Tuesday, December 23, 2008

Energy and money

My latest column on Scitizen entitled "Energy and money" has now been posted. Here is the teaser:
Is energy merely another commodity among many in the modern industrial economy? Or is it the very basis of our financial and material life?
.....Read more

Sunday, December 21, 2008

Holiday break

The post below is my last one of this year. I'm taking a brief holiday break and expect to post a regular piece again on Sunday, January 4th. In the meantime, my latest column on Scitizen will be appearing shortly, and I'll provide a link to it when it is posted.


To live in an uncertain world is one thing. To know it is altogether something else. In the last 30 years policymakers and then investors came to believe that the ups and downs in the economy and the financial markets were simply bumps along the road to long-term prosperity. In fact, declines were increasingly thought to be simply opportunities to double down and ultimately make more money.

The certainty that we were living in stable times led some people to commit more and more of their wealth to investments rather than savings accounts. It led others to rack up huge amounts of debt believing that the good times could never end. The risk was not being in the market or not getting that house you really wanted. Likewise businesses found themselves in an environment of cheap finance. Why not lever up the company balance sheet and make even more money? Both consumers and businesses were abetted by banks and other lenders who used complex models to justify their wild expansion of lending. The models were said to be backtested and the risk properly hedged or offloaded onto investors. Investment ratings agencies seconded this thoughtless optimism with high ratings of questionable securities, ratings that in hindsight look like rampant grade inflation at a second-rate school trying to attract students. Numbers crunched on computers gave everyone a belief that profits were certain and that risk was negligible.

But, beware of those offering certainty. They probably have something to sell you, perhaps something you don't need and that may be dangerous to your health and prosperity. Former hedge fund manager and self-styled philosopher of uncertainty Nassim Nicholas Taleb has a rule of thumb: Don't trust any predictions from people who wear ties. He notes that bankers and financial economists almost universally wear ties to work. Those in the hard sciences such as physicists and chemists almost never do. Such scientists have a much better record of predicting the course of planets and the outcomes of chemical reactions than the bankers and economists do of predicting the trajectory of the economy or the markets.

But certainty sells, especially regarding those things about which we are most uncertain. The purveyors of research on the future would like to tell us (often but not always for a fee) that everything will be all right, especially if we let that purveyor (or his or her clients) make all the important personal and public policy decisions for us. (I probably should have put the word "research" in the previous sentence in ironic quotes since it is impossible to do research on the future.) Other purveyors might also tell us of dark days ahead for which they can sell us the certain and perfect defense. And, there is yet a third very small class of soothsayers who offer a message of gloom (without extracting a fee or at least a very large one) and without offering hope (at least that life will ever again be what passes for normal these days). I sometimes give this third class my attention since they tend to speak with less certitude, and they often pray that they are wrong.

A succession of developments has lifted the reputation of the few in this third class. The highest prices ever seen for oil were recorded in July this year. This was followed by the swiftest decline in the economy since the Great Depression. Nearly every market crashed making mincemeat of practically all investment advice even from those who ostensibly foresaw the crash and recommended investments that were supposed to go up in such a crash. Suddenly, those things which seemed so certain just 12 months ago are now quite shaky. What most people want to know is whether someone or something, perhaps the government, can restore certainty to our lives. But is that what we really need?

More than 50 years ago author and interpreter of Zen to the English-speaking world Alan Watts wrote a book entitled "The Wisdom of Insecurity." He made the case that feelings of certainty and security were just that, feelings. Our true and perpetual state as humans is that of uncertainty and insecurity. The world never stops changing and never stops unsettling our settled notions, at least if we pay careful attention to it.

And so, what's really necessary to feel certainty in one's life is to be oblivious to what is actually happening. For Watts a good life and a happy life, taken with all its sufferings, is one lived while paying attention. Recent events are forcing more of us to pay careful attention. But to pay attention is to feel more insecure and more uncertain. Still, instead of something to be avoided, insecurity is something to be embraced. It forces us to become more resourceful, to encounter the world as it is and to gain a measure of prudence that can serve us well when we are tempted to believe the optimistic hype of investment advisors, economists, politicians, or experts of any kind.

