Monday, February 25, 2008

Discounting Global Warming, Revisited

Running this blog is a pretty one-sided deal most of the time. Every week I send out some thoughts into the blogosphere, and rarely do I get a response. But last week's post about applying the economics of discounting to global warming got not just one, but two responses, both making similar criticisms. For this blog, that amounts to a storm of controversy, and I can't resist responding. But first, let me summarize the criticisms.

The first post (to be found under Nov. 19, 2007's "Yahoo Pays. . . ", to which it refers) accuses me of being either "sloppy or inconsistent." Here is some of what it says: " In the post about Yahoo, you get wrought up about the company not doing more to protect their [the Chinese citizens'] identity for engaging in free speech, but in "Should we discount global warming?" you advocate using a discount rate even though some of that $50 billion is lost lives due to less reliable weather, increased flooding, and more famine. (NOT jail time, death.) . . . . So should Yahoo continue its economic discounting, knowing that the occasional customer is jailed; or should the Yahoo-wannabes stop counting human suffering in dollars?"

The second post responding to last week's blog, signed "Cousin Mike" (yes, he is my cousin) says this, among other things: "A courtroom-drama movie once depicted an auto manufacturer as having made a conscious decision not to fix a problem with their brakes because they calculated economically that it was less expensive to pay off claims to people killed by the brake failures than to fix the flaw. The movie-makers obviously wanted the audience to view such conduct as morally odious, and I agree . . . . I know that if we really thought every life was infinitely valuable, we'd build autos like bumper cars,incapable of a fatal crash . . . . But it still gives me chills to think that the economically correct engineering solution to global warming is to leave the brakes flawed 'cause it'll cost too much money to fix."

The point these respondents are making, it seems to me, is that while I seem to hold up certain principles as absolutes (e. g. freedom rather than jail time for Chinese users of Yahoo), when I propose discounting global warming, I appear to be throwing away all these fine moral distinctions in preference to a cold economic calculation.

Allow me to differ.

Imagine a set of scales, like Lady Liberty (the gal with the blindfold) is often portrayed as holding up. If I were to do an editorial cartoon summarizing the criticisms above, it would show a pile of currency and gold coins on one pan of the scales, pulling it down, as a crowd of impoverished coastal fishermen drown in a miniature version of Hurricane Katrina on the rising pan. (You see why I don't do editorial cartoons for a living.) It looks like I'm cynically trading off money for lives. But that was not my intention.

When economic analyses are used on a large-scale problem such as global warming over a time scale of decades, the dollars involved are not exactly the same kind of thing that you pull out of your wallet. They are a symbol. Well, all money is symbolic in one sense, but what I mean is, the dollars in the global-warming discount calculation are a placeholder for the energy and wealth of nations. It isn't just dollars versus lives. It's lives versus lives, and dollars versus dollars, and Statues of Liberty versus who knows what unimaginable architectural achievements might be made in the next century if we don't wreck the world's economy with a misinformed economic dictatorship that has highly counterproductive effects, which could cost lives as well.

You want to talk lives? I'll talk lives. Malaria kills between one and three million people every year, most of them poor African youths and children, and debilitates hundreds of millions more. It is entirely possible to treat a population with prophylactic anti-malarial drugs so as to reduce the incidence of malaria to near zero. Doing so would not only eliminate an important direct cause of death, but would result in the equivalent of billions of dollars of economic stimulus to the areas affected because of the increased productivity of those who would no longer contract this disease.

I don't know what it would cost to wipe out malaria worldwide, but something similar has been done at least once: we eradicated smallpox. Say it would cost a few billion dollars. Now that few billion dollars is money that cannot be spent on reducing global warming. If you like, you can consider it as part of the money we could spend now on things other than global warming, if we buy into the economic-discounting idea that there is a reasonable and finite amount of money we should spend on global warming, and no more. And that money not spent on global warming, but spent on eradicating malaria, will absolutely save lives.

My point is, there are lives on both sides of the equation, not just dollars versus lives. What we're really talking about is the grand question of how to expend our current capital resources—natural, monetary, and most of all, human—and how much of them to expend on efforts to reduce global warming.

I have no objections to a calm, rational approach to reducing our use of fossil fuels. I think it's terrible that we fight over that black liquid that comes out of the ground in inconvenient places to get at, and I would love to see a coordinated global effort devoted to developing renewable energy sources that would eventually replace most of what we now use petroleum for. But the critical question is how this is to be done. I was listening to a discussion on the BBC the other morning about how air travel contributes to global warming. Both sides agreed that we had to quit burning fossil fuels to fly. To me, that poses a whole series of awkward questions. Okay, if we quit flying, how are we going to sustain the global economy? And if we keep flying without fossil fuels, how are we going to do it? The only battery-powered airplanes I know of could carry maybe a mouse, at a strain.

