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Saturday, December 6, 2014

Economics and the Meaning of Money

    I usually look at the economy as a form of applied sociology. Money is only worth something if people believe that it is worth something. This applies equally to gold and jewels as much as it applies to pieces of paper with people's pictures printed on it. In a similar fashion, money is distributed according to the rules (explicit or implicit) that people decide upon.

    A barter system works when each person (or family) is capable of doing most things needed for survival on their own. They then trade things that they have in excess for things that others have in excess. I give you an extra chicken and you give me a bushel of potatoes. I give you a length of material that I have woven and you give me a chair. Barter is a mixture of labor, materials, difficulty, and time combined into value.

    When each person can NOT do most things they need for survival, the barter system becomes very inconvenient. It is necessary to keep records/charts of equivalences. One type A chair is equal to two meters of cloth. Two type B chairs are equal to one type A chair. Ten chickens are equal to one meter of cloth. This complexity arises out of the need for each family unit to trade for many different types of things. Once this happens, the next step is to equate the value to something in common. Ten seashells represent the value of one chicken. A meter of cloth is equivalent to 100 seashells. Every item of value can be represented by a certain number of seashells. This representation of value is called money.

    Once the value of work and things have been "abstracted" into money, it is very easy to lose sight of real value. The work done by an experienced, talented teacher is probably worth more to society than that of a software developer -- but the software developer probably makes a higher salary. In "capitalistic" societies, the control of money is considered to have value in itself. That is, if I possess one million seashells then I no longer have to produce anything of value myself -- the circumstances (earned and saved, gifted, or inherited) of having the seashells allows me to distribute some portion to other people who then produce the actual value (plus more for me to hold).

    Within "new age" philosophy, it is popular to think that the economy is no longer a "zero sum" game. That is, each and every person, can earn as much money as she/he wants -- that there is not a "fixed pot" of X seashells in the pot and each can have as much as they want without reducing the amount that others are able to have. That's a happy philosophy but is it true?

    Although money makes lots of games possible with the distribution and use -- the basis of money still goes back to production and use. If 100 people each want a fish but there are only 50 fish then the value of each fish will rise until the 50 people who most want a fish have them and the other 50 do not have them. If 100 people want a fish and there are 1000 fish, then the value should (the concept of money makes direct value difficult if not impossible) be equated to that combination of labor, materials, difficulty and time mentioned above. An abundance of resources (fish) causes value to go back to basics.

    Our global economy makes distribution of resources extremely unequal. Most people estimate, however, that there are enough resources (food, labor, energy) to support everyone currently on the planet. The fact that that does not happen is a problem with distribution and allocation. But, there is still a limit. Perhaps at twice the population there would NOT be enough for everyone (in an ideal world). This argues that it is a "fixed pot" -- there is a limit of resources to be distributed. In order to eliminate the fixed pot, it is necessary to get rid of the limitations of resources.

    Is there a way to eliminate the limitations of resources? I will look at that possibility in the next blog.

Saturday, November 8, 2014

What's in a Name: the politics and reality of global climate change

   When scientists discovered that the average temperature of the oceans was increasing, it was picked up by the media as "global warming". While I don't know whether this name was embraced by the scientific community or not, it wasn't a bad name -- at a scientific level. A much better name would have been "global ocean warming" -- for reasons to follow.

   A name is a powerful thing -- attitudes, and historical associations, come along with names. If a highly anti-patriotic thing is NAMED something patriotic then it is easier to associate it with positive, patriotic, meanings. This is just how our brains work -- we associate names with other things connected with the names. Politicians, Public Relations people, and advertising agencies make use of this to a great degree.

   If the word "global warming" is used then it can be MIS-used. If there is a huge snowstorm, it can be used as "evidence" that it is "obviously" NOT warming all over the globe. The more precise, and accurate, the word that is chosen, the more difficult it is to skew the interpretation. As mentioned earlier, it would be more difficult to misinterpret "global ocean warming" -- since a snowstorm is not immediately connected to the ocean (although it is actually true that the ocean warming might directly help the snowstorm to happen).