I find myself writing an odd sort of holiday message in this piece. When so many others are sending out words of comfort and joy and wishes for a happy new year, I am focused on getting in touch with life's inherent uncertainty and insecurity which in my view is the true cauldron of creativity in our lives. If you want to have a better year next year than you had this year, I offer no certain way to achieve it--only the insecurity and uncertainty that engender prudent and practical effort, which when we do it in concert with others can bring us the joy of working together on something worthwhile.

Sunday, December 14, 2008

Energy and Ponzi schemes

The recent collapse of what is believed to be the largest Ponzi scheme ever says as much about what the public believes regarding wealth and the possibilities of infinite growth as it does about the scruples of investment managers. (In a Ponzi scheme, old investors are paid off using money from new investors. Exorbitantly high but fraudulent returns for the initial investors quickly attract new investors seeking the same high returns.)

In the absence of independent contrary information, unsuspecting investors will believe in Ponzi schemes as long as their returns are high. In the same way the public will put its faith in neoclassical economic theories which claim that perpetual economic growth is possible. What most investors and many Americans want is to get rich. Most recently they were led to believe that the stock market was a one-way ticket to wealth. While the stock market as a whole is not a Ponzi scheme, the companies on the exchanges are run on the basis of neoclassical economic assumptions about growth. When those assumptions are undermined, as is happening currently, investors and corporate leaders look for villains and bailouts rather than questioning the assumptions themselves.

In an effort to challenge those assumptions, systems ecologist and energy researcher Charlie Hall has long championed a biophysical approach to economics as an alternative to neoclassical economics which he likens to a Ponzi scheme. Why a Ponzi scheme? Each new wave of lending is made based on the faith that future flows of energy will increase sufficiently to create enough economic growth to pay off the new loans.

Theoretically, given no other resource constraints, this might work for a very long time if the energy were to come entirely from renewable resources. But such is not the case. The vast majority of current energy flows come from finite fossil fuels. That means that without drastic shifts in the sources of energy for society, there will be a day of reckoning, just as there is for every Ponzi scheme when not enough new investors are brought in to pay off the old ones.

(Some people think that day may have already arrived. They posit that oil supply constraints sent prices so high last summer that those high prices brought on a depression, one that will now cause massive debt defaults. They also believe that we may have no prospect of ever returning to sustained economic growth based on increasing supplies of fossil fuels.)

The lure of wealth is so great, however, that the dream will die hard. Even now middle-class investors are being told to hang on until growth returns. And, perhaps it will. But the dream of becoming wealthy remains problematic if unquestioned. First, not everyone can get rich. The idea that anybody can become wealthy is not the same as everybody becoming wealthy. Second, although fossil fuels have made possible enormous comforts for the middle-class and even many poor people, few of them would consider themselves wealthy. Wealth is a relative concept. To be wealthy is essentially to be able to pay other people to do many things for you that most people do for themselves. If everyone were to become wealthy, it would be meaningless since wealth always implies privilege, that is, inequality. If you still have to wash your own shirts, take out the garbage and drive yourself to work, you may be comfortable, but you won't necessarily consider yourself privileged.

The unreflective view of wealth--the confusion of wealth with money, the failure to see that feeling wealthy requires an underclass--masks attempts to explain the limits of wealth. Now that the expectations of perpetual financial gain are being dashed, there may be an opening to explain those limits. If the Ponzi-like scheme that animates our economic thinking can be exposed, it could help many to see, perhaps for the first time, that the source of wealth is not the financial markets or the banks, but rather the very earth, air and sea around us.

Thursday, December 04, 2008

The singularity: The fantasy and its effect

(I am posting early this week since I will be on vacation and away from home until late next week.)

