2012/06/24

Born this way


We spend our whole lives trying to understand human nature, but it could be that all we need to know we learned in childhood. I recall a little troublemaker in our neighborhood named Johnny, a budding sociopath who lived down the street from us. He was constantly committing acts of minor mayhem and ducking the blame for them, and his mother was famous in the neighborhood for the many times she had to track him down or apologize to the neighbors for the trouble he caused.
One day my sister and I were playing with him in his backyard in a small thicket that looked out over a ravine. Johnny pulled out a magnifying glass and proudly announced that he bet we didn’t believe he could use it to burn an ant that was crawling across a leaf. We believed him and asked him not to try, but he did anyway. Within a couple minutes the ant and the leaf which he was trying to do a controlled burn on suddenly ignited the grass around it. It was quickly out of control, and Johnny’s first thought was not the water hose but his mother’s wrath. He took off into the ravine and left us to deal with the blaze. We were afraid of taking the rap, too, and could have fled, but instead we ran for the water hose.
Johnny’s mother came out and we were terrified that she would tell our parents that we started a fire in her yard, but she just rolled her eyes, thanked us, and only asked drolly, “Where is he?”
It’s important to recall that people like Johnny exist in this world, regardless of whether they grew up in good neighborhoods, went to good schools and had decent parents. When humanity is tempted to risk the hazards of a dangerous technology, we always overestimate our ability to design systems to regulate the danger, and we forget the tendency of most people to fail to do the right thing in a perilous situation. But the world has a sufficient number of Johnnys to lay waste to the best regulated plans, and this will always be the case, no matter how great our regulatory frameworks or how wonderfully we teach ethics in schools. Even though we sometimes have some success in governing ourselves well, there are certain risks we should not take. Perhaps we can take a chance on risks that are low impact. Civilization can survive the occasional investment bubble or chemical spill. But risks with high, widespread devastating impact, whether they are low probability or high, are the ones we have to create artificial lines around.
Within a couple decades of frightening experiments with nuclear weapons (1945-1965), certain taboos began to form that, while falling short of elimination, at least settled at the global consensus that it was unthinkable to make first use of a nuclear weapon in a conflict, or to conduct atmospheric testing. Then there was the total test ban treaty. 
With two major nuclear power plant accidents now having occurred within twenty-five years (Chernobyl 1986, Fukushima 2011), many people see an emerging taboo on nuclear power. Much of the public has the impression that these were serious accidents that were brought under control without doing too much damage, but the truth is that both of them came close to being civilization-ending nightmares. How many “final warnings” do we need? These accidents woke humanity up to the fact that a damaged nuclear reactor or spent fuel pool can be just as apocalyptic as a nuclear war. A second explosion at Chernobyl was narrowly averted, but if it had occurred, Western Europe would have been rendered uninhabitable along with much of the Soviet Union. If the spent fuel pool of Fukushima Daiichi Unit Four had collapsed, all of the Northern Hemisphere could have become an exclusion zone. And this threat has not been resolved, so it could happen yet.
Another reason to push for this taboo formation is that when disasters happen, they are worsened by the failure to do the right thing by thousands of people with access to vital information.
It was revealed months afterward that while the Fukushima Daiichi catastrophe was unfolding, US military flights were collecting information about the fallout patterns blowing to the northwest of the power plant. It had already been scandal enough that the Japanese authorities claimed to not have data from their own systems, but now it has been revealed that they had access to the American data immediately. The US gave it to them with permission to release it to the public. However, the Japanese authorities sat on the information. Residents of these areas were not informed and evacuated for weeks, and in fact many people had been evacuated to these areas that actually had fallout levels higher than the places they had fled.
I noticed much of the commentary on this scandal was outrage that hundreds of people within the Japanese government and nuclear agencies failed to go to the media with the information. But it is also telling that no Americans who were privy to the information felt obliged to go public with it. American authorities simply handed over the information to the Japanese and respectfully left it to them to decide what to do with it. Japan's allies have generally been far too respectful of Japan's autonomy during this fiasco (it calls up the concept of duty to friends in the saying friends don't let friends drive drunk). But the motivations to protect the nuclear industry are international in their scope. No one on the Japanese or American side did the humane act of leaking the information to the media, or even to the numerous blogs that were becoming the only source for reliable information. Failures like this are reason enough to say humanity lacks the moral and spiritual capacity to manage nuclear energy.