We saw what a hit the U. S. economy took with just a slight reduction in air travel after 9/11. Imagine what would happen to the world economy if somehow the U. N. passed a binding resolution to reduce air travel by 80% or something, and everybody stuck to it. The Great Depression in the U. S. is only a distant memory, but economic disasters are a lot more real to residents of many other countries which have suffered them more recently. If some ill-considered global-warming measure ended up putting the world economy in the tank for a few years, do you think that's not going to cost lives? And do you think the poorest and most vulnerable people won't pay the price in lost jobs and starvation? Think again.

In large measure, we are discussing imponderables, and that's one reason why talk about global warming inspires such overwrought emotions on both sides. The fact is, nobody knows exactly what would happen if we don't do anything about it, and nobody can guarantee that any given measure will avert the spectrum of catastrophes that Al Gore and company have laid out for our viewing pleasure. Like many things in life, it is a crapshoot. But we can definitely say what wrecking economies with arbitrary regulations can do, and whatever is done, we should avoid doing that to the extent possible and consistent with a measured approach toward the problem of global warming.

Sources: Statistics on malaria can be found at the Wikipedia entry under "Malaria."

Monday, February 18, 2008

Should We Discount Global Warming?

No, by "discount," I don't mean "ignore altogether." What I mean is what bankers and economists mean by the word. The discount rate is an assumed interest rate that is used to make economic decisions, as anyone who has taken engineering economics will recall. And the funny thing is, although discussions of global warming invariably deal with matters fifty or a hundred years in the future, hardly anyone applies the simple economics of discount rates to the problem. When you do, the result is a surprise.

Gary S. Becker is a Nobel-Prize-winning economist who thinks any discussion of global warming should factor in a reasonable discount rate. Here is his argument in a nutshell. Suppose, for the sake of argument, that if we do nothing about global warming, fifty years from now it will cause $2 trillion of damage (technically termed "utility costs" in terms of lost income from flooded coastlands, etc.). It turns out that if you roll the tape of time back to 2008, you could pay for that $2 trillion by investing only $500 billion at a rate of return of 3 percent, which is pretty easy to do (assuming you have the $500 billion in the first place). Becker makes the point that if we went ahead now with most of the more radical proposals for doing something about global warming—reducing carbon emissions by 70%, putting big restrictions on fossil-fuel-burning technologies, and so on—they would cost a lot more than $500 billion in the next few years. If these restrictions cost, say, $1 trillion, we are being foolish by spending all that money now to avert something we could offset with half that amount.

This is not an argument to do nothing. On the contrary, it is one of the few arguments I've seen on the subject that requires us to come up with some quantitative information in order to make a rational economic decision, which is what engineers do all the time. The usual approach used by advocates of extreme measures is to paint a picture of the end of civilization as we know it if we don't go green 24/7 and never allow the problem to leave our consciousness for the rest of our lives. Put more quantitatively, these folks use a discount rate of zero, which I suppose is a reasonable one if you assume that the alternative is either peace and security on the one hand by doing everything they advocate, or death to humanity on the other. If a mugger walks up to you in a dark alley, puts a knife to your ribs, and mutters, "Your money or your life," you're not likely to deliberate a long time before handing over all your cash, not just some of it.

But implicit in Becker's economic argument is the assumption that, as damaging as global warming and its consequences might be, it will not be the equivalent of a giant meteor smashing the earth to bits. Its effects will be gradual, not sudden; spotty, not universally bad everywhere; and will be quantifiable in economic terms. Anything with a finite future cost can be discounted using standard economic assumptions. The rate of 3 percent that Becker uses is quite conservative—many investments in physical capital pay rates of return much higher than that. What Becker is saying is that we shouldn't stop all economic growth and divert all our resources to fighting global warming, because we're wasting resources that would pay off better if invested in other things. Wise investment in future economic growth, which over the last century has raised billions of people from poverty into something approaching a middle class, can continue to bring prosperity to future generations even in the face of problems like global warming.

Economics isn't everything, of course. If we took a poll to find out what Americans would pay to keep the Statue of Liberty from submerging (which would also flood most of the East and West Coasts), the answer would probably come out close to "whatever it takes." But engineering is about economics as much as it is about technology. And any analysis of global warming that makes unrealistic economic assumptions is simply bad engineering, whatever else you might call it.

