Tag Archives: Disaster

One Book To Save Them

William Grassie has a fuzzy-headed far view on surviving catastrophe:

Imagine a major planetary catastrophe, … something in the order of the Mt. Toba supervolcano … some 73,000 years ago. … Humanity was reduced to some 1000-to-10,000 breeding pairs. … One of the thirty or so supervolcanos … is the Yellowstone Basin. … The United States disappears in the course of a few days. … The survivors would be reduced to subsistence farming, gathering, hunting, and fishing in areas around the earth’s equator. … Let’s say that humanity is again reduced to some 10,000 breeding pairs. …

What knowledge from today would be most valuable to these survivors as they tried to rebuild their lives and repopulate the earth? … You get to choose one book. …  Stockpiling food and weapons in the mountains of Idaho would be a silly and small-minded emergency plan. … Instead of focusing on the survival of my tribe, my family, or myself, we need to focus on the survival of civilization. ….  And the only way to do this with assurance is to distribute the most valuable and practical knowledge as widely as possible across the planet today in anticipation that unfortunate day. …

The book I would chose is Maps of Time: An Introduction to Big History. … It is the combined history of the universe, our creative planet, and our restless species. …. Catastrophic collapses, however, are part of the big story. … Civilizations do not last forever. Farmlands become deleted. … Continue Reading "One Book To Save Them" »

Tax Bank Collapse Risk?

A week ago I said:

The main general approaches I know [to avoid total collapse] are refuges, to directly protect against the worst case, and the robustness rewards above, which counter-act known problems that distort our world economy toward fragility.

I suggested fixing current biases in intellectual property, empire bias, crisis metrics, and missing standards.  Here is a finance regulation proposal in the same spirit:

The Obama proposal for bank taxation has simple flat rates on uninsured bank liabilities. This is a better target than total liabilities since deposits were already insured, and the intervention bailed out wholesale funding.  But is such a flat tax designed to control risk creation? John Kay (2010) argues against it. Meanwhile Viral Acharya and Mathew Richardson (2010) argue that the bailouts have generated more moral hazard and suggest a fee discouraging all activity that creates systemic risk – not just leverage – and moreover that banks should be paying more in the good times when risk taking is more attractive.

In recent research, Javier Suarez and I (2009a, b) suggested a more subtle policy than President Obama’s – a Pigouvian tax based on banks’ individual contribution to systemic-risk creation, measured by their exposure to uninsured short-term funding. As in the Obama tax, this approach exempts insured deposits and targets the risk of sudden withdrawals of wholesale funding, which was the engine of the last crisis. Critically, our tax is sharper for shorter-term funding and decreases to zero for medium-term liabilities that do bear risk. In other words, it targets the externality caused by funding fragility and offers strong incentive effects in good times.

I’m not a banking or macro expert, and there is clearly a danger of fighting the last war here, but at least this seems focused on the right sort of problem.  HT Rob Wiblin.

Reward Robustness

Me in October:

In August I reported that economic disasters seem thin-tailed, and so are not existential risks.  Even so, [a new study suggests] we should still devote more attention to them.

What makes the global economy vulnerable to economic collapse, and what can we do about it?  Anders Sandberg explores one key issue:

If we want to increase the resiliency of our society we should work on increasing substitutability.  Devices and software should be able to use alternative infrastructures.  Knowledge of what can be substituted for what should be disseminated (so no time is lost when disaster strikes in trying to figure it out). This is particularly true in areas where many different kinds of inputs are needed.

Anders is right: our economy gets a bit more vulnerable to collapse each time a particular product or service uses a specialized input, available from only a few suppliers, rather than a general and widely available input.  For example, it is easier to replace a cell phone’s battery in a jam if that phone uses AA batteries, instead of a battery built especially for that phone.