This Thanksgiving I was discussing the idea of technological progress with my father. I asked him if he had ever heard the term "singularity." He recognized the word had something to do with physics, but did not know any meaning that related to our discussion of technology. Then, he went on to describe a view of technology that seemed strikingly similar to that espoused by believers in the so-called "technological singularity," a speed-up in the rate of technological change so immense that it would constitute a third revolution in human history alongside the agricultural and industrial revolutions.

But his explanation had a twist. He thought it very likely that this technological progress would result in the destruction of human civilization and perhaps all life on the planet within a century. Alas, he didn't see any way to stop it.

The idea that the advance of technology is speeding up is not a new one. And, the idea that technological progress may actually be putting us on a path to destruction precisely because we don't know when enough is enough has a long history as well. But perhaps the most pernicious idea of the three my father mentioned is that nothing can be done to stop it.

I was struck by how deeply the idea of inevitable, unstoppable, rapid technological progress had become ingrained in the culture. If my father--who reads a lot, but is not particularly versed in things scientific or technological--could describe this idea and its possible consequences in such great detail, then it must indeed have made its way into the minds of nearly every thinking and perhaps many nonthinking persons.

The effect of this idea has been threefold. First, the vast majority of people regard technological progress as an unalloyed blessing. Of course, they are, in part, confusing the availability of cheap energy to run the technology with the technology itself. Without cheap energy much of that technology would not be available to the masses. And, we would not have been able to build the necessary infrastructure nor been able to put the necessary number of people to work to develop so many new technologies.

Second, many people are also discounting the ill effects. If someone had told you at the beginning of the 20th century that the automobile would become ubiquitous in American life, that it would lead to tens of thousands of fatalities and countless injuries each year, that it would be a major cause of urban decline, that it would make our country dangerously dependent on foreign oil imported from the most politically unstable parts of the world, and that it would be a large contributor to climate change, would you not have joined a campaign to ban it? Yet, even today most people are largely blind to or at least have little concern about these clearly deleterious effects.

Third, faith in technology turns most people into citizen-couch potatoes. Since technology will fix everything, we'll put the technologists in charge and then sit back and wait for the miracles to arrive.

The persistence and depth of this conviction results not from the available evidence, but rather from a pseudo-religious belief in the innate goodness of technological progress. Ray Kurzweil, the high priest of the singularity idea, tells us in his tome, "The Singularity is Near," that humans have become joined to machines in their cultural evolution. So far, this is not news. Human ecologist William Catton Jr. made the same point in his 1980 book, "Overshoot," where he refers to human beings as homo colossus, a man-tool hybrid of extraordinary destructive power.

But Kurzweil goes on to say that evolution creates better solutions to the problems of survival, and that technological evolution as part of overall evolution inevitably makes humans more fit for survival. This, he says, is the necessary progression of the universe. That's not exactly what the original evolutionist, Charles Darwin, thought. Changes in living organisms are due to random mutations that are just that, changes. They do not have a purpose per se. The natural world simply sorts through these experiments (including presumably any human technological inventions), keeping the ones which make animals and plants more fit and discarding the ones that don't. Since this sorting takes place over many generations and sometimes many millennia, there is no good way to tell ahead of time what will work and what won't.

So, Kurzweil's faith that our technology will make us more fit for survival in the universe is, in reality, a religious view, not a scientific one. To be fair, Kurzweil does acknowledge many potential dangers from new technologies such as genetic research, nanotechnology and robotics. But he believes we can mitigate or eliminate those dangers with proper regulation.

The main problem with this worldview is that nature is almost entirely absent from it. In this view nature is something which we seek to understand in order to manipulate it for our benefit and for the benefit of other creatures when we deem it necessary. And, nature is something we can fix when we have to. Witness the many ideas for geoengineering the climate including giant mirrors in space to reflect a portion of the sunlight that would otherwise fall on the Earth and a proposal to seed the ocean with iron to increase algae growth, algae that will ultimately die and fall to the ocean floor thereby sequestering carbon.

