Economics – Page 133 – a sibilant intake of breath

Botnets

The rise of the botnet is an interesting feature of contemporary computing. Essentially, it is a network of compromised computers belonging to individuals and businesses, now in control of some other individual or group without the knowledge or permission of the former group. These networks are used to spread spam, defraud people, and otherwise exploit the internet system.

A combination of factors have contributed to the present situation. The first is how virtually all computers are now networked. Using a laptop on a plane is a disconcerting experience, because you just expect to be able to check the BBC headlines or access some notes you put online. The second is the relative insecurity of operating systems. Some seem to be more secure than others, namely Linux and Mac OS X, but that may be more because fewer people use them than because they are fundamentally more secure. In a population of 95% sheep, sheep diseases will spread a lot faster than diseases that affect the goats who are the other 5%. The last important factor is the degree to which both individuals and businesses are relatively unconcerned (and not particularly liable) when it comes to what their hijacked computers might be up to.

Botnets potentially affect international peace and security, as well. Witness the recent cyberattacks unleashed against Estonia. While some evidence suggests they were undertaken by the Russian government, it is very hard to know with certainty. The difficulty of defending against such attacks also reveals certain worrisome problems with the present internet architecture.

The FBI is apparently on the case now, though the task will be difficult, given the economics of information security.

How risky is climate change?

On his blog, Lee Jones posted a link to this book review. Basically, the argument is that people are (a) exaggerating the dangers of climate change and (b) using climate change as an excuse to pursue other ends. I would not deny either claim. The Intuitor review of The Day After Tomorrow is evidence of the first, and more can be found in many places. Of course, their review of An Inconvenient Truth suggests that not everyone is guilty of misrepresentation. As for smuggling your own agenda into discussions about climate change, I suspect that is equally inevitable. The question of how to behave justly in response to climate change is fundamentally connected to the history of economic development.

In an unprecedented move, I feel compelled to quote my own thesis:

While the IPCC has generated some highly educated guesses, the ultimate scale of the climate change problem remains unknown. On account of the singular nature of the earth, it is also somewhat unknowable. Even with improvements to science, the full character of alternative historical progressions remains outside the possible boundaries of knowledge. As such, in a century or so humanity will find itself in one of the following situations:

Knowing that climate change was a severe problem, about which we have done too little

Believing that climate change was a potentially severe problem, about which we seem to have done enough

Believing that climate change was a fairly modest problem, to which we probably responded overly aggressively

Observing that, having done very little about climate change, we have nonetheless suffered no serious consequences.

Without assigning probabilities to these outcomes, we can nonetheless rank them by desirability. A plausible sequence would be 4 (gamble and win), 2 (caution rewarded), and then 1 and 3 (each a variety of gamble and lose). Naturally, given the probable variation in experiences with climate change in different states, differing conclusions may well be reached by different groups.

As such, what it means to make informed choices about climate change has as much to do with our patterns of risk assessment as it does with the quality of our science. Exactly how it will all be hashed out is one of the great contemporary problems of global politics.

Tragedy of the commons

As a discipline, International Relations is packed with parables. Sometimes, they are hypothetical stories and sometimes they are interpretations of historical events. In each case, they are meant to demonstrate something important about how world politics works. Almost without exception, some aspect of their validity can be questioned on either historical or logical grounds.

When it comes to global environmental politics, perhaps the most well-known such parable is the ‘tragedy of the commons.’ Garrett Hardin is generally credited with coming up with the idea in a paper published in 1968. That said, the same idea was expressed in Michael Graham’s 1948 book The Fish Gate, in which he described how fisheries where access is unlimited will inevitably become unprofitable and fail. The logic of an individual who cannot control the entirety of a resource grabbing as much as possible before its inevitable destruction is the key feature of both analyses.

Personally, I would rather give the credit for the idea to Graham, rather than to Hardin (though it probably far precedes either of them). After all, the latter thinker went on to write such logically and ethically dubious documents as Lifeboat Ethics: the Case Against Helping the Poor. In an illustrative passage, Hardin says:

A wise and competent government saves out of the production of the good years in anticipation of bad years to come. Joseph taught this policy to Pharaoh in Egypt more than 2,000 years ago. Yet the great majority of the governments in the world today do not follow such a policy. They lack either the wisdom or the competence, or both. Should those nations that do manage to put something aside be forced to come to the rescue each time an emergency occurs among the poor nations?

His assertion that affluent societies are such because their leaders have set aside a surplus in times of plenty, whereas the leaders of poor societies have not, represents a massively myopic and superficial understanding of the processes of wealth accumulation, as well as the interactions between historically dominant and historically oppressed states. Explaining patterns of development in such a simplistic way obscures important elements of world economic history. Going on to justify a cold-hearted ethic of indifference to suffering and injustice outside the rich world likewise represents inappropriate extrapolation and faulty thinking.

