Sunday, May 29, 2011

les Enfants de Fritz et Carl

"And God blessed them, and God said unto them, Be fruitful, and multiply, and replenish the earth, and subdue it: and have dominion over the fish of the sea, and over the fowl of the air, and over every living thing that moveth upon the earth."
                                                      --Genesis 1:28

The commandment to be fruitful and multiply was  was completely unrealistic and I have a feeling that everyone at the time knew it.  How could humanity compete with the vastness of nature and her vagaries?  Layered beneath that understanding was an even darker reality--those ancients were at least 40,000 years into the Quaternary Extinction begun by their unwritten ancestors.  They had no idea those ancestors had ever existed.  As far as they knew, the gods had formed the earth a few generations prior to their own.

Whether the words were taken literally by our ancestors or were merely re-interpreted (mis-interpreted) by their progeny, we can be certain that they never lived up to it.  The proof is in this chart (lifted from Kruse Kronicle):

As the chart shows, it took more than 5000 years for human population to rise from 50 million to 350 million.  Most of this growth was due to the spread of agriculture and farming technology.  For example, European population was stable from 800 AD to 1100 AD, prior to the invention of the wheelbarrow (already in use in China) and the horse collar.  These inventions spurred population growth, which in turn created ripe conditions for the Black Death.
Gods call from the starry sky:
Prophets and Pontiffs call for frequent and Holy War
While clerics and priestitutes admonish the wounded, bless their sores.
Often emanates from the barrack recitation of deific writ

But where from comes the bullet?
The sword, armory, the bomb, and radio?
When the wound is dressed, whence the gauze?
Regardless of commandment, magic, or animal sacrifice, the demand that human beings go forth, multiply, and subdue the earth was destined to never be achieved, until two researchers changed that destiny--Fritz Haber and Carl Bosch.  It had been known for nearly a century that adding nitrates to soil increased crop yields, and beginning in the 1830s, European farmers had been seeding their fields with sodium nitrate.  Even though global population had reached 1 billion by 1800 AD, it had risen by only 50% by 1913.

In 1909, Haber perfected a laboratory process that fixed atmospheric nitrogen in the form of liquid ammonia.  Four years later, an industrial process for producing economically significant amounts of ammonia was created by Carl Bosch.  Today, this process consumes approximately 2% of global energy production.  The graphical changes in global population following it are striking:
Click to view full size

In the 100+ years prior to it, the human population increased by 50%.  Here we sit 100 years later and global population has grown by another 400%.  More people have been born, survived to reproduction, struggled, built, destroyed, loved, hated, and died in the last 100 years than in all of human history before it.
What sort of lives have those people lived?  It's very difficult for me to say.  I would venture that I know a fair amount about the history and aspirations of first-world people.  But when it comes to developing and 3rd world cultures, I really don't, and I can't say I know anyone who does.  My guess is that they are less technological, deal with more disease, and less literate than most of us who read this.  I would also bet they tend to be more superstitious and less formally logical.  However, I would also bet that they are more like myself, my family, and my friends than either I or they would initially believe.

Thomas Malthus postulated that animals and plants reproduce much more than their habitats can ordinarily support.  He also guessed that human beings were the same way.  He reasoned that human population would always grow at exponential rates, while agricultural output would only grow at linear rates.  He was a brilliant ecologist for his time, but he was unfortunately born before the invention of barrier prophylaxis.  By the time the Haber-Bosch process came to dominate the human chunk of planet Earth, this kind of birth control was already in widespread use throughout Western Europe, Canada, and the United States.

I believe this is the reason population growth in the industrialized world proceeded at a linear rate (as the chart shows), while exploding geometrically in the undeveloped world.  Sending food to the starving is an obvious solution to an immediate and pressing need.  Sending them birth control was a bridge too far.  Malthus was partially right.  Partially right makes him better than most.

Human population exploded, but mainly in areas and among people who could least afford it.  We now live in a time of porous borders, becoming more porous every year throughout the entire world.  Global capital moves from one center of power to another within minutes....or seconds.  First Worlders of every profession are everyday locked in greater competition with a developing world population outnumbering them by three to one.

100 years ago, two German researchers discovered 90% of the solution to world hunger.  The next 100 years will tell the story of how the world solved the problems created by it.  100 years from now our counterparts will talk about how we stopped the population explosion, how we preserved and expanded human rights, how economic, academic, and personal opportunities and freedoms extended around the planet.  It will take more than two men playing with catalysts and condensers.  As is often the case, the problems of global competition must be addressed by the will to globally cooperate.

