Sunday, November 25, 2012

Why Obama's Re-election is Not the End of the World

I voted for Obama's re-election. He is not an evil Kenyan, Muslim, socialist. He is not a crazy spendthrift. Nor do I think he is the second coming. I believe he had some solid, very strategic victories in his first term that are and will be good for the country. Really if you look at what Obama actually did, he is pretty much in the same camp as some of those crazy herd-line right wingers like Goldwater, Nixon, Romney, and Reagan.

I want to lay out my logic and reasoning for myself on why I think this was the right thing. It will be fun to look back 4 or 10 years from now at this.

I also want to thank those whose views are different than mine who have respectfully engaged around issues using facts and logic. The issues we face are not simple and are not solvable by sound bites and cynicism. There is tremendous depth of knowledge, thought, and understanding required.

Romney

I believe that if you separated Mitt Romney from the party system, he would be shown as a very effective leader, with some degree of actual human compassion, and a lot of raw intelligence. His business history is a demonstration of it. I do not fault him for his taxes, etc.

Unfortunately, today's republican party has devolved to a very strange place. When I see all the candidates for the Republican nomination standing there and claiming to not believe in evolution, I worry. There is either a tremendous lack of intelligence, or total pandering to the parties least common denominators. Romney himself has claimed to hold every position from fairly moderate to extremely conservative. He had to take an extreme right position in order to become the republican nominee. He tried to do his etch a sketch thing and divorce himself from many of those positions, but of course he chose Ryan as his running mate, so he had very little credibility in the end.  Game theory suggests that this being the case, the bulk of the republican party has shifted so far to the right, that the party itself may be in danger of losing relevancy.

I was left not knowing where Mitt really stood on anything and not having any idea where he would try to steer the country. Best case, he would be pretty much Obama in a Republican suit, worst case, with a republican house and two or more Supreme court nominations, he could do a lot of damage.

Obama

That is not to say that Obama has been all sunshine and daisies. He took a really big risk in going for health care. He had passed a large stimulus package (which ultimately proved insufficient), and he had a democratic congress. I think he saw an opportunity to make a truly strategic move and, finally, get the US some kind of national health care policy. I'll write more about that later.

In retrospect, it is like refinancing your house, instead of putting out the fire in the basement. Good in and of itself, but perhaps it should not have been his highest priority. He bat that someone would put out the fire while he did the refinancing. It didn't work that way.

Beyond health care, he did stop the economic free fall. The world was on the brink of a great depression and it was averted. Along the way, mistakes were made. IMHO, emphasis on green energy was misplaced. The gas shale boom in the US, killed any chance in the short term for green energy to make sense as an investment. Of course, I say that in retrospect. But, I am on the record as not buying the left's solutions to climate change.

The Economy

The stimulus was insufficient and misguided. The economy was in far worse shape than anyone knew in 2008. Bush actually did a lot of things right during the crisis. The initial pulse of stimulus, in all likelihood arrested the free fall. Since then, the economy has recovered slowly with help from deficit spending brought on by tax relief. Without the deficit spending, our economy would have gone far deeper into depression, and there would be a tremendous amount of suffering.

But was tax relief the right approach? Believe it or not, I have a pretty wide conservative streak. If I am going to give someone money for welfare, I want them to do something to earn it. Build a bridge; replace water mains; bury electrical cables; repair some roads; at least pick up trash in my neighborhood. Many of those projects need to be done anyway, let's use our deficit spending to do that. Unfortunately, the republican focus on reducing tax rates, largely to the top tier of earners, was in effect, welfare for the rich. Hey, I'll take it, but it doesn't do much to help my country. Sure, reduction in social security tax disproportionately helping the poor was not a bad thing, but it was so much less than it should have been.

The Deficit

But what about the deficit? I am not comfortable with the deficit we are racking up. I would be much happier if we were building with the deficit though. In business, in your personal life, you go into debt. But we all know that going into debt for capital goods that have long lives, is fundamentally OK. You buy a house or a car, at the same time as you incur a debt, you receive an asset of equal value. In essence, at that moment, you have simply traded a liquid asset (cash) for a tangible asset. Spending has occurred, but no value loss. You need a place to live and a means of transportation anyway.

Contrast that with the person who goes deep into debt to pay for a cocaine habit. They have spent a ton of money on an expense and have nothing to show for it. It has been a decrease in their net worth.

After Obamacare passed, Congress took this turn towards austerity (balance the budget) right as the economy started to turn around. I believe it was prompted by a few things, but I'll start with something that could potentially stem from a  difference of opinion and philosophy.

