28 Feb 2017

The economic purpose of 3D-printing

Arvid writes*

The new gimmick in the world of technology is 3D-printing, with Ikea style printing kits already available for around 500 euro’s at an internet store near you. However, 3D-printing is no longer just a technological gimmick that is getting lab nerds very excited, it already has a place in the modern manufacturing process. It even has a fancy name (Additive Manufacturing, or AM) to show the world it is here to stay, and take an important role in our world. But what are the benefits and cost to additive manufacturing, and what role does it play in our current production process and economy of scale? Well, the answer is in the name.

AM differs from traditional manufacturing because unlike its traditional counterpart which subtracts material to build the final product – for instance you saw wood to build a table – AM is a process of joining materials layer upon layer to make objects from a 3D model data. The consequence of this production technique is that it has the potential to be on par with conventional production processes within a certain production limit. According to this study [pdf], it is estimated that AM is useful for producing below 14,000 units, or regarding small electrical components up to 121,000 units.

This is possible because the ‘tooling cost’ with AM is zero or close to zero. An example of tooling cost is making the mold for a certain product. The time to make the tooling is much longer than simply printing a product, while the actual production time for each unit is longer than in traditional manufacturing. The direct costs with AM are therefore mostly machine costs, material cost, and production speed. While the economic benefits of 3D printing are; less waste, no tooling costs, smaller production runs and large scale customization, with each product capable of being custom made.

For a more detailed look at the costs and benefits look at this paper by Nourredine and Meshari [pdf].

AM has grown rapidly the last couple of years, and has moved out of its traditional stomping ground of rapid prototyping to end-product manufacturing. According to this Deloitte study AM has grown from a 19 percent share in end-product manufacturing in 2011 to a 28,3 percent share in 2012 and is likely to continue this upward trend. The strength of AM lies in the niche of customizability and the cost benefit of low to medium scale production. With technological advances that make 3D Printing more reliable and cost effective in the future, and the addition of other large players such as Hewlett Packard (HP), we can expect AM to increase productivity and decrease material waste even more.

Bottom Line: Additive Manufacturing has several benefits compared to traditional manufacturing including reduced waste of raw material, and less direct cost with low to medium scale production. Additive Manufacturing has an economic purpose in in large scale customization and the production of intricate, and difficult to make products for traditional production processes.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Crowdfunding internet-content

Wietse writes*

On the internet most things appear to be free. If you for instance look at the 50 most frequently visited websites, the majority can be enjoyed without paying a single penny. Of course, the internet is not really free. The servers that keep the internet up and running alone cost a fortune. Amazon’s server rental service (AWS) for instance (which controls about 30% of the cloud service market), made more money in 2016 than the GDP of entire countries like Congo or Armenia. It is often said that if something is free for you, you are the product, and this is certainly the case for the internet. Advertising on the internet is a massive industry, with ad-revenues on the internet in America being almost 60 billion US dollars in 2015 alone [pdf]!

However, the dominance of advertisement based revenue model does not mean that that is the only model. Netflix shows us that subscription models can work, and occasionally one-off payments are used, but the model that I personally find most interesting is relying on the generosity of internet users.

My favourite example of this is Patreon. This service allows content creators (both online as well as offline) to ask their fans for voluntary donations**, either per month or for certain output like short stories or videos. This is absolutely fascinating to me: It’s essentially public goods being crowd-funded by nothing more than the goodwill of enough people. This can be clearly illustrated using what’s becoming my pet-topic on aquanomics: YouTube.

YouTube videos can be seen as a public good, since they are not excludable to anyone with an internet connection (and a reasonable government or VPN), and me watching the video doesn’t prevent anyone else from watching it, making it non-rival. A frequent problem for public goods is of course obtaining enough funding to provide the public good. Making good YouTube videos takes time (writing scripts, shooting the video, editing), and we can’t expect people to do this for free. YouTube’s solution to this was the partner program, which is still in place, and which gives the creators more than half of the advertising revenues, which is still a unique model on any of the large social media platforms. However, the advertising model is quite terrible for a lot of creators, especially for those relying on quality over quantity. Some of these people have turned to Patreon to be able to keep on creating videos, sometimes with remarkable success. There are multiple channels which are earning tens of thousands of dollars per month through donations, and many more who are making hundreds or thousands of euros per month or video.

How do they do this? The traditional solutions are either having central enforcement or a small community which can self-enforce, but neither of those are the case for YouTube video-makers. Instead, they rely solely on the generosity of passionate fans. This shows that occasionally, all you need to (at least partially) overcome the collective action problem is get enough people enthusiastic enough. There is definitely potential here: Patreon is currently distributing about 8 million dollars each month . However, that’s just a very small drop in the enormous internet bucket, and I’d argue that there is likely much more potential. Aren’t there people who are at least as passionate about for instance independent journalism, science or poetry as the Patreon supporters are about their favourite YouTubers? Maybe, just maybe, services like patreon can be expanded to fund many more online creations. This would free them from the obligation to do everything for clicks, free them from the obligation to mine as much data as possible, and maybe make the internet just a slightly better place.

Bottom Line Patreon shows that, occasionally, collective action problems can be solved using nothing more than people’s passion and generosity, which might be an interesting funding model for more places on the internet.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.
** They do usually offer some perks like exclusive behind the scenes footage, but those seem to almost always be of relatively little value, certainly less than the donations.

27 Feb 2017

The downside of the avocado boom

Esmée writes*

In the past 2 decades, avocados have become a very popular “superfood”, mainly because according to dieticians they contain a large amount of “healthy fats”. According to The Economist, in 2013, the worldwide avocado production reached 4.7 million metric tons. This was a 100% increase since 1998.

However, ever since the demand for avocados has risen, the industry has slowly started to negatively affect communities and the environment. There are two parts to this story. First, a link can be made between the avocado market and crime. Due to bad weather in New Zealand and Australia in 2016 and a drought in California, the worldwide supply of avocados reduced significantly. Experts claim this shortage led to an increase in the price of avocados. This higher price attracted criminals to get involved in the avocado industry. Mexico is the largest avocado producer in the world. Exports especially increased after the US government loosened restrictions on avocado imports from Mexico in 1997. The fruit is mainly produced in the region Michuocán. In this region, criminals have taken advantage of the avocado industry by threatening producers. According to news reports, drug cartels have taken over the area, and have caused theft, kidnappings, and price controls. However, Mexico is not the only place where such criminal activity takes place. To a lower extent, in New Zealand and Australia, people have stolen large amounts of avocados and sold them on the black market. This situation reflects a misdistribution of the economic costs and benefits of avocado production, as the local producers bear the costs by being threatened, whereas the criminals disproportionally enjoy the benefits of this by making large amounts of money.

