## Sunday, October 31, 2010

### Movember

Anyone out there doing Movember?
Movember (the month formerly known as November) is a month long moustache growing charity event held each year to help raise funds and awareness for men’s health.
Having started in Australia seven years ago, Movember has grown to be an international event, taking place in six countries. This global expansion looks set to continue with demand from Mo Bros and Sistas around the world wanting to grow moustaches and celebrate Movember in their own countries.
Movember is about bringing back the moustache for a serious cause and sees Mo Bros, supported by the Mo Sistas in their life, register at Movember.com and then start Movember 1st with a clean-shaven face. They have the remainder of the month to grow and groom their moustache, whilst raising funds and awareness. Each Movember we challenge men to change their appearance and the face of men's health by growing a moustache. The moustache is our ribbon, the means by which we raise awareness and funds for prostate cancer and depression in men programs.

Having grown a "mo" for the last few years, I have to admit that I'm not sure whether I'll be partaking in full this year. Apart from the fun of doing it with friends, there's safety in numbers for these things... which made it much easier to do when I was living in London and Cape Town. (While many Commonwealth countries have embraced the MOvement (zing!), Movember has yet to take off in the Nordics so I was pretty much all on my own last year.)*
:'(

Still, it's a great cause and I'll see whether I can persuade some of my European fellows to embrace a return to looking like real men...

* Despite the lack of support, I will say that I still put out quite a beauty last year. Here's a little snapshot of Telemundo heartthrob yours truly in full mustachio mode:

Look inspired by my 2009 MOtivation,  Brian Fontana from the great Anchorman:

## Saturday, October 30, 2010

### New Goldfish single - "Get Busy Living"

Very nice, chaps.

Any readers that weren't previously aware of Cape Town's coolest electro-jazz duo - but like what they've heard so far - are strongly encouraged to sample some previous selections such as "Soundtracks and Comebacks", "Fort Knox" and "The Real Deal".

Be warned though: It's infectious.

## Friday, October 29, 2010

### Currie Cup Final

After a great start to the 2010 season, South African rugby descended into disappointment and embarrassment. Still, there's light at the end of the tunnel as Western Province have the chance to end a decade of mediocrity tomorrow and reclaim their rightful place as Currie Cup champions!

So, if there are any rugby fans out there reading this... Do the right thing and support the blue and white hoops tomorrow around 17:30 local time (GMT +2 hours). Come on!

Proooooovince!

UPDATE: Fack.
Pardon moi French, but I'm a few Guinesses (Guini?) to the good. Well played Sharks... WP completely outgunned.

UPDATE 2: Back to my normal sober self and I see all and sundry are singing young Patrick Lambie's praises. Rightly so, after a stellar season and yesterday's m-o-t-m performance. Still, it wouldn't be the first time a 19/20-year old flyhalf has been fêted as the next big thing in South African rugby after dominating a Currie Cup final. Remember Derick Hougaard back in 2002/03? Brian "The Chiropractor" Lima does:

Thanks, Joost!

To be fair to Hougaard, he went on to have some very successful domestic campaigns with The Bulls. The problem is that he ultimately failed to deliver any performances worth mentioning for the national side...

### SA planning world's biggest solar park

South Africa is to unveil plans this week for what it claims will be the world's biggest solar power plant – a radical step in a coal-dependent country where one in six people still lacks electricity.
The project, expected to cost up to R200bn (£18.42bn), would aim by the end of its first decade to achieve an annual output of five gigawatts (GW)* of electricity - currently one-tenth of South Africa's energy needs.
Giant mirrors and solar panels would be spread across the Northern Cape province, which the government says is among the sunniest 3% of regions in the world with minimal cloud or rain.
Apparently the Dept. of Energy is going on a big investor drive to drum up support for the whole shebang. Apart from South Africa's Renewable Energy Feed-In Tariffs (REFIT) scheme - I'm not really in a position to make predictions about the economic implications at this stage... Well, apart from the rather obvious matter that anything requiring a subsidy is going to be more expensive than the current going rate. Still, until we get a carbon price up to internalise the externality costs of coal, I suppose subsidies will have to do to for kick-starting the broader integration of renewables in South Africa and beyond. (Lord knows we could also do with a bit of diversification in the electricity supply down there... And I won't even mention the need to do away with Eskom's crippling monopoly on power supply.)

General aversions to monopolies (and certain subsidies) aside, I've been pretty positive about CSP (concentrated solar power) in that part of the country for a while. One concern I do have about these big solar projects though, is that they tend to be in - well - hot and dry places. This becomes problematic given that you need pretty substantial amounts of water for cooling (with thermal plants) and even cleaning (for photovoltaics). I guess it was inevitable that they've got their eyes set on the Orange River for this one... I'm interested to see what the EIA throws up.

* Unfortunately, the article contains a frustratingly common mistake here. The author surely means "5GW of capacity" (not output) as the only meaningful way to interpret output is watt hours... It happens again later on when he writes: "South Africa currently consumes 45-48GW of power per year." (If you're interested, you can visit the reliable StatsSA to see that total electricity consumption in 2009 was the order of 230TWh, i.e. terrawatt hours.)

## Monday, October 25, 2010

### Why we need maths in economics 2(b) - Schelling's segregation model

Slightly later than planned... Here is the second example of a little maths helping to improve our analysis of a real economic problemSeeing as I received some complaints about the calculus in my first example being too much for a blog post, I've tried to go for something much more basic this time. As such, the only maths that we'll only be using here is the arithmetic that everyone was taught in school. Again, however, those that are only interested in the final outcome can skip to the concluding "THOUGHT FOR THE DAY" and accompanying video at the bottom of the post!
===

Topic: The formation of segregated neighbourhoods.
Aim: To show how seemingly innocuous discriminatory preferences among neighbours (in terms of race, sex, etc) can lead to completely segregated outcomes at the aggregate level.