I m bothered that of the 10 or so trillion dollars debt we had as a nation, about 8 was accumulated under republican leadership. Most of that was from tax cuts with the idea r promise that it would stimulate the economy (voodoo economics). Te republicans in question (specifically Reagan and Bush 2) cut taxes and increased spending. Where were the deficit hawks then? I am not interested in hearing the complaints about Obama increasing the deficit when he inherited the worst economy since the great depression. Really, if you are not comfortable with the current total debt, blame the guys who drove us into a hole to buy votes; don't blame the guy who spent to stop the bleeding.

If you believe that some deficit spending was necessary to get the economy on track, the turn towards austerity was premature. We all recognize that you can't deficit spend forever (but it's more palatable if it is on infrastructure).

Fixing the Deficit

There are two paths out of the deficit. he first is to cut spending AND increase taxes. But simply transferring spending from public to private sector is not the answer. I would like to think that privatizing FEMA, garbage collection, prisons, health care, etc. would save money, but it turns out it doesn't in general. Efficiency gains are offset by economies of scale, government waste and fraud is offset by corrupt rent-seeking. So ultimately, expenditures should be made at the level where negotiating power overrides bureaucratic inefficiencies. As an example  most of the world has cheaper, better health care than the US. there are a few areas where we shine, but in general, we should not be too proud of our health care system. Using the example of the VA, converting to a one-payer system could potentially lead to more efficient and effective health care.

So driving expenditures to the level most efficient for the economy is part of the solution. What about the revenue side? There are some obvious loopholes to close. Taxing capital gains differently is one avenue. There are capital gains and capital gains. If I invest in a well-established oil company stock, I am not increasing the capital stock of the economy. I m simply placing a bet with someone who is not as confident about the prospects of the company. There will be a winner and a loser.This is not a capital investment; it is truly a bet. Why would we think that a lower tax rate is good on this? Especially galling are the fund manager s who use the carried-interest loophole to categorize their income as capital gains.

These measures alone will not drive us out of the hole. We also need the economy to grow. I will emphasize that there is little or no correlation between mid-level tax rates and economic growth, so measures to help the economy grow, such as the infrastructure investment mentioned above will help ultimately.

Given where we started and where we are now, simply spending less, taxing more, and growing the economy may not be enough to pull us out of the fire. Plan B would call for some degree of inflation. I am NOT talking about Weimar Republic inflation, but rather controlled 3 - 5 percent inflation. First, it helps us all (financial institutions and individuals) recapitalize. Second, we pay back our creditors with cheaper funds. The downside is that we lose a reputation as creditworthy. This may not be a substantial problem, as the US is still seen as one of the most creditworthy countries on the planet.

I'm not saying that any of it will be easy, but it is doable. We pulled out of huge debt after World War II, we can do it again, if the political will is there.

The Republican Party

I think there was a deeper game in the turn towards austerity. First, anger from the republican leadership that Obama had gotten health care (let's face it, it is the same as Romneycare, and the same thing that republicans had been proposing for years). And second, a deep desire to make Obama a one term president. In my opinion, the republicans in congress were willing to sacrifice the fledgling recovery, throw people back on the unemployment lines and sacrifice them to the whims of the health insurance companies to win back the presidency. It's documented. Mitch McConnell himself said that was their main goal.

I voted for Ronald Reagan twice. I work for an oil company. I have no bone to pick with the republican party, until they sacrifice the health of the nation for their petty power goals. That makes me angry.

They are completely beholden to Grover Norquist and their pledge to not raise taxes. The republicans have pursued a scorched earth policy over anything Obama proposed. And "when republicans took control of the House, they became even more extreme. The 2011 debt ceiling standoff was a first in American history: An opposition party declared itself willing to undermine the full faith and credit of the U.S. government, with incalculable economic effects, unless it got its way." The debt ceiling is a fairly minor thing that gets passed every year. It keeps the government running. It looks like the amoral republicans are at it again (nice credit rating I'd hate to see it gt hurt).

The Tea Party

I have a lot of time for libertarians in general. The Tea Party has taken some of those ideas and philosophy on the fiscal side, which IMHO is weaker than the social issues side and blended it with the bad part of what the religious right has given to the republicans, then they took it and threw in some anti-science. We're left with people who do not believe in evolution, who want to ban abortion in all circumstances (as well as birth control and in some cases in vitro fertilization), and who do not understand basic economics. They have better sound bites, but their policies are truly scary on many fronts.

