But first: Objectivity. Here's the thing: Humans have biases. Journalists are humans. Transitive logic reasons that journalists have biases—even the best of them. There is comfort in knowing there are some checks and balances. One is our own—sometimes seemingly minority—sense of skepticism. Though skepticism must contend with our similarly evolved reverence for authority (understandably useful to ours ancestors when they heeded their parents warning, "don't walk over that ledge". The ones that listened got selected, the others resembled Wiley Coyote.)
With journalistic objectivity, technology helps. Internet columns, media monitors, diaries, web logs, blogs—call them what you want. Technology trends towards truth. As Feynman famously phrased, "For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled." Well, online watchdogs help keep journalists (or their faithful readers) honest by calling them out when they’re not—lamenting poorly researched pieces and raising the cost of reporting false information. Omnipotent online obdusmen.
Now, the problem. Objectivity doesn't mean equal airing. Sometimes journalists feel that to appear objective and fair, they must give both sides of a story equal airing. Some environmentalists seized the day a few years ago with alarmist claims in nanotech—most of them absurd—but they got their 14 minutes and counting. As Richard Dawkins has said, "When two opposite points of view are expressed with equal intensity, the truth does not necessarily lie exactly halfway between them. It is possible for one side to be simply wrong."
Healthy debate is well, healthy. But when you start to see a diversity breakdown in opinion (on any topic) you should start to feel fearful—or maybe, greedy. It of course depends on how everyone what else feels. The wisdom of Warren Buffet echoes to be greedy when others are fearful and fearful when others are greedy. Permit me extreme poetic license and you can practice this emotional temperament by say, crying at a comedy club, or laughing at a funeral. You’ll be loathed—but in markets the discipline will pay off.
So what consensus currently crows? Where is diversity in opinion breaking down? Two places for sure: energy and global warming. Everyone increasingly agrees that we need to stop sending dollars to the Mideast. And everyone increasingly agrees global warming is a serious problem. I’m not sure that this 100-year problem should be stack-ranked in priority to be solved before say, Al Gore’s movie gets released on a special-edition DVD. Maybe it makes sense to address over 25 years and might not warrant more awareness or investment than say cancer, heart disease or AIDS, which are either 10 year or immediate problems that need to be solved sooner. I just don’t know.
The only thing I agree for sure is this: these are really hard issues. And really hard issues means a lot of people are likely to be wrong—and not just about the outcomes—but about the premises and assumptions. Your output in any analysis is only as good as the inputs going in. Compound potentially faulty premises and you’re lead to wildly unexpected outcomes—and wildly unintended consequences.
Eventually: emotionally-motivated actions (alternative energy, global warming) yield to economic realities. Call it the mean-reverting theory of attention. That which is popular and over-invested today becomes unpopular and under-invested tomorrow—and inversely. And when a topic like global warming and alternative energy becomes so loud that it’s the noise—a new and opposite signal comes along and gets noticed. Here again, I’m taking a contrarian stance—maybe, just maybe—and I really just don’t know—but maybe folks have got it wrong with energy and global warming. I’ll be providing questions I find interesting to you as I see them.
Earlier in the week the New York Times ran an infographic showing what our energy use might look like in 2100. One hundred years from now. That’s a long time. We can’t predict what most companies will do next quarter or what a complex adaptive system like the market or the macro economy will look like in 12 months—or even whether I need an umbrella in Manhattan tomorrow, but “experts” can apparently forecast what our energy sources and usage will be like in 100 years. Recall that roughly 100 years ago, we didn’t have electricity, cars, refrigerators, air conditioning, radios, TVs, cellphones, airplanes, computers, internet or nanotechnology. There are those that don’t know—and those that don’t know they don’t know.
So, 100 years is a long time. I also can’t predict how much energy I’ll use over the next year. I don’t know what new devices I’ll use and even if I could predict all the new technologies I’ll be using—I’d certainly take the other side of the wager of anyone predicting the social impact from using a new technology.