When research has been done in racially segregated neighbourhoods, one interesting (and consistent) finding is that respondents from these areas generally claim to desire more integration. “We don’t want to live in segregated neighbourhoods!” they implore. However, there are usually some important caveats thrown in and a typical response might be, “I want to live in an integrated neighbourhood... just as long as I am not in too much of a minority”. Nevertheless, what if such “very minor” discriminatory preferences are still enough to lead us to completely segregated outcomes?

This is the question that nobel laureate Thomas Schelling first explored in a seminal paper back in 1969. He later extended his analysis in a series of subsequent books and articles (e.g. here). Alongside his contributions to game theory and conflict strategy, the brilliance of Schelling's work was to examine not only the underlying motivations characterising individual behaviour, but also the implications of individuals acting on each other in the aggregate.

I say “in the aggregate”, though this is a potentially misleading phrase. We have become used to interpreting “aggregates” as something like the average behaviour of individuals. However, much of Schelling’s research has been aimed at proving the exact opposite; i.e. that aggregate results in society are not necessarily simple extrapolations from the individual. Instead, aggregate outcomes are often much more complex since they result from a system of interactions between individuals and their environment. In other words, we impact others and our environment by our actions, while they impact us in turn. These complex interactions can lead to the emergence of surprising and even undesirable outcomes when considered at the societal level. This led Schelling to make the famous distinction between "Micromotives and Macrobehaviour".[*]

Right, so let’s establish the stylised “facts” for the particular model that we’ll be using here. The most important assumptions are as follows:
• People live in different neighbourhoods. If someone is unhappy with their current neighbourhood, then they can costlessly move to a new one. In this model, the only thing that makes people (un)happy about where they live is the racial profile of their neighbours.
• For simplicity we specify a population that consists of only two ethnic groups: greens and reds. In this example, we’ll assume that there are 50 greens in the population and 100 reds. (I briefly consider a different scenario at the end of this post.)
• Both green and red individuals have a variety of “tolerance levels”, reflecting the maximum ratio of race mixing that each person is prepared to accept in his or her neighbourhood. If the colour ratio exceeds a person’s particular tolerance ratio, then they will move to another neighbourhood where they are satisfied. (Those with the highest intolerance will move first.)
• Finally, we assume that tolerance levels among greens and reds can be ordered sequentially from high to low.[**] For both groups, let’s say that the most tolerant individual will accept a ratio of 2:1... In other words, be willing live in a neighbourhood as a one-third minority. The median individual will tolerate a ratio of 1:1, while the least tolerant will accept no person of opposite colour in their neighbourhood.

From the above, it should be obvious that there are a number of greens and reds who would be happy to live together in some combination. However, in order to analyse which combinations are most likely to occur, as well as the processes that cause people to leave or join a neighbourhood, we must turn to a little maths...

The first thing to do is create tolerance schedules for our two groups. Recalling our tolerance ratios from earlier (most = 2:1, median = 1:1, least = 0:1, etc), we depict these as follows:

Next, we translate these tolerance schedules into “absolute-numbers” curves by simply multiplying the population level by the corresponding tolerance ratio. In other words, we're finding out how many greens each red is prepared to tolerate, and vice versa. The parabolic shape of the resulting curves reflect the diminishing level of tolerance among each population, as you move from the most "tolerant" individual of the group to the most “racist”:

Note the placement of the green population on the vertical axis, and how this allows us to easily compare the interaction with the red population. There are three areas: 1) Any point within the overlap area (bottom left-hand corner) represents a combination of reds and greens that can coexist happily in the same neighbourhood. 2) Points beneath the red curve, but to the right of the green curve, represent a mixture where all the reds will be satisfied, but not all the greens. 3) In contrast, any point within the green curve and above the red curve corresponds to a combination where all the greens in the neighbourhood are content, but not all the reds.

Importantly, the above figure also depicts the dynamics of motion of the system. This is what the arrows are showing us: We can see how the populations of the two groups will be changing at any particular point.[***] For example, the bottom-left arrow (pointing up and to the right) indicates that the numbers of reds and greens will be increasing together at low population levels. However, if reds begin to settle in the neighbourhood at a faster rate than greens, then some greens will be motivated to leave. This in turn exacerbates the problem, since the ratio of greens to reds now becomes even worse which prompts more greens to leave! And so... we inexorably move towards neighbourhood comprised entirely of reds. (This is depicted by the bottom-middle arrow that is pointing down to the right.) In this way, the dynamics of motion show us that we can approach three possible equilibria. However, only two of these -- the completely segregated outcomes -- are stable. The mixed equilibrium combination is unstable since any disturbance, i.e. the departure or arrival of a new neighbour, has the potential to set off a chain reaction that will ultimately lead to one colour completely dominating the neighbourhood!

Now, of course, this was a rather specific example used for illustration. You might ask whether the segregated outcome depends for instance, on the relative sizes of our green and red populations? The answer to that question, however, is “not really”. A one-colour equilibrium is still the inevitable result even when we have reds and greens in equal numbers. Having said that, having equal numbers together with steeper tolerance schedules will tend to produce a stable equilibrium. For example, if there are 100 reds and greens and they both have a tolerance schedule where the median individual can tolerate being in a 2.5:1 minority, then we end up with the following:

In this alternative schedule, we see that all three equlibria are stable. Importantly, this includes the interior solution (a mix of 80 reds and 80 greens), which is robust to fairly large perturbations. (However, if we are already at a segregated outcome, then a move towards a stable mixed result will require the concerted entry of more than 25 percent of the other colour.)

THOUGHT FOR THE DAY: It’s easy to assume that people living in segregated neighbourhoods are relatively racist. Similarly, we might also assume that people who express a desire to live in integrated neighbourhoods will automatically arrive at such an outcome through conventional market processes. However, the basic Schelling model shows that even small preferences for a degree of homogeneity – for just a few of our neighbours to be “like us” – is enough to cause segregated outcomes at the aggregate. (In other words, completely segregated neighbourhoods may be inevitable even when the majority of people are fine with being in a minority!) The model depicted here is very simplified and hardly perfect, but still provides extremely valuable insights into the emergent dynamics of segregation. It also illustrates how relatively simple maths can be used to deal with complex and counter-intuitive phenomena.