   Of late, the dialog has mostly changed to that of "global climate change". This is associated with the effect of "global ocean warming" -- but it seems to have been easier to migrate to this phrase than to expand upon the "global warming" media phrase. It is a reasonable phrase and much more difficult to subvert by politicians as there IS (unfortunately) increasing indications of global changes in the climate.

   The other part of the "discussion" (actually more of a taking of sides) -- beyond whether or not global climate change is happening -- is whether it has been caused by human activities. It will be impossible to totally prove this as that would require comparing two parallel worlds -- one world where changes in energy use and other human activities took place in a timely manner and comparing that to our current world.

   When historical evidence is examined, it shows how, and when, such global changes in climate have occurred before. This evidence does give us some ideas as to how various components (Carbon Dioxide in atmosphere, Ozone levels, water levels, average temperature, etc.) work together to change the climate and it does indicate how ongoing, present, changes are likely to affect climate. Politicians are correct that climate change has occurred many times over history. However, the rate of change of factors that have been occurring over the past 100 years has only been found in association with large scale catastrophes (huge volcano eruptions, widespread biologic changes, and so forth).

   This rapid change is the most scary part of global climate change. Humans are very adaptable. In fact, a great name for the species would be homo adaptabilis. If a desert turned into a a wetland over a period of a couple hundred years, people would adapt. In fact, much of the Sahara desert was once a tropical forest at one time (but the change was much, much slower). If the coastline disappears under water an inch a year, people will adapt. That is our current goal -- to slow down the rate of global climate change to allow people to move from one place to another, to allow changes in basic crops grown in an area, to allow people to change housing and energy use, and so forth.

   But, all of this is still an exercise in the dangers of allowing the media to choose a phrase to describe something. Insist on precision in descriptions. Refuse to use labels that are obviously inaccurate -- reverse it by saying "the so-called xxxxxxx". When a debate arises where one side is labeled as "pro-AAAAA" then insist that the other side be called "anti-AAAAA" rather than "pro-BBBBB"

   What misuses of labels have been the most upsetting for you?

Saturday, November 1, 2014

Fracking: what's the big deal?

Fracking is talked about a lot nowadays -- mostly heatedly and almost always in a binary fashion (YES/Good or NO/Bad). What is fracking all about?

When we think of drilling for some liquid substance, what first comes to mind is something similar to putting a straw into an underground reservoir. Some may include the idea of a bunch of very wet sand, where the liquid is dispersed through the area but freely available.

Both of these were probably true for the earliest wells. A hole was pierced in the soil and it either hit an area of liquid (water, oil, also natural gas -- which is not liquid but, in this case, has the important properties of a liquid) or it was able to find an area that the liquid could collect in from the surrounding area.  For water, this is called the aquifer. For water and other "liquids" (including natural gas), this ability to collect from the surrounding area is making use of a quality called "permeability" -- the ease of movement of liquids/gases through solids.

Pool are pools. It is a matter of finding them and using them. Permeability decreases as the area gets deeper because of the weight of the earth above. Greater pressure lowers the permeability of the surrounding area.

As we make use of more of our natural reservoirs of water, oil, and other liquid/gas resources, it is harder to find easy-to-use locations. Isolated pools become deeper (or underwater) and smaller (making them less economically possible to exploit). Natural permeability occurs more towards the surface and is harder to find. Thus, there is the desire to go where we have not gone before (national parks, wilderness, and beneath beds of water) and to promote artificial permeability.

Finally, you say, we get to fracking. Fracking is the process of breaking up the surrounding rock and creating permeability where none (or little) existed before. Early fracking mainly used explosives to break up the ground underneath. Although it usually worked, it was not very effective because of the irregularity of the fissures (or cracks) created and because, if it was deep, those cracks were likely to close back up from the pressure.

The modern practice of fracking usually involves hydrologic pressure. A liquid (often water) is injected into the well under great pressure and this causes the surrounding area to crack. Additives are put into the liquid to help keep the cracks open (thus, allowing permeability) after the pressure is removed. One method is called "acid etching" where an acid makes "grooves" in the cracks as they expand leaving little furrows when pressure is removed. This is done to make access to reserves more possible.