Sources: Becker makes his argument in an essay in the Hoover Digest (2007), no. 2, published by the Hoover Institution, at

Monday, February 11, 2008

The Price of Life: Industrial Accidents Then and Now

The refining giant British Petroleum has been in the news again lately, and not in a good way. At the firm's Texas City, Texas refinery on Jan. 14, a worker named William Gracia died when a lid blew off a water filtration vessel during a startup procedure and hit him in the head. The day before that, BP's board of directors fired its CEO, Lord Browne of Madingley, not quite three years after an explosion at the same refinery killed 15 people and injured 170 in the worst U. S. industrial accident in a decade. Although reasons are not usually given when a CEO is dismissed, one can speculate that the disaster had something to do with Lord Browne's departure—that and the $1.6 billion the firm paid out to settle some 4,000 lawsuits, and the $1 billion repair bill to get the refinery operating again. The $22 billion in profits that BP made in 2006 puts these numbers into perspective. Or does it?

What is a human life worth? The time was (and still is, unfortunately, in a few places) where a human life was a market commodity like any other. Fortunately, the human race has seen fit to abolish slavery nearly everywhere, but that doesn't mean that you can't figure out what a human life is worth in certain contexts.

Look at the BP situation from an economic point of view. I'm not saying that BP managers thought this way, but one way of looking at it is this. Okay, in 2005 something happened that ended up costing us an additional $2.6 billion. We might have been able to avoid that accident by spending more time and money on safety regulations, training, equipment, and so on. But who knows how much of that is enough? If we'd spent more than $2.6 billion extra on such programs, we would have ended up cutting into our 2006 profits of $22 billion. So how much safety is enough? And at what price?

Another way of looking at it is to ask how much BP spent on settlements per worker injured or killed: an average of about $8.6 million each, it turns out. Now much if not most of that went to lawyers: BP's lawyers, the contingency-fee lawyers that workers without other financial resources have to go to in situations like this, and miscellaneous lawyers, experts, and other highly paid professionals that tend to accumulate around disasters like flies around honey. And some of it probably went to the injured and the families of those who died. Is that what a worker's life is worth? At least in this case, it turned out to be that way for BP.

It's interesting to contrast the way these things are handled today with the way similar casualties were handled in the 1800s. The nineteenth century was an era of ambitious construction projects: bridges, dams, tunnels. Everybody knows about the Brooklyn Bridge. You may even know that its original designer, John Roebling, had his foot crushed while doing surveys for the bridge, and died of the resulting tetanus infection. His son Washington took over, but after going into an underwater high-pressure caisson during construction of the foundations, he succumbed to decompression sickness and became an invalid. His wife Emily taught herself enough engineering to serve as his chief assistant during the rest of the bridge's 13-year construction. Although many hundreds of workers were employed on the site, the project had a relatively good safety record for the time: only 27 people died, an average of about two a year.

On the other hand, the Hoosac Tunnel project, otherwise known as the "Bloody Pit", cost 193 lives to build. This 4.75-mile railroad tunnel in Western Massachusetts served as a test bed for modern construction techniques using pneumatic drills and nitroglycerine. It was completed in 1873, three years after the Brooklyn Bridge project began.

In those days, construction-worker fatalities were regarded as regrettable, but no one appears to have thought much the worse for the companies or engineers responsible if a few workers died on the job. The general attitude was that a worker taking on a job knew it was dangerous, and it was his look-out to keep alive.

Thomas Edison was (and is) one of my heroes, but in many ways Edison held some very typical 19th-century attitudes about the safety of his employees. In a new biography of Edison by Randall Stross, I read how Edison sent people far and wide in the summer of 1880 to search for bamboo that might have fibers suitable for incandescent-lamp filaments. One of the less popular members of his lab staff was named John Segredor, a hot-tempered man who had once responded to a sarcastic remark from another staff worker by going to his rooming house and getting a gun. Edison sent Segredor on an odyssey first to Georgia, then Florida, and finally to Cuba in search of different varieties of bamboo. Three days after his arrival in Cuba, Segredor died of yellow fever. In a private letter about the matter, Edison blamed Segredor for his own death, saying he was careless about drinking cold drinks in hot places "and this I doubt not caused his death." No lawsuits there, it seems.

Ideally, nobody would die in industrial accidents, or any other kind, for that matter. Considering the much larger number of people engaged in modern industry today compared to a hundred years ago, it is likely that the accident and fatality rates in modern industry are much lower than comparable rates in the 1880s. And at least in the U. S., our attitudes are much harsher nowadays toward the companies and executives who are involved in industrial accidents. True, the enforcement mechanism is largely a private-enterprise affair using the civil justice system and freelance contingency-fee lawyers, but I suppose free-market justice is better than no justice at all. But wouldn't it be nice if the lawyers ended up with nothing to do because nobody was dying of industrial accidents anymore? We should still hold out the ideal of no accidents or injuries due to technical causes as one to be striven for. But for a long time, I think, there will always be more to be done.