PS - The above model is part of a broader literature called “agent-based modelling”, which is used for analysing anything from traffic flows to health epidemics. While maths was crucial to proving that his results held generally, Schelling initially used coins and a chessboard to illustrate his point. For a pretty cool illustration of agent-based modelling at work, try one of these two online versions of the segregation model. Or just watch the below video!

[Note: Those of you paying attention might notice that this video is slightly different in terms of set-up to the model that I have discussed above, in that it each person (/egg's) neighbourhood is limited to the spaces immediately alongside them. Schelling called this a "spatial proximity model". In contrast, the model presented above analyses the make-up of the neighbourhood as a whole and is called the "bounded neighbourhood model".]

[*]  "Micromotives and Macrobehaviour" is the title of Schelling's brilliant book, which forms the basis for today's post. If the type of emergent economic outcomes that I discuss here is of interest to you, then M&M is a must-read.
[**] In technical language: we assume that the cumulative frequency distribution of the “tolerances” of individuals is represented by a straight line. This is done for ease of illustration, although it is not overly problematic to experiment with different distributions (as Schelling does here).
[***] What we have here is a simple phase diagram, which is very useful for analysing the stability of any dynamic system where you have to worry about things like multiple equlibria, tipping points, saddle paths, etc. You usually determine the direction of your arrows in a phase diagram by taking the first derivatives of your equations, but since I'm trying to keep things simple here I won’t bother with that now.

### Sunday Soul Patch - The Sam Cooke edition

Sam Cooke.

So many to choose from, but just keeping it relaxed tonight...

## Monday, October 18, 2010

### God, morality and monkeys

And by "monkeys" I really mean "altruistic chimpanzees", but I'm a sucker for alliteration...

I stumbled on a really excellent opinion piece in today's New York Times: "Morals without God" by the Dutch primatologist and ethologist, Frans De Waal. I'm loathe to highlight any particular parts because the whole thing is so good, but here are three excerpts...

First up: Morality without God.
Can we envision a world without God? Would this world be good? Don’t think for one moment that the current battle lines between biology and fundamentalist Christianity turn around evidence. One has to be pretty immune to data to doubt evolution, which is why books and documentaries aimed at convincing the skeptics are a waste of effort. They are helpful for those prepared to listen, but fail to reach their target audience. The debate is less about the truth than about how to handle it. For those who believe that morality comes straight from God the creator, acceptance of evolution would open a moral abyss.
Echoing this view, Reverend Al Sharpton opined in a recent videotaped debate: “If there is no order to the universe, and therefore some being, some force that ordered it, then who determines what is right or wrong? There is nothing immoral if there’s nothing in charge.” Similarly, I have heard people echo Dostoevsky’s Ivan Karamazov, exclaiming that “If there is no God, I am free to rape my neighbor!”
Perhaps it is just me, but I am wary of anyone whose belief system is the only thing standing between them and repulsive behavior. Why not assume that our humanity, including the self-control needed for livable societies, is built into us? Does anyone truly believe that our ancestors lacked social norms before they had religion? Did they never assist others in need, or complain about an unfair deal? Humans must have worried about the functioning of their communities well before the current religions arose, which is only a few thousand years ago. Not that religion is irrelevant — I will get to this — but it is an add-on rather than the wellspring of morality.
This very closely describes my own feelings. I've often tried to point out that morality derived from personal and social value systems just seems more genuine than morality which is (passively?) adopted as part of a religious system. If a religious person does something “good” because of the threat of hell -- or lure of heaven -- can this really be framed as a question of morality?[*] I doubt it... Now, obviously there are healthy reasons for keeping reward and punishment systems that protect the stability of a society as a whole, but the concept of "managed morality" still appears to me as little more than a lame oxymoron.

Next: Thoughts on Altruism.
Modern popularizers [have argued] that true moral tendencies cannot exist — not in humans and even less in other animals — since nature is one hundred percent selfish. Morality is just a thin veneer over a cauldron of nasty tendencies. [However], instead of blaming atrocious behavior on our biology (“we’re acting like animals!”), while claiming our noble traits for ourselves, why not view the entire package as a product of evolution? Fortunately, there has been a resurgence of the Darwinian view that morality grew out of the social instincts. Psychologists stress the intuitive way we arrive at moral judgments while activating emotional brain areas, and economists and anthropologists have shown humanity to be far more cooperative, altruistic, and fair than predicted by self-interest models. Similarly, the latest experiments in primatology reveal that our close relatives will do each other favors even if there’s nothing in it for themselves.
[snip]
Even though altruistic behavior evolved for the advantages it confers, this does not make it selfishly motivated. Future benefits rarely figure in the minds of animals. For example, animals engage in sex without knowing its reproductive consequences, and even humans had to develop the morning-after pill. This is because sexual motivation is unconcerned with the reason why sex exists. The same is true for the altruistic impulse, which is unconcerned with evolutionary consequences. It is this disconnect between evolution and motivation that befuddled the Veneer Theorists, and made them reduce everything to selfishness.
[snip]
Nature often equips life’s essentials — sex, eating, nursing — with built-in gratification. One study found that pleasure centers in the human brain light up when we give to charity. This is of course no reason to call such behavior “selfish” as it would make the word totally meaningless. A selfish individual has no trouble walking away from another in need. Someone is drowning: let him drown. Someone cries: let her cry. These are truly selfish reactions, which are quite different from empathic ones. Yes, we experience a “warm glow,” and perhaps some other animals do as well, but since this glow reaches us via the other, and only via the other, the helping is genuinely other-oriented.
Quite so. I'm tired of all the Ayn Rand types bleating on about selfishness all the time. Trust me, I get it: self-interest is very important... But I feel much of the Randian contribution these days is simply to fixate on meaningless semantics. Apart from the fact that altruistic acts often confer no obvious or immediate benefits to us, surely the exact point is that altruism is concerned with the well-being of others? "Altruism" exists as a singular -- and separate -- construct because it reflects a very specific set of actions and motivations.

