conflicting cases.

Oil is running out first. It is the world's main transport fuel. Compressed or liquefied natural gas is a good replacement. In the circumstances it is a bad idea to burn natural gas for electricity instead of coal. As Matt Simmons says in a recent presentation "Natural gas is our most precious fossil fuel". Carbon trading (or tax) oriented to reducing the rate of emissions may force a switch to gas. However if, as indicated, the gas will soon peak, then we will get back to burning the coal later. If you see the aim as leaving carbon in the ground then the advantage of switching to gas to generate electricity is much less, if any.
There is a huge worldwide infrastructure for liquid fuels for transport: most particularly the existing vehicles and service stations. We can't magically switch all that to natural gas and electric in a short time frame. One way to preserve the value of that infrastructure and reduce the economic impact of peak oil is, during the transition, to do some conversion of gas to liquid (GTL) and coal to liquid (CTL). This requires energy, so the quoted figures show high carbon emissions for this process. This is exaggerated however, because the energy source doesn't have to be a fossil fuel one. One needs to also consider the cost in energy of moving the infrastructure away from liquid fuels more quickly, if we don't do GTL/CTL.

Garnaut is an economist and assumes, I guess, that the magic of the market will produce a replacement energy source. It will be wise to be more proactive and to move forward with an option we know will work, even if that doesn't end up being the economic winner. Many people are hoping for coal combined with carbon capture and storage (CCS). That is not going to work if CCS fails or if the world runs out of coal, and I expect both of those things to happen. It is hard for renewables to fill the whole bill because they are intermittent and their huge scale inevitably involves significant ecological impact. I have high hopes for geothermal, but the limitations and costs of drilling technology suggest that this won't be universally applicable.

To me it is clear that the core energy infrastructure for most of the 21st century will have to be nuclear power. If it is inevitable, then let us get there as soon as possible and leave some carbon in the ground. There are many wild claims about this. Some say it is not price competitive. In that case it won't happen, and a lot of dispute will be unnecessary. With modern reactors the available uranium and thorium will last a long time, and there need not be a problem of very long term waste. Nor are modern reactors useful for making real atomic bombs. It would also be possible to site nuclear reactors in safe places and generate other fuel in various ways: e.g. hydrogen from water. Australia would be such a safe place, geologically and politically.

The question of whether Nuclear Power is necessary or not is one of fact. There are many other important questions that need to be answered. We need to get past politicians believing the most plausible experts and pandering to voters special interests. We need open vigorous expert well funded impartial investigations of the facts by people with mathematical skill. As Professor David MacKay says: we need numbers not adjectives, modelling not arm-waving. Prof MacKay is head of the Inference group in the Physics Department at Cambridge. I urge everyone to read his book on sustainable energy which is available free on the Internet at withouthotair.com.

We are running out of fossil fuel. This is the immediate problem that we need to address. Luckily doing so will address climate change more effectively than worldwide cooperation and goodwill were ever likely to do.

ECAL posting

2008-06-22T11:59:00.004+10:00

The previous post is from a google doc: http://docs.google.com/Doc?id=dg7nkx7d_41g5zrpx8k. I don't know why it decided to make H3 headings bigger and brighter than H2.

I'm looking for people who roughly agree on proposed policy. to discuss the possibility of forming such an organization. Mostly in Australia, but if people want to do the same elsewhere it would be a good idea to have an umbrella organization.

If you're interested in joining, please comment in this post. If you want to disagree on my policy items please comment on the previous post.

Energy Crisis Action Lobby

2008-06-22T11:51:00.001+10:00

Energy Crisis Action Lobby

Political response to the Energy Crisis is misguided. This is a matter that affects everyone. The Energy Crisis Action Lobby (ECAL) is an organization of like minded citizens to press for a recognition of the seriousness of the crisis, and to urge the rapid implementation of valuable policies. ECAL's membership consists of citizens that support 3 specific policies:

Continuous vigorous well funded open investigation of all relevant facts, led by mathematically expert scientists and engineers.
Actions to address the Energy Crisis will incidentally address climate change, but additional actions to address climate change can not be sustained during the crisis.
Nuclear energy is the essential core energy source for a world without fossil fuel.

Many other specific policies and actions are needed, and ECAL will participate in the debate about the possibilities. These need to be subject to vigorous and continuous assessment. We can't afford too many more mistakes (such as using ethanol from agricultural land for transport fuel). A forth principle is implicit in the educational aims of ECAL: Voters need to be fully informed and made aware of the inevitable sacrifices. ECAL has complete confidence in the willingness of the people to work together to solve this crucial national and world wide crisis, as long as they are fully informed and confident that the sacrifices will be shared.

Characterization of the crisis

There is a limited supply of fossil fuel and it is now running out. Currently oil producers are unable to expand supply and supply will decline very soon if not now. Peak natural gas will follow within 10 years and peak coal within 25. Demand would be expanding rapidly now if prices had stayed low. The price has to rise high enough to destroy that incipient demand and more, to make supply and actual demand balance. This demand destruction will reduce the output of the world economy. This is not like previous economic contractions which were part of a cyclic financial process. As such it will continue, and continue to worsen, until we rebuild the economy with new infrastructure based on new energy sources. So the rise in the price of oil is not caused by a bubble, or by speculators. It can't be fixed by government action, other than moving to different energy sources. It isn't likely that there will be a complete collapse of civilization as some predict, but if that were to happen then it is impossible to see how industrial civilization could ever get going again without the surface coal and oil oozing out of the ground that fueled the initial rise to our current industrial state. Our failure to heed many warnings, starting with M. King Hubbert in 1956, means that we have no chance of escaping a serious economic contraction which will likely far exceed that of the Great Depression. Managing that contraction fairly and optimally, so that we can emerge from the other side without collapse, is the business of all governments over the next 40 years. Business as usual (BAU) is over. Keeping the voters uninformed to prevent panic is highly counter-productive. We need debate, we need open investigation and analysis, and we need action, but all action needs to be kept under review so that the inevitable mistakes (such as biofuel from food) are not continued.

Intensive open investigation of technical issues

There are many important technical debates which will shape the way we respond to the energy crisis: How quickly will oil exports disappear? How will that affect the availability of other things like fertilizer? How will the economy respond to shocks? Will algal biodiesel save the day? How long will natural gas last? Should we go through a phase of compressed natural gas vehicles, or go straight to electric? And many more. Currently these debates get carried on in an academic style where people express a detailed opinion, but rarely respond to those with a different point of view. Also a lot of important information is hidden as trade secrets. It is crucial that planning be put on a less haphazard footing. We need mathematically competent experts to conduct open enquiries on these and other important matters. They need to be able to bring opposing parties together to find the core of their disagreement. They need to be able to extract important information where necessary. They need to be able to fund research to shed light on crucial technical questions. These investigations need to be conducted by mathematicians, or by scientists and engineers with strong mathematical skills and insight. As Prof David MacKay, head of the Inference group in the Physics department at the University of Cambridge has said, we need numbers not adjectives, modelling not arm-waving.

