Category: Economics

Matters of money

Helping kids pay for college

These days, it seems like having a university degree is the equivalent of having a high school diploma in previous generations – it is simply the requirement in order to even be considered for most professional jobs.

At the same time, university is expensive and comes at a time when people do not have savings or earnings of their own. For many people, the late teens and twenties will be the poorest time in their life, as they are no longer fully provided for by parents but cannot yet get jobs good enough to let them live in comfort. In most cases, they definitely cannot get jobs that pay the cost of living and university tuition, while not requiring so much time and commitment that it undermines their ability to study and benefit from school.

A case can be made that people who choose to have children have some level of moral obligation to help pay for university, in the event that their kids can get in and want to go. Providing such a transfer of wealth to one’s children could help set them on a good path for their entire life. It provides a useful qualification, as well as a key venue to meet future friends, allies, and potential spouses. It is enormously more useful than a lump-sum inheritance received much later in life, when their personal trajectory will already have been basically established. You will also be contributing to the development of an educated and productive populace.

People who themselves went to college probably have a bit more of an obligation to provide a similar opportunity, especially if they received financial help from their own parents. Even for those who didn’t, it is worth bearing in mind that school used to cost a lot less, so people going today have more need for help.

An obligation to help pay for university adds significantly to the total cost of having children, but nobody should be under the illusion that doing so will be cheap. If you don’t feel inclined to invest significantly in your children, my recommendation would be getting a couple of friendly dogs instead.

On a semi-related note, university education is also a smart thing to consider when choosing a spouse. There seems to be a lot of evidence that the more educated a person’s mother is, the better they are likely to do in school, work, and life generally.

Possible doctoral topic: can renewables power the world?

It may seem like an unusual topic for a PhD thesis in International Relations / Politics, but it seems to me like it could actually be a useful and interesting one.

The questions would be:

  1. What kind of standard of living could be supported for the world population using only renewable forms of energy?
  2. How quickly could that be deployed, given all the technical and political hurdles?

Ultimately, it is a very political question. The geopolitics of energy have already been front-and-centre for decades, since at least the 1973 oil price shocks. There is also the large and growing dependence of the European Union on Russia for gas, as well as increasing American dependence on exceptionally dirty oil from Canada.

The research could include investigation of places that have already deployed various renewables widely (hydro in Quebec, geothermal in Iceland, wind in Denmark, etc), as well as consideration of what is happening in rapidly developing states like China.

Thoughts? Suggestions?

Planet Money on drug legalization and ‘Freeway Rick’

In a recent episode of NPR’s Planet Money podcast, they interviewed a former L.A. drug dealer about the economics of his profession. He was apparently a high-ranking member of the illegal drug industry, operating with 30-40 employees and sometimes handling daily revenues of $3 million per day.

He largely confirms the new conventional wisdom: that prohibition massively increases the price of drugs (1000 fold, he says) and substantially increases how much crime and violence is associated. As the episode concludes in saying, the question is whether the supposed benefit of fewer people using drugs justifies all the costs and harms associated with prohibition.

Imagine anybody could buy one shot of heroin at the LCBO (Ontario’s liquor store) for $5. Suddenly, there would be no illegal market. Nobody would buy heroin of unknown purity from an illegal dealer if it was available for a low price from a government-sponsored source. People would not have to commit major crimes to buy drugs, and they would get drugs of assured priority and consistent potency. More people might use heroin, but it would be less dangerous and harmful for society as a whole.

The episode also argues that it is the hopelessness within their communities that drives people to become drug addicts and to join the illegal drug industry. The lack of better employment options makes the special costs in terms of jail or violence less of a deterrent than they would be for people with better options.

The episode is called: “#266: A Former Crack Dealer On the Economics of Dealing”. It is available for free through the iTunes Store.

Don’t emulate the US on health

On CBC’s The Current the other day, there was a panel discussion about health care costs and Canada’s system. Partly, it was a response to a recent article by David Dodge and Richard Dion. They basically say that health care in Canada is going to get too expensive, and lists some possible actions to respond to that.

