Davos: hypocrisy at day one

Wow. Just… wow. I mentioned, previously, that Davos sounded like it’d be a rich man’s burden kind of event, but this is just mind-blowing.

The chief executives of Coca-Cola Co., Nestlé SA and others will warn the World Economic Forum in Davos this week that the world is running out of water, threatening conflict, higher prices and lost production.

Some will likely then strap on skis to take advantage of the Swiss resort’s glistening slopes. But the pistes of the Alps are also contributing to the world’s water woes.

Europe’s ski resorts have been racing to install snow-making machines to bed the slopes with artificial snow as snowfall becomes less reliable and resorts compete with one another to offer guaranteed good skiing. That is great for skiers and businesses that rely on them, but not so great for local water supplies.

Snow cannons suck up a lot of water. As much as 35% of all water used in Davos now goes to making artificial snow, according to a report released last month by the Swiss Federal Institute for Snow and Avalanche Research to examine the net benefits of snow-making machines. Davos bought 16 additional snow cannons for this season, according to town authorities.

The article is kind enough to include some non-comforting information, too often not seen in such information, concerning water use generally, “moving forward”:

Based on current usage patterns, about 30 countries will be short of water by 2025, according to the Sri Lanka-based International Water Management Institute, a nonprofit supported by 60 governments. That is mainly because most irrigation for agriculture is inefficient, while demand for meat, wheat and other high-protein foods that require a lot of water is growing rapidly as people in China and India become wealthier and more urban.

But the battle against climate change is sucking up water, too, creating what analysts in the field call an accelerator effect. Take biofuels, produced to cut use of fossil fuels such as gasoline that spew the carbon dioxide that causes global warming. Biofuels are mostly made from crops that have to be grown, which puts pressure on land and food prices, as well as on water resources. It takes on average 1,000 liters (260 gallons) of water to make one liter of ethanol-based biofuel, according to the IWMI. For gasoline, it takes 2.5 liters.

The same goes for some of the alternatives to coal-fired power plants that produce less carbon dioxide. Hydroelectric power requires large quantities of water. So do the cooling systems in nuclear-power plants. Clean-coal technologies, too, use more water than regular coal. Overall, industry accounts for around 23% of global fresh water use, compared with around 70% for agriculture and 7% for residential use. Demand is rising in all three areas.

“Some people call water the oil of the 21st century. Whether you like that description or not, one thing is clear, availability of water will be a key driver in the development of the world’s economy and government policies in the next decade,” said Andrew N. Liveris, chairman and chief executive of Dow Chemical, in a statement.

Still, though – blowing water out of snow-cannons during a World Economic Forum meeting is pretty moronic. Particularly compared to, say, not doing so, thereby highlighting exactly one of the world’s most significant problems.

I’m sure the poor countries of the world will be delighted when they hear about how their saviours treat fresh water, while meeting to discuss the needs of the global economy.

SimJapan: Second Life’s banking crisis

Second Life’s, er, idiosyncratic approach to banking has been visited in these pages, previously. As the von Mises Institute detailed (and any economist would have agreed), it was time to bail on the Linden.

Now?

Yesterday, the San Francisco company that runs the popular fantasy game pulled the plug on about a dozen pretend financial institutions that were funded with actual money from some of the 12 million registered users of Second Life. Linden Lab said the move was triggered by complaints that some of the virtual banks had reneged on promises to pay high returns on customer deposits.

…

The banks of Second Life were operated by other players, who enticed deposits by offering interest rates. While some banks paid interest as promised, others used depositors’ money for unsuccessful Second Life land and gambling deals. Under its new banking rules, Second Life says only chartered banks will be allowed — though it isn’t clear any real chartered banks will operate in the virtual play world.

The shutdown has caused a real-life bank run by Second Life depositors. Though some players managed to get their Linden dollars out, others are finding that they can no longer make withdrawals from the make-believe ATMs. As a result, they can’t exchange their Linden-dollar deposits back into real dollars. Linden officials won’t say how much money has been lost, but a run on another virtual bank in August may have cost Second Life depositors an estimated $750,000 in actual money.

Some of the virtual banks? This is very humorously apropos – not unlike our Central Bank’s position, when in fact it was the Fed’s (lack of decent) financial regulation that built the petri dish in the first place. Linden Labs designed the cock-eyed, thoroughly unsustainable system within which Lindens were created: printing money at will, but pretending it was worth the same in US dollars.