Energy trends

This year’s International Energy Outlook has been released by the American Energy Information Administration. Among the key things noted:

The total demand for energy worldwide will increase by 57% between 2004 and 2030.
If oil prices remain comparable to their present levels, coal will be the dominant fuel for new power plants.
Annual growth in installed generating capacity in the OECD will be about 0.9%, compared with 3.7% in China and 3.4% in Brazil.
As of 2004, total greenhouse gas emissions from the developing world have exceeded those of the developed world.

Naturally, all of this underscores how difficult it will be to address the problem of climate change, even if the relatively low costs cited by Nicholas Stern and Cameron Hepburn are accurate.

For more on energy sources and climate change, see: Coal and climate change, Solar power and climate change, and Climate change and nuclear power.

Christie precedent overturned

The Canadian Supreme Court seems to have overturned Christie v. AG of B.C. et al. This 2005 decision held that the poor could not be charged the 7% tax on legal services that existed in British Columbia at the time. In the Reasons for Judgment, the B.C. Supreme Court stated:

[The Act] constitutes indirect taxation and is a tax on justice contrary to the Magna Carta and the Rule of Law…

I am prepared to grant the following declarations: A declaration that the Act is ultra vires in the Province of British Columbia to the extent that it applies to legal services provided for low income persons.

The court held that those earning under $29,000 should no longer need to pay the tax. It also reimbursed, with interest, the $6,200 that had been seized from Christie for non-payment of the sales tax on behalf of poor clients.

Dugald Christie, the man behind the 2005 BC case, was a Vancouver lawyer who had dedicated himself to helping the poor get representation within the legal system. He died about ten months ago while bicycling across Canada to raise money for that cause. Prior to his death, Christie lives in a small room at the Salvation Army’s Dunsmuir House, where he apparently worked twelve hours a day encouraging lawyers to do more pro bono work. He founded the Western Canada Society to Access Justice, which consists of sixty legal clinics across British Columbia, and has since expanded into Saskatchewan and Alberta.

The Supreme Court has now held that:

“a review of the constitutional text, the jurisprudence and the history of the concept does not support the respondent’s contention that there is a broad general right to legal counsel as an aspect of, or precondition to, the rule of law.”

I was surprised to see that a right to council isn’t actually included in section 11 of the Charter of Rights and Freedoms. The idea that a normal person can have a fair trial without legal council doesn’t seem a very plausible one.

Economics, games, and choices

In two unrelated instances today, I ended up speaking with friends about the kind of games economists make people play in experiments. The objective in doing so is to learn how people reason, when presented with economic choices. This has a lot to do with heuristics and often generates results that do not make sense, if people have the sole objective of maximizing how much money they will earn from the game itself. That is what happened when I played one of these games during my first month in Oxford.

The form I was discussing with Mark is called The Traveler’s Dilemma (not to be confused with The Salesman Problem). Being good at games like the Traveler’s Dilemma will help you in negotiations with tricky insurance companies. Solving the Salesman Problem would earn you the esteem of mathematicians everywhere.

In a act unrelated to either conversation, Nick Howarth – an Oxonian and former Olympian who I met a couple of days ago – sent me a link to a Nobel Prize lecture on the emerging discipline of behavioural economics.

On road pricing

Over the next couple of decades, many people expect road pricing to evolve from its present state – focused on highway tolls and city centre congestion charges – to a model in which all road use is taxed. In such a system, all movement of automobiles would be tracked and taxed on a per-kilometre basis, subject to secondary considerations like vehicle fuel efficiency and level of road congestion. Singapore, London, Oslo, and Dubai have all introduced charges intended to reduce congestion and pollution in their city centres. Expanding such systems to cover all roads would involve some considerable benefits, though there are also problems that would likely arise.

Benefits

National systems of road pricing would have a number of benefits:

The high cost of building and maintaining roads could be more accurately directed at those who use them.
Externalities relating to CO2 emissions from automobile use can likewise be dealt with.
By charging more to drive on congested roads, people can be encouraged to avoid traffic jams. This helps people who need to use the road avoid wasting time. It also saves on the amount of fuel being wasted by hundreds of idling engines.
Some of the funds raised could be directed towards the improvement of public transport options.
The use of more efficient vehicles could be encouraged through variable pricing.
The use of vehicles that do less damage to road surfaces (that is to say, those other than heavy trucks with bad shock absorbing systems) could likewise be encouraged.

The benefits are thus split into two big categories: those concerning a fairer allocation of costs to those benefitting from publicly provided roads, and those serving to internalize the previously ignored social and environmental costs of driving. If one considers the geopolitical costs of oil dependence, the latter looks even more justified than if one concentrates on particulate emissions and climate change only.

Problems

Naturally, there are a number of significant problems associated with such systems. One is equity. Road pricing may impose high burdens upon individuals with low incomes. For instance, those who cannot afford to live near where they work. Solutions to this could include the provision of some set level of free usage, over and above which people start getting charged. Better options include encouraging the development of efficient and popular public transport systems, as well as reduced charges for light and energy efficient vehicles. Zero-emission vehicles (such as electric cars charged on nuclear or renewable power) could likewise be taxed at a lower rate.