One action that is mentioned by them and others is to more closely emulate the United States by having more of a private health care system. It seems to me that the point that should be stressed in response to that is that the United States has a poor health care system, particularly when it comes to value for money. Private insurers paying private health care providers does little to reduce the serious economic externalities that exist in relation to health care. The US system also does poorly on objective measures like life expectancy and infant mortality, especially when considered in terms of outcomes per dollars spent. The weird hybrid character of the US system – with insurance tied to jobs and adults with pre-existing conditions barred from new coverage – also produces significant economic inefficiencies, as people risk losing the health care along with their jobs and never being able to secure coverage again.

Ultimately, the mechanism for controlling health care costs is rationing. We cannot afford to give every drug and treatment to everybody, since we could theoretically spend an infinite amount of money on each citizen. What we can do is fund those interventions that are justified by the degree to which they extend and improve a person’s life. The super rich will always be able to afford to buy a superior quality of care out of pocket – and they can do so perfectly easily outside Canada. For our society as a whole, however, our health system should be focused on producing the best outcome possible for the greatest number of people at a reasonable cost.

Science endorses bling

I knew designer labels had a psychological effect on people who see them, but I am surprised by the size of the effects discovered by researchers at Tilburg University in the Netherlands. They found that people in designer labelled clothes were rated as significantly higher status and wealthier than those in the same clothes sans labels. They found that 52% of people would take a survey from a person in a Tommy Hilfiger garment, compared with 13% for the same garment without the logo. They also found people more willing to give a job to someone bearing a designer logo, with a recommended salary 9% higher.

The strategies suggested by this data are pretty obvious: even if it seems a bit tasteless, it may be wise to emblazon yourself with labels, especially when dealing with strangers.

Should the Green Party have a full platform?

Apparently, the Green Party has a position on income splitting. If this seems a bit random and disconnected from the environment, it is also reflective of a controversial question about what the party ought to be.

Given our first-past-the-post electoral system, the Green Party is never likely to elect many MPs. At the same time, the party has a reasonably large number of supporters – quite possibly more supporters across Canada than the Bloc Quebecois. I would argue that the main message these voters are sending is that Canada needs to take better care of the environment, and prioritize the development of a sustainable society more than we do now. I don’t think they are really endorsing their personal Green candidates, for the most part, or even that they are endorsing the overall Green platform.

Since they will never form a government (barring major constitutional reform, or a huge realignment of voter preferences), it seems there is a strong case to be made for the Greens sticking to their core message and not campaigning on unrelated issues (except as individual candidates, if they wish). It seems like taking a stance on environmentally unrelated things could lead to voters who disagree on those peripheral issues rejecting the party. If the Green Party took a strong stance on an issue like whether Canada should (or should not) have intervened in Libya, the risk is that they would be broadening their message somewhat pointlessly and alienating potential supporters. The Green Party isn’t about income splitting, or intellectual property rights, or criminal justice policy. There may be areas in which policies in this area have environmental effects – and it makes sense for the Greens to comment on them in those senses – but I don’t see the sense in them unnecessarily adopting political positions outside their area of core competency.

What do others think? Would the Greens be a more effective force for driving improved environmental policies if they focus on that area exclusively, or does seeking to be a party with a comprehensive platform actually make more sense for them given the nature of our electoral system and what they want to achieve?

F-35s and UAVs

A recent letter in The Ottawa Citizen makes an interesting point:

Our CF-18s don’t need to be replaced. Lockheed-Martin needs to sell F-35s right now. The window is closing because UAV (unmanned aerial vehicle) technology is advancing by leaps and bounds. The F-35 is like the last word in cavalry horses in 1914. By the time we actually need CF-18 replacements, that fleet won’t have cockpits.

Is there a role for which piloted combat aircraft will always be best? Perhaps air show demonstrations. Apart from that, the wide range of UAV sensors will always trump eyeballs in the cockpit. The executive decisions of a team of controllers on the ground will always trump the snap judgments of the over-tasked pilot in the air. And finally, the performance of an aircraft that isn’t bound by human limits will always be able to trump the Top Gun solution. The only ingredient missing from UAVs is testosterone.

Perhaps this is the wrong time to be buying manned fighter aircraft, even from a purely military perspective (ignoring the question of whether the money could be better spent on non-military purposes).