Fact Checkers

Any policy, any reasonable discussion has to start with facts. That is necessary, but not sufficient for a reasonable policy decision. The facts have to be relevant to the issue at hand as well.

The Romney campaign said, “We’re not going to let our campaign be dictated by fact-checkers.” That would have been ok, except they had already been caught in a ton of whoppers, including attributing a McCain quote to Obama (because he was quoting McCain). It seems like there is always some degree of misattribution and scummy lies in a campaign. When a mature adult gets caught red-handed, he fesses up and corrects it. Romney couldn't be bothered. That was very troubling.

I am sure that Obama had some of the facts a bit out of line and distorted, but I would suggest that the Romney campaign told more, and more obvious, lies. Of course they don't want fact checkers, it would have ruined their story.

Health Care

I do not have a strong partisan view on health care. Clearly, our system before Obamacare, was among the most expensive and on a per dollar basis east effective systems around. Chalk it up to opacity in the insurance industry, distortions in the way they do business, and the whole system around prescription drugs that treat symptoms without affecting the underlying cause.

Face it folks, all those companies are not in it to make you well, they want to make money. If they can do that by making you well, that's better, but it is not a requirement. Statin drugs, which reduce blood cholesterol, but have virtually no impact on death rates, while at the same time bringing lost of nasty side-effects (or simply effects) are a great example.

Having said all that, the health care system should be the one that delivers the best care at the lowest rates. Someone has to pay for the medical care that people receive. Simply having government be the entity that negotiates and pays for care is neither good nor bad by itself. If health care costs $x per person, that is the cost whether it shows up as taxes or an insurance deduction from your paycheck is simply not relevant.

I think there's an argument that insurance companies with a profit motive will strive to reduce costs, but with the profit motive comes a conflict of interest. Government run health care, lacks the conflict of interest, it has negotiating leverage, but it does not have the profit motive to drive efficiency. Ultimately, that leverage, and disconnecting an insurance company's profit movie from my health care decisions is a good thing. Many nations with a government health care system in place are beating the US badly in cost and quality. Yes, there are problems (lines), but overall they are better.We can learn from them.
My impression is that Obamacare tries to capture the best of both worlds.

But forget about that argument. Anyone who works and relies on their employer for health care should welcome Obamacare. You can now change jobs, or start your own company and not have to worry about being turned down for insurance or having pre-existing conditions excluded. This is a huge win for rank and file workers, and IMHO, one of the big reasons that companies like Papa John's and Applebees feared it.

Why Romney Might Have Been a Good Choice

I did consider voting for Romney. I believe there is the possibility that he would be a reasonable president and one thing that would be good is that he would not have the automatic enmity from the house of representatives. There is a chance that he could work with them. There are two things that turned me away from that.

1. The Israelis taught us that you should never negotiate with terrorists. The obstructive republican leadership in the house has been holding us hostage for 2 years now. In essence, a vote for Romney would be a vote for those people who have been whipping us for two years just to get them to stop. The correct response is to vote for their opponents, not reward them for their bad behavior. In essence, this rationale is something like, "Vote for Mitt Romney or the republicans will destroy the economy."

2. He promised to repeal Obamacare and Wall street reforms on Day 1. I argue that Obama's timing may have been bad, but universal access to health care is still a good thing. Wall Street's problem is not over-regulation. Quite the opposite.

Aftermath

Shortly after the election, a Romney supported asked me, "What has changed?" I didn't know what to say. In retrospect, this is what has changed. We have universal access to health care and some wall street reform. Obamacare by itself might establish the president as one of the all-time greats.

Those now will not go away. I had hoped that the republican house would be able to find some middle ground and work a little revenue enhancement into the budget discussions, but they seem more interested still in holding the nation hostage.

Saturday, November 10, 2012

What They Mean When They Talk About Tax Hikes On The Rich

Increase Taxes On The Rich - What that means

There is a tremendous amount of innumeracy in this country. I don't know why that is.

One thing I keep seeing is talk of tax hikes on those making more that $250k. I want to describe what that means.

First, technically, it is an increase of tax rate on incremental income about $250k. It's not simply raising the rates on everyone making more that $250k. It may have that effect, but words matter.

What is the distinction?

Consider a person who makes $1.01 less than $250k. He or she will pay let's say $50k in income tax. If he makes $1 more, he will pay about $0.30 more taxes at a 30% income tax rate.

Now let's say that the tax laws change so that income above $250k is taxed at 40% (up from 30%). It does not mean that suddenly his entire income is multiplied by 40%, it means that only the amount above $250k will be multiplied by 40%.