A second implication of the increased popularity of avocados is the environmental impact of its production. Experts claim that first of all it has caused illegal deforestation, especially in Mexico. Second, a lot of chemical inputs are needed in order to grow avocados, which affects not only the environment but also the local population’s health, as those chemicals could cause kidney and liver problems. Third, the avocado production puts pressure on water reserves in both California and Mexico, as in order to grow 500 grams of avocados, 272 liters of water are required. This has significantly affected the local ecosystems, as less water now reaches the mountain streams, on which for example the famous monarch butterfly depends. This situation reflects a misdistribution of the costs and benefits of avocado production, as the local population and the ecosystems bear the environmental costs of the avocado production, whereas the consumers and producers of avocados enjoy the benefits, as these costs are not reflected in the price of avocados.

It doesn’t look like the demand for avocados will decrease anytime soon. Therefore, in the short run the situation is not expected to improve. However, experts say the US government is planning on allowing avocado imports from Colombia in the near future. This could drive the price down and therefore make it less attractive for drug cartels to get involved in the industry. This would however still not solve the negative environmental implications of avocado production, which can solely be solved through full cost pricing. Until this happens, we might all have to consider eating a little less of the superfood. Avocados are great, but so are a sustainable environment and safety.

Bottom line: The rising consumption of avocados is problematic for two different reasons. First of all, criminals have threatened producers, stolen many avocados, and sold them on the black market. Secondly, the avocado production has caused illegal deforestation, use of chemicals, and extensive use of water, which has negative implications for local ecosystems as well as for worldwide climate change.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Monday funnies

A tale of weightloss, lost love and redemption



ps/If you're serious about weightloss, then cut back on sugars

The negative impacts of big data

Melle writes*

Big data consists of all digital traces that we leave, from social media activity to GPS systems in our phone tracking our every move. Not surprisingly, this information can constitute a valuable resource to companies. If successfully collected and analyzed, businesses, or politicians for that matter, can more effectively assess consumer preferences and behavior. Despite obvious benefits, both the process and outcome of big data use pose a threat to consumer welfare, as they produce negative impacts ("negative externalities").

Before delving into the negative, it would be unfair to neglect any mention of the numerous benefits to big data analytics. A business can enjoy competitive advantage if it can realize the capacity, in terms of physical, human and organizational capital, to extract and subsequently exploit hidden insights on consumer behavior. By utilizing big data consumer analytics, businesses may market to specific groups or areas based on more detailed and individual consumer predictions. Additional benefits relate to tailoring product and price to consumer preferences. Perhaps making the illusive microeconomic principle of first-degree price discrimination possible.

As businesses are increasingly inclined and able to use big data, concerns of privacy and security have grown. Research has shown that a large majority of internet users would ideally opt out of being monitored, as they do not trust companies with their private information. The extraction and storage of private information alone can in certain circumstances be considered an externality. Examples are tracking devices in phones and cars which consumers are often unaware of. Additionally, unstructured data, being amongst other things photos and documents, may contain personally identifiable information and intellectual property. Take for example the case in Italy where three YouTube executives were convicted of violating the privacy of a child who could be seen being abused in a video on the website. Such instances of privacy violations rarely lead to compensation for the affected person.

If you are not convinced yet, consider some of the possible uses for big data that produce negative externalities. A common example is the issue of medical insurance companies using big data to discriminate in premiums against people from certain areas with higher incidence of certain diseases. However, I argue that the potential for consumer fraud extends far beyond such incidents. A powerful tool in big data analysis is psycho-informatics. The practice is based on a branch in psychology called psychometrics, which played a considerable role in Brexit and the US election. Big data can be used to quite accurately determine the personality of any individual based on the Big Five personality traits. These same personality dimensions can be related to addiction potential. Essentially, companies can thus search out the personalities that will be most vulnerable to a gambling, drinking or any other addiction, and target these individuals specifically. The result is that based on information consumers were not willing to supply, individuals are subject to personal advertisements that may carry long-terms costs to their well-being. The unregulated nature of the digital environment allows for such use of valuable information with little cost, and no benefit to the consumer.

Bottom line: The Big Data revolution offers a wealth of opportunities for businesses in terms of consumer behavior research and marketing. Nonetheless, as economists it is also important to analyze the negative externalities that accompany this development. Not only can gathering and storing big data be considered an externality, as it is an invasion of privacy for which consumers are not compensated, the application of the data through targeting vulnerable individuals opens the door to even larger issues of, for example, perpetuation of gambling behavior.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

26 Feb 2017

The hidden costs behind our screens

Nastasia writes*

Social media and online networking platforms such as Facebook are often praised for having lowered the transactions costs of communication and its implications, and because they have done it ‘for free’! However, is that really so? – According to E. Dolan, “there ain’t no such a thing as a free lunch”. Just because something of value doesn’t have a market price, it doesn’t mean that it comes at no cost.

The benefits for ‘ordinary’ users are somewhat intuitive: simplified worldwide connectivity, real-time information sharing, commonality of interest, etc. However, it’s somewhat counter-intuitive to assume that founders of online giants like Facebook and Google have such astronomic net worth if the latter were truly ‘free’.

Admittedly, most ‘ordinary’ users are knowledgeable of being exposed to the commercial uses of the giants every time an ad distractingly pops on their screen. Thus, the giants are making profits by charging whomever is willing to pay for advertising their product. Assuming basic marketing knowledge, it follows that entrepreneurs must somehow segment their market. This is when the giants who are storing each user’s personal details and tracking their online activities come into play, selling the stored information. Psychometrics further filter the information, create profiles and allow entrepreneurs to target the society accordingly. By now, media consumers have engaged in using online platforms in exchange for their personal information and being continuously polluted by ads. Is that a violation of UN’s Human Rights? Yes.

On top of infringing the right to privacy, the exchange also promotes conspicuous consumption, which fuels horizontal comparison that spreads epidemically throughout the social web, generating anxiety, low self-esteem, narcissism, time fragmentation, decline in close relationships, and the related mental health issues including addiction to social media. All these “FOMO”-driven, and all contribute to the erosion of social capital. R. Putnam claims that the latter undermines democracy, which up until now has been viewed as the foundation of the welfare state. The outcome is intuitive. Moreover, political interests too, are nowadays employing media to target their consumers. Recent research has shown that Facebook-stored data were sold to political interest groups that used it to influence the outcome of the US presidential elections.

Even though such costs are somewhat reflected in the prices that interest groups pay for obtaining data, they are clearly not equitably distributed; the ‘pollutees’ are not compensated. The benefits are restricted to small groups free riding at the expense of the negative externalities borne by the rest of the society.

Bottom Line Social media and related platforms are not intrinsically ‘bad’, but their commercial and political priorities may result in benefits to the few at the expense of many. It is therefore a matter of social well-being to trace such costs regardless of their nature, and to look for ways to correct them. This is challenging, since the interests and the policies serve other purposes. This suggests that a neutral third party enforcer is a somewhat utopian concept, and therefore it is perhaps a matter of initiating collective action and looking for equally efficient means of communication less the associated negative externalities caused by private interests. Social media is a good servant but a bad master, and it becomes the society’s master when the latter fails to find interest-free or fully priced alternatives to it.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Cattle herds, a symbol of destruction or wealth?