There are two primary problems with fracking. First, it requires a lot of liquid to achieve fracking. While that didn't use to be looked at as a problem -- with global climate change and uncertain icepacks and rains and overused aquifers it is quite a problem nowadays. I don't know the exact proportion of water to newly accessible liquid (you wouldn't normally use this technique for water wells, obviously) but there is a lot of water used. In addition, the additives put into water may not be either environmentally or health beneficial and those additives will find their way into the surrounding area.

The second problem is that the cracking of the earth is indiscriminate -- it does not JUST allow the desired liquid/gas to pool together. If there are pockets of water and gas or oil nearby, the fracking is likely to allow the mixing of such -- and causing health and environmental problems with use of the water.

The first problem might be addressable with new techniques (air fracking, perhaps, with environmentally safe additives) but the second problem is inherent to the process.

The only real method of eliminating the need for fracking to access dwindling natural reserves is to use alternate energy/base material sources.

What are your thoughts about fracking?

Saturday, September 27, 2014

Why aren't studies steady? The problems with studies on humans.

     If you don't like the results of a study ... wait for the next study. It appears that the results from studies involving people vary drastically from study to study ... and they do. At one time butter is bad and margarine is good and then, later, margarine is bad and butter is better (not necessarily good). Fats are bad. No, the right fats are good. Olive oils are the right fats. No, more polyunsaturated fats are even better. Why do studies that involve humans vary in their results so much?

     There are quite a few reasons why it is difficult to have consistent results from studies of humans. Some are inherent problems. Some are political problems. And a large number of problems arise from the way studies are reported in the media rather the actual study. In other words, a study may be done very well and present results that are interesting but not conclusive -- but some specific parts are taken up by the media as "startling results". What are the problems with studies?

  • People are not mice. Many studies on health effects are done with mice, or guinea pigs, or monkeys, or chimpanzees, or some other more easily studied animal. In addition, many studies may make use of one gender but generalize to both genders. It is rather obvious that, for the best results, use of humans of the appropriate category must be used. Why isn't this the case?

    Cost. People want to be paid (in money or value) to participate in studies. Animals can be purchased -- and, until some group starts recognizing what is being done to them, can be treated with the least care needed.

    Morality. Except in certain situations (such as Nazi Germany where psychopaths had full permission to experiment) it is not acceptable to put people's lives at risk. This is associated with control groups where they are NOT treated the same as the group which is being tested as well as with the groups being treated with undetermined results.

  • Patience. It takes TIME to determine what long-term results are. Of course, it doesn't take much time for an immediately lethal poison to be known but most substances aren't as immediate in effect. Taking longer periods of time means results are delayed. It also increases the costs of the study.

    Two types of studies of this nature are longitudinal and cross-generational. One examines individuals for substantial portions of their lives and the other examines the effects from parent to child to grandchild. Humans have pretty long lives (unless stopped by disease, accident, or violence) and this also leads to use of shorter lived animals as subjects.

  • Control groups. A control group is simple in concept but much harder to create and use. The idea is that one group has the variation (tries a medicine, eats a food, does an exercise, endures environmental conditions, ...) and the other does not. Comparing the results of the two groups is hoped to be able to isolate the effects of the specific effect being studied.

    A huge difficulty is that it is impossible to prevent the confusion of combinations of variables. You are testing item A. It turns out that A does one thing in the presence of items B and C. It does another, different, thing in the presence of items C and D -- and it may even do something else in the presence of B and D. If B, C, and D are all known and defined then useful results may still be obtained -- but often they are not. These combinatorial variables are unknown -- but they can drastically affect the results. Two of these variables involve environment and genetics.

    Environmental variables. What is the effect of electricity in a house or city? In modern society, it is impossible to eliminate -- and, if taken to a part of the world where electricity is NOT present, other variables will exist. What is the effect of plastics? What are the effects of pesticides, hormones, or antibiotics in the food? While these can be minimized, they cannot be eliminated. What about specific pollutants in the air? And so forth.