So let's say our $249,999 earner gets a raise to $260k. Under a 30% rate, his tax would increase about $3,000, so his net goes up by $7k. Under a 40% rate, his tax would go up by $4000, so his net is $6k higher.

Look, I'd rather pay less in taxes, but we as a nation need to work down the deficit. Doing it by taxing high earners more really makes a lot of sense, and you know what, that $1,000 will not even make a dent in Mr. 260k. For a $10k increase in salary, his total taxes go from $50k to $54k instead of $53k.

An Alternate Scenario

Let's try another scenario to see why that all matters. Drop taxes on the first $250k, raise taxes above that.

In the above example, our $260k guy paid an average 20% rate on the first $250k, then 30% for money above that. His taxes would be $53k.

Now suppose you were to drop the rate on the first $250k to 16%, then at the same time increase the rate above $250k to 40%. What would be the impact then?

On the first $250k, he would pay $40k, then on the next 10k he would pay $4k, for a total of $44k.

This is similar in form to what President Obama has been proposing. The press has distorted the actual implications to make it sound like a big tax increase. That is simply not the case.

The table below shows the differences:

                       "As Is"           Raise Tax above 250k     Tax below 250k=16%
                       20%, 30%                        to 40%              Above 250k = 40%
First 250 k        50k                            50k                                    40k
Next 10 k           3k                              4k                                      4k
Total                 53k                            54k                                     44k

So you can see that lowering taxes on income less than $250k and raising them on income above $250k actually lowers taxes even on some people making more than $250k. In the example above, a high earner would begin paying more taxes at $350k compared to the As Is case.

Here is what it looks like graphically:

Note that the more you make gross (x-axis, the more you make net in all three cases. If the tax is raised only on the high earners (green), you net  more at all income levels than not earning the extra money. However you net less than the other cases.





And zoomed in on the region above 250k.  Green is less than the other two, but something interesting happens in comparing red and purple. From 250 to 350 k gross, purple with a higher tax rate on income above 250k actually yields more net than the As-Is case. That's because the higher rates on income above 250k is offset by lower rates above 250k. Purple and red are equal at 350k, then red nets more than purple.

So if rates on lower income are dropped, while rate on higher income are increased, will that hurt high income people and create a disincentive to work?

At 500k gross, there's about a 15k difference in net income. The person who earns 500k per year takes home 360 instead of 375k.

Conclusion

I am not putting a value judgment here on what is good or bad, I just want to encourage people to look at and understand these issues. Headlines and sound bites simply do not do justice to the complexity of these issues.

Sunday, October 28, 2012

Settled Science, Republicans and Democrats

Ezra Klein recently published a blog post in response to a NY Times piece by David Brooks, the conservative on staff there. It was called "The sad history of climate policy, according to David Brooks."

It's interesting on some levels. It shows that the Republicans used their influence to kill initiatives to reduce carbon footprint, forcing the Democrats, who really wanted to do something about carbon into the corner of funding green startups as the only remaining available option. When some of those startups inevitably failed, the Ds became the bad guys on many levels. It is a sad story of the conversion of a bipartisan consensus going away for political gain. Klein makes the point that it is really quite clear who the bad guys are, the Rs.

But there is a big assumption behind all this: Catastrophic global warming is happening. All the scientists say so.

I sent this response to his column:

"First, I completely agree with the premise that if Obama is for it, the Rs are against it, regardless of science. That is the wrong reason to oppose funding to combat the increase in CO2 in the atmosphere. 

"However, when you talk about settled science, most skeptics agree that the climate has probably warmed in the last century or so, and that man's imprint on the planet, whether from CO2 or paving over every living thing has something to do with it. I suspect that most skeptics even believe that additional increases in the CO2 level has a primary impact of warming the environment (about 1.2 deg C per doubling of atmospheric CO2). There are some arguments around how much the earth is warming now, and how much of that is directly caused by man, but let's accept all that for discussion. Let's call all that the "settled science." 

"Now go beyond that. Climate alarmists claim that the future warming will be much greater than the 1.2 degrees per doubling. Their claim is that warmed climate will create a vicious circle that causes climate feedbacks to raise the temperature by much more than 1.2 deg. In fact, they are claiming at least double that, and painting a catastrophic picture of the outcome. That is not settled science. It is based on computer models of an extremely complex, unknown set of interactions that have never been observed. 