More serious are the privacy implications. I think it would be naive to imagine that the tracking information generated by such systems will not be retained by the state and used, for good or ill, without a great deal of public accountability. This is part of the much broader problem of how to manage data control and privacy protection in an age where surveillance is increasingly ubiquitous and data storage is ever cheaper. In recent years, there have been many cases of government employees found using access to such databases in improper ways. Doubtless, the vast majority of such inappropriate use is never discovered. Further to that, there is good reason to believe that access to such databases will be gained by outsiders through flaws in internal security protocols. The creation of systems for oversight would therefore be essential, and it seems wise to have a general policy of deleting stored data after a set amount of time has elapsed, with exceptions granted only through an explicit process of approval subject to external scrutiny.

An appeal for bike subsidies

One suggestion I would make to improve this system would be to include an optional component for cyclists. Those willing to cycle around with a transponder would be credited at a modest rate for distance traveled. This would be in recognition of the non-market advantages of cycling, such as the value of physical fitness as a component in preventative medicine. In 1998, Health Canada estimated the total cost of cardiovascular diseases on the health sector of the Canadian economy to be $18,472.9 million (11.6% of the total cost of all illnesses). Cardiovascular disease is also responsible for 36% of deaths. As such, a subsidy of a few cents a kilometre makes economic sense, as well as potentially generating some good publicity for a system that is likely to be highly unpopular with commuters.

There are also network benefits to be had from increasing the number of cyclists. The emergence of suburbs was made possible by automobiles, at the same time as such urban trends made them increasingly necessary. A more positive version of such feedback effects can be brought about for cycling: as higher numbers justify a more cycle friendly infrastructure which, in turn, encourages more people to cycle. In particular, the creation of designated bike lanes and routes, the provision of cycle parking facilities, and integration of bike carrying capabilities into public transport seem sensible.

Protecting parks

While it is excellent to have national parks established, the difficulty with making them meaningful lies in the enforcement of rules on entry and activity within the defined territory. Even American national parks are having trouble with poachers. The problem is certain to be more acute in less affluent areas, where the impulse to protect nature is more immediately threatened by poverty. Just 14 rangers patrol the 4,200 square kilometres of the Nouabale-Ndoki national park in Congo. Technology can play a part in park management: from satellite tracking and motion sensors to networks of internet connected metal detectors looking for guns and machetes.

Ultimately, technical fixes will probably not be adequate protection in the most vulnerable areas. The reasons for this are primarily economic. There is more money to be had in exploiting the content of parks than in protecting it, and there is no incentive for local people to refrain from damaging activities and be vigilant in preventing others from doing so. As with climate change, the biggest challenge lies in creating institutional and financial structures that encourage environmentally responsible behaviour. Growing recognition of that among policy-makers and the NGO community may eventually lead to much more effective enforcement mechanisms.

This article discusses the TrailGuard metal detectors in much more detail. They sound very clever, even if they are unlikely to solve any problems in and of themselves.

Cameron Hepburn on climate economics

Dr. Cameron Hepburn gave an informative presentation in the Merton MCR this evening on the economics of climate change. While it was largely a reflection of the emerging conventional wisdom, it was very professionally done and kept the audience in the packed Merton MCR asking questions right until it became necessary to disband for dinner. Dr. Hepburn, incidentally, is my friend Jennifer Helgeson’s supervisor.

My notes are on the wiki.

PS. When I imagined Oxford before coming here, the kind of rooms I imagined were more like the Merton MCR than most of the places I have actually seen. That probably derives from having my expectations defined by The Golden Compass and The Line of Beauty.

The IPCC and the cost of mitigation

The second half of the IPCC’s Fourth Assessment Report has now been released (PDF). Much like the earlier Stern Review, it was intended to assess possibilities for mitigating climate change and the costs associated with them. As with the Stern Review, the conclusion is that the problem can be dealt with at a fairly modest cost. Certainly, the sums in question are much smaller than the costs that would arise if the worst possible consequences of global warming were realized: from large-scale migration, to problems with C3 crops, to widespread agricultural failures (see this article on the ongoing Australian drought). The Economist is calling it “a bargain.”

That the Stern findings and those of the IPCC broadly agree is not at all surprising. After all, the Stern Review was based almost entirely upon the scientific conclusions of previous IPCC reports. Even so, such agreement can only help to foster increased political consensus, both within and between states, that climate change should be and can be dealt with. More than ever, it seems as though we are witnessing the start of a serious progression towards a low-carbon society.

Dealing the the problem of climate change will require unprecedented foresight and cooperation. As such, it is not unreasonable to think that the emergence of the kind of international regime that would be necessary to address it will foster cooperation in other areas. Something like global fisheries management does not have the same level of importance as addressing climate change, but the tools that will need to be developed to sort out the latter may advance our ability to behave more appropriately in relation to the former.