Linden announced plans for yesterday’s shutdown two weeks ago, and since then Second Life players have been streaming into the fantasy banks to withdraw their deposits, which are convertible into U.S. dollars at a floating rate. Yesterday, one U.S. dollar was worth an average of 269 Linden dollars, its typical exchange rate.

Devalued Money Supply, a run on banks and short-term holds in withdrawals. With all this money being pumped into our economies, hey – you just never know. We have the advantage in that a lot of it is, as discussed recently, mostly debt. This means it both generates problems like the current one, but it also helps correct it (as long as the debt itself is allowed to be destroyed, taking its share of the Money Supply with it – i.e., so long as the Central Bank doesn’t persist in trying to shore everything up with more Money and low, low interest rates).

The irony (or stupidity), of course, is this:

“When virtual environments first started, they were viewed as libertarian dreams with no interference,” says Behnam Dayanim, a lawyer who specializes in Internet law at Paul, Hastings, Janofsky & Walker LLP in Washington. “As companies that sponsor these environments become more accountable to investors or regulators, they are starting to encounter real-world limitations.”

The problems, here, were not real-world limitations: Second Life is, insofar as Central Bank management goes, a bloody long way from a Libertarian dream. Such strict, and economically non-sensible, control over the Money Supply was never going to end up any other way – precisely why the von Mises Institute posted their criticism in the first place.

My dream-move: the IMF intervening in Second Life! Offering Linden Labs the cash to pay out the deposits, but demanding a series of virtual-world concession and reforms. There’s no reason why it wouldn’t work (besides the IMF being crap at this sort of thing in the real world, of course).

The cost-effectiveness of capturing Osama bin Laden

So here’s an idea. I’m a fairly economic-evaluationish kind of Economist, Econometrician, Health Economist, etc. It’s a problem-viewing paradigm that appeals to me greatly – I’m a dismal scientist.

So I was reading the Guardian article about Morgan Spurlock’s latest film, Where In The World is Osama Bin Laden?. The piece remarked, in passing, upon bin Laden’s still-USD25m ‘bounty’:

Here’s the idea: assume that you had no advantage over the average person, with respect to the location, pursuit or capture of Osama bin Laden.

Suppose, though, that what you did have was USD25m. Including search costs, travel, materiel, discounting for risk/danger: would it be cost-effective to go after Osama bin Laden? If you could do it for exactly USD25m you’d come out even, monetarily – the danger would make it not cost-effective (because the USD25m reward is worth less in expectation – particularly if there’s a risk of death), but the cache of being the person who captured bin Laden might make it cost-effective even at a higher cost than USD25m (i.e. how much would you be willing to pay purely for that infamy?).

Could an ordinary person go after, and bring in, Osama bin Laden, for that amount of money?

Payments for ecosystem services

This is almost becoming a theme. The commodification and market-formation of carbon-trading has been discussed previously (here and here). So, too, the idea that the environment provides a service that should be supported (given that resource depletion depletes also the ability of the environment to provide that service).

Reduced Emissions from Deforestation in Developing Countries, or REDD, did well at the climate talks in Bali, a short while back. REDD is a deforestation-reduction trading scheme – paying local landowners not to cut down their trees (or not to sell their land to those who will cut down their trees). This follows, say, regulation that prevented the same (hence all the burning of the land – no trees, no trees to cut down, no law broken. The Asian “Brown Cloud”, of course, somebody else’s problem).

Deforestation of this type, one way or the other, accounts for an estimated 18 percent of global human-induced greenhouse (GHG) emissions – the second largest source of anthropogenic emissions, behind energy consumption. So the need to do something is acknowledged (more or less).

China Dialogue has an article running through criticism of the REDD model:

REDD and its closely allied “Payments for Ecosystem Services” hope to put a price on standing forest by tying forest protection to market mechanisms. The logic is that if the price is set high enough, there will be more interest in protecting forests than in logging or selling plantation rights. However, there are several problems with this logic.