First, the natural world is so complex that environmental education giant David Orr believes we will never solve the knowledge problem. For everything we learn about the natural world and how to manipulate it, we create an equal and consequential void of ignorance concerning the effects of our actions. When it came to chlorofluorocarbons--a set of chemicals used in refrigerators and spray cans--we almost found out too late that they were eating a hole in the ozone. Given our countless industrial and technological processes, we simply cannot know all their effects on our biosphere.

Second, those effects might be so severe that they could wipe out human civilization. Bill Joy, formerly the chief scientist for Sun Microsystems, wrote a widely read article for Wired back in 2000 about just such possibilities. The article entitled "Why the Future Doesn't Need Us" details the possibilities for the dissemination of designer viruses with the power to kill selectively, self-replicating nanobots that devour the world, and robotic intelligence too great for us to understand or control. The problems may seem like something out of science fiction, but at least the designer viruses and the self-replicating nanobots are in principle possible. Robotic intelligence that mimics and outpaces human intelligence is still just a dream. And, many debate whether such a thing is even possible. But if it were to come to pass, it would have enormous consequences, not all of them salutary for the human race or the biosphere.

Finally, there is the perception that technological progress is speeding up. But is it? After one hundred years, we are still dependent on the internal combustion engine for almost all of our land and much of our sea transportation. We were promised miracle cures for genetic diseases a decade ago, but they haven't arrived. After a half a century of research, we expected fusion reactors to be in place. But the latest international project promises to bring us commercial fusion power only by the mid-21st century. In truth, it is not altogether clear that we will ever be able to master fusion energy. Our main fuels by far remain fossil fuels, 86 percent by energy content. And, these fuels are heading toward depletion faster than anyone anticipated as the world economy and population grow, and as more and more people want access to high-energy lifestyles.

In reality, technology sometimes progresses in fits and starts, and sometimes not at all. Joseph Tainter, author of "The Collapse of Complex Societies," suggests that we may have reached an era of diminishing returns for technology and for the complexity it fosters. Complexity, Tainter explains, can increase the power and reach of a civilization. But increasing complexity will also eventually have diminishing and even negative returns to a society thereby endangering its very cohesiveness. He cites Roman and Mayan civilizations as examples.

An aura of inevitability surrounds the idea of technological progress. And, that aura implies meaningful progress for human society as well. But is that aura in reality merely a paralyzing agent that prevents careful examination of technology and its claims for the future? Humans have, in fact, stopped, slowed or restricted technology on a few occasions. Whether wisely or not, the nuclear power industry was essentially stopped in its tracks after the accident at the Three Mile Island reactor in Pennsylvania in 1979. The public wanted other solutions.

We should want other solutions now, too. Technology enthusiasts claim that new as yet created technologies will keep human society overflowing with the cheap energy it needs for the energy-hungry technological wonderworld of the future. And, yet despite all our new technology, oil discoveries continue to fall. Geology is remorseless and doesn't yield to mere faith in technology. The development of alternatives is lagging far behind our need for quick replacements. The effects of climate change are visiting us sooner than even the most pessimistic estimates had presumed.

The singularitarians tell us, "Just wait! The great breathtaking exponential acceleration of technological progress is about to begin and will play out over the next few decades." The new technologies that will emerge will solve the problems of energy supply, clean water, hunger, and even climate change. And, they will also lead to much greater longevity and far better human health.

But as the world hurtles toward peak oil, catastrophic climate change, widespread water shortages and further vast destruction of the biosphere, can we afford to wait for the singularity to arrive? Or do we need to be pragmatic and start addressing these issues now as well as we can, not just with our technology, but with a plan to change the very way in which we live to make our presence more consonant with the limits of the Earth?