…by Michael Lewis. We need financial regulation, but I’m not sure there is any way to control really smart, greedy people. But we all pay the consequences.
I went to the Long Now seminar last night to hear Stewart Brand talk about his new book, Whole Earth Discipline. Stewart is always cutting edge and thought-provoking, and I’m looking forward to reading this new book. Stewart has also made all of his research and notes available on-line, which should add to the experience.
Posted in scenarios
I’m putting this in the new category “inevitable surprises” because I think it’s talked about but not appreciated or prepared for. We depend on the internet for everything now–big change in a very short time. And the bad guys know it. I’m glad the US government is starting to get prepared–hope they do enough.
Here’s in interesting story about a knew kind of “friendly fire” consequences–when you go after your enemies you can hurt a lot of spectators.
It would have been the most far-reaching case of computer sabotage in history. In 2003, the Pentagon and American intelligence agencies made plans for a cyberattack to freeze billions of dollars in the bank accounts of Saddam Hussein and cripple his government’s financial system before the United States invaded Iraq. He would have no money for war supplies. No money to pay troops.
“We knew we could pull it off — we had the tools,” said one senior official who worked at the Pentagon when the highly classified plan was developed.
But the attack never got the green light. Bush administration officials worried that the effects would not be limited to Iraq but would instead create worldwide financial havoc, spreading across the Middle East to Europe and perhaps to the United States. (…)
Mark Seiden, a Silicon Valley computer security specialist who was a co-author of the National Research Council report, said, “The chances are very high that you will inevitably hit civilian targets — the worst-case scenario is taking out a hospital which is sharing a network with some other agency.”
And while such attacks are unlikely to leave smoking craters, electronic attacks on communications networks and data centers could have broader, life-threatening consequences where power grids and critical infrastructure like water treatment plants are increasingly controlled by computer networks. (…)
Scifi writer Bruce Sterling does his State of the World 2009 at the WELL.
Historian Niall Ferguson, noted historian (Harvard) and author (Virtual History), published an intriguing “Imaginary Retrospective on 2009” in the Financial Times (registration required). We’re all focused on how bad things could get this new year, and Ferguson speculates for us. Not sure I accept all of his conjectures, but it’s a reminder how quickly things can change in a complex and tightly wound world.
I’m fascinated by the failure of economists to foresee the meltdown. Brad DeLong lists the things his failed to see coming, which is an important lesson for scenario thinkers about the kinds of little and unexpected things that turn out to have huge consequences.
Calculated Risk issues an invitation:
Calculated Risk: Hoocoodanode?: Earlier today, I saw Greg “Bush economist” Mankiw was a little touchy about a Krugman blog comment. My reaction was that Mankiw has some explaining to do. A key embarrassment for the economics profession in general, and Bush economists Greg Mankiw and Eddie Lazear in particular, is how they missed the biggest economic story of our times…. This was a typical response from the right (this is from a post by Professor Arnold Kling) in August 2006:
Apparently, the echo chamber of left-wing macro pundits has pronounced a recession to be imminent. For example, Nouriel Roubini writes, “Given the recent flow of dismal economic indicators, I now believe that the odds of a U.S. recession by year end have increased from 50% to 70%.” For these pundits, the most dismal indicator is that we have a Republican Administration. They have been gloomy for six years now…
Sure Roubini was early (I thought so at the time), but show me someone who has been more right! And this brings me to Krugman’s column: Lest We Forget
… Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories? Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world? Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?
One answer to these questions is that nobody likes a party pooper…. There’s also another reason the economic policy establishment failed to see the current crisis coming. The crises of the 1990s and the early years of this decade should have been seen as dire omens, as intimations of still worse troubles to come. But everyone was too busy celebrating our success in getting through those crises to notice…
[I]n addition to looking forward, I think certain economists need to do some serious soul searching. Instead of leaving it to us to guess why their analysis was so flawed, I believe the time has come for Mankiw, Kling and many other economists to write a post titled “Why I was wrong”.