"Going beyond that, there is no compelling reason to believe that if one country or even many, were to stop emitting, that it would in fact have any substantial impact on the climate. The costs to significantly reduce our CO2 emissions would be enormous. There would be some definite benefits, but anything beyond very low rate of return is pure speculation. 

"In my opinion the argument is stronger that growing our economies and making good investments, along with regulations that reduce ACTUAL pollution will give us a better outcome as a nation and as a planet. 

In short, runaway climate disaster is not settled science, it is not a part of the "consensus," and it is not a conclusion of the IPCC reports. The measures to mitigate atmospheric CO2, need to be considered as part of a whole and measured against alternative investment paths. 

So while I am opposed to the Rs in many things they do and say today, and I believe their motives in this matter to be morally repugnant, I believe that the action/inaction they are pursuing is fundamentally the best course of action at this time."

I really like my response, so I wanted to save it here. 

Find David Brooks' original column here.

That is all.



Saturday, November 26, 2011

The Odds on Global Warming

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I have mentioned previously that I am a big fan of Andrew Tobias. Recently, he posted on his blog the claim that climate "deniers" were massively funded by corporate interests.

 I sent him the following note.

"You said, "The connection between the climate-change deniers and the Republican budget enthusiasts is that both are massively funded by corporate interests, now entirely unleashed by the Republican Supreme Court and its Citizens United decision.  That’s the one that stacks the political system even more heavily in favor of the rich and powerful, and allows their influence to be hidden."

"For the record, I am a big fan and we are on the same side politically. Scientifically we differ, and this thing about climate-change deniers be funded by corporate interests is simply not true as far as I can tell People point to XOM funding someone for 25 Million dollars or so. Compare that to the forces of climate change "proponents" who have received Billions upon billions of dollars. As far as I can tell, most of the major skeptics (please don't call them deniers and I won't call the universities elitist), are private citizens doing their research with their own money and minor contributions from supporters.

"Am I biased? Yes. I work for, but am in no way representing Chevron with this opinion. I am also a citizen of this planet and want our leaders to make good decisions based on reliable information. Most of the AGW data does not meet that standard."

He responded by asking me what probability I assign to the possibility that thescientific community has it right. My response follows:


Hi Andy,

You asked me  “What probability do you assign to the possibility the broad scientific community has it substantially right?”

I am an earth scientist with an MBA. I have been a member of Texaco’s exploration risk team and I do probabilities for a living. So if you’re looking for one number answer like x%, it’s not happening. Also, I normally do not ever assign 100% to anything, but I will on some items just to not look too pedantic.

The key word in your question is “it”. There are a lot of “its” in the field of climate science and what to do about it, so I will just go through those as a chain of events that has to happen for “it”. As you read down the list, remember that the links are dependent, so if the previous link does not come to pass or is not true, the ones following become irrelevant.

One more quick note. I don’t think the probabilities below are “right.” They represent states of knowledge—mine and the climate scientists.  I am pretty comfortable directionally, so if a number is at 0% it’s pretty low, and if it’s 75% it’s pretty high.

Link
Probability
Cumulative Probability
The earth is warming.
Probably. It appears that there was a very low temperature period from about 1600 to 1800. It’s not surprising that we are warming from that. The actual data are quite ambiguous. The temperature increases shown on all the graphs can be arrived at only by applying adjustments to the thermometer data. These adjustments are in many cases larger than the temperature anomaly. The signal to noise ratio is therefore quite low. Nonetheless, although I have a lot of questions about the data, on a macro level it seems reasonable. Let’s call it
100%
100%
CO2 causes the earth to warm as a primary effect. Call it
100%
100%
Increase in CO2 causes the earth to heat up as a primary impact. Call it
100%
100%
I think that the above 3 points define the scientific consensus. Going past this there is much less consensus.



Increase in CO2 is the primary cause of the observed temperature increase.
From ice core data, historically, the relationship is reversed. Temperature increase leads CO2 increase by about 800 years. Climate scientists claim that the causality reversed about 50 years ago.

Their claim is something like, we have eliminated all other known causes of temperature increase, so that leaves CO2 as the culprit. Their models leave out a number of possible drivers such as deep ocean currents, land use changes, and solar activity.

I think there is too much that we do not understand about the climate and impacts on the climate for this line of reasoning to yield any kind of certainty. Has CO2 had a positive impact on temperature. Yes. Is it the primary cause (more than 50% of the change)? Not proven, but not totally unreasonable.
50%
50%

If we do nothing to curtail CO2 emissions, temperature in 2100 will be at least 2 deg C higher due to CO2.