What Malthus did not realize, and could not have known, is that human beings have a natural tendency to limit their offspring to a number they can manage.  This is well-explained by r/K selection theory.  More importantly, recent history tells us that when societies have access to birth control, they tend to use it.  And the more types they can access, the more they use.  If barrier prophylaxis was effective prior to 1960, the birth control pill doubled that effectiveness:

Click to view full size
The conventional wisdom in the United States, at least as I've heard it, is that men care nothing about birth control, and only giving women access is effective.  I don't believe the historical data support this.  Birth rates in nations with easy access to barrier methods had half the birth rates of those without them in 1960, and access to birth control pills halved that rate again.  Interestingly, fertility rates seem to converge at two births per woman across all or most cultures.  Even the poorest nations have seen significant increases in standards of living in tandem with falling fertility rates. 

Back in March, Gary North mused on what he terms "The Most World's Important Unanswered Historical Question: 'What Changed in 1800?'"  Dr. North opens his article this way:

The economic historian Gregory Clark summarizes a remarkable fact.

". . . there is no sign of any improvement in material conditions for settled agrarian societies as we approach 1800. There was no gain between 1800 BC and AD 1800 -- a period of 3,600 years. Indeed the wages for east and south Asia and southern Europe for 1800 stand out by their low level compared to those for ancient Babylonia, ancient Greece, or Roman Egypt."

Then, around 1800, this all changed. Economic growth began about 2% per annum, compounded. That brought our world into existence. 

To me the answer is obvious.  James Hutton happened.  Often called "The Father of Modern Geology", Hutton discovered and proved the theory of geologic uniformitarianism.  Over the course of 25 years he showed that under varying environmental conditions sediments are laid down and/or eroded at constant rates.  From this basis, he and his contemporaries were able to determine the ages of continental strata around the globe.  Once formations could be aged, natural philosophers, miners, and entrepreneurs around the world were able to determine where (and how deeply) to dig for geologic resources.

Based on Hutton's work, coal beds were discovered throughout North America and much of Europe, along with vast quantities of iron ore, and even the saltpeter mines of Chile--the same saltpeter mines eventually put out of business by Haber and Bosch.  As Dr. North correctly points out, the legal and educational institutions needed for the industrial revolution had already existed for nearly 200 years.  What was lacking--reliable access to minerals and energy--Hutton found.

I shared my opinion with Dr North by email, but I don't think he was impressed.  He's a brilliant economist--one of the best IMHO--but he's also a very fundamental in his faith, as were many in Hutton's time.  It's his right to be and I don't fault him a bit.  God Bless him, even.  Every discovery Hutton made contradicted not only the two creation stories of Genesis, but also those of every culture that existed when he lived.  When faith and evidence collide, faith usually wins.  It's best to avoid the collision.

Of all the nuts to be cracked, this may be the most important.  Religious movements proved wonderful when they ended Communist domination of Eastern Europe and Jim Crow laws in the Southern United States.  However, as Christopher Hitchens points out, they also facilitated the rise of fascism in pre-WWII Europe and have stymied contraception and anti-poverty initiatives in the Third World.  I would also argue that in the last 40 years many religious institutions have sought to become gatekeepers and justifiers of privilege and indifference.  They've been darn successful, too, I'm sorry to say.

The point is not to defame religion; on the contrary, I love theology and religious practice.  My point is that the challenges to this world will require technical and scientific solutions that religion must embrace.  They will require social changes that popular religions can and must facilitate.  I hope they will.

Sunday, May 22, 2011

la Crise Financière II

"The Tao of heaven is like the bending of a bow.
The high is lowered, and the low is raised.
If the string is too long, it is shortened;
If there is not enough, it is made longer.

The Tao of heaven is to take from those who have too much
     and give to those who do not have enough.
Man's way is different.
He takes from those who do not have enough
     to give to those who already have too much."

                                       --Lao Tzu

I ended the last post by linking to the animated version of David Harvey’s lecture.  It’s a good jumping off point for this second (and hopefully last) part of the discussion.  Harvey unabashedly analyzes social phenomena from a Marxist perspective.  This is useful because there are only two aspects I still want to touch on—the predictability of the crisis and the exercise of social power within it. 

Think for a moment about the people who surround you in your daily life.   The people you work with regularly, the people you interact with through social media, your family, friends, etc.  How many of them are significantly wealthier than you are?  How many are much poorer?  How many have positions of way greater responsibility than you do and  how many have much less?  How many of them have mental or physical capacities different from your own?  What about the age factor?

The thrust of the thought experiment is that you probably know very few people whose lives are extremely divergent from your own.  Rich and or powerful folks tend to hang out with each other, poor and weak folks tend to do the same, and the pattern repeats all the way across the in-between.  The predictability of the financial collapse is related to this in no small way.

Lots of national leaders, corporate leaders, and mainstream media folks have said in one way or another that the financial crisis was not predictable.  I think the best example of this is from an interview with Dick Cheney:

AP: So let's start with the economy. Did you ever think that you'd be—that we'd be finishing a two-term Republican presidency with a federal budget deficit so high, with bailouts and government spending sort of run away?