Finally: Extending an olive branch to religion.
While I do consider religious institutions and their representatives — popes, bishops, mega-preachers, ayatollahs, and rabbis — fair game for criticism, what good could come from insulting individuals who find value in religion? And more pertinently, what alternative does science have to offer? Science is not in the business of spelling out the meaning of life and even less in telling us how to live our lives. We, scientists, are good at finding out why things are the way they are, or how things work, and I do believe that biology can help us understand what kind of animals we are and why our morality looks the way it does. But to go from there to offering moral guidance seems a stretch.
Even the staunchest atheist growing up in Western society cannot avoid having absorbed the basic tenets of Christian morality. Our societies are steeped in it: everything we have accomplished over the centuries, even science, developed either hand in hand with or in opposition to religion, but never separately. It is impossible to know what morality would look like without religion. It would require a visit to a human culture that is not now and never was religious. That such cultures do not exist should give us pause.
[snip]
Other primates have of course none of these problems, but even they strive for a certain kind of society. For example, female chimpanzees have been seen to drag reluctant males towards each other to make up after a fight, removing weapons from their hands, and high-ranking males regularly act as impartial arbiters to settle disputes in the community. I take these hints of community concern as yet another sign that the building blocks of morality are older than humanity, and that we do not need God to explain how we got where we are today. On the other hand, what would happen if we were able to excise religion from society? I doubt that science and the naturalistic worldview could fill the void and become an inspiration for the good. Any framework we develop to advocate a certain moral outlook is bound to produce its own list of principles, its own prophets, and attract its own devoted followers, so that it will soon look like any old religion.
As something of a secular humanist myself, I'll have to mull over the very last of these points. I strongly identify with many of the moral teachings that I've read in religious texts... But I also think that this reflects the innate strength of certain religions: They simply codified a set of moral guidelines that societies needed to "evolve" if they wanted to survive and flourish over the long-run. This, in turn, acted as the ballast for these religions to endure. The fact that we -- at least in Western societies -- seem far less concerned with certain rules than we might have been in previous years (e.g. don't eat shellfish, no sex before marriage) reinforces my belief that our morality will partly evolve with the times. (We even reject outright certain notions from religious texts, such as the right to own slaves.) Nevertheless, I completely agree that there is no need to insult someone who finds value in religion; provided their beliefs cause no demonstrable harm to others. And, as I have said previously, I look forward to the day when we come around to the idea that calling someone an "idiot" is not the best way of convincing them of your position.

THOUGHT FOR THE DAY: Too much, I fear, in this piece to sum up in a few lines. Perhaps I can do no worse than...
Oh, oobee doo!
I wanna be like you (oo-oo-oo)
I wanna walk like you
Talk like you, too (oo-oo-oo)
You'll see it's true (oo-oo-oo)
An ape like me
Can learn to be human too!

[*] An analogy is the paradox of intrinsic versus instrumental ethics that you often hear about in courses on business ethics... The basic idea being that trying to “manage” the ethics of employees is a contradiction in terms: By subjecting ethical matters to regulation and management control, employees aren't necessarily doing something good because of it's innate goodness, but rather because they are told to so or suffer the consequences. Similarly, it could be argued that ethics derived from any authority – moral or otherwise – has some element of inherent contradiction.

### More water issues in SA

(Semi) fresh on the heals of The Corral's coverage of an appeal to major water-using companies to fund "an extensive water monitoring project" in South Africa...

Food retailer Woolworths says it is extremely concerned about the quality of the country’s water and the influence this has on food security.
Noël van Zyl, buying manager at Interfruit, which supplies Woolworths with fresh produce, said on Friday it has become clear over the past 18 months that the country’s water quality is declining drastically.
“We recently discovered traces of Escherichia coli on fresh produce,” he said.
[snip]
Thomas du Toit, representative of the non-governmental organisation Save the Vaal (Save), said government should be “shocked” to its senses, since they are the custodians of the country’s water resources and they are allowing the water quality to deteriorate at this rate.
Van Zyl said Woolworths doesn’t want empty shelves, but if the country’s water quality continues to deteriorate, this will be everyone’s fate.

[For our overseas readers, Woolworths is basically the direct equivalent of Marks and Spencer in the UK (not it's all-but-liquidated namesake). In other words, it is a high-end retailer selling premium food goods and apparel items.]

I swear, this whole South Africa water thing is starting to feel like watching a train wreck in slow motion. I'll avoid repeating myself, so you can have a wonder over to my previous posts to view some modest (brief) suggestions that I make on this issue.

Beyond that, I'm strangely heartened that the article makes mention (further on) about the link between carbon, climate and water quality. My own research is currently given over to studying aspects of the water-energy nexus, which seems to me a much-ignored area. More on that later, but here's a nice little summary in the meantime.

## Sunday, October 17, 2010

### Quote of the day - Fish

Speaking of life in the oceans...
"Sharks are just evil bastards. I'm quite happy if all the sharks just went because they eat fish and us. And we need the fish."
- Eddie Izzard

Izzard is a genius... quite possibly my favourite comedian. The above line is taken from his performance at the 2006 Secret Policeman's Ball (the fundraising event for Amnesty International)... I'd highly recommend his 2008 appearance as well if you haven't seen it. (Some NSFW language.)

### The APS and others respond to the Harold Lewis resignation letter

As reported last week, a physicist by the name of Hal Lewis resigned from the American Physical Society, citing his belief that the APS has been irrevocably corrupted by the politics and money of the global warming question. I left an update at the bottom of that post, linking to a response by Joe Romm of Climate Progress.

My evaluation of this particular statement: meh.

While it's fine to say things like "The APS totally rejects Dr Lewis' assertion(s)"..., "rigorous academic standards"..., blah blah blah... I mean, come on, grow some balls. If you're fighting for hearts and minds, then you're going to have to better than that. I don't see much in the way that will persuade those who are suddenly unsure about climate change, or potentially leaning the other way. If Lewis' version of certain events at the APS is ridiculous then don't be scared of saying so and - better still - providing the neutral observer with evidence that directly refutes him.

