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

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

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

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

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

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

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

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

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

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

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

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

1. I take my clothes off and stand in a standard pose; 
2. Multiple high definition cameras take pictures of every inch of skin with overlap for matching [might need more than one standard pose]; 
3. Use the overlaps and clever software to get a complete 3D picture; 
4. Compare picture to previous 3D pic from 3 months previously; 
5. Bring lesion changes to attention of expert; 
6. Contact me if further check needed; 
7. 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

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

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

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

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.

More on some of this in future posts.

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

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...

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

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

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 ...

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

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"

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

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

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

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

• 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

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

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.