A doubling of atmospheric CO2 causes about 1.2 deg C as a primary effect. IPCC projects about a doubling through 2100. So, based purely on the primary impacts of CO2, a number closer to 1 deg C would be appropriate.

The CO2 in the atmosphere has doubled since 1900, yet the temperature has risen approximately 0.7 deg  C, if you believe it.

Getting to a higher number requires computer models with positive feedback impacts that have not been observed in nature. I have built complex economic computer models over long time periods. They tend to be extremely sensitive to assumptions in the model. Even extremely small errors or inconsistencies can lead to huge anomalies because of the large time period. On top of that, the researchers have not made the models available for auditing. There is a near 100% probability that there are errors in the models of unknown impact. Going beyond 2 deg C is not high certainty. The role of the water cycle and cloud formation are still very much poorly known.

The models do not backcast correctly and they have not demonstrated ability to forecast. The models are wrong.

They rely on extremely complex computer models with huge assumptions about how variables interact, that have not been audited. Possible, but until those models are opened and audited by critical assessors, I can’t put much faith in them. I’ll give this one a VERY generous
20%
10%
This is the end of the climate science. The rest gets into economics and social sciences. At this point we're looking at a 10% probability that the climate science is "right."



So if all the above comes to pass, what will be the net effect on the world? There is a mixed bag. There is some possibility that the earth will reach a tipping point leading to global catastrophe. There is no consensus that catastrophe will ensue, so this is not part of “it.”

Consider more moderate scenarios. In general, heat is better than cold for people. Higher CO2 is better than low CO2 for plants. Low lying areas could flood. Weather patterns could get more severe (although this is not a slam dunk either). All else being equal, if there is no economic growth between now and 2100, I think the overall consequences would be negative to mankind. However there will be economic growth. Today’s poor countries will not be so poor 100 years from now. People will not be engulfed in their beds by the melting glaciers. Earth’s climate has always changed, always. Cities and countries grow prosper and go away due to climate. There is a lot of time to respond to slowly developing trends by adapting. Maybe marginally better, maybe worse.
50%
5%

We should change economic incentives to encourage less carbon emissions.
By the IPCC’s own analyses, if we were to implement Kyoto, it would delay the warming in 2100 to 2106. So let’s just forget that, except possibly as a small incremental step.

I have seen the argument that investing in the lower carbon alternatives is smart economically. Well, I have a lot of faith in the greed of my fellow citizens. If it were a good investment it would be happening without massive government incentives.

You understand opportunity cost, so even if green tech were not the worst investment that could be made, it would slow overall growth of the economy. As has already been discussed, we will need the economic growth to help us adapt to whatever the world throws at us. Furthermore, think of all the bad stuff happening in the world today. Non-potable water in the developing world, starvation, torture, slaughter, and mutilation in Africa. In a world with limited resources to spend, how many people are you willing to let die, in order to delay global warming by 6 years in 2100? Should spending to lower CO2 be a priority? At best
5%
0.25%

To reiterate, the numbers above are not correct. Ultimately, either each of the events will happen or not. The thing to think about here is that in order for AGW to be correct, there is a long string of events, each of which must happen. It does not take many items for the odds to become ridiculously small. For example if the odds of events come in at 90%, the chances of 10 of them happening in a row is around 32%. As the odds of an individual event decrease, the cumulative odds plummet as seen in the graph.

Finally, let’s briefly address the precautionary principle. The idea is if there is even a small chance that something bad or unacceptable will come to pass, we should do something to protect ourselves. This is always dependent on four things: consequences of doing nothing, likelihood that doing nothing will result in the consequences, cost of the intervention, and improvement after the intervention.

Consequences are questionable, but there is some possibility that the consequences of doing nothing will be large. The likelihood that consequences will be catastrophic are vanishingly small. There is no consensus on catastrophe, only imagination.

Cost [of prevention] can run into the billions or trillions including the opportunity costs. And there is no guarantee that it will improve anything. It might not even improve anything, if we reduce CO2 and the climate change is due to other factors.

So I am not dismissing the possibility that carbon dioxide emissions are having an impact on global warming or climate. They probably are. I do not believe the whole tipping point thing, and the fearmongers who claim that the world’s climate is about to go off the rails are thoroughly unconvincing. Everything in between is in the realm of needing more data before taking drastic action.

All in all, the information in my opinion is not reliable enough to commit huge amounts of money into a social policy that may have no net effect.