    Genetics. Leading up to the next bullet item on correlation versus causation, I once read a statistical study on smoking and cancer rates in various countries of the world. It turned out that countries with the greatest amount of smoking had among the lowest amounts of cancer. The effect of smoking depended upon the population. (It didn't get a lot of media attention since the outcome was not politically popular.) A homogenous (identical in nature) population is needed for studies and sets of identical octuplets are hard to find.

  • Correlation versus causation. This is understood by scientists doing studies but easily distorted by politicians, business owners, groups, or media people who have a bias towards a particular result. Causation means the variable causes the result. If I hit my toe with a hammer it will be bruised (or broken). This is true if any toe hit by any hammer causes these results. The effects can be changed -- a hammer hitting a toe that is shielded by a steel-toed boot is NOT hurt (but it also means the toe of the foot is not actually hit).

    Some people are allergic to monosodium glutamate (MSG). Some are not. So, MSG AND allergic people cause a particular effect but MSG AND non-allergic affect does NOT cause the effect. This is verifiable contributory causation.

    Everyone who drinks water will eventually die. Does drinking water cause people to die? No (unless, of course, the water is contaminated), but this is the type of (often statistical) result that biased groups enjoy mis-interpreting and reporting.

  • Binary Results. People like simple results. They like "yes" or "no". They do not like long combinations of possibilities. So, a report that says "butter is bad" is much easier to distribute than a report that says "butter, in combination with lack of exercise and excessive refined carbohydrates and a genetic tendency towards high cholesterol, can contribute to high blood pressure".

    Properly done studies rarely have simple results.

So, in summary, it is difficult to create a useful, consistent study on the effects of anything with people. Even if done properly, it is difficult to give results without also giving all of the controlled variables along with the result.

Saturday, September 6, 2014

The 1% and the former "trickle down" pyramid

Once upon a time, when there was a lot less disparity between the rich and the poor in the US, an idea was proposed to justify giving more tax breaks to the rich. This idea was called the "trickle down" theory. Note that this blog concentrates on income inequality -- wealth inequality has parallel workings.

At heart, the trickle down theory was an economic pyramid and is the basis of the concept of regulated capitalism. However, the main word in that sentence is regulated. The idea is that the people with the most money generate more money which is distributed (in lesser amounts per person) to a larger set of people, who then generate more money which is distributed (in lesser amounts than the people of the second level) to an even larger set of people. At the bottom of the pyramid are the people who are unemployed or are working for whatever they can get paid and not die.

The original pyramid for the "trickle down" idea worked rather like this (note that these numbers are all just examples):

1 person earns $1,000,000/year
3 people each earn   $500,000/year
6 people each earn   $300,000/year
10 people each earn $200,000/year
25 people each earn $100,000/year
55 people each earn $40,000/year

This forms a pool of 100 people. In total, they earn $11,000,000/year. The top earner gets 25 times as much as the lowest paid earner. and the top 20 people (20%) make 57% of the total money (leaving 43% to the lower 80 people (80%). The top earner gets about 9% of the total.

However, in order for this distribution to hold, it is necessary to have laws and regulations that keep redistributing money to the rest of the people according to their wealth. In the 1980s, it became politically popular in the US to think that if the rich were allowed to accumulate more money then there would be more money to distribute -- or "trickle down" -- to the rest of the population. That started a process of steadily increasing tax loopholes and favored treatments, lower (if paid) tax rates, substantially lower wages (based on pre-inflation 1985 dollars), and concentration of wealth which led to a new structure such as the following (once again, these are made up numbers -- the real ones are different but not better):

1 person earns $5,000,000/year
3 people each earn $300,000/year
6 people each earn $200,000/year
10 people each earn $125,000/year
25 people each earn $60,000/year
55 people each earn $22,000/year

Once again, this is a pool of 100 people and, together, they earn $11,000,000/year.