Joeri writes*

Did you ever pass a McDonalds during your daily run and think to yourself "Never ever will I get one of those burgers", only finding yourself two days later eating a full big Mac menu? Or, did you ever watch a tv commercial about chickens getting stuffed in a battery cage thinking "I will never buy cheap meat again!", but paying for broiler chicken meat the next day because "you're also just a student". Well, you are not the only one! Actually, this logic of thought contributes to deforestation of the Amazon rainforest.

In the 1970s two cultural groups migrated to Acre in the Amazon, the colonist, and the ranchers. The ranchers, mostly rich Brazilian elites, were driven to Acre by economic incentives such a cheap land subsidies, which they used for their cattle ranches. The colonists, poor citizens of overcrowded regions in Brazil, were placed in Acre via a government initiative to create agriculture settlements in the Amazon rainforest. These two groups, both in need of land, clashed with the a third group that settled in Acre around 1900, who were the rubber tappers. The rubber tappers earned a living by extracting products from the rainforest such as rubber and the Brazilian nut, an activity also called extractivism.

The problems emerged primarily due to property rights, granted by the Brazilian government, to the ranchers. These rights enabled the ranchers to convert big parcels of land into pasture land for their cattle herds. The rubber-tappers who were dependent on products produced by the rainforest lost considerable amounts of their income. This resulted in both protest and disdain towards the cattle of the ranchers. Cattle became a symbol of Amazon deforestation and the rubber tappers were given the title of saviors of the rainforest, by the international community. Due to increasing pressure from both the international community and the rubber tappers in 1990, the Brazilian government decided to establish RESEX regions for the rubber-tappers, where only a 10% amount of cutting was allowed.

However, this victory by the natives could not be celebrated for long. Shortly after the government cut rubber subsidies, which propped up the prices for years, rubber tapping was no longer an economically valuable way of living. As a result, it became barely possible to sustain a livelihood solely on extractivism, and rubber tappers started working on the cattle ranches. This shifted paradigm surrounding cattle and made the good into a symbol of wealth. Rubber-tappers themselves deforested so they could maintain cattle herds increasing unsustainable use of the Amazon but ensuring themselves an income.

Bottom Line Although you might disdain McDonald's, the benefits (easy dinner, close by, no cooking) of eating there can outweigh the costs (costs of the burger, the high amount of calories, environmental issues). On the one hand, the benefits of cattle production became greater such as cheap land subsidies, cattle that can be used as saving for later, and cattle being a symbol of wealth. While on the other hand, costs of extractivism became too high for rubber-tappers due to the cut on rubber subsidies and environmental regulations. This resulted in rubber-tappers converting to unsustainable cattle production and an increase of Amazon deforestation.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

25 Feb 2017

Have we learned nothing? The space race continues…

Joanna writes*

The launch of the Soviet Satellite Sputnik in 1957 started a race to space between the United States of America and the former USSR that ended with the first joint mission, the Apollo-Soyez project. While the Apollo-Soyez project has remained the only space collaboration for another twenty years, it has resulted in an unprecedented international collaboration known as the International Space Station (ISS). With the increase in aircrafts and satellites in the orbit came a challenge that no one had expected: debris.

Space debris, or orbital debris, are artificial (man-made) objects in the earth’s orbit which usually have no more function. The debris consists of non-functional spacecrafts, abandoned launch vehicle stages, mission-related debris and fragmentation debris. However, the non-traceable debris is the most dangerous to spacecrafts and satellites. Current estimates trace approximately 500,000 pieces of debris in the orbit of the earth. The speed of the debris, which can be up to 17,500 mph, makes it possible for very small pieces to cause serious damage.

Space, by definition, is a common pool good because it is non-excludable and rival. It is rival because too much consumption leads to negative externalities such as congestion and orbital debris. It is a valuable resource to many countries as it provides services for global communication, remote sensing, and national and international security as well as opportunities for research. The cleaning of the earth’s orbit is effectively a collective action problem. Ostrom’s tactics on how to solve collective action problems, however, primarily work on a local scale rather than a global one, let alone one that exceeds the boundaries of our globe. Joan Johnson-Freese, and Brian Weeden articulate that space law was primarily written during the cold war, making it outdated and ineffective. They examine the extent to which Ostrom’s model can be applied to space and state that it can be used primarily to identify gaps in the current governance. The next step is taken by Natalie Pusey who presses the need for an international treaty “that would make spacecraft operators liable for debris-caused damage to property, and that would require reasonable debris-mitigation measures to be taken for every mission.” At the moment, the European Space Agency (ESA) has a clean space program that promotes an eco-friendly approach to space activities. This includes “adopting greener industrial materials, processes and technologies.” In short: In short: the conservation of the orbital environment to allow continuous use.

Fact is, however, that with the growing interest in space as a key global resource, there are a growing number of countries interested in taking advantage of this resource. This leads to an emerging ‘space race’ with countries wanting to utilize this resource in any way possible. The next step, believe it or not, is space (eco)tourism.
“Up there, hovering above Earth with my orbital perspective, I came to believe that the answer to why our world still faces so many critical problems - in spite of the ample technology and resources we have at our disposal - lies primarily in our inability to effectively collaborate on a global scale.” Ron Garan, former NASA Astronaut
Bottom Line: The space race allegedly stopped in 1975 but in reality, it has just opened up new ways of exploring space as a resource to be utilized by as many countries that have the means to access it.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Indonesia's palm oil: the other side

Imane writes:*

Imagine you planned a trip to Jakarta and are all excited about the pleasant temperatures of Indonesia. You try Googling ‘Jakarta’ and you see impressive skylines. You try again, but this time you add ‘haze’ to it. Suddenly, Jakarta became a lot less interesting and the comfortable temperatures do not matter as much anymore. You probably do remember the large media coverage of the expanding forest fires in 2015, caused by the unsustainable use of palm oil fields, but did not realize what environmental impact this actually had. While being the world’s largest supplier of palm oil, Indonesia has been struggling with the negative externalities of this strongly demanded commodity. The government has been put in the spotlights, while being accused not to take action in order to correct for the externalities. But what could and should the government do?

Whereas Friedrich Hayek would argue that the market will solve for the externalities, few people think the Indonesian government should not take action. The benefits of supplying and exporting palm oil are quite clear: it has contributed 4.5% to Indonesia’s GDP in 2010, and was nearly 7% of total export value. However, these benefits are not as equally divided over the cost bearers. Besides the regular costs that are calculated into the price of palm oil, negative externalities often fall upon other people that do not enjoy these benefits. Such negative externalities can be the damage to surrounding lands, the health implications from breathing the smoke, and the well-known haze: an environmental pollution that refers to the accumulation of small particles in the air, usually resulting from human activities such as deliberate forest burnings (Othman, 2006). Moreover, the Indonesian people are not the only ones who bear the costs: neighboring countries bear many of the environmental costs as well. In 2015, Malaysia had to close their schools for a few days because of the dangerous smoke that came from Indonesia. This example shows the far-extending externalities of burning forests to increase the yield of palm oil, while the benefits and costs are far from distributed fairly.