Thankfully, some of the responses coming in from actual members of the APS is reassuringly less tepid. For instance Arthur Smith:
In any case, one outcome of the discussion last year was a plan to develop a new topical group on "the Physics of Climate", something I heartily endorse. Lewis seems to dispute the account given in the APS News article just linked, in particular referring to the organizing committee formed by the APS as "secret and stacked" to form "your own" topical group. If Lewis wasn't planning for the new topical group to be an APS topical group, what did he think he was doing? Lewis wasn't even the person who sent out the petition he talks about in his letter, it was Roger Cohen (not mentioned once in Lewis' letter - why?). Lewis's claims also seem a little odd given that the person selected by APS to head up the organizing committee, Nobel laureate Jerome Friedman of MIT, was one of the signatories on Cohen's petition for the new group. Did Lewis want to try to form a "climate skeptics only, nobody else invited" group somehow with APS sanction?
[snip]
Lewis talks about "trillions of dollars". Going to scientists? That seems rather unlikely. The vast majority of the (billions) spent on climate research go to two places: satellite manufacture, launch and operations, and supercomputer centers for doing climate model calculations. The average climate scientist is paid no more than the average American, about $50,000/year, and many work for hardly more than minimum wage, some spending long hours and even putting their lives at risk for their work. This money is the source of corruption? Lewis has absolutely no basis for his claim. Money is (or was until recently) certainly an attraction to young physicists: Wall Street money. If there is anything that has made the present generation of physicists perhaps slightly less brilliant than their predecessors, it's the siren song from global finance. Several of the brightest graduate students in my class went off to "quant" positions and made roughly ten times more money than the "average scientist" over the past couple of decades. Large quantities of money can certainly be corrupting - but the money doesn't come to the scientists doing science. Some scientists leave science to go where the money is, but they don't send any back. But somehow, Lewis claims this "money flood" is corrupting universities and non-profit professional societies like APS. I wouldn't be surprised if there are some research areas affected by large sums of money flowing in - medical and pharmaceutical research, perhaps, or defense industry research. I myself have long found Eisenhower's speech on the military-industrial complex a compelling call to action. But Lewis thinks this has something to do with climate research, to the extent that it corrupts a professional society that doesn't even include very many actual climate researchers? That seems a real stretch... Where are his numbers? He has none, no proof of his speculations at all. Reading this, should I have baulked at the monetary figures Lewis put forward? Well, probably. Certainly, the climate researchers I know aren't exactly living the "high life". It also wouldn't be the first time that sceptics have grossly overstated the money flows accruing to climate change researchers. Having said that, I do worry that important non-climate-related research is being sidelined by this overwhelming debate on AGW. Clearly, there are some very important scientific and environmental questions unrelated to climate change that deserve research funding as well. Moreover, its really frustrating to see people trying to lump everything under the climate umbrella or ascribe strong climate causation when there isn't any. (In this light, a close friend of mine has been doing interesting research related to the myopic political contextualisation of "climate refugees".) Of course, all this doesn't detract from the fact that climate change impacts seem likely to dwarf our other environmental concerns and, indeed, most likely exacerbate them. Returning to Smith's post, I'm glad to see that he also picks up on Lewis's curious fixation with the word "incontrovertible" in the APS statement. This is something I discussed in my previous post. (i.e. That the earth has been warming for many years is hardly controversial... What remains is pinpointing the underlying drivers.) Other responses to the Lewis resignation letter have similarly focused on the inaccuracy of his money claims, as well as his reliance on a rather flawed book by A.W. Montford. Eli Rabett is another APS member who has previous beef with Lewis and is weighing in on this matter. THOUGHT FOR THE DAYIt’s better to provide solid evidence if you’re going to make strong claims. You can dress up the science and politics of climate change however you want, but some people already know where they stand. ### Paul Collier talk on "The Plundered Planet" I went to a talk last night by Paul Collier. For those of you who don't know, Collier is a big cheese in the development studies world, probably best known for his acclaimed 2007 book, "The Bottom Billion". (I'm fairly embarrassed to say that I actually haven't read it yet. It's been on my bookshelf for a while, but the GF has beaten me to it and is currently finishing it up before I get my chance.) Anyway, Collier was in town promoting his new book, "The Plundered Planet", of which I have just bought a copy. To quote the book jacket: he ambitiously aims to "reconcile the immediate needs of the world's burgeoning population with a sustainable environmental future". Collier is a very good speaker and much of what he said last night made eminent sense. For example, he talked about the pitfalls of poor -- but resource rich -- countries trying to strictly emulate the Norwegian model for managing a sovereign wealth fund. In particular, these nations should almost certainly focus on significant capital development in their own countries rather than investing in equities around the world as Norway has done. (The latter makes sense for Norway since it already has an incredibly high level of in-country per capita investment.) He also dismissed the curious notion that developing nations should preserve their natural environment based on the (ethical?) preferences of people in rich countries. [Tip: If you really don't want someone in a poor country to develop a wetland, rainforest, etc... Pay them not to.] Along these lines, Collier made the interesting observation that China's strategy in Africa -- resource extraction in return for infrastructure -- is effectively a monopoly. In other words, if you're an African country in the business to sell your resources in exchange for infrastructure development (without too many strings attached), then China is pretty much the only option available to you. Now, international agencies such the IMF and World Bank have typically shunned Chinese-style, "resources-for-infrastructure" deals as opaque. Instead, they prefer a more conventional "resources-for-cash" exchange, whereby local governments would build their own infrastructure using money/FDI paid into their treasuries. However, there