I live in Manhattan. I don’t own a car. Most of the people I know in Manhattan don’t own a car. Everything is walking distance. And public transportation is so good, they even named the largest national sandwich chain after it. Now, I don’t know the probability nor the magnitude and expected value—but what if aging boomers don’t want to live in Suburbia—but migrate instead into cultural centers—and cities become denser? Might they sell their cars opting to spend their time eating and getting educated and entertained than sitting in traffic? Electricity usage might go up, but gasoline consumption might not. Of course, I just don’t know.
Hal Varian astutely wrote in this week’s NYT on recalculating the costs of global climate change, commenting that "[one researcher’s] stripped-down model leaves out uncertainty, technological change…” Paradoxically as noted in the above century worth of inventions that's all we've got for certain: "Uncertainty" and "technological change".
And so it may be with energy. In the long-term, markets usually get it right. But make no mistake: in the short-term all kinds of cascades and mistakes can occur. For the consumer, life usually gets better—a nice steady trend line. For the investor, life usually gets worse—it’s always been a power law—a minority that profits from the folly of the majority. Benefiting from straddling the turn of the millennium, one famed VC got away with touting two different things as the greatest wealth creation of the century (he could claim both the 20th and 21st centuries). The first was allegedly the Internet, the second might’ve been the Segway—until it wasn’t. Unlike most things in life—the cost of being wrong is pretty low, but the reward for being right, pretty high. It’s called risk capital for a reason and unbeknownst to most—it does society a huge service. And much of it is going into alternative energy.
There are of course unintended consequences. Ethanol entrepreneurship and speculation drives corn prices up. Coke raises prices because corn syrup is more expensive and passes it onto the consumer. What’s intended to benefit the whole country and wean us of Mideast oil ends up unintentionally taxing citizens more widely. Meanwhile an expiring tax credit for hybrids and less mainstream buzz has recent monthly Prius sales tumbling nearly 25%. A data point does not a trend make. But again, emotionally-motivated actions eventually yield to economic realities. Markets solve problems in both directions.
And hard problems take markets more time to sort through the myriad machinations.
Consider this passage from a brilliantly just published piece by Bart Mongoven of Strategic Forecasting, Inc., an information source I consume regularly: “In energy issues, the trade-offs are almost infinite. Take, for instance, the chemical industry's participation in SAFE [Securing America's Future Energy]. The industry's interest is in inexpensive energy and in decreased prices for natural gas. Of these two, as long as energy prices are predictable, the industry would rather see lower natural gas prices. Environmentalists, meanwhile, advocate reducing greenhouse gas and other air emissions by convincing American utilities to switch from coal to natural gas. From the utilities' perspective, this is expensive—an added cost that most utilities can push down to customers—but it also dramatically reduces the regulatory burden and uncertainty surrounding future regulations, so some are moving toward natural gas.
“…For the chemical industry, this move by utilities means burning an irreplaceable feedstock when there are alternative sources for energy creation. It also means that in the United States, where gas is scarce and more expensive than Taiwan or Europe, the U.S. chemical industry's key feedstock is more expensive than for its rivals overseas. For the utilities, the switch means moving away from coal, which is plentiful in the United States and, over the long term, has relatively predictable supply dynamics. For environmentalists, the move has led to infighting about the construction of new liquefied natural gas facilities. In short, the issue of natural gas policy alone has permutations that can be discussed for months. What is a legislator to do if he wants to retain the U.S. chemicals industry and reduce power plant pollution?”
“….An easy answer that has been floated is to move to "clean coal," a technology that promises to reduce the carbon and particulate pollution from coal used in electric utilities. This possible answer frees up natural gas, but it still has critics, including some environmentalists who argue that the environmental impact of mining alone is reason to move away from coal. Others argue that the carbon capture and other elements of clean coal are not proven and that they will continue the American focus on greenhouse-gas-emitting energy systems.