‘Bling Boxes’

You may recall the much-hyped ‘Bloom Box’ which promised to be a climate change solution, but which mostly just shifted natural gas burning from big central facilities to a handful of small distributed ones.

More promising is the air capture and sequestration system developed by Bling Box Systems. Their system takes advantage of the 1797 discovery that diamonds are composed of pure carbon, along with the High-Pressure High-Temperature (HPHT) synthesis process developed by General Electric and others in the 1970s. The internet-equipped Bling Box calculates the annual carbon footprint of the individual or family who it belongs to, and then uses an amine process to separate an equivalent quantity of carbon dioxide (CO2) from ambient air. It then uses a patented process to subject the gas to over ten gigapascals of pressure (compared with about 100 kilopascals for ordinary atmospheric pressure), inducing the transformation of the CO2 gas into diamonds made of pure carbon, along with oxygen gas.

Naturally, the amine separation and HPHT processing take up energy themselves. Bling Boxes are configured to calculate the associated emissions based on the electricity generation mix in the area where they are installed. They then produce additional gems to compensate. This ‘bonus bling’ can actually be more massive than the ordinary offset variety, for people living in areas where electricity comes from carbon-intensive sources like coal-fired power plants. People living in areas with lots of wind farms or nuclear power stations will find themselves with smaller heaps of bonus bling at the end of the year.

The oxygen produced by the Bling Boxes can also be put to use: for instance, in equipping an oxygen bar or tent for the use of the owners of the device.

The deployment of Bling Boxes is set to substantially alter the global market for diamonds. Even before taking into account bonus bling, the average Canadian’s Bling Box would produce about 23,000 kg worth of diamonds per year. For the sake of comparison, an African Elephant weighs about 5,000 to 6,000 kg. If they become universal, Canada as a whole would be putting out about 700 billion kilograms worth of stones, bonus bling excluded. That compares with a global total of about 26,000 kg of diamonds mined around the world each year. Each Canadian emitter will be a De Beers unto themselves.

As the technology is deployed globally, bling production will increase still further. Total human CO2 production is sitting at around thirty billion tonnes per year. Converted into bling, that would represent about a million years worth of diamond mining, produced each and every year until humanity changes its sources of energy. Diamond output at that scale would swamp any conceivable set of uses for the stones, so I expect they will mostly end up being dumped into depleted oil and gas reservoirs, and perhaps injected into underground aquifers. Diamond-based carbon capture and storage (DBCCS) would have many advantages over plans to inject the carbon underground in gas or liquid form. For instance, there would be no risk of suffocating leaks.

By changing the economics of the global diamond market substantially, Bling Boxes do risk undermining the traditional role of the clear stones as a girl’s best friend. The ability of these rocks to not lose their shape (whether square cut or pear-shaped) will be less impressive when the world is liberally scattered with billions of fist-sized stones. As such, material girls are advised to shift their preferred form of wealth storage before Bling Boxes become commonplace. There is no reason to believe that the deployment of this technology will undermine the traditional relationship between boys having cold hard cash and them being Mr. Right.

Planning for Vancouver’s mega-quake

Everyone in Vancouver knows that one day, the ‘big one’ will come – a massive earthquake starting at the Cascadia subduction zone that runs between California and Vancouver Island. Back on January 26th, 1700, the zone experienced a ‘megaquake’ of magnitude 9.0 or more that swamped villages in Japan with the tsunami it created. It is estimated that the chances of a similar quake during the next 50 years are about one in three.

That is certainly something that should be borne in mind when deciding whether to construct dangerous infrastructure in the region. That includes nuclear power plants, but also oil refineries, natural gas infrastructure, chemical plants, and more.

It seems possible that lifelong awareness that a massive earthquake could occur might contribute a bit of apocalyptic psychology to the people of Vancouver. Even as a small child, I remembered being grateful to live in one of the parts of the city well above sea level. In elementary school, we each had little emergency preparedness baggies with food and water. They probably wouldn’t have done much good though: both my elementary school and high school had cinderblock walls with heavy concrete slabs for ceilings and floors. In a big earthquake, everyone inside would probably have been crushed.