Global Warming action is not a short term priority

There are 4 reasons why economic action to address global warming is not appropriate now:

The amount of fossil fuel that can be economically extracted and consumed is much less than feared in the IPCC and other reports. Even the lowest option considered by the IPCC is more than will ever be burnt.
We have already had the price rises for fossil fuel needed to foster efficiency and alternatives. And indeed even higher rises are coming. There is no need for specific carbon taxes as well.
Government action to address the Energy Crisis will also mostly addresses CO2 emissions, and it will do so with much greater universality and urgency than would ever have happened to prevent the less immediate and less desperate issue of climate change
This mega oil shock is going to cause immense economic pain throughout the world. Until that is reversed there is no chance that governments will impose extra pain to address global warming.

Of course scientific understanding of the climate still needs to be strongly supported.

Nuclear Energy is a crucial part of the global solution

While we have high hopes for renewable energy, particularly geothermal and solar-thermal, still their scalable effective operation remains to be seen. Corn-based biofuel has been the first major renewable to be brought on stream. With high use of mechanized equipment and fertilizer it doesn't produce significant (or perhaps any) net energy. We can't afford to waste too much effort on such mistakes. There are plenty of potential issues with each of the other renewable energy sources. We mustn't step off the cliff into a world without fossil fuel without initially having substantial nuclear energy up and running. Modern nuclear energy is very reliable and fails safe. By moving to breeder reactors and utilizing Thorium as well as Uranium it is possible to make the existing mineable resources last a long time and not produce long-lived waste. Australia, with lots of sunshine and geothermal potential, might survive on renewables. However we will be a major supplier of nuclear fuel, we need the world to get its nuclear act together, and we have a particular reason to want the world to switch to the safer thorium since we are likely to be the major exporter of that. So we have good reason to get experience building and running modern nuclear reactors. Maybe voters will not allow these near population centres. However if the economy goes as bad as expected, then communities will be pleased to have the work and other industry that comes with them. Prof David MacKay, head of the Inference group in the Physics department at the University of Cambridge, is writing a book on sustainable energy, based on his principle of "numbers not adjectives". When he first started his investigation he was anti-nuclear. However he discovered that Britain can not be supplied with energy without incorporating a significant nuclear component.

Possible Actions

There are a lot of practical actions that can be taken to reduce the impact of the energy crisis, and to try to overcome it. Many have an energy cost and we must choose wisely which to support. The following list is illustrative, not exhaustive:

Lower speed limits and run an education campaign on saving petrol when driving.
Build infrastructure for Compressed Natural Gas vehicles, and/or electric vehicles.
Stop putting money (and energy) into road building.
Enhance rail: new routes, new rolling stock, electrification.
More CNG buses with more bus lanes and other right of way.
Shipping: LNG fuel? Docks integrated with rail as well as trucks.
More support of energy and transport research.
Build big parking stations near railway stations.
Make suburban trains more freight friendly.
Forcibly rezone land near railway stations for high density.
Stop plans to burn natural gas for electricity, since it can replace petrol/diesel for transport, so we mustn't waste it.
Develop, with the help of India and the US, a plan for nuclear energy. Implement it.
Help India to get to a nuclear future based mostly on Thorium. Partner with them and with the US to provide this to the world, using our large Thorium deposits as the fuel source.
Build large solar thermal and geothermal power stations so that we can evaluate their potential for large scale reliable energy.
Keep using low quality coal for power generation (since we can't afford to switch to gas), and exporting the better stuff. We also need to export natural gas to the world, which will be hit much harder by the Energy Crisis than we will. We need to keep enough to complete our transition to a post carbon world.
Build gas to liquid and coal to liquid capability, to extend the useful life of the massive infrastructure supporting liquid transport fuel.
...

There is no shortage of things to do. With the money from our net energy exports we should be able to keep employment high through the crisis. We should take advantage of worse conditions in other English speaking countries to bring in people with useful skills and expertise. Because Australia is a net energy exporter our position is far better than most. However we are unprepared for peak oil which is happening now, and we are an oil importer. Also the greater collapse of our trading partners will harm us. Increased international transport costs will also be a problem because of our remoteness.

Additional Notes

Building the nuclear future

Currently nuclear power plants are one-off constructions designed then run by highly qualified staff. This will make it hard to expand nuclear energy rapidly enough to replace declines in fossil fuels. This can be overcome by building smaller nuclear plants which are identical and mass produced to exact specifications and which run automatically in a fail safe way. There are many groups working on this and there are no overwhelming technical issues. The most viable designs use thorium and cannot be subverted for military use without the sort of time consuming effort that would raise alarm bells and be easily circumvented.

Climate Change issues

Here are some things that the people worried about climate change will argue for:

No GTL/CTL. Response: The quoted values for CO2 emissions are exagerated. You need energy to do the conversion, but that energy can come from nuclear/renewable sources.
Replace coal with gas for electricity. This wastes the fluid advantage of gas which makes it suitable for piping and for transport. We can't afford to do that.

Energy conversion issues

Nuclear and renewable energy will mostly be in the form of electricity and heat. This has to be converted to be useful for transport. Batteries convert electricity to chemical energy. Or we can use energy to create fluid fuels. For example you can use energy to get hydrogen from water, then burn it later to get the energy. There are lots of choices, but the common fact is that you need a lot more energy than at present because a lot of energy is used in the conversions.

Investigation details

The need for nuclear and the lesser importance of climate change action are based on a particular view of the facts. These facts would also be up for investigation by the proposed continuous open investigation. The key characteristic of the investigation teams, in addition to their ability to understand mathematical aspects of scientific work, will be a willingness to change their mind and admit to having been wrong when their are new facts or improved modelling of other analysis of the situation. This will be improved by minimizing the extent to which they reveal their own opinions during the investigation, or identifying themselves in conclusion documents.

Managing economic decline fairly

It is a human characteristic to take risks to avoid a loss, even a small loss. The farmer risks injury to stop people stealing apples from his tree. This might be irrational on a single occasion, but it is necessary on a long term basis. On the other side of the coin people are happy to make sacrifices in a common cause when they feel that others are doing the same. So it is essential that the coming economic decline be managed by tapping into that latter characteristic. Otherwise we'll get violent protest, as we have started to see already. The way to achieve this is with a high level of transparency. Currently remuneration is private. This has allowed the high level managers to capture most of the extra income during the recent boom, and lower ranks have been tolerant as long as they were making some progress, or had the opportunity to do so. This will not work during the coming decline. Resistance to ad hoc wage cuts will make it hard for businesses to survive. What is needed is government managed transparency about incomes, and coordinated cuts in incomes by all, falling more strongly on the higher ranks. These coordinated cuts might be in a single business or industry, but it might also be necessary at times to do it nation wide, to maintain the general level of employment. Higher levels of transparency are also needed to facilitate business planning during economic decline. Parts of the economy are interconnected and there needs to be coordinated planning to change the way the economy works. For example currently trucks take things from pickup to final destination. This may well change to using trains and shipping in the middle for longer movements. This can be achieved by allowing blind economic forces to take their course, but it will be better if there is some government coordination of the change, with involvement of the participants. Truck owners, small farmers and many other people needed to be helped through the crisis, even if in some cases it is just to help them see that their business is not going to continue to be viable.