The demand for palm oil has been increasing over the years, which is why it is attractive to Indonesian palm oil producers to continue their production, as long as their benefits outshine the costs. However, the government could redistribute the burdens by increasing the tax for palm oil producers in order to increase their costs. This will allow the price of palm oil to go up, which will lead to less demand, less usage and therefore less negative externalities. Moreover, the money raised from this behavioral tax could be used to cover the externality costs. Another option could be the implementation and enforcement of stricter rules that will prevent as many negative externalities as possible. The ASEAN (Association of South East Asian Nations) has formulated a Regional Haze Action Plan (RHAP), but due to game theoretical perspectives, this plan has not been successful. It is therefore a challenge to recommend either governmental or market solutions to correct for the negative externalities of palm oil in Indonesia, but by distributing the benefits and costs as fairly as possible, possible solutions could be approached.

Bottom Line: The government of Indonesia should correct for the negative externalities of burning palm oil fields. Increasing tax or implementing stricter rules should allow the benefits and costs to be distributed more fairly.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

24 Feb 2017

Friday party!

Goooooo!

Knew that was going to happen.

Green tradeoffs: renewable energy vs. biodiversity

Mike writes*

One of the most persistent issues in modern environmental culture is the threat of climate change and its unrelenting effect on ecosystems and biodiversity worldwide. One of the main drivers of climate change is fossil fuels. Their extraction has led to significant anthropogenic loss and the continued degradation and fragmentation of habitats. A large fraction of species around the globe face increased extinction risk under projected climate change during the 21st century [pdf]. Climate change and biodiversity loss embody the environmental challenges faced on a global scale.

Limiting the magnitude and effects of climate change has triggered a shift towards an emphasis on the rapid, large-scale expansion of low and zero carbon renewable energy sources. A term that has come to development throughout the late 20th century is that of a ‘Green Economy’ [pdf]. As an economic system, it aims to improve human welfare and social equity, focusing on significantly reducing environmental risks and ecological scarcity. Driven by public and private investments, its aim is to offset the continued increase in energy demand via two key strategies: investing in natural capital and increasing energy and resource efficiency. The former is a major strategy for economic sectors that depend on biological resources, whilst the latter is vital to reducing resource intensity and environmental impacts of economic sectors that are dependent on the transformation of natural capital.

Looking towards the future, the large-scale implementation of renewable energy is a fundamental intervention towards greening the economy, given its potential to mitigate climate change and save fossil fuel energy. In the course of the next decade, there’s bound to be an increase in both quantity and size of proposed renewable energy projects. The European Union has promoted the use of renewable energy via several directives, aiming to meet 20% of its total energy through renewable sources by 2020 [pdf]. The main drivers of this expansion have been for economic development, energy security, and conserving biodiversity, as renewable energy pathways are often considered environmentally benign due to their role in combating climate change.

However, despite climate change being one of the greatest drivers for biodiversity loss [pdf], the interplay between ‘Green’ energy and biodiversity has demonstrated that some renewable energy pathways can have major impacts on biodiversity, having been directly and indirectly associated with all five drivers of ecosystem change and biodiversity loss. It’s not simply about birds colliding with wind turbines; it’s the major modification of habitats that severely impacts biodiversity. Solar energy requires large amounts of land alteration resulting in habitat fragmentation [pdf], wind power disrupts migrations patterns, and hydropower can result in a major alteration of water flow regimes.

Whilst the mechanisms differ within the pathways and environmental contexts in which they operate, it is clear that the development of renewable energy can have several biodiversity tradeoffs. I believe that these must be taken into consideration when developing policies that can promote renewable energy, if economic growth is to be attained. Though harnessing the potential for renewable energy is of vital importance towards mitigating the effects of climate change, the conservation of biodiversity outweighs the large-scale development of renewable energy sources.

Bottom Line Employing technology and energy sources aimed at mitigating climate change - one of the main drivers of biodiversity loss - would not be logical if these go against the primary aims for which they were created. Consequently, this will require further consideration of the potentially adverse effects that these developments can have, and this will have a considerable role in determining the scale and pace of renewable energy development.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Will China's eco-cities be effective?

Muhammad writes*

Most of the inhabitants of our planet are aware that China is the factory of the world. It therefore does not seem strange to assume that their mass production has affected their country, not only in terms of economy in which we witness an increasing consumer society, but also with greenhouse gas emissions and local pollution in their cities. As the world’s biggest emitter of greenhouse gases and consumer of as much coal as the rest of the world combined, China must desperately find alternatives for their current situation of having a coal based energy system. In its frantic chase to reach western modernisation, by urbanising and wanting to rise economically, constant chunks of the country have crumbled down into ecological wastelands.

The air people breathe is deadly, the water is not drinkable, the soil is poisonous, the water levels are in constant threat of being sucked dry, rivers and lakes are on the verge of disappearing if they have not already, and cities in themselves are becoming heat islands. In fact, between the years 2000 and 2005, coal consumption increased by 75% [pdf] and air pollution emissions have remained constant or in some instances have increased. It seems evident that such a system is not sustainable, in terms increasing healthcare demands and decreasing environmental conditions.

As an attempt to resolve the problems driven from their current energy system, China have started a project that aims to build eco-cities nation wide. These eco-cities are essentially the most environmentally friendly urban schemes an architect could design. A principal feature is that these cities fully operate on solar energy since all housing operations as well as public infrastructures have solar panels attached to them. It all sounds great, but after reviewing the practicalities of this action plan, one begs to differ. A certain Anna-Karin Gronroos states that “building something from scratch and calling it an ecocity isn’t the solution either”. She is essentially suggesting that there are costs to creating such environmentally friendly cities, and that the creation will have negative and counter intuitive externalities. One has to agree with Anna, especially given the fact that these cities will only be accessible by a certain percentage of the population simply because “they are just too small, too remote, too class-exclusive and expensive”. Therefore, due to the fact that these cities can only host individuals with a certain level of socioeconomic status, we have to reject the claim that these cities would be providing "free power" and have to view this project as a long term investment from the governing body aimed towards the middle and upper class.

Bottom Line China’s amazing recent economic performance has been fuelled by urban industrial growth that is being outweighed by environmental costs. Eco-cities are a fancy and flashy attempt to solve their issues, but constructing them nationwide simply does not seem tangible as it would not be tackling the bigger problem of population growth and income inequality.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

23 Feb 2017

Unwrapping the problem of plastic packaging

Corneill writes*

Packaging is frighteningly annoying. Just the other day, I had the most maddening tussle with the plastic packaging surrounding the cardboard box which housed my newly purchased tea bags – neither my nails nor a Swiss army knife provided any help in opening it, at which point I speared the box with the biggest knife I could find and tore the entire thing open. However, I couldn’t help but (eventually) shift the blame to myself as I could have bought tea which was packaged in one cardboard box, instead of a smidgen of leaves wrapped in paper inside a cardboard box covered with plastic, which in retrospect seems to be a little bit excessive. But just how excessive has plastic packaging become in our society, and how much of it is going to waste?