Related:

2012/06/14

Less than a pound of flesh


Justice, Moral Hazard and Deterrence in the Global Financial Crisis:
Saving the World but Getting Something Less than Your Pound of Flesh

The forgiveness and punishment matrix


Strategy for fixing 
the global financial crisis

Tried and failed
Not tried yet

(1) BAILOUT OF CREDITORS
(2) BAILOUT OF DEBTORS
moral hazard – who is not deterred from behavior that harms society? Or, who goes unpunished for past irresponsible behavior?
creditors
debtors

who is deterred from future behavior that harms society?

debtors
creditors

This post may not appear to be connected with the theme of this blog, but the relevance is explained toward the end.

There are two possible approaches to fixing the global financial crisis. Governments could (1)pass laws and adopt policies that help creditors – banks that made bad decisions to lend money, or (2) they could pass laws and adopt policies that help debtors – people who made bad decisions about borrowing money.

It would be better if neither strategy were necessary because they both involve not making people suffer for  behavior that caused harm to society. It was bad of the banks to have knowingly loaned too much money to people who couldn’t pay it back, and bad of millions of people to have borrowed money that they couldn’t repay.

With Strategy 1, many creditors who were careful will be angry that their competitors didn’t have to suffer for their mistakes and go out of business. Furthermore, debtors will be angry that the banks get paid back by governments, but the debtors still have to pay back their loans or lose their homes.

With Strategy 2, people who were cautious and never borrowed too much money will be angry that people will have their debts erased or reduced.
Whatever is done, there will be unjust results for some people. Every possible solution is imperfect. Some people are going to be unjust losers, and others will be unjust winners. However, something must be done to restore the global financial system. The goal is not to find justice for all but to find the solution that brings the least overall injustice to society.

Some economists, such as Steve Keen (for a lively description of his work, see here), are saying that because Strategy 1 failed in the years 2008-2012, we should now try Strategy 2. They think that common people (debtors) should take less responsibility than the professional bankers who loaned too much money to their customers. It is more important to deter banks from lending too much in the future. If we control the behavior of financial professionals, we won’t have to worry about stopping consumers from borrowing more than they can pay back because bankers will be much more careful about lending to them. The greatest responsibility should be on the creditors because they failed in their professional duties. The debtors were mostly amateurs who were enabled by professionals who knowingly misguided them in order to reap short-term profits.

Who is angry that someone is getting bailed out and not being forced to take responsibility for past mistakes?

Strategy 1
Bank A behaved responsibly and is in good financial condition. The shareholders, executives and employees are annoyed that their competitor, Bank B, is being rescued.

Strategy 2
Mr. and Mrs. Smith have lived in their house for 25 years and they just made their last loan payment. Their neighbors, Mr. and Mrs. Jones, bought their house five years ago and still have $400,000 left to repay on their loan. But according to Strategy 2, this debt is erased and they can keep their house. Mr. and Mrs. Smith are obviously angry about this!

It is all so very unjust, but there is too much at stake to worry about making things fair for everyone. Children are going hungry and homeless because of their parents' mistakes. As Paul Krugman has written many times, economics is not a morality play. You might be outraged that millions of people are getting off the hook while the costs of their follies are carried by those who did no wrong. But what future social disorder would you be willing to suffer to pursue your justice? In The Merchant of Venice, the moneylender Shylock didn’t get the pound of flesh owed to him because it became apparent that getting it required the spilling of blood. There is a metaphor in this for the present global predicament.