I wrote a much longer analysis on my blog some time ago. Here’s the link if you’re interested. http://kenckar.blogspot.com/2009/12/anthropogenic-global-warming.html

Regards,
Tony Kenck

Sunday, June 12, 2011

Coming into the light

Some of you know that I have a second blog. It's in the links on this page and is called Emotions for Engineers.

I have not made my identity in that blog public, but decided to for a variety of reasons.

Go take a look.

That is all.

Thursday, February 17, 2011

Empty Nesting

We have put our San Ramon home for sale. The kids are out of he house (but still on the payroll). We decided that 2776 square feet of house and 10,000 square feet of yard with a pool is just a bit more than we want to deal with.

So we're moving to Oakland. We'll be near Kathleen's work, I'll have a reverse commute, we'll be close to the city, have no yard, and only 1700 square feet to take care of. IT feels good.

Here's our house for sale at 51 Sage Circle in San Ramon.

Our new place is at Pacific Cannery Lofts.

Next stage of life.

It's exciting.

Saturday, July 31, 2010

Annoyed at the Press Over Macondo (and Ecuador)

Disclaimer: I have worked in the oil industry 30 years. I started with Western Geophysical, moved to Texaco, and now work for Chevron. I have no specific knowledge of BP, the Macondo well, or Ecuador. The views expressed on this blog are my own personal views and do not necessarily represent those of my employer.

I am not defending BP. It looks like here were several errors in human judgment leading up to the blowout. These errors were probably caused by people who did not understand their fields well enough to really understand the riskiness of what they were doing, and whose judgment was tainted by pressures to cut costs. BP seems to have had a really defective culture (See Bob Lewis' column on cost cutting and risk) (see also this article from Fortune magazine) during the regime of Lord Browne (who racked up record numbers by taking greater and greater risks). Tony Hayward was apparently in the process of turning that around. Sadly, he was not able to turn it around fast enough.

And good god, I'm not defending Hayward either. His picture will go in my illiustrated dictionary under "ham-handed."

I am bothered by some of the misinformation coming out of the media however. The claims that the oil industry does not care about the environment and does little to protect it are really grating, because it is far from reality. Here is an interesting view of how Shell's well design differs from BP's.

It is easy and facile to look at a single incident, or even a string of incident over time and draw generalizations. Look at Ixtoc, Valdez, Macondo, Ecuador (don't even get me started on Ecuador, the press coverage has been tremendously one-sided, and really, the government of Ecuador is the bad guy in that one. Just take a few minutes to read Chevron's perspective on Ecuador.) But look at the overall record. Look at the amount of oil produced every day. The organizational capability represented in the real record is unprecedented.

And by the way, most oil companies have long-term incentive plans based on stock or stock options. A single BP-like incident would wipe out much of the personal wealth of those on the plan. Macondo, like Valdez, will be a touch point for a generation of petroleum engineers--"we don't want another Macondo..."

The oil industry, especially over the last 10 to 15 years has placed tremendous emphasis on safety and the environment. I'm sure the the Exxon Valdez was one of the main drivers of that. From what I have seen though the emphasis has been much more on prevention than remediation. Safety is a constant watchword and is drilled into people's heads, even in office environments. (Every bathroom in Chevron's corporate HQ has reminders to wash your hands after using the facilities, and you should have seen these guys changing a light bulb in one of our conference rooms--orange cones, the whole works). Field operations are even stricter.

Again, this accident was preventable. It is apparent that BP had some weaknesses in the Macondo completion design. But put that aside for a minute. If you do something enough times, even though you think you have all the angles covered, even if your judgment is not tainted, eventually, something will happen that is completely unexpected. You get hit with a black swan. When dealing with forces of nature, things go bad really fast. It can happen to anyone.

Society's Response
This BP thing is really similar to what happened with steroids in baseball. We all enjoyed watching these superhuman people hitting homer after homer, after seeing them put on 40 lbs in the off-season. We went to the park and cheered, and pretended that it was the vitamins and weightlifting. Then we were shocked, shocked that it was "the cream" and "the clear."

We see the same thing today with the Macondo well. For years, regulators and nature have been pushing oil companies further offshore into ever more technically challenging environments. The industry has drilled 14,000 wells in deep water without a serious blowout like Macondo. We (society) pretended that there was no risk of pollution (out of sight, out of mind), while we wallowed in more abundant domestic energy than would have been available otherwise. Now we're shocked that the statistics have caught up with us.