Plastic packaging is not only the main adversary in keeping me away from my tea, but is also a worldwide environmental problem. Currently, 5.35 trillion pieces of plastic debris is present in the world’s oceans with more than 269 thousand tonnes of this floating on the surface. Data from the United Nations Environmental Programme suggests that global plastic consumption has risen from 5.5 million tons in the 1950s to 110 million tons in 2009. This is a worrying trend, as plastic packaging wreaks havoc on our both our bodies and our environment. These include and are not limited to: compounds being absorbed by humans which have been found to have adverse health effects, injuring or poisoning wildlife, (in the ocean) serving as mini transportation devices for invasive species and leaching harmful chemicals in landfills that spread into groundwater. Furthermore, plastic pollution is decreasing in size - research is showing that micro-plastic particles are becoming more prevalent in both the air and our oceans worldwide, which has additional harmful effects.


Given that plastics can only be recycled once before it loses its useful properties, how should we replace and phase out this seemingly essential component of our modern lives? Does the solution lie in biodegradable plastics? Could this long-touted plastic substitute which totally biodegrades in the environment be the solution?

If only this were the case. Apart from companies often misleading consumers into believing that the plastic they use is totally biodegradable, one of the risks associated with these biodegradable plastics is that if they are broken down in an oxygen-free environment (such as a landfill) methane will be produced. This is 23 times worse than carbon dioxide as a greenhouse gas. Moreover, a lot of plastics labelled biodegradable, such as shopping bags, will only break down in temperatures of 50 degrees Celsius. This temperature will not be found in the ocean, where a significant amount of plastic pollution ends up. Since they are also not buoyant, these plastics will sink and thus not be exposed to UV radiation, which is a key component in helping them biodegrade. Combined with the notion that littering can be a large cultural and behavioural problem, it may not be a great idea to create products biodegradable which may make issue of littering even worse, as people might think that it is acceptable now that they will harm the environment less.

Whilst well-intentioned, perhaps it is erroneous to focus on finding ways in which throwing away products becomes easier in the name of helping the environment. However, at this point, with the lack of viable substitutes which could be implemented on a global scale being available anytime soon, it may be a temporary solution which reduces the impact our consumption driven lives have on the environment, which can only be a good thing.

Bottom Line Plastic packaging is a huge global environmental problem, with numerous harmful effects on humans and the environment, and biodegradable plastics are currently not a good enough solution to fix this in the long run.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Live together to live better

I heard about this initiative for housing students and the elderly side-by-side in the past, but this article just reminded me of one such program (it's still going on its small scale).

The "gains from trade" in this situation is that students get a rent-free room in exchange for spending 30 hours per month in volunteering to spend time with their elderly neighbors. The neighbors get the benefit of daily company and interaction that's far better for their mental health than occasional visits from care staff or family. The bonus from these interactions is that both young and old people learn more about the reality of their counterparts. Here's a TEDx talk by one of the students:



Bottom Line: Humans evolved in extended families that made it easy to exchange care for knowledge (and vice versa), and there's no reason why that should not be the preferred way of growing, aging and living.

Guilty Pleasure: Offsetting Travel Emissions

Martine writes*

For some people, air travel is a source of joy, entertainment, holiday-feelings or business-activities. However, this type of transportation also creates environmental pollution and contributes to climate change through its greenhouse gas (GHG) emissions, which is less joyful. Keeping in mind the recently adopted Paris Agreement [pdf] where the United Nations decided to cut GHG emissions and keep global warming under 2°C, we might need to rethink our traveling behavior.

In an ideal world, people would be able to enjoy air travel while at the same time avoiding consequential environmental damage. Environmentally-conscious travelers will quickly point to the option to compensate for the environmental damage by offsetting their flight’s GHG emissions, of which carbon (CO2) is one. An organization, for example GreenSeat, will reduce the same amount of CO2-emissions elsewhere to get your carbon footprint to zero. A one-way flight from Amsterdam to Australia emits 11.200 tons of CO2 and can be compensated by donating 9.24 euros to renewable energy projects in Uganda, India or Cambodia. It’s cheap and feels like the right thing to do, so shouldn’t we all do this?

Before giving away the answer, I’ll first quickly explain the theory behind offsetting and the UN’s promise to keep global warming under 2°C. Please bear with me, our environment is at stake.

To keep their promise, the UN will need to invest billions of dollars to lower their CO2-emissions with at least 26 GtCO2 per year [pdf]. The price to abate 1 ton of CO2 depends on the country where the investment goes to, its phase of economic and social development and the already existing energy structures. For this reason, the ‘price’ of CO2 differs per country and industry, ranging between US$1.3 and US$524 per ton CO2. Intuitively, it is best to capture the cheapest forms of abatement first, the so-called ‘low-hanging fruits’, followed by other increasingly expensive ways to reduce emissions. In economic terms, this is called ‘diminishing marginal returns’, or ‘increasing marginal costs’. Figure 1 shows the costs of abatement and the reduced GtCO2 per year. You can see that some measures, like building insulation, are more efficient to reduce CO2 emissions than other higher cost abatement measures, like forestation or biodiesel.

Figure 1: Global Cost Curve for Greenhouse Gas Abatement (Enkvist, Nauclér and Rosander, 2007)

Of course, GreenSeat also knows this, and to keep the travel-offsetting price the cheapest possible for their environmentally-conscious consumers, they will invest in abatement at the low end of the curve in figure 1. And this is exactly the problem with flight-offsetting that I want to point out. Even though GreenSeat does reduce CO2-emissions with their investments, they do not contribute to the 26 GtCO2 per year reduction that is needed to keep global warming under 2°C, because their consumers emit the same amount of CO2 to the atmosphere during the flight that they bought the CO2-offset for. My biggest concern with this is that in the meantime, GreenSeat (or any other travel-offset organization/company) takes away the low-hanging fruits, the cheapest forms of abatement, while not solving the climate change problem. As the marginal costs of CO2 reduction increases, it will be even more difficult to invest efficiently to tackle global warming. Offsetting carbon emissions may be cheap and feels like the right thing to do, but environmentally-conscious travelers would do better by not traveling by plane at all.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

22 Feb 2017

What are the real costs of shale gas production?

Jan writes*

After the inauguration of Donald Trump the White House announced the new administration’s America First Energy Plan to foster the exploitation of shale oil and gas. The embracement of this ‘revolution’ would ‘bring jobs and prosperity to millions of Americans.’ The revenues from this cheap energy would then be used to increase public investment and boost the economy.

It is often argued that shale gas has not only contributed to low US gas prices but that its environmental footprint is also much cleaner compared to traditional fossil fuels. The problem with these assertions is that they either ignore or understate the environmental impact of methane emissions which escape to the atmosphere in the course of extracting and delivering shale gas. According to a recent study US methane emissions have increased by roughly 30 percent over the past 15 years. Although the authors are reluctant to link this increase directly to a particular source they do note that it coincides with the rise of shale gas production and other studies seem to confirm this notion.