are many reasons to believe that the Chinese model may be far more attractive to a prudent finance minister of a developing nation. Certainly, he or she might fret over how large a share of the money pie the presidency will ultimately allocate to infrastructure at the end of the day (versus other areas such as military or governmental salaries). By doing business the Chinese way, the finance minister can at least rest assured knowing that badly-needed roads, bridges, etc are going to be built. Thus, if more OECD governments had been prepared to imitate some elements of the Chinese model instead of just criticising it, competition would likely have yielded better environmental and infrastructure outcomes for developing countries than the current situation where China operates alone. Having said the above, some of Collier's arguments not make sense to me. After providing a nice description of the concept of resource rent, he went on to apply a few insights to the case of transnational resources - in this case, fish. He argued that overfishing is in large part down to the fact that economic rents are not being captured/taxed by any regulatory bodies; that abnormal profits are accruing straight to fisherman which encourages them to overfish. Now, I'm not particularly sure about the direct causation he offers... I think it's just that there are too many people fishing (because of a lack of property rights in the world's oceans), rather than it being a matter of easy profitability. I also wasn't convinced by his proposed solution as he seemed to be arguing for a regulatory system on international fisheries, whereby taxes would be paid to the UN in order to fund the World Food Programme. While admirable its idealism, this scenario strikes me as highly unlikely. Still, I guess I better read the book before commentating further. It's a few back in the queue right now, but I've certainly heard enough to pique my interest... ## Saturday, October 16, 2010 ### Maths and Economics - The Interlude Those of you paying attention may have noticed that I yet to deliver on my promise to provide a second economic-maths example. Apologies for the delay, but I've had a workload from hell this passed week. Honestly, I'll try and get around to it during the next few days when the storm clears. (The good news is that I at least know what I am going to post about...) Anyway, I'd thought I'd share a little statistic in the interim: As of the present moment, my original post on why we need maths in economics has been viewed more than five times as much as the follow-up oil-tank model. I found this pretty interesting. The first post was meant to act as a general defence of the subject. However, realising that general defences can be a bit vague I was motivated to offer specific examples to illustrat my points. I really thought that this was where the "value" would lie, since readers would be able to see the actual mechanics at work. Not the case apparently... Perhaps the calculus in the “oil-tank” example put a few people off. Fair enough, I don't expect everyone to care for going through the maths... But I at least expected them to look over the post and skim to the model's conclusions. However, the click-through rates* indicate that even this hasn't been happening. Rather, it seems that people simply aren't as interested in a specific example of maths being useful to shed light on an economic problem, as they are in having a general discussion about it. In their own little way, these posts offer some insight into behavioural attitudes towards maths in economics – a sort of informal experiment if you will, which shows people leaning towards what I would regard as an important, but less precise approach. THOUGHT FOR THE DAY: It's easy to take a position on things without getting to specifics. Providing concrete examples to back-up or demonstrate your point can be harder, but at least you give people something to work with. However, whether everyone will be interested in the evidence at hand is still open to question.** * Clearly, Stickman's Corral isn't competing with any blogs worth mentioning in terms of numbers. Still, I think that my first maths post in particular has drawn a pretty respectable audience for a lowly grad student blogging in a sea of anonymity :) ** For the dramatic version of what I’m talking about, we have some classic Hollywood. ## Wednesday, October 13, 2010 ### Passage of the day - Of Columbus, Conquistadors and Cruelty So I'm a few days late, but Monday was Columbus Day for our friends over States' side. I know this because Aguanomics mentioned it at the time, offering the following aphorism: The Europeans brought technology and used resources for population growth. The locals would have preferred to use the technology for themselves, but they didn't have the guns. Anyway, the above reminded me of a great passage I read a while ago in David Landes' The Wealth and Poverty of Nations: The scarcity of gold was a disappointment, but [Columbus] made the best of things and assured that these islands could be an abundant source of slaves[...] Caribbean history after the coming of the white man was in large part the replacement of people by cattle, followed by a repeopling with black slaves to work the sugar plantations. The process of depopulation was hastened by massacre, barbarous cruelty, deep despair. The natives committed suicide , abstained from sex, aborted their fetuses, killed their babies. They also fell by the tens and hundreds and thousands to Old World pathogens (smallpox, influenza). The Spanish debated whether the savages they encountered had a soul and were human; but the record makes clear where the savagery lay. When Columbus met his first Indians, he could not get over their friendliness; to this the Spaniards, frustrated for gold, returned bestialities unworthy of beasts. (p. 71) You can read the whole chapter here. (The most graphic bit actually follows directly from the quoted section. Among other acts of savagery, there is a particularly gruesome sentence involving the treatment of pregnant women...) On the subject of brutal Spanish incursions into the Americas, it would be rude not to include the following Neil Young classic: Young does, of course, rather play down the violence that was endemic in some parts of South America prior to the Europeans arriving. Landes actually has a very good line on this issue in a later chapter when discussing a question posed by another eminent scholar, Jared Diamond: Why did the Incas behave so naively (stupidly?) in their dealings with the Spanish, when the latter were so consistently treacherous? Diamond suggested that it was a matter of innocence: The Spanish were well versed in the devious history of man and empires, while the Incas had "no personal experience of any other invaders from overseas... had not even heard (or read) of similar threats to anyone else, anywhere else, anytime previously in history". However, having listed some of the stark cruelties which had characterised the pre-European Inca Empire, Landes reasonably counters: "But the Incas should have known themselves." (p. 108) PS - If you're into