The other thing that's happening is the attention a single disaster gets vs the day to day problems going on. We have all seen it. 9/11 was a horrific event--3000+ people died in one fell swoop. It mobilized our nation into two wars, plus huge changes on the home front. Likewise, a single plane crash, killing 300 people causes great angst, concern, and regulatory changes. Yet every year, 15,000 people die in alcohol-related traffic accidents, 40,000 total traffic fatalities. We are taking measures to cut it down, but look at the death toll. Why aren't we spending a trillion dollars or two to cut down on those deaths?

I'm not looking for sympathy for me or for BP. The oil industry has done well over the last 15 years. But with a few exceptions, and those exceptions are generally due to individual people not company policy, it has done well by improving safety and taking great measures to care for the environment.


Ecuador Notes:The following is from a response to a post in NY Times. I believe this response is much more accurate and representative than the original post.

berrymonster
Orlando, Fl
June 5th, 2010
10:40 am

I am an Ecuadorian citizen who has worked extensively on health and education projects in the Amazon rainforest, precisely around those oil fields mentioned by Mr Herbert.

Mr Herbert is grossly missinformed. Let me explain.

Yes, the Ecuadorian Amazon has been polluted by oil for decades. But the bulk of that pollution doesn't belong to Texaco but to the Ecuadorian government. Everything began in the late 1960s, when Texaco began drilling in the Ecuadorian Amazon, and reached a tipping point in 1972, when Texaco found oil and began exporting it. Sensing unprecendented amounts of money in the oil business, Gen. Guillermo Rodríguez Lara, the Commander of the Armed Forces, launched a coup against the civilian president and took power. Immediately, he created CEPE -Ecuadorian State-run Oil Company. But CEPE was just a paper company with zero technical, financial, or commercial capabilities. So, Gen. Rodríguez Lara took over Texaco. From 1972 through 1992, Texaco worked for CEPE: two thirds of oil revenues went to CEPE, one third went to Texaco.

"CEPE never cared about the people. The environment was not even a concept. The only important thing was that Ecuador was living an oil boom. Moreover, the Ecuadorian government -a series of military dictatorships- actively promoted massive deforestation and settlement in the Amazon jungle. Any citizen willing to cut the trees and grow coffee or bananas was given a 125-acre piece of jungle. Roads and bridges were built. Hundreds of thousands of people flocked to the region. Yes, Texaco dumped toxic materials in the jungle during those years... always under CEPE's watch. The military left power in 1979, but democratically-elected governments have kept the same policies in place ever since.

"In 1992, the CEPE-Texaco consortium expired. Texaco left the country. Suddenly, the government of Ecuador had to take over Texaco's operations. CEPE's name was changed to Petroecuador. Without Texaco, Ecuador's oil industry began a slow, steady decline. The government, now the proud owner of 100 percent of the national oil industry, spent every dollar of revenue, and deprived the industry of necessary money for maintenance and investment. Aging oil fields, tanks, pipelines, soon began to decay. Spills became commonplace.

"The 1990s was a period of environmental awareness. As oil spills increased, so did expenses in remediation, and of course, litigation. People began to view oil companies as a reliable source of income. Pipelines were routinely sabotaged by local people who immediately sued for compensation.

"It's in this context that some American environmental lawyers convinced some Ecuadorian local groups to sue Texaco. The plaintiffs want Texaco to pay those groups some $30 billion in compensation for health and environmental damages.

"How did they reached the $30 billion figure? It's impossible know how many cases of cancer have occurred in the region: the Ecuadorian health care system doesn't even have accurate birth records, not to mention cancer diagnoses. It's impossible to know whether cancer cases are due to oil pollution or the huge amounts of chemicals employed in the deforestation-settlement program. So, the plaintiffs used an original formula: they estimated the number of birds, rodents, fish, and other animals killed in the region over the past four decades -no matter if that happened by oil spills, deforestation, or road construction- and multiplied it by the black-market price of each species. (This is no joke)

"The number of supposedly affected individuals doesn't exceed 1,000. If they win, they could get about $30 million each. Half that money would go to those American environmental lawyers who had the idea of the lawsuit in the first place. Isn't it great?
"

Ecuador's story is one of unbridled development, without any care or goverment oversight of living conditions or sanitation (outside of the oil company camps). People who were actually indigenous to the region had their lives overturned. Even if there had never been one drop of oil produced, disease would have increased. In virtually every place in the world where traditional diets have been displaced by western diets, disease has increased. The Ecuadorian government took most of the profits and had majority control of the operation. CEPE/PetroEcuador is the bad guy in this scenario, not Chevron/Texaco.