Document History

v1.0 2008-06-21: initial version.

Peak Carbon and Global Warming

2008-04-17T10:28:00.004+10:00

I have lately been obsessed by Peak Oil and related stuff (Peak Gas, Peak Coal, etc). I've got to stop worrying about this stuff because it is time consuming and there is not much I can do about it. So here's my summary, to get it off my chest.

Huppert predicted in 1956 that US oil production would peak in 1970. He was derided but was almost exactly right. He predicted world production would peak in 2000. It is currently plateauing, only slightly late. However nobody seems to talk about a very big difference between US peaking and the world peaking. When the US peaked, it started importing, but the price wasn't much affected. When the world peaks the price goes up, potentially quite a lot, as we see. This means that a lot of things start to happen:

People use less (vacation travel the first to go).
Exploration goes up (though there probably aren't any more big oil fields with cheap production to find).
More expensive recovery techniques can be used in existing and restarted oil fields. This includes using nuclear power to extract oil from Canada's tar sands.
Gas-to-oil and coal-to-oil technology becomes profitable. [Gas-to-oil is insane with peak gas not far away, but coal to oil is bound to be important, despite the impact on CO2 production.]
Substitutes come into play: electric cars, nuclear energy, renewable energy.

These things take a while. In the short term all these things are likely to be swamped by a global recession. Unfortunately that will reduce demand for all energy and prices will, temporarily, fall. This is where it is very important for government to step in and do what it can to encourage all the processes above to continue during the recession.

America will pull itself out of the recession by energetically going back to making real things and doing real things, not just shuffling money around. In particular they will drive the development of the energy industry. One only has to look at how quickly they ramped up ethanol production given a little incentive. In particular I expect them to lead the push to nuclear energy, thermal solar energy, and electric transport.

There is a vast oil-based transportation infrastructure. We can't turn it around on a dime. Oil for transport will continue to dominate for the next 15 years even though the consequences of expensive transport will be horrible:

A return to more locally produced and more expensive goods and food.
Economies that work less well, so that everyone is poorer.
Everything that uses oil for raw material or transport is more expensive, particularly food.
Much less tourism, particularly global.
Sea transport is favoured, then rail. Truck transport will be for shorter hauls. Much more messing around getting stuff between different media types: more use of containers/etc.
Much reduced jet travel, some return of propeller planes.

The pressure will be on because production of oil will not keep pace with demand, and may decline. So the price will rise inexorably, except when financial systems fail and there are periods of widespread economic collapse. There needs to be a lot more thought about how to manage periods of economic decline without revolutions, wars, starvation, etc.

Prices are already at the point where nuclear energy and solar thermal energy are competitive with coal. The demand for coal for coal-to-liquid will make it even more expensive. So we can move beyond a carbon based economy starting now. This is an unbelievably huge project. It requires us, the whole world, to put a very large fraction of our productive resources into it, at a time when our productive resources will be severely constrained by the growing cost of oil (shortage of oil). But we have to do it, because if we haven't got there when the oil/gas/coal runs out then the bootstrapping process to get back to prosperity will be very hard. It will be done because, with high energy prices, there is money to be made by doing it.

Many people think that catastrophe cannot be averted. Certainly it is hard to have faith in politicians:

Cheney and Bush were well aware of peak oil before elected, and their response has been Iraq and food-to-fuel.
Australia has just elected an anti-nuclear government.
Windmills and solar energy use a lot of steel.
Nuclear industry is limited by shortage of expertise and perhaps some essential materials and capabilities.

Still I think we will be ok on non-transport needs and we'll survive the transport problems with a bit (or a lot) of belt-tightening and localization. I'd certainly like to see economic models that confirm this with non-optimistic projections for oil production. The economic theory that increased prices must produce supply does NOT apply to a finite resource like oil. Does the Treasury know this?

Which brings us to global warming. The good news is that there is not enough carbon in the ground (that can be extracted for less energy than they produce) to cause the extreme CO2 rises sometimes considered. It can't go over 500 ppm. The bad news is that the inertia of the vast petrol/diesel transport infrastructure means that we will use more carbon and generate more CO2 than economic fundamentals require (given nuclear energy). In particular there is no way to stop a lot of coal-to-oil production. Even if Australia didn't do it, and we didn't allow our exported coal to be used for it, still our exported coal would just displace other coal that was used for it. Better if it is done as cleanly as possible in Australia.

So there can't be reductions in CO2 emissions between now and 2020. Impossible. The serious economic problems that will be faced between now and then will make extra carbon charges impossible to maintain, and also unnecessary as the natural price of carbon will be enough to encourage everyone who can get off it to do so. The government's job is to plan and to push ahead of the market. Build nuclear and renewable energy power stations, and sell them. Build railways and ship docking. Get into ship building.

Beyond 2020 there will be huge reductions. 90% by 2050 is guaranteed. We just hope the reductions will be because of a smooth and prosperous switch to nuclear and renewable energy, and not because of global economic collapse.

Government for the nation not the marginal seat

2007-10-23T21:02:00.000+10:00

Let's kill too ugly birds with one stone. The first ugly bird is the election of governments with a minority of the two party preferred vote. The second ugly bird is the way money is thrown at marginal seats, particularly at election time.

We want to preserve the essential electorate-based nature of the House of Representatives. This creates a house where Government usually has a workable majority. So the proposed solution has the following structure:

Most members are elected from single party seats;
A small number of additional members are selected (by single transferable vote as described below) to ensure that the balance in the parliament is determined by the will of the total electorate;
Minor parties don't get into the lower house this way because only parties that win 2 or more electorates outright then participate in the further distribution of votes to add extra members. If you want to see minor parties in the lower house, that is a separate issue, but probably most Australians don't.

Suppose that we have 140 electorates, but we have 150 total seats. To some extent this system will be run as if it is a single seat returning 150 candidates by single transferable vote. So a quota is 1/151 of the total vote.

However first each of the 140 electorates elects one candidate with half the vote in that electorate, which is approximately 1/280 of the total voters.
In the context of the single national electorate, votes from losing candidates (and votes from winning candidates beyond the 1/151 quota) are distributed to other winners in their party to get them up to a national quota.
If a party doesn't get enough transferred votes for all their winners to get a 1/151 quota then those extra winners get their votes from nowhere, just reducing the value of all other remaining votes.
That process also applies to independents in the (likely) event that they don't get a 1/151 quota in their only seat.
At this stage there are 140 of 150 quotas taken. So the remaining votes are distributed to create 10 more quotas using additional lists of candidates supplied by the parties. Parties which have not won two electorates just get any extra votes for that party transferred without consideration of whether they would have got more quotas.