Let me say what things I was “expecting,” in the sense of anticipating that it was they were both likely enough and serious enough that public policymakers should be paying significant attention to guarding the risks that it would create:
(1) A collapse of the dollar produced by a panic flight by investors who recognized the long-term consequences of the U.S. trade deficit.
or:
(2) A fall back of housing prices halfway from their peak to pre-2000 normal price-rental ratios.
I was not expecting (2) plus:
(3) the discovery that banks and mortgage companies had made no provision for how the loans they made would be renegotiated or serviced in the event of a housing-price downturn.
(4) the discovery that the rating agencies had failed in their assessment of lower-tail risk to make the standard analytical judgment: that when things get really bad all correlations go to one.
(5) the fact that highly-leveraged banks working on the originate-and-distribute model of mortgage securitization had originated but had not distributed: that they had held on to much too much of the risks that they were supposed to find other people to handle.
(6) the panic flight from all risky assets–not just mortgages–upon the discovery of the problems in the mortgage market.
(7) the engagement in regulatory arbitrage which had left major banks even more highly leveraged than I had thought possible.
(8) the failure of highly-leveraged financial institutions to have backup plans for recapitalization in place in the case of a major financial crisis.
(9) the Bush administration’s sticking to a private-sector solution for the crisis for months after it had become clear that such a solution was no longer viable.
We could have interrupted this chain that has gotten us here at any of a number of places. And I still am trying to figure out why we did not.
Here’s a good list of driving forces and wild cards for your scenarios.
To celebrate the 60th Anniversary of the RAND Corporation and to uphold its tradition of taking on the big issues of tomorrow, a call went out to all RAND staff around the world, inviting them to propose essays on “important policy issues not currently receiving the attention they deserve in the public debate” — issues, in other words, that might be on the back burner today but will likely become front-burner issues within the next five years.
More than 100 issues were raised. The final product: the 11 essays published here. These were selected either because they highlight major public policy problems that have eluded the mainstream media radar or because they point toward major public policy solutions that have been likewise overlooked — or both.
Posted in scenarios
The International Energy Agency has just released their 2008 Energy Technology Perspectives report. Joe Romm has an insightful analysis. I think the IEA supply curve for carbon emission reductions is interesting–it looks quite a bit different than the much-quoted McKinsey/Vattenfall curve, which seemed to have efficiency savings roughly equal to the carbon reduction costs–the IEA curve makes the efficiency savings look a lot less than the costs of direct carbon reductions. Have to read the report to understand the differences…
Math Suggests College Frenzy Will Soon Ease (NYT)
High school seniors nationwide are anxiously awaiting the verdicts from the colleges of their choice later this month. But though it may not be of much solace to them, in just a few years the admissions frenzy is likely to ease. It’s simply a matter of demographics.
Projections show that by next year or the year after, the annual number of high school graduates in the United States will peak at about 2.9 million after a 15-year climb. The number is then expected to decline until about 2015. Most universities expect this to translate into fewer applications and less selectivity, with most students probably finding it easier to get into college. (…)
One thing I learned from Chris Ertel at GBN was the important role of demographics in scenarios. Demographic changes are “locked in” factors, but usually not understood because people don’t look for them or appreciate their significance. This link between baby boomers and real estate has been locked in for 50 years…
(via SF Chron) Aging Boomers could burst housing bubble
The common perception among economists is that the current housing bubble will be a relatively short-term affair that should see a return to normal within the next few years.
But according to a study by two University of Southern California researchers, a bubble of even more monumental proportions lies just ahead. They call it the “generational housing bubble,” and maintain that it will be fueled by the same Baby Boomers who have been bidding up prices since 1970 as they moved higher and higher on the housing ladder.
Now, though, the 78 million Boomers are about to enter the years when people tend to become sellers rather than buyers. And as a result, they expect “many more homes (will be) available for sale than there are buyers for them.”