These estimates are much higher compared to the official numbers reported by the U.S. Environmental Protection Agency (EPA). One reason for this disparity is the fact that the EPA relies mostly on numbers reported by the gas industry and is not allowed on most sites in order to conduct its own measurements. This selection bias might explain why official numbers on methane emissions are much lower than those published by researchers who rely on measurements taken in the atmosphere.

The problem with methane is that its environmental impact is much more drastic in the short-term compared to carbon dioxide. According to a report [pdf] published by the IPCC in 2013, the global warming potential of methane is 86 over a 20-year period and 34 over a century. In other words, methane traps 86 times more heat in its first 20 years after having escaped to the atmosphere compared to carbon dioxide. That means that even if comparatively little amounts of methane are leaked its immediate impact on climate change is relatively large.

It therefore needs to be assumed, that any potential environmental benefits that shale gas might have since it partly replaces traditional fossil fuels are offset by the devastating short-term impact of methane on climate change. In order to determine the exact methane leakage percentage in the shale gas production, independent inspectors need to be allowed to access any operator’s site. Further, politicians and society have to understand that current gas prices do not reflect the true costs of shale gas production since the gas industry is allowed to dump part of its production costs on the whole society - for free!

Trump might be right that shale gas production keeps gas prices low and creates new jobs but if costs outweigh benefits, then the whole undertaking is inefficient and you are doing more harm than good. This is basic economics. He should understand that, especially as a businessman.

Bottom Line Methane, which is leaked in the course of producing shale gas, has a much bigger environmental footprint compared to carbon dioxide. This externality needs to be taken into account when politicians favour shale gas over conventional gas due to the supposedly low production costs of shale gas.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

Links of interest

  1. I am a migrant to the Netherlands, as I plan to stay here. An "expat" is someone who intends to return to their home country, but it's also a racially-tinged word that separates white folks from darker folks.
  2. Journalism may have missed Brexit and Trump b/c it was focussed on details rather than the big picture. These guys are trying to make up for that mistake.
  3. Use — and Abuse — of Science in Water Resource Policy and Management
  4. Life under Trump as America's demagogue dictator and the replacement of the American liberal order with competing great powers (whoops, a world war!),* due to America losing its identity
  5. A Polish version of On the Road, set in Ukraine
  6. The founder of a clothing brand explains why "the real price" for jeans is $245
  7. Finland is paying the unemployed a basic income that will NOT go away if they get jobs
  8. The Dutch started tracking sea levels in 1683. Related: The Dutch will partner with Japan and UNEP to run a Global Centre of Excellence on Climate Adaptation
  9. "Why the elites always rule" -- the insightful work of a brilliant economist
  10. A Romanian in Amsterdam explains why it's so hard for her to go "home" (I feel the same about SF/the US).

* I have to say that I think that America's decline as a liberal (freedom for individuals) started after 2000 *or* after 1932. After some recovery under Obama, Trump has kicked it in the head.

The cost of dirty money in the London property market

Lisa writes*

In 2016, the UK was titled the most corrupt state in the world according to a world-renowned Mafia expert, Roberto Saviano. These accusations were not centred upon corruption in the public sector, but instead it was the private sector that harboured the most corrupt activity. Transparency International revealed that the London property market, in particular, hosts an environment which attracts money launderers due to secrecy laws surrounding the real owners of property owned by overseas companies.

Around 36,000 London properties owned by overseas companies “were bought via secrecy jurisdictions, such as those named in the Panama Papers.” The majority of these properties have little or no data on their real owners which means that they could be linked to Politically Exposed Persons (PEPs) – people who have the greatest risk of being corrupt. Although most properties are purchased legitimately, “there is little doubt that some have been bought using the proceeds of embezzlement or other crimes”. For example in 2012 James Ibori, a former governor of Nigeria's Delta State, was imprisoned in London for 13 years due to “money laundering and fraud offences involving up to £150m from the Nigerian public purse”. The majority of this money was laundered through buying property in London. In addition, the Panama Papers revealed that a member of Gaddafi’s inner circle owns a multi-million pound portfolio of property in Scotland and London.

One major cost, noted by the National Crime Agency, is that due to the scale of the situation London house prices have become “artificially boosted”. This results in a market failure due to incomplete information of the buyer’s honesty about the origins of the money used to buy property. When prices of a good or service rise artificially it creates negative pecuniary externalities for other potential buyers who may not be able to afford the good at it’s higher price. Pecuniary externalities differ from "real" externalities (such as those from pollution) because they act through prices rather than real resource effects. In the aforementioned example, homebuyers further down the property ladder experience negative pecuniary externalities which may make it difficult for them to get onto the property ladder. Since 2007 “the average asking price for a 3-bedroom apartment in London has increased by over 300,000 pounds”. In addition, demand for high-end properties from money launderers, due to the fact that they can legitimise more money by investing in a higher-priced property, creates incentives for property developers to build more luxurious house “rather than concentrating on the homes London genuinely needs.” As a result, many of these luxurious properties become “ghost mansions” (properties that remain unoccupied as their only use is to conceal the illegal origins of money) – there are reportedly 700 of these in London and are worth an estimated 3 billion pounds. Land is already vastly scarce in London which makes it difficult to fathom the wastefulness of the land that these “ghost mansions” sit on.

Bottom Line The embezzlement of dirty money into the London property market has distorted prices of property by raising them artificially.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.

21 Feb 2017

The Human Scale -- the review

My girlfriend is really busy leading study tours and working with organizations devoted to understanding and improving urban sustainability (her site is Sustainable Amsterdam; here's her TEDx on "cities for people or cars"), so we talk a LOT about cities, the commons, community, etc.

We just watched "The Human Scale," a Danish film exploring how Jan Gehl and other "human-centric" urban planners are pushing for cities that work better for people instead of cars or real estate developers. You can watch the film on Vimeo here.

Although we may be seeing articles and discussions about revitalizing cities through a biased perspective (we left Vancouver to return to Amsterdam when we decided that Vancouver was too car-centric), it seems like there is more attention on these matters these days.

Mr Money Mustache -- a blogger with millions of followers -- just wrote a post talking about how car-centric cities are wasting $trillions on projects that don't improve our lives.

These discussions matter in an age of populists promising to "Make [country x] great again" via infrastructure projects because more cement is only likely to result in worse cities for the next 100 years. Cities change slowly (a reason that Amsterdam is so great, after surviving an attempt to cover it with overpasses), so it's urgent that new developments depart from the unsustainable (and inhuman) pattern of deadly driving, parking and sprawl.

These decisions also matter when it comes to climate change, as cities built around hard infrastructure are less adaptable and thus more expensive to "fix" when climate change impacts alter the attraction of places or outpace their urban forms.

Bottom Line: I give this film FIVE STARS for showing how we can build and live on a human scale, i.e., small-scale, flexible and attuned to natural flows and changes.

20 Feb 2017

Monday funnies

This experiment kinda happened, but the metaphor is certainly based in reality:

"An experimenter puts 5 monkeys in a large cage. High up at the top of the cage, well beyond the reach of the monkeys, is a bunch of bananas. Underneath the bananas is a ladder.