75%-baked: Only Live Music

2007-08-06T08:16:00.000+10:00

I have various half-baked ideas for making money, but I reckon this one is 75% baked. It would definitely attract a significant following if it got going. The problem will be how to make money out of the popularity. Perhaps sell it to google, like YouTube.

The day is fast approaching when all radio and video will be delivered over the Internet. You pick a radio station by clicking an icon on your PDA. As we see on YouTube and many other places, this opens things up to the amateur contributor.

Another trend we see is the return to live music. Why do we have shows like "Australian Idol"? Because the whole point of music production is for the performers to show off their natural talent and for the audience to evaluate the performers. Music produced by electronic trickery in studios is increasingly recognized as comparatively empty.

It is possible to stream live sound over the Internet today. Internode is leading the way in Australia: http://www.internode.on.net/radio/. Many of the network providers can do this very efficiently using multicast. So my idea is to start an internet radio station providing only live music. It would later be split into multiple stations providing different sorts of music.

Initially it would be all free with amateur sound engineers and performers not paid. Later some extra channels would be supported by advertising or require a subscription (or both), and those channels would pay production staff and performers, not to mention management. Initially expenses, including some payment to management, will attempt to be covered by subscribers who will be able to vote on which acts they prefer to hear.

The station announcement between performances is "This is OLM: Only Live Music. We don't believe that recorded music is real music, and now you don't need it because OLM streams live music, produced with analog devices, 24 hours a day. Recording OLM performances is not permitted and detracts from their intentionally transient and contemporary nature. This doesn't prohibit technical aspects of streamed radio transmission such as the necessary cache delay. If you miss something then encourage the performers to do OLM again. And become a paid up subscriber so that you can vote on which performers you want us to feature".

The assertion that only live music is real, is a marketing position. It is designed to annoy and make people talk. Participants don't have to agree with it.

The key to OLM is to broadcast performances from different time zones around the world. This can be as simple as a solo performer with a good quality microphone broadcasting from their own home. However it will be better to broadcast actual live performances from venues. That requires some sound engineering, though these days that can be just multiple microphones feeding into a computer running some sound software.

Obviously OLM needs lots of people around the world. The sort of things one needs to do to achieve this are:

Set up discussion forums for interested people: a wiki and a blog seem likely to be a good start.
Put information on the wiki pointing to anything that can be found out about how to broadcast music on the Internet.
Look for support from useful people. Simon Hackett the head of Internode has been involved in Internet multimedia for a long time and might well be interested -- I remember him demoing listening to California radio from Australia, including remote tuning using SNMP.
Communicate with groups where interested people might hang out (without spamming too much), to invite them to join it.
Start practicing broadcasting music, preferably as early as possible from different places around the world, to see how well it reaches.

My view is that if some major ISP owner was interested to be part of it then all the technical issues would be addressed. I also think that OLM would attract amateur sound people and musicians willing to work for no payment if the technical issues were sorted out.

2005/03/24: The Case for a Human Future

2007-08-06T07:33:00.000+10:00

I attended a talk that referred to trends and extrapolated them to talk of people living much longer than before, and of intelligent robots that surpass our abilities.

Humans are the most amazing thing that has happened in this universe. David Barrow summed it up neatly in the title of his book: "The Universe that Discovered Itself". The idea that the human story should end and be replaced by a superhuman or nonhuman world is something that people are too willing to accept: even otherwise intelligent people.

The first point to make is that there is not a requirement for change to make way for progress. Humans are tool users. Humans with intellectual and communication tools provided by Information and Communication Technologies are not limited in what they can achieve (relative to computers or improved humans).

There is an idea in the populace that when computers pass a certain level of intelligence they will magically acquire motivation. This is not the case. Our motivation comes from our genes. Our genes have motivation but it is not the same as ours. In the simplest example: If I or my identical twin brother is going to drown, then my genes don't care which. Genes give us complex motivation in which the desire to live and the desire to reproduce are only the most trivial parts. But the fact that genes, even in the simplest bacteria or virus, display clear though unconscious motivation shows that motivation is unrelated to intelligence.

Sure we could give our little machines motivation. We might accidentally give them enough motivation to wipe us out. What we couldn't do is give them the sort of subtle motivation which genes supply that keep us striving to understand, to explore and to conquer the universe, while at the same time perpetuating ourselves and living fascinating lives that we turn into literature and other art. In fact I'm certain that any motivation that us junior gods could bestow on our creations would grind to a halt very soon after we became unable to guide it.

And losing the ability to lead is the great danger of this inhuman or partly human world. If people start living for ever then we will quickly lose the input of youth that keeps human society fresh. The replacement of humans with computers and robots in positions of any importance will lead even more quickly to the loss of humanity's spark.

If machines were given motivation that would make them independent of humans then that would be a terrible crime which would hold the seeds of our destruction. Any motivation less than that would be sufficiently weak as to be no motivation in the big scheme of things.

There is no choice to a human future. The hard bit is to understand what that means in a world where many people have ignorant plans to change humanity. Our present life has already acquired features which will drive evolution towards something which is not fully human.

The "Maximum Estate" tax

2007-07-28T07:10:00.000+10:00

It would be better to tax wealth than income, but that is not easy. It would be better to get more tax from death duties, but that is not popular with voters. It would be particularly nice to raise more tax from criminals. I have a simple plan.

Tax payers have to specify to the tax office their Maximum Estate. When they die, if their estate is larger than their last declared Maximum Estate then that excess goes 100% as tax. So there is a strong incentive for those who want to leave money to set their declared Maximum Estate fairly high.

On the other side of the coin there will be a small tax, less than 1%, on the Maximum Estate value. This is effectively a wealth tax.

Even more importantly there will be a hefty tax on changes to Maximum Estate beyond income. So if your taxable income in a year is $100,000, but your Maximum Estate value goes up by $150,000 then the extra $50,000 that appeared from nowhere will be taxed at something like the maximum income tax rate.

Different people will make different decisions about where to set their Maximum Estate. Some will leave it at 0, effectively leaving all their money to the nation when they die. Others will pay as they go. Either way it will be a very progressive tax that will be effective against criminally acquired wealth.

2005/03/15: I hate fake conservationists

2007-07-26T08:50:00.001+10:00

Conservationists are too nice. They let all sorts of fake conservationists string along under the conservationist banner. This is leaving the voters confused.