Sources: The latest BP accident is described in the San Francisco Examiner online edition at Lord Browne's departure and the BP financial statistics were carried in an article on the Ergoweb website, an ergonomics services company, at I also consulted Wikipedia articles on the Brooklyn Bridge and the Hoosac Tunnel. The Segredor incident is recounted on p. 110 of Stross's The Wizard of Menlo Park (New York: Crown, 2007).

Monday, February 04, 2008

If You Can't Trust the Experts. . .

Being an expert at something is both a privilege and a responsibility. Experts who abuse their special abilities make things harder for experts who follow the rules. There's nothing new about these ideas. But the experts who follow the rules often get ignored in the flaps over experts who violate the rules.

Let me get specific. David Kravets of Wired reports in his Threat Level column that four Swedish men have been charged with facilitating copyright infringement. Seems that they operate a "BitTorrent tracking site" called The Pirate Bay. According to Wikipedia, BitTorrent is a type of peer-to-peer network protocol that makes it easier to download large amounts of data through the Internet. Instead of requiring the user to receive an entire file from one central server, BitTorrent allows the user to get pieces of the file from multiple locations and assemble them later, making the whole process easier and often faster. Although the protocol can be used for almost any type of file, it is often used to obtain pirated copies of movies and software.

The Pirate Bay's operators claim they have spread their operation out so far with third-party intermediaries that they don't even know where the servers are. According to the report in Wired, they seem to think they're doing nothing wrong, and certainly aren't making money at it. If you had to boil down their motivation to one sentence, it might be something like "every bit deserves to be free."

This situation is a good example of what I'd call "technology gone bad" in the sense that some people have taken a clever and useful technological idea—BitTorrent protocols, in this case—and used it for, at best, quasi-legal purposes. Who are the injured parties in a case like this?

Copyright owners such as giant media and software companies will be quick to point out that they are losing revenue every time somebody gets a "free" copy of content via The Pirate Bay rather than through legitimate channels. And since the companies' revenue has to be made up somehow in order for them to stay in business, this leads to higher prices for everybody who gets the stuff legally. And there's your second group of wronged individuals: the consumers of legitimate content who have to pay more for it.

But one group who is often ignored in analyses of this kind of thing is the experts, such as yours truly, whose legitimate operations may be hampered or stifled altogether by draconian or ill-considered regulations. Although I don't think this will happen, it might come about that the corporate interests who dislike the illegal applications of BitTorrent protocols could enact some sort of binding regulation that would make the whole protocol illegal. That sounds almost unenforceable—the notion that simply having a protocol on your computer, without using it, would make you liable to jail time—but there are precedents in the area of child pornography. It is illegal simply to have child pornography in your computer, and if it's found, you can go to jail.

I have no argument against making child pornography illegal, but when you start getting into technologies where most users are legitimate technical people going about their harmless business, there's a real problem. I'm facing a situation like that right now. For a research project I'm engaged in, it turns out I would like to convert so-called "NTSC analog video" (the standard that's going to disappear from U. S. airwaves in about a year) to digital video. I'm not copying anything—I'm generating the video myself—and my need to convert analog to digital video is a legitimate research requirement. But I have had a heck of a time finding any equipment to do it. I mentioned this to my wife, and she said, "Well, sure. People are wanting to take their old analog VHS tapes and turn them into DVDs illegally." Yes, that can be done with this equipment I want, but I don't want to do that.

After much web searching, I found two companies that make such a device, or used to. Oddly (and somewhat suspiciously), both firms have either removed all mention of the units from their websites altogether, or have put up a big notice saying "This product has been discontinued." Fortunately, I think I have found a supplier who still has some in stock, and I'm waiting to find out if I can get one. But it's beginning to look like some corporation or trade group's lawyer has been sending out letters threatening legal action if such devices aren't withdrawn from the market.

Of course, maybe I'm just being paranoid. But whenever a few experts turn to unethical practices, you should remember that besides the people who are directly involved, all the other experts who use the same technology for legitimate reasons may be inconvenienced or worse when corporations and their lawyers overreact to cripple or ban an entire useful technology because of the malfeasance of a few bad actors. I hope I can get my video converter unit, but if I can't, I may have folks with attitudes like The Pirate Bay guys to thank.

Sources: The article describing The Pirate Bay's latest legal troubles is dated Feb. 1 and can be found at