VICE PRESIDENT CHENEY: No, obviously, I wouldn't have predicted that. On the other hand I wouldn't have predicted 9/11, the global war on terror, the need to simultaneous run military operations in Afghanistan and Iraq, or the near collapse of the financial system on a global basis, not just the U.S. 

Normally I’m pretty skeptical about the words that come out of the mouths of national politicians.  In this case, I take him at his word.  Here we have the most powerful, most policy-involved Vice President in the history of the US.  He had been given complete access to the entire American Intelligence apparatus, had unfettered access to the President and his advisers, a staff of very smart people, and could call up virtually any businessman or academic on the planet.  For all this, he knew of no one who could have predicted the financial crisis.

Another example:  Luke O’Connor outlines a pamphlet from Zurich Advisors where they had deemed the financial crisis as an event that could happen, on average, once every 10,000 years.   This is an organization whose very existence is justified by its ability to measure and mitigate risk.  As Dr Lo pointed out, financial engineers needed to only look back 25 years to the housing market of the early 1980s to understand their risk position.

Borrowing a number from the National Small Business Association, 25% of Americans are directly employed by small businesses.  If we assume another 10% are either supported by non-profit organizations or underground markets, that leaves 65% of the population employed and/or provided-for by large corporations and government entities.  Here's the rub of all this--the decision makers in the upper hierarchies of these organizations are all living and working in the same sliver of our social world.  Our economic and political systems cloister them from those who are poorer (99.9% of us) and therefore differently informed.

This interview with Maria Bartiromo is a perfect example.  She spends the first five minutes outlining her privileged position in the financial media.  At twenty minutes in she describes the reasons she believes public assistance to financial firms was justified.  Her reasons culminate in the statement that in this country we don't leave those in poverty on their own or let them go hungry.  I gasped when I heard her say this--because most of the millions of Americans in poverty in the US are left to fend for themselves in very substantial ways.  Those in poverty do not live in safe neighborhoods, stay in decent houses, go to good schools, receive adequate health care, and many, many go to bed hungry.  But being wealthy and well connected means she never confronts it.  The social mobility numbers for the United States tell us that she probably never will.  Her material success makes her a less informed, less capable journalist and she doesn't even know it.

Which brings me to my first point--there were many people who saw the Wall Street collapse coming.  Quite a few bloggers and media personalities saw it coming:  Nouriel Roubini, Paul Krugman, George Soros, Gary North, and Peter Schiff (my favorite) all predicted it.  Quite a few people on wall street predicted it, and made a killing.  Doing manual labor, poor person's jobs for the last 18 years, I personally know several people who saw the financial crisis coming--a couple of them were even able to time it.  However, those in powerful policy-making positions, those with the most influence in mass media, and even the best-known religious leaders in the United States and in the world had no insight.

Part of this can be chalked up to confirmation bias--the neurological tendency of the human mind to preserve it's networks, and it shows up as cognitive inertia.  This is closely related to the maintenance of social position.  In fact, if individuals guessing at trends and values know ahead of time what others are guessing, they have a tendency to conform to the group mean.  As J.M. Keynes notes in chapter 12 of The General Theory, "Worldly wisdom teaches that it is better for reputation to fail conventionally then to succeed unconventionally."

Which brings me to my more important point; that the financial crisis allowed for an international display of social power.  In his film, Inside Job, Charles Ferguson makes the case that the world's leading economists and financiers had to have known how risky the global financial system had become and deliberately mislead the public and government officials around the world to facilitate large-scale looting of the financial infrastructure.  While I didn't find his case convincing, he powerfully illustrates the depth of corruption and conflicted interest within the economics profession.  He also shows that elected officials either lack the knowledge or the will to resist conventional economic wisdom.  By the end of the movie, I couldn't deny that the decade of the 2000's is clear evidence that the economics profession is undeserving of my trust or anyone else's.

I don't go as far as Ferguson does to indict the financial industry in general.  To be honest, the folks in charge of it just ain't as smart as their detractors make them out to be.  What wealthy executives and investors do have, however, is a vast amount of collective social power.  So when their businesses and bonus pools were endangered they cried to governments around the globe for immediate capital assistance.  In the United States, it took 10 days from initial proposal to Presidential signing to create the Troubled Assets Relief Program.

For comparison, it took nearly 10 years to pass the dirt-cheap  9/11 responders health care bill.  In total, more than $8 trillion has made available to the financial industry by the United States government.  But an amount equal to less than 2% of that has been made available to assist local school districts dealing with the aftermath of the financial meltdown.  I'd argue that virtually the entire chain of events leading up to and following it can be understood in terms of Isaiah chapter 1, chapter 77 of the Tao Te Ching, and chapter 5 of the Dhammapada.

My final observation is that during the financial crisis, as with natural disasters, the only reliable sources of insurance were sovereign governments.  Go figure.