Firstly: animal liberation and the protection of specific animals from human action, has nothing to do with conservation which is about the protection of species and ecosystems. Indeed animal protection is often at odds with sensible conservation. We don't cull koalas or fruit bats even when they are destroying endangered plants. We don't cull kangaroos but insist on letting them destroy their habitat and then starve to death. We don't allow kangaroo farming, so farmers are forced to continue with sheep and other things that destroy the Australian environment. We need to meet this sentimentality head on when it conflicts with the desire to manage the environment well. And we particularly need to denounce attempts by animal rights people to claim to be conservationists. The idea that the way to save animals is to not kill them is something that appeals to children and we need to forcefully say that habitat loss is the overwhelming cause of the loss of species, ecosystems and diversity. [Which is not to say that there is anything wrong with people pursuing animal welfare, I'm only complaining about those that claim that this activity is conservation.]

A second group think that conservation means conserving the view. So that people who don't want to see windmills on their bit of coast will try to claim to be conservationist.

The third group is opposed to modern life, and fearful of scientific and technological change. They are easily detected by their claim that primitive people are in tune with nature and never destroy their environment. How wrong they are! The greatest ecological disaster in Australian history was the destruction of the megafauna when Aborigines first arrived. Indeed it is impossible to understand ecological management in Australia unless you realise that we can't get back to the natural environment of 50,000 years ago. It is not the case that we can leave nature alone and it will return to a natural state. Instead without megafauna and Aboriginal burning we get fuel build up followed by ecologically disastrous fires.

A fourth group are anti-conservationists. They think that we should only adopt conservation policies when there is no risk to humans, and damn the environment. In particular they favour continuing to burn coal and build dams rather than moving to nuclear power. The environmental impact of blocking the natural flow of rivers and of pumping CO₂ into the air is horrific. The environmental affect of nuclear power stations is to create a really effective nature reserve around them. An accident has no negative impact on wildlife. Chernobyl has allowed the native flora and fauna of Ukraine to return. Not that we'd embark on nuclear power if we expected accidents. There is every reason to believe that Australia at least would run such stations very well. And we can quite easily site them far from the madding crowd. And we have just as much uranium as coal. This is something we can do for the world.

The Greens are so heavily infiltrated with fake conservationists that I can't imagine them ever having genuinely environmentalist policies.

2005/03/12: In favour of sign language

2007-07-25T21:00:00.000+10:00

It has been known for many years that the time to learn languages is when very young. Three or four is the best time to start, but five or six is ok. If you learn a second language early then your brain develops general structures which make it much easier to later learn a third or forth. If, like most Australians, you only know one language then the brain hardwires itself for that language and it becomes impossible to become fluent in other languages later.

Teaching a language is the natural thing to do at pre-school and in the early years of school. Children of that age are all wired up and ready to learn languages. Teaching them other things, like mathematics, is a waste of time. Children who learn non-language subjects at that age don't do any better, all else being equal, than those that don't. But for languages it is the best, and to some extent the last, time in which to do it. The failure of education departments to act on this knowledge over the last twenty years is verging on dereliction of duty.

There is a clear cut choice for a second language that can be taught everywhere: Sign language.

Sign Language

The language of the deaf is a real language. It isn't a variant of English. It has its own grammar and structure, so it fills the role of a second language for children. And adopting it has a lot of important advantages:

It will greatly facilitate the integration of deaf people into the wider community if everyone learns their language.
And indeed it will provide a fulfilling job to many deaf people as teachers of sign language, either directly to small children or else to other teachers.
Any of us may become deaf. Those who don't learn sign language early are never proficient.
More commonly we all have laryngitis and other diseases that cause us to lose our voices at times. Having sign language makes a valuable backup.
There are lots of situations where sign language is much more convenient than speech: in the library; in a noisy venue; at the theatre or music performance; when filming or hunting wildlife.

Perhaps the most interesting situation where sign language might be useful is in negotiations involving multiple people on each side. I can just imagine the Chinese putting barriers between the seating positions of visiting Australian trade negotiators so that they can't sign to each other under the table during the negotiations.

Sign language is a natural part of the human language armoury. It was famously used between the plains Indians in North America. It is almost certain that sign language preceded spoken language in the human story. This avoids the chicken-egg problem that you don't need a complex vocal system unless you have a complex language and you can't use a complex language without a complex vocal system. The fact that the brain is wired to allow language information to flow through other routes and not just our mouth and ears is the reason that we can read and write.

Summary

Currently we take pre-school and early school children who are all ready to learn languages, but not much else, and we do little to develop them. Let's teach them sign language. The kids of that age will love it and it will have all sorts of later benefits for the children themselves and for society.

Moving wealth into the future through money

2007-07-25T08:25:00.000+10:00

Saving is good, but what does it mean? If in the future we will need some grain, then it is wise to save some. If in the future we will need something perishable then maybe we can save something non-perishable that we can swap for the perishable item at that time. We treat money as such a non-perishable item. This works in a small way, for individuals, but not for a whole society.

Suppose I save some money in a suitcase under the bed. That reduces the amount of money in circulation (by a small amount), thus making all the money that is in circulation more valuable (deflation). When I later put the money back into circulation it acquires its value from all the other money in circulation by making that other money fractionally less valuable (inflation). In this way an individual or a group can move wealth into the future through money. Society as a whole can't move wealth into the future through money. This is slightly confused by the fact that an individual country might be able to do it in the context of all other countries. However since there is no global economic control, or global currency, a country can only do it by putting itself at the mercy of some other country, as countries holding US dollars do today.

There is also a problem when too many individuals try to move wealth into the future. In so far as they try to hold money they cause deflation. However governments can't allow that, so more money is put in circulation. The trouble is that this leaves the potential to cause inflation in the hands of consumers, and the government has more trouble taking money out of circulation when inflation starts. The other way people try to move wealth into the future is by buying assets. This leads to bubbles when there is too much money chasing too few assets of genuine long term value.

Money has three roles: as a mechanism for efficient exchange of goods, as a unit of value, and, as discussed above, as a way of moving moving wealth into the future. The first two are related and inseparable. The third doesn't work and gets in the way of the other two, because stored money is always threatening to flood onto markets causing inflation and bubbles.

Climate change: a view from the right

2007-07-19T08:22:00.000+10:00

We have to thank the Green Left for energetically bringing the issue of Climate Change to our attention. But now that we are starting to understand the problem we need to develop an Economic Rationalist solution. The views of the Green Left on how to solve the problem are not just wrong, they are dangerously wrong.

The message from the Green Left is that we have to sacrifice and suffer. If we suffer enough from higher energy prices from renewable sources, and from reduced energy consumption then that will solve the problem. Suffering is necessary and sufficient, they say. Does this sound familiar? Sacrifice and suffering is what religious leaders have been prescribing to appease the gods from the beginning of humanity. It taps into an instinct to sacrifice for the good of the community. We are all good at pretending to do it, while hoping that others do more. However it is completely irrelevant to solving Climate Change because it is not necessary, and because the sort of sacrifices being proposed, for example by Al Gore at the end of "An Inconvenient Truth", are nowhere near sufficient.