The monkeys immediately spot the bananas and one begins to climb the ladder. As he does, however, the experimenter sprays him with a stream of cold water. Then, he proceeds to spray each of the other monkeys.

The monkey on the ladder scrambles off. And all 5 sit for a time on the floor, wet, cold, and bewildered. Soon, though, the temptation of the bananas is too great, and another monkey begins to climb the ladder. Again, the experimenter sprays the ambitious monkey with cold water and all the other monkeys as well. When a third monkey tries to climb the ladder, the other monkeys, wanting to avoid the cold spray, pull him off the ladder and beat him.

Now one monkey is removed and a new monkey is introduced to the cage. Spotting the bananas, he naively begins to climb the ladder. The other monkeys pull him off and beat him.

Here’s where it gets interesting. The experimenter removes a second one of the original monkeys from the cage and replaces him with a new monkey. Again, the new monkey begins to climb the ladder and, again, the other monkeys pull him off and beat him – including the monkey who had never been sprayed.

By the end of the experiment, none of the original monkeys were left and yet, despite none of them ever experiencing the cold, wet, spray, they had all learned never to try and go for the bananas.

The metaphor and the lessons that apply to work are clear. Despite the exhortations from management to be innovative and collaborative, cold water is poured on people and their ideas whenever someone tries something new. Or, perhaps worse, the other employees suppress innovation, and learned helplessness spreads throughout the firm."

H/T to RM

16 Feb 2017

Teaching the commons -- my new paper

I just posted this paper and welcome comments or feedback.

I plan to submit it to a journal (perhaps the Journal of Economic Education) in the near future.

"Teaching Common-Pool Resource Management"

Abstract: This paper describes the structure, incentives, assessments, and results of a course in common pool resource management (CPRM) that can be run in 8+ weeks with 15-30 students. The course structure helps students learn about the complexity of CPRM by grouping students into "too large" groups where coordination will be difficult as well as tasking those groups to find and address a local CPRM problem. This "play within a play" structure creates numerous opportunities for feedback, adjustment and reflection for students as well as the instructor. Data and results from three iterations of the course are discussed.

15 Feb 2017

Links of interest

  1. Looks like Tom Wolfe is channeling Trump's analytical skills
  2. Russian buries real news in fake news until you doubt ALL news
  3. Why does Trump keep lying? His supporters don't even care about truth (protip: best to engage them on what they do care about, e.g., jobs or security)
  4. Economic Rockstar's Best of 2016 (part 1) is a good intro to this interesting podcast
  5. Trump and Republicans will repeal as many regulations as possible because regulations only have costs and no benefits
  6. The human foundations of prejudice are deep... and easy to manipulate
  7. US tax returns are complicated due to lobbying by tax-preparation services
  8. Navaho power station (7th largest GHG emitter in the US) may close due to the War on Coal loss of market share to natural gas 
  9. An interview with the folks running the "Alt National Park Service" twitter account and Canadian scientists offer to help US scientists deal with executive censorship 
  10. Republicans kill law to avoid corruption in the oil sector. Make American Corrupt Again!

14 Feb 2017

America's fascism countdown

Watch this seven-year-old opinion by Keith Oberman on the implications of Citizens United (i.e., politicians as prostitutes)



Happy Velentines for you and those you love. Perhaps a good time to make sure you're doing all you can to oppose the policies and people who seek to endanger them?

Getting started:

11 Feb 2017

Flashback to February 2009

These posts are STILL relevant after 8 years:
  1. Anti-Capitalists, i.e., Food and Water Watch's myopic ideology. That's because the REAL question in Private vs Public Water Provision is whether the regulators are doing their job! As a counter-example, read this Cochabamba Update
  2. Environmentalists against Delta Exports -- still, and still because farmers claim they need exemptions from regulations due to Rain Delay, and anything else they can imagine...
  3. International Water Pricing -- some case studies abroad
  4. Expensive Water Increases Conservation as an example in California
  5. Water Markets in ColoradoSpeaking of Australia and Macro Water Demand
  6. Yes, Regulate Groundwater in California -- it's happening, kinda, by 2022?
  7. Insuring against Incompetance..., i.e., charge water managers if they fail (my solution here [pdf])
  8. Quiz: Midwestern Eutrophication
  9. Water Chats -- Hasencamp of MWD (about water imports)
  10. Water Chats -- Orange County (on efficient landscaping and water pricing)
  11. Water Chats -- IID and Joe Tagg and Water Chats -- IID Staffers (about irrigating in the desert)
  12. Related: Why IID Is Dysfunctional (still), SoCal Photo Essay and Bizarre SoCal Photos
  13. Business Cycles -- government stimulus is not for you, but crony capitalists. Related: Drought and Economic Meltdown should push for innovations, but nothing is done, just as nothing is done to adopt novel solutions (e.g., Persistance -- and Baggs)
  14. Conservation Pricing for BusinessesRationing Means RevolutionFinancing Efficiency, and So How to Set Prices?
  15. Water Wikis -- all three appear to be out of service. Go wikipedia?
  16. Bumper Sticker Aguanomics (e.g., water for people, not lawns)
  17. Seven Steps to Brilliant Teaching -- I do 3 & 6 but not 1, 2 and 4 (nuances) or 5 (dept politics). #7 is a good idea, though.
  18. Dealing with the Police (laws don't all make sense... like water policy)

10 Feb 2017

Friday Party!

Several people have told me about this video (in response to my look into my own background via DNA-testing), and now I've seen it.

Watch it and think a little more about "the others" that populist politicians insist are not like you.



H/T to DV

9 Feb 2017

The future of cities -- the review

This 18-min film just blazes by, but it really shows how cities can (and should) evolve. It also shows how collaborative projects (like Life Plus 2 Meters) can work so well.



Bottom Line: I give it FIVE stars for vision, style and inspiration based on what's actually happening. (We are going to Japan in July, and I'm excited to explore this "elegant civilization".)

Also highly recommended is this "School of Life" video on How to Make an Attractive City, which looks at what worked as an inspiration of what to do.

What's your water utility done for you lately?

Waternet manages water levels, drinking water and waste water in the Amsterdam region. Here's their newsletter with 10-years of projects and progress (in Dutch, so use Google translate).

They have a lot of projects for recycling contaminants from wastewater, but I liked the "putklep" (drain flap), which keeps rubbish from going down drains into collection systems. Cheap and efficient = Dutch!