PORTIA:
A pound of that same merchant's flesh is thine;
The court awards it, and the law doth give it.
SHYLOCK:
Most rightful judge!
PORTIA:
And you must cut this flesh from off his breast;
The law allows it, and the court awards it.
SHYLOCK:
Most learned judge! A sentence! come, prepare!
PORTIA:
Tarry a little; there is something else.
This bond doth give thee here no jot of blood;
The words expressly are, a pound of flesh:
Take then thy bond, take thou thy pound of flesh;
But, in the cutting it, if thou dost shed
One drop of Christian blood, thy lands and goods
Are, by the laws of Venice, confiscate
Unto the state of Venice.

-William Shakespeare, The Merchant Of Venice, Act 4, scene 1

Everything said above applies to the real economy which we call the ecosystem. The past and present generations have left a debt of damage they cannot repay, and, strangely, when it’s not strictly perceived as a matter of money, we realize it is senseless to worry about making the criminals pay. They can’t possibly compensate for the damage. We know that mining companies declare bankruptcy and leave behind cleanup costs that often exceed what these companies were ever worth. The true cost of compensating every loss caused by the Fukushima Daiichi disaster would bankrupt both TEPCO and the Japanese government. Chernobyl finished off the Soviet Union.

People worry more about their neighbors being forgiven for a debt than they do about the radionuclides in their food, but most of us come to the sensible conclusion that, pragmatically, there is little to gain in hunting down the individuals responsible for wrecking the environment. The pursuit of justice would divert our energies and may do as much harm as the crimes it seeks to right. The younger generation of innocents is stuck with the mess, and the best thing to do is start over with a fresh approach. Why shouldn’t this also be the attitude we have toward the global financial system?

Footnote:

A few hours after I posted this, Andrew Leonard wrote at Salon.com about the battle within various branches of the U.S. government over the issue of mortgage principal reductions, also known as "cramdowns." These would rescue any mortgage holder who was underwater by reducing principal until the balance owed on the mortgage was equal to the market value of the property.








2012/06/12

Oi, do you feel lucky, punk?

This week Japan’s prime minister Noshihiko Noda spoke directly to the nation to convince the people that the restart of the Oi nuclear reactors was essential to save the economy. He even claimed that he would take full responsibility for whatever happens.
And that was supposed to make us feel better? Let’s say another disaster happened and we could sue him for every last yen of his personal wealth, or punish him with the death penalty. Obviously, there is no price he could pay to compensate for the disaster, so many observers wondered why he uttered such nonsense.
I imagine Mother Nature now getting mean, like Dirty Harry, saying, 
“I know what you’re thinking, Noda. Is there one mega-quake per century, or more? Well, to tell you the truth, in all this excitement since the industrial revolution, I kind of lost track myself. But seeing as it was a magnitude 9, the most powerful earthquake in the world that would blow the rest of your nuclear reactors clean off, you’ve got to ask yourself one question: “Do I feel lucky?” Well, do ya, punk?
When we consider our political and business leaders, they seem a lot like the punk in Dirty Harry, but in that case even the punk was able to do a quick assessment of his odds and wisely surrender. Yet our leaders just keep forging ahead with reckless risks and solutions that have been repeatedly proven wrong, as Naomi Klein argued so brilliantly in a speech last year.
Critics of Japan’s nuclear plants such as Takashi Hirose have pointed out the severe flaws in their design bases that have to be reassessed. For instance, it is likely that the M9 earthquake in 2011 fatally damaged the reactors at Fukushima Daiichi even before the tsunami flooded the emergency generators. The truth is that the final assessment has not been made, but nonetheless the Japanese government rushes to restart reactors. Many of these were built on the assumption that there were no fault lines nearby and that the strongest quake would be less than M9. We now know that these two assumptions are incorrect. A strong vertical thrust quake could damage control rods and prevent even a safe shutdown of criticality in the reactor core (this shutdown actually happened in all the reactors at Fukushima Daiichi – the damage was caused by the remaining decay heat that couldn’t be cooled). In addition, the quake could damage the cooling and venting systems. All of this risk exists with or without a tsunami flooding the plant.
But the Japanese government has done its best to scare the population, and the governor of Osaka (who was opposed to the restart of the Oi reactors until this week), into submission. We are told to believe that the ruin of Japan will come not from the existence of nuclear power but from the lack of it. They even hid behind the sentimental argument that hospital patients and senior citizens will die in the event of a blackout, dodging the real issue which is the dread of running a trade deficit in order to import carbon fuel. 
Somehow, I think the hospitals and the senior residences could be saved if non-essential industries were to shut down on hot days when electricity usage was peaking. There was a time in the days before air conditioning when all factories in industrialized countries shut down for the summer months.
But we are told to believe that the issue is Japan’s dire inability to import more carbon based fuel. Even though oil and natural gas prices are dropping, they have tried to scare us into thinking that Japan cannot go on paying exorbitant prices for the energy shortfall caused by the lack of nuclear power.
There are several reasons why this argument is baseless. Nuclear provided only 30% of electricity before 2011, so it is hard to argue that importing a little more oil and gas, while getting serious about energy conservation and deploying renewables, is going to threaten the economy in a significant way. Furthermore, the population is declining and industries may move offshore no matter what.
There may be a savings in the fuel cost between nuclear fuel and carbon fuels, but there also has to be an accounting of the terrific cost difference in the generating plants. Nuclear plants are many times more expensive to build, and they involve the costs of lengthy and dangerous decommissioning and spent fuel storage. It is absurd to say that there is an economic reason to restart nuclear reactors in one of the most seismically dangerous parts of the world. The only explanation of this rush to restart reactors is that the narrow, corrupt and reckless interests of Japan’s nuclear village are reasserting themselves.
It’s tempting to go on ridiculing the Japanese government for how dysfunctional and illogical it has been dealing with disaster, but there is no reason to think other countries will be different when they enter their own energy end games.