covers... well, I am. The Dave Matthews Band and Warren Hayes do a very respectable version of "Cortez the Killer" live in Central Park here. ## Tuesday, October 12, 2010 ### Climate Change - Two steps forward, two steps back Sigh. After the "No Pressure" video debacle[*], you would think that this week had run out of shite hands to deal the proponents of the However, a scathing letter of resignation by one Harold Lewis from the American Physical Society (APS) is giving climate skeptics a shot of vigour they haven't enjoyed since Climategate fizzled out. A skeptic friend passes on this article in the UK Telegraph, which cites the letter in full and includes the money quote: It is of course, the global warming scam, with the (literally) trillions of dollars driving it, that has corrupted so many scientists, and has carried APS before it like a rogue wave. It is the greatest and most successful pseudoscientific fraud I have seen in my long life as a physicist. Anyone who has the faintest doubt that this is so should force himself to read the ClimateGate documents, which lay it bare. Predictably, the excitable Anthony Watts has seized upon it like a fresh cream bagel, while other sceptics are similarly crowing their we-knew-it-all-along! tune. The problem is, while we can easily dismiss the vast majority of the denialist claims (and their preachers) out of hand, I don't think we can or should do so here. Letters like these pose far more troubling questions for us than the usual band of talk-show radio jocks and TV weathermen. Of course, having an actual reputable scientist make such claims is a good place to begin. (Don't get me started.) ## Monday, October 11, 2010 ### The Nobel Prize Winners in Economics for 2010 And, yes, I know that it's not *really* the correct thing to call it: Straight from the horse's mouth: The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2010 was awarded jointly to Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides "for their analysis of markets with search frictions". Congratulations to all three winners. I have to confess that I am not too familiar with their bodies of work, as I'm not not really into labour issues and unemployment. However, I did some search theory stuff back in my bachelors, and then - strangely enough - more recently in the applied case of marriage. Vierd. You never know where these things will pop up. Perhaps this, along with my recent discussions on the use of maths in economics, is signal to download some papers... Then again, who has the time?! Better stick to the summaries for the moment. Speaking of which, Paul Krugman weighs in with praise here, while over at Marginal Revolution Alex Tabarrok and Tyler Cowen offer their own admiration here and here. [Update: Well, one person certainly not interested in bestowing unfettered praise on our new laureates is, unsurprisingly, Bill Mitchell. I'm not completely familiar with all the Modern Money Theory (MMT) stuff, but have read some of Mitchell's work before. Not always easy as he must honestly compose the longest posts in the blogosphere.] Back to the award, it's a good thing thing that I'm not much of a betting man, as my money would have been on Ernst Fehr (or Richard Thaler and Robert Shiller) for their work in behavioural economics (and finance). I also heard rumours about Martin Weitzman and William Nordhaus being in the running, which is great from my perspective as an environmental/resource guy. (I think Weitzman, in particular, continues to produce brilliant research.) However, perhaps their respective fields of behavioural and environmental economics were a step too close to the institutional/governance field of last year's winners, Elinor Ostrom and Oliver Williamson. And, let's be honest, unemployment (structural or otherwise) is the key topic of the moment. ## Sunday, October 10, 2010 ### In honour of my Austrian visitors So it seems that my "Why we need maths in economics" post was picked up by someone in the Mises.org community... Who, in turn, may have first read about it on Daniel Kuehn's blog. Judging by my stats page, these links appear to have been largely responsible for pushing my audience figures into triple figures for the first time. To continue with joke that I made on Daniel's site: In blogging terms, I feel like I've just made it to third base. Anyway, I certainly appreciate the interest and any comments. Since I am aware that many Austrians feel a return to the gold standard is ultimately necessary to ensure economic stability and prevent government debasement of money*, I offer the following video a token of good will: If this all seems a rather convoluted segue to get to a song... Yes, the answer may simply be that I was looking for an excuse to put up something that takes me back to my 90s music roots. Better not to think about it too much though. Just enjoy the soundz. * For the record, I think that the gold standard is plagued by a whole host of problems, but that remains another subject for another day. ## Friday, October 8, 2010 ### Story of the day - Man gang-raped by three women Africa. Where men are men. And so, it seems, are certain women... The following link was posted on my facebook profile by an Italian friend: Johannesburg - A 30-year-old man was off to play pool when three women asked him to direct them to a hotel and he claims they raped him in turn after they had had drinks. [snip] "On the way to the hotel, the driver suddenly changed direction and drove to an open piece of veld near the Durban Roodepoort Deep mine. Kept gun on him all the time "One of the women pulled out a gun and held up the man while the other two undressed. "Then all three of them raped him in turn, with one of them keeping the gun pointed at him," said Nothnagel. This elicited various comments about the proclivities of South African women and my personal motivations for studying abroad. My response (which will not endear me to counselling centres around the world) was: "Hey, the only men I've heard about being raped in SA were the Italian football team back in June... Seriously though, I'm not even sure how this would 'work'?" To which a Norwegian (female) friend responded: "Raped? Really? At gunpoint!... Scared stiff? Harsh. But fair. (Again, more chirp of the day, but I don't see the point in creating a new label just yet...) ## Wednesday, October 6, 2010 ### Why we need maths in economics 2(a) - The Oil Tank Model As promised, here is the first example of a highly stylised model, which -- despite its unrealistic simplicity -- still produces valid (and unexpected) results for real-life decisions. Topic: The optimal depletion of an oil resource. Aim: To show that changes in the interest rate don't always have clear implications for our rate of withdrawal. [NOTE: Those of you with no desire to go through all the equations (although that kinda defeats the purpose) can just scroll down to "THOUGHT FOR THE DAY".] The model that I am going to refer to here is commonly known as the "oil tank" model. As the name suggests, imagine we have an oil resource that can be exploited exactly as if it were in a tank or drum. A key assumption here is that rate of production is proportional to the number of wells; you drill two holes, the oil comes out twice as fast. This is grossly unrealistic. As any geologist would probably tell you: drilling holes affects well pressure around the borehole, geological structure and reserves are not uniform, etc, etc. There are also other economic considerations that we ignore here, such as the fact that we shall assume a constant oil price[*], uniform costs of production, and an oil field that has been unitized. (Unitization essentially means that the resource is controlled by one supplier. This is not completely correct, but just go with it...) Bottom line: lots of simplifications. So, let's specify the model and then solve to see what we get.