8 Feb 2017

Links of interest

  1. Incentives in action: Vancouver's "Chinese house buyer's tax" shifts demand to Seattle and Toronto
  2. Fascinating. Check out economic diversity and student outcomes at US colleges/universities
  3. The list of "open access" publishers continues to grow. Most of them are frauds charging $$ to publish peer-reviewed bot-processed, garbage papers, but -- sadly -- Jeffrey Beall's list of them has been taken down. Caveat emptor!
  4. Corrupt leaders are the cause of money leaving poor countries for rich countries
  5. "Directors' obligations are to the company, not today's shareholders"
  6. "Living in Switzerland ruined me for America's lousy work culture"
  7. Why choose Trump (or other populists)? "Liberalism has been an enormous moral, political, and economic success. But it has not achieved what seemed easiest of all: convincing those who grow up under it of its moral legitimacy and practical effectiveness in comparison to alternatives. Worse, it seems that those who grow up in the prosperous cocoon of a liberal society may be especially prone to political risk-taking. An uninhibited politics in which everything is permitted has a heady appeal, especially for those who have never had to worry about its risks."
  8. The Canadian Dream is stronger than the American Dream (your children doing better than you), and it has a lot to do with the neighborhood you grow up in. (Amsterdam and many Dutch cities are better at mixing income groups, which increases economic and social mobility.)
  9. Pakistan's government is helping a coal mine dump its waste onto communal farmlands.
  10. Coyote on why Trumpian "economic" policies will look like action but fail to deal with real issues and how NOT to make climate policies.

A mathematical joke

"Regression to the mean" may be a little generous for President Bannon, but oh well.


7 Feb 2017

Weapons of math destruction -- the review

I was excited to read this book as soon as I heard Cathy O'Neill, the author, interviewed on EconTalk.

O'Neill's hypothesis is that algorithms and machine learning can be useful, but they can also be destructive if they are (1) opaque, (2) scalable and (3) damaging. Put differently, an algorithm that determines whether you should be hired or fired, given a loan or able to retire on your savings is a WMD if it is opaque to users, "beneficiaries" and the public, has an impact on a large group of people at once, and "makes decisions" that have large social, financial or legal impacts. WMDs can leave thousands in jail or bankrupt pensions, often without warning or remorse.

As examples of non-WMDs, consider bitcoin/blockchain (the code and transactions are published), algorithms developed by a teacher (small scale), and Amazon's "recommended" lists, which are not damaging (because customers can decide to buy or not).

As examples of WMDs (many of which are explained in the book), consider Facebook's "newsfeed" algorithm, which is opaque (based on their internal advertising model), scaled (1.9 billion disenfranchised zombies) and damaging (echo-chamber, anyone?)

I took numerous notes while reading this book, which I think everyone interested in the rising power of "big data" (or big brother) or bureaucratic processes should read, but I will only highlight a few:
  • Models are imperfect -- and dangerous if they are given too much "authority" (as I've said)
  • Good systems use feedback to improve in transparent ways (they are anti-WMDs)
  • WMDs punish the poor because the rich can afford "custom" systems that are additionally mediated by professionals (lawyers, accountants, teachers)
  • Models are more dangerous the more removed their data are from the topic of interest, e.g., models of "teacher effectiveness" based on "student grades" (or worse alumni salaries)
  • "Models are opinions embedded in mathematics" (what I said) which means that those weak in math will suffer more. That matters when "American adults... are literally the worst [at solving digital problems] in the developed world."
  • It is easy for a "neutral" variable (e.g., postal code) to reproduce a biased variable (e.g., race)
  • Wall Street is excellent at scaling up a bad idea, leading to huge financial losses (and taxpayer bailouts). It was not an accident that Wall Street "messed up." They knew that profits were private but losses social.
  • Many for-profit colleges use online advertisements to attract (and rip off) the most vulnerable -- leaving them in debt and/or taxpayers with the bill. Sad.
  • A good program (for education or crime prevention) also relies on qualitative factors that are hard to code into algorithms. Ignore those and you're likely to get a biased WMD. I just saw a documentary on urbanism that asked "what do the poor want -- hot water or a bathtub?" They wanted a bathtub because they had never had one and could not afford to heat water. #checkyourbias
  • At some points in this book, I disagreed with O'Neill's preference for justice over efficiency. She does not want to allow employers to look at job applicants' credit histories because "hardworking people might lose jobs." Yes, that's true, but I can see why employers are willing to lose a few good people to avoid a lot of bad people, especially if they have lots of remaining (good credit) applicants. Should this happen at the government level? Perhaps not, but I don't see why a hotel chain cannot do this: the scale is too small to be a WMD.
  • I did, OTOH, notice that peer-to-peer lending might be biased against lender like me (I use Lending Club, which sucks) who rely on their "public credit models" as it seems that these models are badly calibrated, leaving retail suckers like me to lose money while institutional borrowers are given preferential access
  • O'Neill's worries about injustice go a little too far in her counterexamples of the "safe driver who needs to drive through a dangerous neighborhood at 2am" as not deserving to face higher insurance prices, etc. I agree that this person may deserve a break, but the solution to this "unfair pricing" is not a ban on such price discrimination but an increase in competition, which has a way of separating safe and unsafe drivers (it's called a "separating equilibrium" in economics). Her fear of injustice makes me think that she's perhaps missing the point. High driving insurance rates are not a blow against human rights, even if they capture an imperfect measure of risk, because driving itself is not a human right. Yes, I know it's tough to live without a car in many parts of the US, but people suffering in those circumstances need to think bigger about maybe moving to a better place.
  • Worried about bias in advertisements? Just ban all of them.
  • O'Neill occasionally makes some false claims, e.g., that US employers offered health insurance as a perk to attract scarce workers during WWII. That was mainly because of a government-ordered wage freeze that incentivised firms to offer "more money" via perks. In any case, it would be good to look at how other countries run their health systems (I love the Dutch system) before blaming all US failures on WMDs.
  • I'm sympathetic to the lies and distortions that Facebook and other social media spread (with the help of WMDs), but I've gotta give Trump credit for blowing up all the careful attempts to corral, control and manipulate what people see or think (but maybe he had a better way to manipulate). Trump has shown that people are willing to ignore facts to the point where it might take a real WMD blowing up in their neighborhood to take them off auto pilot.
  • When it comes to political manipulations, I worry less about WMDs than the total lack of competition due to gerrymandering. In the 2016 election, 97 percent of representatives were re-elected to the House.
  • Yes, I agree that humans are better at finding and using nuances, but those will be overshadowed as long as there's a profit (or election) to win. Can we push back on those problems? Yes, if we realize how our phones are tracking us, how GPA is not your career, or how "the old boys network" actually produced a useful mix of perspectives
  • Businesses will be especially quick to temper their enthusiasm when they notice that WMDs are not nearly so clever. What worries me more are politicians or bureaucrats who believe a salesman pitching a WMD that will save them time but harm citizens. That's how we got dumb do not fly lists, and other assorted government failures.
  • Although I do not put as much faith in "government regulation" as a solution to this problem as I put into competition, I agree with O'Neill that consumers should own their data and companies only get access to it on an opt-in model, but that model will be broken for as long as the EULA requires that you give up lots of data in exchange for access to the "free" platform. Yes, Facebook is handy, but do you want Facebook listening to your phone all the time?
Bottom Line: I give this book FOUR STARS for its well written, enlightening expose of MWDs. I would have preferred less emphasis on bureaucratic solutions and more on market, competition, and property rights solutions.

For all my reviews, go here.