“….Similar chain reactions of decisions and consequences -- predicted and unpredictable -- are triggered by any discussion of automobile fuel efficiency (can American automakers survive if fuel efficiency standards are raised?), airline fuels, increased oil exploration and production. Literally dozens of other examples can be used that show the same depth of trade-offs, and the more politicians study the issues the less comfortable they are making new policies.”
Now consider an adjacent topic where nobody is talking about the unintended consequences: what happens if we do wean ourselves off oil. From yesterday’s Wall Street Journal the Treasurer of Missouri Sarah Steelman writes: "That's why I'm pleased to announced that the Missouri Investment Trust (MIT)”, [I took minor offense to the invoked acronym and misuse of those revered academic initials]…“became in July, the first public agency in America to implement a terror-free investment fund. This specially crafted, actively managed international fund screens out companies with ties to regimes involved with terrorism.”
She continued, writing of offender companies that, “create part of the cash flow that enables these nations to underwrite the activities that our armed forces are fighting around the world. Were they to stop doing business with our enemies, it would be vastly more difficult for those regimes to sponsor terrorism, finance weapons of mass destruction programs…”
Unintended consequences. Were they to stop doing business with our enemies, might we have more enemies? Think about this, really.
Indulge a quick analogy. Let me take you to a place called Camden, NJ. It’s the kind of city, you drive through and don’t stop at the stop signs—and the cops understand. How did it become the drug-infested, murder capital of the country? People stopped doing business with it—and the local area. Not purposely. Manufacturing jobs in nearby Philly dried up. Lifestyles went down. Crime filled in.
Now, return to the petropolitics of Mideast: I'm not saying we should keep buying oil for greenmail. But has anyone touting the seemingly reasonable “stop-sending-our-dollars-over-there”-mantra thought about what the unintended consequences might be when we eventually do. It’s lamented that billions of dollars of our oil money goes to fund terror programs. This might be. I don’t know. But the headlines that have made our hearts skip a beat haven’t needed much money. Roadside bombs, hijacked airplanes—funded with hundreds or hundreds of thousands of dollars.
Does money make it easier? Sure. But if the root motive is there—I can tell you first hand from growing up in Brooklyn, with four of our cars stolen, despite the Nth security device installed—if they want the car—they’re taking it. You can make it harder, but if they've got nothing to lose, they don't care. It’s a peculiar trait also found in driven entrepreneurs. With nothing to lose—you take bigger risks. Commerce might be calming. Tom Freidman long ago pointed out that virtually every country with a McDonald’s had never attacked or been attacked by another country with McDonald’s. And I’ve previously quoted Hernando de Soto saying that a terrorist is an entrepreneur without access to capital.
You might argue that as with companies and their shareholders, democratic countries get the people they deserve. It’s why more people are trying to get into the U.S. then out. And the inverse with Cuba and cold-war USSR. Consider modern Russia. Brilliant chess moves in 1980s, US defense spending had Russia running with the proverbial Red Queen just to keep up and eventually this strategy economically crippled it. Now that Russia is emerging, the recent headlines emerging with it suggest a welcome mat for certain caliber of character. Capital and people go where they’re welcome and well-treated. Right now, what’s rising from the ashes might not resemble a “Phoenix” as much as a Camden, NJ. (And yes, I refer to—oh, the poisonings, media executions and heavy-handed petro-politics).
I don’t have any answers. But I urge you to ask more questions. Speaking of which:
You’ve got the chance to win five million dollars—IF—you can win at least two consecutive games in a three game match (chess, tennis, backgammon—whatever you’d like—the game doesn’t matter) against two different alternating opponents. One is an amateur. The other is a professional. So, you can play in order A: amateur-pro-amateur or order B: pro-amateur-pro. Which gives you the best odds of winning? Which do you pick and why?
by Josh Wolfe
Labels: economic philosophy
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posted by The visioner @ 4:49 PM
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