$Q =$Amount of oil that can be recovered$q_t = q = $The (constant) rate of production$T = Q/q =$Extraction time (remember that extraction is proportional to the number holes you drill)$c =$The cost to develop each well$p =$Price of oil$r =$Interest rate The present value of the well to us as producers can thus be written as: V = -cq + \int_0^T \! pqe^{-rt} \, \mathrm{d}t Where the first term on the RHS equals the cost of our investment. (Note: We assume upfront payments for simplicity[**], and the second term under the integral represents the total revenue flow from production until we exhaust the resource at time,$T$.) Solving for the above gives: V = q \left[ -c + \frac{p \left(1-e^{-rT}\right)}{r} \right] Now that we have a PV equation for our oil field, we can used the standard optimization procedure to find the optimal production rate... simply derive w.r.t.$q$and set equal to zero. Recalling that$T = Q/q: \begin{align} \frac{\mathrm{d}V}{\mathrm{d}q} = 0 &= - c + \frac{p \left(1-e^{-rT}\right)}{r} + pq \frac{\mathrm{d}T}{\mathrm{d}q}e^{-rT} \\ &= - c + \frac{p \left(1-e^{-rQ/q}\right)}{r} - \frac{pQ}{dq}e^{-rQ/q} \end{align} Since it usually makes sense to think in terms of normalised costs (i.e. how much it costs to develop a field relative to the price of oil), we can just divide through by p and solve to get: \frac{c}{p} = \frac{1-e^{-rQ/q}}{r} - \frac{Qe^{-rQ/q}}{q} Okay, we're getting there. The above equation is important because we can use it to analyse how changes in two "given" variables -- investment cost per well\left( \frac{c}{p} \right)$and interest rate$\left( r \right)$-- affect our "choice" variable, namely the production rate$\left( q \right)$. I want to focus on the latter in this blog post. So let's think about what our intuition would tell us about the relationship between production rates and interest. If an oil producer asks, "What should I do if the interest rate goes up?", the instinctive response is "produce faster". After all, this seems perfectly intuitive; higher rates of interest signal increasing impatience and we can put the money that we receive from production into the bank at the higher interest. So, let's see if this is how things work out. For this last part, it will make things easier to follow if we define the previous equation as being equivalent to a function, which we'll call$f: f \equiv \frac{c}{p} = \frac{1-e^{-rQ/q}}{r} - \frac{Qe^{-rQ/q}}{q} We can then use a general derivation rule, \mathrm{d}f = \frac{\partial f}{\partial r} \mathrm{d}r + \frac{\partial f}{\partial q} \mathrm{d}q, to get our second last equation (with a little help from the chain, quotient and exponent rules): \begin{align} \mathrm{d}f = &\left[ \frac{ \left(\frac{Q}{q}e^{-rQ/q} \right)r - \left( 1 - e^{-rQ/q} \right)}{r^2} - \frac{-Q}{q}\frac{Qe^{-rQ/q}}{q} \right] \mathrm{d}r \\ &+ \left[ \frac{-r \frac{Q}{q^2}e^{-rQ/q} }{r} - \frac{\left( r \frac{Q}{q^2}Qe^{-rQ/q}\right)q - Qe^{-rQ/q} }{q^2} \right] \mathrm{d}q . \end{align} Simplifying and setting equal to zero again for optimization yields, \mathrm{d}f = 0 = \left[ \frac{ \left( r \frac{Q}{q} \right) e^{-rQ/q} - \left( 1 - e^{-rQ/q} \right)}{r^2} + \frac{Q^2}{{q}^2}e^{-rQ/q} \right] \mathrm{d}r - \left[ \frac{rQ^2}{q^3}e^{-rQ/q} \right] \mathrm{d}q. And now -- if you've made it this far! -- we are at last ready to produce our final equation... i.e. The one that describes the relationship between the production rate(q)$and the interest rate$(r). All we need to do is rearrange the above equation and then simplify this bad boy as follows, \begin{align} \frac{\mathrm{d}q}{\mathrm{d}r} &= \frac{\frac{ \left( r \frac{Q}{q}\right)e^{-rQ/q} - \left( 1 - e^{-rQ / q} \right) }{r^2} + \frac{Q^2}{q^2}e^{-rQ/q}}{\frac{rQ^2}{q^3} e^{-rQ/q}} \\ &= \frac{ -\frac{1}{r} \left[ \frac{ \left( 1 - e^{-rQ / q} \right) }{r} - \frac{Q}{q}e^{-rQ/q} \right] + \frac{Q^2}{q^2}e^{-rQ/q}}{\frac{rQ^2}{q^3} e^{-rQ/q}} \\ &= \frac{ -\frac{1}{r} \frac{c}{p} + \frac{Q^2}{q^2}e^{-rQ/q} }{\frac{rQ^2}{q^3} e^{-rQ/q}} . \end{align} (For this last step, just recall our equation for\frac{c}{p}$above.) Looking at our final equation above, it should be clear that we cannot directly see how the rate of production ($q$) should change. That's because we are left with an equation of ambiguous sign: \frac{\mathrm{d}q}{\mathrm{d}r} =\frac{ \text{something negative} + \text{something positive} }{\text{something positive} }. In other words, it is not certain whether$\frac{\mathrm{d}q}{\mathrm{d}r}$will be negative (i.e. we should decrease our production rate) or positive (i.e. we should increase production). It all depends on how high our costs of investment$(\frac{c}{p})$are! If investment costs are "high", then we should produce less, since$\frac{\mathrm{d}q}{\mathrm{d}r} < 0$. On the other hand, if they are "low", then we should produce more, since$\frac{\mathrm{d}q}{\mathrm{d}r} > 0\$.

THOUGHT FOR THE DAY: The "oil tank" model is crude and dramatically simplified. Yet, it still provides very useful insights. We have isolated key variables to see how they might affect each other on a ceteris paribus basis. What we focused on here is how changing the rate of interest actually has an ambiguous effect on the optimal depletion of an oil resource. Accordingly, we can say that a higher rate of interest (r) plays two roles:
1) "Impatience" - We want our money more quickly (and capital costs are high)
2) "Opportunity cost of capital" - To get more money, we need to drill more wells. However, this is expensive in the face of high interest rates.
The first of these is the one that comes completely naturally to us. As such, we're almost always predisposed to think that we should just do something "quicker" (in this case producing oil) when faced with a higher rate of interest. However, having worked through the analysis, we see that the interest rate has another important impact that is easily glossed over; namely it represents the opportunity cost of capital. If we relied solely on our intuition, then it's easy to make the error of ignoring this latter effect. Indeed, as I argued in my previous post, working through the maths has helped us to make an intuitive argument that only becomes "intuitive" upon reflection!

[*] Although, we can compare the fact that oil companies typically make forecasts based on "set" prices to analyse profitability thresholds and so forth.
[**] We could take PVs for investment costs over time if we really wanted...