The first mistake is to see the solution in terms of specific regulations, penalties and subsidies. That always creates lots of busy work for government without making real progress on the issue. What we need to do is impose a cost on activities we want to reduce. I'll call that a tax. We want to give money for activities we want to encourage. I'll call that a negative tax. The Carbon Tax Base (CTB) will be the estimated cheapest marginal cost of removing 1 tonne of carbon from the air. Some fraction of the CTB will be applied to fossil fuels as they come out of the ground, and to imported fossil fuel (unless there is an intergovernmental agreement with the source country). The same fraction of the CTB will be paid, as a negative tax, to activities that permanently remove carbon from the air. Turning grassland into forest might be the cheapest way to do this, but it is a one-off and is not renewable. There may be a renewable solution here if the wood is regularly harvested and treated so that it won't rot. There will be in between cases where there is payment for CO2 taken out of the atmosphere (as wood in this case), and the money is repaid as positive carbon tax as the CO2 is returned (by rotting).

This proposal opens up every option to solve the problem. Energy costs are increased, so people will favour activities which use less. Fossil fuel is made less attractive as an energy source relative to alternatives. And finally people can put their minds to ways to remove CO2 from the atmosphere and get rewarded by that (and the continuing burners of fossil fuel will have an advantage in doing this, since they will have a more concentrated stream of CO2 to work with).

Initially the tax will bring in more than is paid out to those removing CO2. Indeed the aim will be to take 20 years to reach equality. During this period there will be a surplus, but the aim will be for the carbon tax to be revenue neutral. The excess will be returned to the people in the form of a negative poll tax (in other words equally to everyone). This will be quite close to an equitable way of helping people handle the increased costs. It would be silly to return the money in a way that gave more to those who use more energy since that would just subtract from the effect of the carbon tax.

There is basically just one parameter which needs to be adjusted in the scheme: the product of the CTB and a fraction chosen for policy reasons. This would be set by an independant body, following the very successful model of interest rates. The legislation would set Australia's aim for CO2 levels in the atmosphere. The independant body would aim to hit a net rate of emission/removal which would aim to hit the legislated target in about 50 years if all other countries were cooperating. It would work up to that cruising rate over an initial 20 year period.

Carbon Trading is another market based approach to greenhouse emissions. It is a left wing bureaucrats idea of how to do it. It targets the emissions, which need not be fossil fuel derived. It should target the fossil fuel extraction because that all ends up as CO2 eventually, and it is easy to police. Existing schemes don't seem to distinguish between renewable extraction of CO2 and one-off actions like reafforestation (which then needs to be policed to see that it isn't undone). Still this is an international system and the best way for Australia to use it would be to act as a single entity, with our verified CO2 extraction (paid for as negative tax) attracting carbon trading credits for Australia as a whole. We could then use these to encourage other useful activity world wide. And of course we should push for a more sensible international system, and make reciprocal agreements with other countries that are carbon-taxing fossil fuel mining.

The Green Left would say that the aim of combatting climate change is to return the world and its climate to its natural state. This is a terrible idea. With 6 billion mouths to feed, and counting, we need to manage the climate and keep it at an optimal level. Nature is just as capable as humanity of messing up the climate.

If you look at a graph of the world's temperature over the last 100,000 years or so you'll see this little straight bit in the top right. That's 8000 years of stable warm wet climate. Before that it jiggles around all over the place, and nearly always much colder and much drier than it is now. Very unstable, very cold and very dry is the worlds natural state since the age of the glaciers started half a million years ago. It is more important to avoid a return to those normal conditions than it is to avoid global warming. Of course global warming is much more urgent.

There is a lot of misleading comment around associating "warm" with "dry" climate change. Naturally the warmer the ocean is, and the higher the sea level, the more water evaporates, and the more rain that falls eventually. That's why the world's climate is either cold and dry during ice ages, or it is warm and wet during interglacials like the one we are enjoying. The reason the warm-dry combination gets mentioned is that climate change is not uniform. A British study based on simulations claims global warming will make 2/3 of the world wetter and 1/3 drier. However accurate that is, there are reasonable general arguments as well as simulations to suggest that global warming will make the southern half of Australia drier. Outside Australia the concerns about drier conditions seem to be only based on particular simulations and seem to be taken more seriously than they should.

Another popular misconception is that there was this CO2 in the atmosphere, just sitting there at a particular level, then we added more. In fact CO2 moves into and out of the atmosphere at quite a high rate. So, the fact that the level of CO2 has remained quite stable over long periods means that the rates of.CO2 entering and leaving are the same. But it means more than that. The world settled into a stable equilibrium of atmospheric CO2. If the amount of CO2 increases, say from a volcanic erruption, then the processes taking CO2 out of the atmosphere also increase, and similarly any decrease encouraged the processes that put CO2 back. We can imagine the state of the world as a balling rolling on a plane that isn't flat. It will roll down hill, following the course that water would take. Eventually it comes to rest in a depression. Whichever way it is pushed it wants to roll back to the lowest point of the depression.

Continuing our analogy, suppose we give the ball a push in a direction that we might call "higher CO2". Eventually we might push it over the lip of our local depression and the ball might start rolling again looking for a new depression: a new equilibrium point. However there is no guarantee that it will keep rolling in that direction. It might go around and end up in the other direction from the way it was pushed. In other words, a push in the direction of greater warming might tip us into an ice age, though perhaps not as fast as in "The Day After Tomorrow". I've been assuming that the push back force is well behaved like gravity. It might not be and it might force the ball back towards the low point, but then overshoot. In that way it might find a much lower lip that it can easily get over and then keep heading towards the other stable equilibrium that we know exists that puts the world into an Ice Age.

Suppose we set our CO2 target at 350ppm. Perhaps in 40 years the CO2 level will start to fall rapidly. If we've set up a flexible mechanism then that mechanism will react to support the CO2 level. When the carbon tax goes negative then business might go back to those abandoned gas fields and make money just by venting methane.

This plan doesn't involve government telling everyone what to do, it just readjusts economic incentives in the same way that interest rate adjustments do. This plan doesn't involve handing control back to mother nature, instead it takes a necessary step to control her. This plan doesn't involve any necessary sacrifice, it is designed to come in sufficiently slowly that it can leverage ongoing economic growth. These three things might annoy Bob Brown, but that is just a subsidiary benefit. The main point is that we need to solve Climate Change, and only rational economic policies will do it. If we don't do it then the Left will be pleased to take the reins, causing economic mayhem, and failing to address the problem.

2005/03/11: Workflow user interface

2007-07-19T08:21:00.000+10:00

2005/03/11: Workflow user interface

My current obsession is workflow, and particularly a workflow-oriented user interface to everything.

Once upon a time computers were expensive and people were (relatively) cheap. So the idea was that people would attend to the computer and keep feeding it. The modern progress bar continues that idea: "here's something to look at while you wait for the computer to finish something". Window systems, and underlying multiprocessing, mean that computers can do more than one thing at one. Instead of looking at the progress bar we go to another window. Now we don't know when the activity is finished except by coming back to it. So we have to remember all the things that we are trying to juggle and keep going back and checking them for progress. So we need a workflow user interface, and what do people use: they use e-mail. That's something they keep looking at and maybe it comes with a notification system. But it is a really bad workflow user interface.