First, the scheme depends primarily upon carbon trading to generate its funds; a system which has proved to be so inherently dysfunctional that after eight years of the World Bank Prototype Carbon Fund and two-and-a-half years of the Clean Development Mechanism (CDM), Joint Implementation (JI) and European Emissions Trading Scheme (ETS) the global rate of emissions increases from fossil fuels has doubled and emissions are rising in virtually all developed countries. Using markets does not deal with the drivers of destruction or put in place adequate safeguards to ensure ecosystem protection.

The Kyoto Protocol left rainforests out of carbon trading for well-founded reasons that have still not been addressed. These include the illegitimate transfer of land rights and the displacement (or “leakage”) of logging into new, often pristine regions.

Needless to say, they are not fans. The authors are from Biofuel Watch – a UK-based campaign “against the use of bioenergy from unsustainable sources, i.e. biofuels linked to accelerated climate change, deforestation, bio-diversity losses, human rights abuses, including the impoverishment and dispossession of local populations, water and soil degradation, loss of food sovereignty and food security.”

So – there is a bias here. The signal is not the message, and the message is not the information that would have been to hand. A couple of things about the complaint. First:

There is evidence that deforestation bans and moratoria can work: China, Thailand, Costa Rica and Paraguay have all implemented at least partially successful bans or moratoria. Paraguay achieved an 85% success record in its eastern territory within a single year. Logging companies and some governments are even now calling for payments for non-deforestation. One reporter writing for the Jakarta Post in Bali responded by describing REDD as a set-up for “blackmail”.

Deforestation bans, however, will only work comprehensively if the underlying causes of deforestation are addressed at the same time. The over-consumption of agricultural and forest products, the current rush to biofuels, the corruption and the lack of guarantees for protection of land rights of indigenous and other forest peoples all need to be addressed.

The first part is fine, as far as it goes – which isn’t far. I can police my backyard, sure – but that hardly means me and a cricket bat, or a dozen people so armed, can handle a few blocks. Or the alley full of pimps and dealers. Expansion of the system into meaningfull levels of reduction is the key.

The second is also fine, as far as it goes – again, though, we cannot wish away the tendency of people (in worlds 1st to 3rd) to want more than resources can sustainably supply. The external costs are too far from home. We need to figure out a solution, given that people are, on aggregate, trying to kill their own planet.

Following this:

Bali saw a strong call for a systemic approach to stabilising climate and protecting forests by Friends of the Earth International, the Global Forest Coalition, the World Rainforest Movement, Via Campesina and nearly 60 other organisations who signed the Forest Declaration. The declaration calls for a genuine solution, which combines the twin needs of verifiable fossil-fuel emissions cuts and the total protection of old growth forest ecosystems.

This is also fine, as far as it goes – but you’re not impressing me by telling me that Friends of the Earth International signed such a declaration. White supremacy doesn’t work because KKK-freaks sign a declaration – it fails because the rest of us, with the power, refuse. For a system to work the biggest, worst polluters/emitters have to be on-board. It just won’t work without them.

We don’t like hearing this. We don’t like knowing that the best system for global emission reduction is held hostage to the favour of the people least-inclined to acknowledge or address the problem. Sometimes, though, that’s the way it goes.

There is another flaw in these arguments, which – although I criticise such models, often – is worth pointing out. This is new technology; these markets are young and quite small, relatively speaking. We weren’t killing children born in 1941 because they could fight the war, were we?

This is a similar problem with the Copenhagen Consensus (and that is a link worth following, even though I disagree with some of the outcome): its assumptions. First, that the solutions to climate change are the one’s listed: we know, now of newer and better solutions. Why? New technology, new information.

Similarly, the assumption that a technology will do a certain amount of good, for so long, is flawed. Technological change is endogenous. Reward it, and you promote technological innovation. Increase innovation, and you will most likely get a technological change that increases the effectiveness of achieving the solution. Keep pursing renewables, and you’re likely to hit upon an energy harvesting/storing method (see the latest in batteries) that lets us base-load a grid. Keep trying markets and, through information and synergy, one that works the most efficiently (since all markets are inefficient) will, eventually, emerge.

As Bjorn Lomborg explains in the afore-linked TED talk, the problem at the moment is that we persist in doing nothing, or doing nothing very well.

These authors are correct: such schemes as these are designed to foster economic growth, and economic growth leads to greater resource use. However (a) it doesn’t need, necessarily, to lead to greater resource depletion, and (b) any scheme designed to foster economic decay, decline or atrophy has zero chance of success. So.