According to the researchers, the tilt toward age groups that are net sellers of housing is unprecedented. “The Baby Boom generation was born over a period of 18 years, and once its sell-off commences, it could dominate the housing market for up to two decades,” they say. (…)
And more…
This is Very Cool (via Green Car Congress):
2040 Mobility Scenario Development Tool Released by Art Center College of Design
Pasadena, California-based Art Center College of Design has released a scenario- and solution-building tool which is designed to be used in design workshops to address possible futures in the year 2040 as they relate to issues of sustainable mobility.
The tool, which is called Mobility Vision Integration Process (mVIP), is in public beta in the form of a deck of 109 cards, each representing a situation that affects the design of sustainable mobility solutions. A “hand” of eleven cards is drawn from two types of cards.One type of card establishes the design context and consists of four categories: enterprise, axiom, customer, and constraint. The other type deals with ambient trends & issues that together describe the future within which the design context is placed. There are seven categories of trends and issues: energy, economy, society, ecology, technology, policy, and wildcard.
Posted in scenarios
It’s challenging and illuminating to think hard about the future. A competition was just completed to design three cities as they might be in 2018 (Washington, DC, San Francisco, and Atlanta). I especially like DC with the Mall made into an even longer reflecting pool, and streets turned into parks. But in some regards I don’t think the city scenarios go far enough. Cars look like cars. No sign of adaptation to climate change. Todays’ houses (below) are still standing.
UPDATE: Another good article from BLDGBLOG on the competition.
Posted in scenarios
NYT interview with Shell’s CEO, Jeroen van der Veer, about Shell’s new scenarios:
(…) Q. What are the main findings of Shell’s two scenarios?
A. Scramble is where key actors, like governments, make it their primary focus to do a good job for their own country. So they look after their self-interest and try to optimize within their own boundaries what they try to do. Blueprints is basically all the international initiatives, like Kyoto, like Bali, or like a future Copenhagen. They start very slowly but before not too long they become relatively successful. This is a model of international cooperation. (…)
UPDATE: Very good article in Green Car Congress summarizing the Shell scenarios.
I spent two days in Indianapolis helping Andy Hines (Social Technologies) with a business strategy workshop in Indianapolis. The client was a high tech agriculture science company, who is looking at new opportunities. Part of the process Andy is leading for them included developing scenarios, and Andy brought me in as an outside provocateur.
It was very interesting learning about ag science and food. Coincidently, I’m reading Michael Pollan’s Omnivore’s Delimma, about how four different meals–industrial, pastoral, and foraged (not sure what the fourth is yet). I’ve also read Nestle’s What to Eat earlier, which is about how to shop for food, and how food is sold to us. So food has been on my mind. There are a lot of similarities between agriculture and energy. Both are high tech, have huge environmental implications, and a re wrought with public policy issues and involvement. There were about 20 people from the ag sciences company, and I was very impressed with their knowledge (not surprising) and also with their concern about the public health implications with food and diet. One of Pollan’s comments is that we are being stuffed with corn and soy products that aren’t good for us, which is an issue much on the mind of this company as well–more as an issue of personal responsibility than profitability. Maybe a “triple bottom line” issue.
The event was held at the Indiana University Emerging Technology Center, about 1 mile north of downtown Indianapolis. Very nice facility, but it was kind of strange that virtually every room was “sponsored” by a local company. But I guess that’s a practical way to raise funds.
This event was also a nice complement to a workshop I attend last month at UC Davis’ Agricultural Sustainability Institute on life cycle analysis of food. They brought together about 12 people from universities in the US and Europe to talk about how to analyze the carbon emissions (and other pollutants) involved in growing and processing food. One of the good news items to come out of this was the instances of companies learning about their carbon footprint, and finding ways to save energy costs, and reduce pollution, at the same time.
IUETC (on left) looking down (south) what had been an old canal, toward downtown Indianapolis. This whole area was nicely redeveloped. The IU/Purdue campus is to the right. State Capitol building barely visible at end of canal:
Looking north from the center. The old brick building was a church remodeled as a restaurant.
One of the startling sights was a large coal plant in downtown Indianapolis. About five block from the state capitol…
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