The original:
I know what you're thinking. "Did he fire six shots or only five?" Well, to tell you the truth, in all this excitement I kind of lost track myself. But seeing as this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you've got to ask yourself one question: “Do I feel lucky?” Well, do ya, punk?

2012/06/05

The Current is Your Currency

There is no random coincidence in the fact that the magnitude of our present economic crisis matches and co-occurs with the growing scale of environmental catastrophes and industrial accidents. The disciplines of economics and ecology share common origins in the Greek root oikos (home), as they are both concerned with how humans interact with and exploit their environment. It is only in modern times that the economy has come to be seen as a separate system from the natural world. Yet there is no escaping the fact that the economy is just an abstraction of the way people organize themselves to use their environment. 
This is made clear the numerous ways in which the economy can only be explained with metaphors derived from real world phenomena. Just consider all the terms that have been used in the mass media to report on the economy. The "bailout" is of course the most obvious metaphor, but there are so many more. The number of bad loans reached a "critical mass" and the real estate market had a "meltdown" that arose from the "perfect storm," and of course there was "fallout" for investors. Mortgage securities are now considered "toxic" or "radioactive." "Liquidity" "vaporized," stocks "cratered," the economy "fell off a cliff," the president thinks he can "ride the tiger in order to tame it." A senator warns of "economic Pearl Harbor." Credit default swaps are "weapons of mass destruction," but who cares about any of this if he doesn't have "skin in the game." In 2007 a credit "tsunami" was heading our way, but we just stood on the shore watching it roll in. The "bubble" burst. Prices "nosedived" (why not "nosedove"?). Government props up the financial system like a "dam," refusing to open the "floodgates" that would let some problems drain away on their own. The credit system must be revived by opening up the "spigot" and sending in a "troop surge" to do battle, but not before the "sclerotic arteries" of the system are fixed. It needs more "oxygen," as long as that doesn’t "feed the flames," but should we bother trying to save a "burning house"?
Ronal Bailey, writing in Reason, noted that the financial industry's reliance on metaphor to explain itself has become so problematic that the American Securities and Exchange Commission has declared that financial professionals would be "… barred from using metaphors when speaking about the markets and investments." He quoted one commentator who added, "It’s clear from the research that any discussion of the market and its direction is totally metaphorical. The market is not a thing. We've got to stop talking about it vaulting, slipping, inching, bouncing, pushing, resisting, rebounding, rallying, and clawing. This is a sober business, not a Las Vegas cage fight… markets cannot 'flirt' with anything."
John D. Casnig, founder of the Metaphor Observatory, asked in an article in the Wall Street Journal, “Why the rush to deploy metaphor to describe the Wall Street crisis? Because nobody can understand it. Metaphor is used when we can't understand something in its own context.”
And this is the point of this blog post. The financial system is a complete figment, at best a symbolic representation of the material wealth made possible by technology and of the way we think this wealth should be shared. The film Margin Call, set in a fictional investment bank in 2008, put in the mouths of its characters some of the best commentary on the nature of the beast. On the eve of destruction, one banker says to another:

“If people wanna live like this in their cars and big fuckin' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is cause we got our fingers on the scales in their favor. I take my hand off and then the whole world gets really… fair really… quickly and nobody actually wants that. They say they do, but they don't. They want what we have to give them but they also wanna, you know, play innocent and pretend they have no idea where it came from… You know, the funny thing is, tomorrow if all of this goes tits up they're gonna crucify us for being too reckless but if we're wrong, and everything gets back on track?”

In denouement, the CEO played by Jeremy Irons comments dryly to his colleague:

“So you think we might have put a few people out of business today. That it’s all for naught. You've been doing that every day for almost forty years, Sam. And if this is all for naught then so is everything out there. It’s just money; it’s made up. Pieces of paper with pictures on it so we don't have to kill each other just to get something to eat. It's not wrong. And it's certainly no different today than it’s ever been. 1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987… It's all just the same thing over and over; we can't help ourselves. And you and I can't control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react. And we make a lot money if we get it right. And we get left by the side of the road if we get it wrong. And there have always been and there always will be the same percentage of winners and losers. Happy foxes and sad sacks. Fat cats and starving dogs in this world. Yeah, there may be more of us today than there's ever been. But the percentages-they stay exactly the same.”

Unfortunately, the evil CEO of the big investment bank may be right. Everyone wants to hang the bankers now, but there were no complaints from the little people who were making easy money flipping property, taking out reverse mortgages for honeymoon trips and refurbished kitchens. No one has yet found a better way for us to play with the excess wealth generated by our technological mastery of the planet’s resources.
So if money is just “made up,” what is the real measure of our standard of living? I can find no simpler explanation than that offered by Michael Madsen in his film Into Eternity, (15:00~) which he narrates as a letter to people of the future who might find the nuclear waste deposit at Onkalo, Finland. He asks,

“My civilization depends on energy as no civilization before us. Energy is the main currency for us. Is it the same for you? Does your way of life also depend on unlimited energy?”

In order to really understand the meaning of “toxic assets” and “financial meltdown,” we’ll have to really take a hard look at the wreckage of the Alberta Oil Sands, the Gulf of Mexico, Chernobyl and Fukushima, and remember where the metaphors come from. We’ll need to worry less about how to “fix the economy.” That problem could be repaired by a (warning: metaphor) giant global reset button, an end to this (d'oh! metaphor!) monopoly game, and the declaration of a worldwide debt default. There could be the issuing of new currency, and the end of the federal reserve and other national banks printing money, lending it to banks, then having governments borrow their own money back from banks at a higher rate. This is a relatively simple problem, but the ecological crisis is a problem that doesn’t need to be expressed in metaphors. It’s real and much more difficult to resolve. 

Footnote:
If you think an English teacher in Japan may not be qualified to spout on these issues, then don't take it from me. Listen to economist Steve Keen (author of Debunking Economics), whose starting point is to "...write off the private debts, nationalize the banking system, and start all over again.” 

Further reading:
Beaton, R., Maser, C. Economics and Ecology: United for a Sustainable World. (2011).