However, this time the top accumulator (no longer calling them an earner) gets 227 times as much as the lowest paid earner. The top 20 people (20%) have increased their total to 76% of the $11,000,000 but look carefully (this type of statistical use is often in political advertisements) -- the 19% below the top 1% are actually earning LESS than they used to. The top accumulator now controls 45% of the total money pool.

This is a situation where the top accumulators redistribute the earnings of the lower rich, middle class, and working poor to give to themselves. I call this distribution the "splash over" economic theory -- or a vivid, real, example of unregulated capitalism. You fill up the top and some of the excess splashes over to the bottom.

This was the situation in the "Gilded Age" in the 1800s. It was shifted, for individuals, with reforms such as the creation of income tax toward the turn of the century -- and it was shifted, for businesses, with "New Deal" reforms that came out of recovery from the Great Depression.

And, at the root of it all, the voters carry the responsibility.

Sunday, August 31, 2014

The economics of supersizing

I have to be careful when I talk about economics as it is such an all-pervasive subject that it is easy for me to lose focus. I consider it to be "applied sociology" -- or a measured way of evaluating how people interact and value each other within society.

Once upon a time, during a telephone interview with Google, I talked with them about how I thought Google was in a fantastic position to create an interlinked database of products, employment, and salaries. As only one example, such a database, and associated tools, could be of enormous help in figuring out how to migrate from a fossil fuel economy to a renewable fuel economy while minimizing the effects on the economy and individual workers. (Later, with 35 years of software architecture, programming, and managerial experience, Google called me in to interview for a marketing position -- they definitely have a sense of humor.)

See how easy it is for me to lose focus!

In the area of focus for this blog, supersizing involves a combination of total profits and perceived value. Perceived value is a subjective matter -- it depends on the individual and their history. In the US, it is considered to be of greater value to get more food for less money per amount -- in spite of the fact that the greater amount is unneeded and ends up being waisted (misspelling intentional). In most European countries, quantity does not enter into the equation for value as much as quality. In some other countries, it is a sufficient struggle to just get enough to eat.

When a product is sold, it is sold at a specific price. This price can be determined in one of two general ways. These are basically "cost plus" or "demand pricing". With "cost plus", the price is determined by a specific amount added to the cost of producing the item (including all overhead such as building costs, utility costs, storage, labor, and inventory loss). So, if a thingamabob costs $1 to make, store, sell, and so forth and the company wants to make 20% profit on selling thingamabobs, the price will be set at $1.20. With "demand pricing", the price is set to the highest amount that will lead to the greatest total profit. This is a bit more complicated.

"Net profit" is the difference between all the costs associated with making and selling something and the amount for which it is sold. In the "cost plus" example, there is a net profit of $0.20 or 16 2/3% (20 divided by 120). In "demand pricing", net profit is determined in a similar fashion except that the goal is to maximize the total profit.

In order to maximize total profit, the goal is sell the MOST possible at a specific net profit such that the total amount is the greatest. For example, selling 1000 of something that has a net profit of $0.20 will give a total profit of $200. Selling 500 of something that has a net profit of $0.50 will give a total profit of $250. So, even though you are selling less, you end up with a greater amount of total profit. But, if you get especially greedy and start selling something a a net profit of $1 and only sell 100, you will end up with only $100 profit.

The practice of pricing for "demand pricing" is an art and involves marketing (convincing you it is something you want), branding (letting you recognize the product and make positive associations that increases its perceived value),  and competition.

If you have a product that is desired by people and you are the only one who makes the product then you can demand the greatest amount. If you have a product that is made by many different companies and there is little perceived difference of value, then you enter what is called "commodity pricing" which usually has small net profits per item and requires mass production and sales to be profitable.

So, we come down to the area of supersizing (finally, you say). Supersizing (in the US) does two things -- it increases the perceived value and it increases the net profit (it MAY also increase total sales because of the increase in perceived value ). Let's say that you sell a tidbit that has $0.50 costs associated with what goes into it (raw, or pre-processed, food ingredients), $0.30 labor, $0.50 overhead (such as building, heating, lighting, franchise fees, etc.), and $0.30 for sales (marketing, "free" toys, posters, advertising, etc.). You then sell the tidbit for $2, giving a net profit of $0.40/item (or 20%).