A real workflow user interface lets us know what activities need user input, or want it, or would be willing to receive it. My conception is that activities are organized in a tree and the nodes change colour: green means that this activity can't proceed without input from this user; yellow means the user might push things along, but does not have primary responsibility to do so; orange to red means that the user can only do things that won't affect other players much. For example if the activity is a chess game then the tree node for that activity is green if it is your move and orange if not (since you could resign) and red if the game is over.

Now we don't need a progress bar: the node for that activity will be reddish until it goes back to waiting for us to input. More on this another day.

Wirelessly networked PDAs threaten to become ubiquitous combined with mobile phones. These can hardly afford a multiwindow UI. Also it will be hard for the user to look around for stuff needing attention. Also interaction activities are likely to be the main applications. So for various reasons my workflow user interface is likely to be a good answer.

Oh to be Canada: Why do nuclear waste storage

2007-07-18T17:46:00.001+10:00

It must be nice to be Canada. They don't have to go along with the United States' military adventures like Vietnam and Iraq, except when right and World opinion are behind them, as in Korea and Afghanistan. Yet they know that the US can never let anything bad happen to Canada. Australia would love to be in that position. Well we can. More details below, but first some introductory facts.

Australia's proximity to the largest Muslim nation makes us nervous. This is undoubtedly irrational, but the feeling is a potent force in Australian politics. The response is to show slavish friendship to the Americans. The electorates support for our involvement in Iraq is typical. The fact that the war is a disaster doesn't matter. In fact in a funny way it helps. Our message to America is that we support you, right or wrong. However our slavishness is going to start to wear thin with the electorate as the government enacts the provisions of the amusingly named "Free Trade Agreement", like the recent Copyright act that will make nearly every Australian a criminal.

As a practical matter it is not clear that all our attempts to ingratiate ourselves with the Americans will be effective. The American electors have still never heard of us, except for those who think we have something to do with "The Sound of Music". Their political system nearly always picks a state Governor with no foreign policy expertise for President. The Presidency does not adapt to shifting opinion in the way that a parliamentary government does. So it is by no means certain that America will help us when we need them, particularly if America has other problems distracting it at the time.

Fear of our neighbors might be irrational, but one thing that worries me is the nuclear waste that is scattered around the world, often in geologically and politically unstable areas. Personally I would be more comfortable if it was skillfully processed, then buried in our sparsely populated and geologically and politically stable land. One form of processing that would make sense would be to use it in a Thorium reactor. This produces CO2-free energy, and at the same time it reduces the radioactivity of the waste to a two hundred year problem instead of thousands of years. Australia has huge reserves of Thorium.

Indeed I think that we shouldn't be shipping out Uranium (or Thorium) and washing our hands of the waste problem. We should take it back, for everyone's greater safety.

There are lots of reasons why storing nuclear waste is a natural economic activity for our technologically advanced and Uranium exporting nation. But there is a huge additional side benefit. Suddenly we are like Canada. We become a nation that America, and other advanced nations, can not afford to let fall into the hands of the bad guys. We no longer have to follow America into every quagmire. We no longer have to submit to their latest schemes to protect their wonderful Intellectual Property from the depredations of Australian consumers.

This is a plan than can be sold to the Australian voters. It will make the World safer if we can get all that nuclear waste stored in deep and stable granite. And by making the Australian voters feel safer, we can turn Australia into a force for peace, as Canada has long been.

2005/03/10: HIV and male circumcision

2007-07-18T08:43:00.000+10:00

Doctors are conscious of the importance of ethics, but many of them have no feel for the subject. A month or so ago The Age ran a story about a Professor Short who was recommending that male babies be circumcised for health: circumcised males are much less likely to get HIV from an infected partner. I wrote the following response, but never got around to sending it:

The discovery that uncircumcised males are more likely to get HIV led to an investigation of the role of the foreskin. It was found that it contained cells that were designed to interact with their environment. There can be no doubt that these cells are there because they are beneficial in some way. Even if you don't agree with that: there is no urgency to circumcise babies, because they won't commence sexual activity for many years. So why is Prof Short explicitly recommending that babies be circumcised? The whole point is to intentionally deprive those children of their right to give informed consent to the operation. This is disgraceful.

Of course religious Australians are entitled to circumcise their children for religious reasons. Secular Australians must be allowed to discuss secular ethics without religious Australians taking offence.

Integration of Muslim communities in the West

2007-07-12T05:53:00.000+10:00

Women drive cultural conflict, as we particularly see with Muslim radicalization in Western countries. Indeed women are amazingly keen to risk male lives. I guess their genes know that there will never be a shortage of sperm, and the less aggressive males there are around the safer their children are. Anyway here's something I wrote about that last year, and about how to achieve cultural harmony in the West:

Muslim culture is part of the normal spectrum of human cultures. It is not long ago that Western culture severely limited the rights and opportunities of women. That world is perfectly described by Jane Austen, one of our greatest writers. Towards the end of "Pride and Prejudice", Mrs Bennett says of her naughty but lucky daughter and her new no-good son-in-law: "We must have them to dinner". Mr Bennett is heard to say "They will never enter this house". Somehow we are not surprised to see the disreputable pair arriving for dinner. Indeed in nearly all the relationships portrayed in the book, the women strive and succeed in getting their way with their men. The exception is Jane and Mr Bingham, and that relationship seems completely implausible: who can believe a man really falling for someone who makes no attempt to stand up for herself in the relationship. We believe attraction, and lust, but we don't believe he can fall in love.

How much influence do women have on male behaviour? We know from the statistics that delinquent boys turn moderately responsible when they get a steady girlfriend. When it was suggested to Winston Churchill that women would rule the world in 2050, he replied "Still?". However a nearly universal aspect of human behaviour is that women defer to men in public. If a woman shows dominance over her husband in public, it reduces his status, and that is unlikely to be in the interests of her family. So Western culture is familiar with the idea of the woman going along with her husband in public, then telling him off in private. It is one of those incongruities that comedians love to exploit.

If women are so powerful within relationships, then why do they let themselves get into positions of limited rights, as in Jane Austen's day, and with Muslim women today. We really need to understand this in the modern Western world where young Muslim women, raised in the West, are taking to scarves and veils that their mothers had escaped. The answer is that it is a mistake to see men and women as separate groups that are in conflict for power and status. Rather it is groups of men partnered with women who are competing with other such groups of men and women together. We can hardly imagine the importance of this competition in our wealthy society, but historically most societies have lived close to the edge and power and status greatly increased the chances of survival and reproduction.

When we look at it that way, we can see that women will not necessarily wish to have the cultural dial set to a point where women have independence and public power and status based on merit. Different settings favour different groups. How much influence do women have in setting this dial? My opinion, and the argument of this document, is that women are actually by far the main influence in setting the cultural dial. When there was resistance to votes for women, this resistance included women. When resistance from women stopped then resistance from men faded away. Similarly we see, and are shocked to see, in the modern world that women are often involved in supporting activities that attack the rights of women: genital mutilation, honour killings, wife killings. Terrorism would not be possible without at least passive female support. Men would not do this if it meant coming home to the disapproval of mothers, sisters and wives.

If we can find a way to get into a dialog with Muslim women in Australia, then there are two things I would say to them in the form of a deal, discussed below. Others may have other ideas. Certainly we need to keep the conversation reasonably simple. One way to organize it would be to invite women to meetings which would elect representatives to meet with the governments representatives (female) and then report back. A way of compensating the women for their time would be to give them a voucher at the first meeting that would be redeemable for $100 at the 2nd.

The first thing the government needs to say to Muslim women is this: In the important business and government organizations in Australia, women have equal rights. If Muslim sons and husbands go to work in these important organizations, and we want them to, then they'll always be working with women and sometimes they will have women bosses, and women subordinates. This equality of women at work is an absolutely non-negotiable part of Australian life. We would eventually like Muslim women to actually take part when they are comfortable doing so. More immediately, and the first part of this proposed deal, we want Muslim women at home to encourage their men to get a good education and join these important organizations and accept the environment of equality there.

The other half of the proposed deal concerns politeness from the rest of Australian society to the Muslim people. I try to explain to my 3 year old grandson the difference between "bad" and "rude". You can be bad even when you are all by yourself. Rudeness is something you do, like saying a rude word, that is upsetting to other people. We vary what we say and do depending on who is around. To allow and encourage Muslim Australians to participate more in wider society we all need to avoid behaviour which Muslim people will perceive as rude. There are limited situations where the government can directly change this, such as broadcast TV and what is displayed on the public street. The main part of this offer from the government to Muslim people is to advertise to make people aware of the need for more modest behaviour in public and modest attire, particularly at work. The place for normal Australian vulgarity is at home, and in places where Muslim people will know not to go, such as pubs.

So that is the proposed offer. We want Muslim Australians to join in the major activities of Australian life, accepting the non-negotiable fact of female equality in those environments. In exchange the government will do all it can, without infringing civil liberties, to avoid activities which are rudely insensitive to Muslim people.

This is a small step. Others are needed. I support the call to have only government primary schools -- compulsory, very well resourced, and with thorough mixing, using bussing if necessary. Also, the more ways the government can find to give resources directly to women, such as the baby bonus, the better. Maybe somebody will do a movie of "Pride and Prejudice" set in the Muslim community in Australia, to remind us how close we are.

2005/03/08: Lack of trust in official health advice

2007-07-07T16:57:00.001+10:00

In the Age (theage.com.au) a nutritionist gets stuck into people like me who are trying a gluten free diet without having probes inserted and biopsies taken. It claims that only people with full celiac disease should avoid gluten.

Why don't we trust these official pronouncements on diet? We just suspect that they are working for segments of the food industry. Gluten is associated with other health problems, particularly autism.

There are plenty of other cases. There is a compelling case that the western diet is magnesium deficient. And there is the amazing suppression of the A1/A2 milk story. Here is an extract from the NZ Food Safety Authority's study:

The best study was the most recent one which had a better design with blinded assessments where possible and a random allocation to diet or no diet. The majority of the measurements showed significant improvements on the diet (casein-free, gluten-free).

4.4 Summary and implications

The available evidence is suggestive of a role of reducing the casein and gluten in the diets of people with autism to improve the autistic behaviours and overall functioning of the individual. Further research is needed. The evidence is not strong enough for clear dietary recommendations to be made for people with autism and schizophrenia.

You'd think that governments would spring into action to evaluate the health risks of milk and whether it is particularly A1 milk that causes problems. But no: silence has descended over the whole matter and A2corporation has been beaten up in the courts to stop "false claims".

It is hard to think what could be done to restore my faith in nutritionists. Robust public debate without law suits. Funding of serious trials. Extricating nutritionists from the grip of the food industry. These would certainly help.

P.S.2003/03/09: Another example of failure to act where there was good cause for concern was the issue of honey with toxins from Patterson's Curse (aka Salvation Jane). The issue of the need for more sun exposure (with lack of sun exposure strongly implicated in various problems including osteoporosis and cancer) is another where people have to find out for themselves: official sources are silent. For most health issues you have to find out for yourself and weigh the evidence yourself without trustworthy guidance. It is then really stupid for the people who should be providing sound guidance to criticise us if we get it wrong by being overcautious.

Gramp's Grumps

The paradox of the economic impact of rising production costs

How Peak Oil destroys the world economy

Demographics

global warming impacts viticulture: irrelevant

Make maths useful: response to Baez blog post

Democracy and the war on drugs

thinking about interconnected information

Australian Cricket mismanaged

Mathematics is "Thinking clearly about problems"

Update:

critique of "Ecotechnic Dictatorship"

on the dangers of giving humans lots of energy

Sign Language

Liebig and the carbon price

importance of Liebig's law of the minimum

Comment on water allocations (in The Australian)

Need for a 4th arm of government

[response to Andre Joyal at nCategory Cafe]

Comment on Krugman post comparing economic theories

Discussion added to EROEI entry at Azimuth wiki

Comment on Stephanomics on Oil

comments on Azimuth wiki startup

Transport Fuel is an Energy Carrier

Conversation on Terry Tao's Buzz

Rethinking Peak Oil

Response to Google/Verizon fair Internet proposal

Technology Summary for cheap electricity

Solving a 30 Year Puzzle

Representing values at run time

Assembly Language had it right

The right answer

Negative numbers for Finance

Negative numbers for Finance

Unleashed submission

Necessary Inflation

Response to Pettis on Real Economics

Dear Julia (again)

Dear Julia

Dear Julia

Understanding Inflation

Understanding Inflation

MacKay video

MacKay video

Money for Energy

Money for Energy

Interglacial Crash

Interglacial Crash

Direct impact of CO2 on flora

Direct impact of CO2 on flora?

Are the facts neutral?

Are the facts neutral?

On the small difference between big n...

On the small difference between big numbers

Krugman on Oil

Krugman on Oil

Natural is orthogonal to Good

Natural is orthogonal to Good

GP changing clientele not significant

GP's changing clientele not significant

Facts impacting Policy need vigorous ...

Facts impacting Policy need vigorous review

What money isn't good for

What money isn't good for

Building groups that work

Building groups that work

In Praise of Speculation

In Praise of Speculation

Cold land, Warm ocean

Cold land, Warm ocean

Coal bad Glass good

Coal bad Glass good

What's coming up

What's coming up

Advice for mums of boys

Advice for mums of boys

Savings match lending

Savings match lending

Devaluing the US Dollar

Devaluing the US Dollar

Direct impact of CO₂ on flora?