If you can convert that sale into buying something bigger -- let's say twice as big. then the only thing that you have increased is the costs of what goes into it. [There is, admittedly, a little more overhead concerning storage of more stuff but that is often balanced with a reduction in cost of buying raw materials.] So, rather than $0.50 of stuff going into it, there is $1 associated with the costs. You then sell the item for $3 and you make a net profit of $0.90/item (or 30%). If you make it three times as large and sell it for $4, you would make a net profit of $1.40/item (or 35%). This is how supersizing translates into FAT profits (OK, I admit it, I like puns).

In summary, as long as people see greater value in buying more food for less per amount, it will be difficult to persuade companies to not supersize as this is an easy way for them to achieve greater profits. The only route is to change mindset to demand greater quality rather than greater quantity.

Saturday, August 16, 2014

Why be healthy?

We've all read articles, or watched programs, where someone who was in a healthy "lifestyle" keels over and dies in the midst of jogging. The publisher of Prevention, a health-oriented magazine, died during a taping of a television show. A man smokes three packs of cigarettes a day and lives to 95 while someone who has exercised, eaten well, and never smoked dies of lung cancer at age 40.

Why be healthy? This is a serious question. There is very little correlation between specific lifestyle changes and length of life. (Mental serenity and positive attitudes do seem to promote a longer lifespan.)

Each study that emerges seems to indicate something different -- butter is bad, butter is good. Don't eat fats, eat only this kind of fat. Eat more carbohydrates, don't eat any carbs. Weight training is a solution to being healthy, aerobic exercise is the only thing that is important. If you try to follow along with the latest directions indicated, your body will seem to be at the end of a yo-yo. I loved the line in the movie "Sleeper" where they told Woody Allen to smoke a cigarette because it was one of the healthiest things for his body. I doubt that's true but the movie does point out that "knowledge" isn't static.

So, why be healthy? I would categorize these reasons into three categories -- triggers, quality, options.

  • Triggers. As discussed in the previous blog, many of the health-oriented studies are NOT describing "causative" situations. Having a high-fat diet will not clog your arteries. Salt does not make your blood pressure rise. Smoking does not cause lung cancer (if so, then every person who ever smoked (tobacco or other substances) would get lung cancer).

    However, if your genes say "I have a tendency towards high blood pressure and I cannot process excess salt" then a high salt diet may TRIGGER health problems. Since, for people with these genetic tendencies, it is possible to reduce the chance to get diseases which can decrease lifespan -- these are active measures one can take to live longer.

    If you do NOT have these genetic tendencies then change of behavior may not make any difference at all. As mentioned above, however, this year's orange may be last year's black. Your best reference as to what is likely to make a difference to your body is your family health history.

  • Quality. There isn't a chart or a set of numbers that says whether or not you are healthy. However, you can listen to your body. If you break out in a sweat every time you raise your hands above your head to put a dish away into a cupboard -- that is not a good sign. If you are out of breath after you have walked from the store to your car holding a bag of groceries -- that is not a good sign. If you have indigestion after most meals and are taking half a bottle of antacid to calm it down -- that's not a good sign.

    You very likely know what you should do to make it better -- it's just not easy with bombardments of advertisements for excessive, low nutrition food or a multitude of ways to be entertained with only a finger or two moving. Reading a book is passive but it means that you are controlling your own stimulus rather than being controlled from the outside. Make conscious choices.

    Just ask yourself -- was the sixth slice of pizza worth the pain of your stomach afterwards?

  • Options. What do you like to do? What do you WANT to do? Are you able to do it (or learn to do it)? Working towards a healthy lifestyle expands your options. If you are badly overweight, there are many things you cannot do. If you cannot breathe, it affects your stamina and limits the length of activities. If you are physically weak, additional limits exist.

It is easy to be a slug on the couch. You might even live a long life doing such. Is it what you want?

What makes it harder for you to do the things you feel are healthy for yourself?