Of course as the phone example illustrates, we wouldn’t want to arbitrarily require more general inputs to everything; much of our wealth comes from a division of labor, enabled by specialized inputs.  Regulatory agencies with discretion to declare which inputs must be general sound like a disaster.  Let us instead think like economists, and ask when market (or legal or state) failures may induce overly-specialized inputs:

  • Intellectual Property – many ideas for new products or services are not pursued because investors fear that if a first mover shows the product to be viable, it will be too easy for second movers to take over the market.  Investors prefer business plans centered on a specialized input that second movers cannot easily acquire, such as a key patent.  If we could create better incentives for innovating with general inputs, our economy would be less fragile.
  • Empire Bias – Firms are reluctant to buy specialized inputs, or to sell specialized products, or fear of being subject to extortion once two firms have become dependent on one another.  This fear makes firms either avoid specialized inputs, or merge such matched activities into a single firm.  Since manager empire-building already seems to make firms too large, ways to discourage this, such as enabling raiders, would also make our economy less fragile.
  • Crisis Metrics – Most contracts to buy inputs do not explicitly condition on collapse cues.  For example, the price we pay for electricity or phone service does not change when a collapse looms, even though we are willing to pay more to ensure continued service.  Such providers thus have insufficient incentives to ensure continued service in a crisis.  If we could publish independent metrics that flagged crisis situations, so that contracts could condition prices on such metrics, suppliers could have better incentives to avoid specialization that risked their reliability in a crisis.
  • Missing Standards – Firms often prefer incompatible standards in order to increase customer lock-in and reduce competition.  Policies that discourage incompatible standards would also reduce economic fragility.

While there are many ways to avoid specific disaster scenarios, the main general approaches I know are refuges, to directly protect against the worst case, and the robustness rewards above, which counter-act known problems that distort our world economy toward fragility.

After Armageddon

Someone at the grocery checkout mentioned I was on TV last night, in the History Channel’s After Armageddon.  Apparently I’m on camera several times; I think this quote is from me:

Another expert said it best: “We like to think that moral progress has made us nice people. We’ve heard that our distant ancestors were mean and cruel and ruthless, and we can’t imagine that we would be such people – but we’re nice mainly because we’re rich and comfortable. And when we’re no longer rich and comfortable, we won’t be as nice.”

It will be reshown Saturday and Sunday, so I’ll get to see it then.  (I recorded this in August, at their excess expense.  If you thought such shows would tell interviewees when the show airs, well you’d be wrong.)

Bad News On Human Extinction

Disasters that destroy all but a thousand humans are more likely than disasters that destroy all but a hundred humans.  So this news says human extinction is more likely than we thought:

Conservation biologists may be deluding themselves. An analysis of the minimum number of individuals needed for a species to survive in the long term has found that current conservation practices underestimate the risk of extinction by not fully allowing for the dangers posed by the loss of genetic diversity. If correct, it means the number of individuals in endangered species are being allowed to dwindle too far.

Lochran Traill at the University of Adelaide, Australia, and colleagues found that for thousands of species the minimum viable population size (MVP) – where a species has a 90 per cent chance of surviving the next 100 years – comes in at thousands rather than hundreds of individuals. Many biologists, Traill says, work with lower numbers and so allow unacceptably high extinction risks.

Self Assured Destruction

If you thought mutually assured destruction was strange, wrap your mind around this:

An actual doomsday device—a real, functioning version of the ultimate weapon, [was] always presumed to exist only as a fantasy of apocalypse-obsessed science fiction writers and paranoid über-hawks. … Turns out Yarynich, a 30-year veteran of the Soviet Strategic Rocket Forces and Soviet General Staff, helped build one. The point of the system, he explains, was to guarantee an automatic Soviet response to an American nuclear strike. Even if the US crippled the USSR with a surprise attack, the Soviets could still hit back. It wouldn’t matter if the US blew up the Kremlin, took out the defense ministry, severed the communications network, and killed everyone with stars on their shoulders. Ground-based sensors would detect that a devastating blow had been struck and a counterattack would be launched. …

The Russians still won’t discuss it, and Americans at the highest levels—including former top officials at the State Department and White House—say they’ve never heard of it. … So why didn’t the Soviets tell the world, or at least the White House, about it? … In fact, the Soviet military didn’t even inform its own civilian arms negotiators. … The Soviets had taken game theory one step further than Kubrick, Szilard, and everyone else: They built a system to deter themselves. … By guaranteeing that Moscow could hit back, Perimeter was actually designed to keep an overeager Soviet military or civilian leader from launching prematurely during a crisis. … No matter what was going to happen, there still would be revenge.

Disasters Are Worth Preventing

In August I reported that economic disasters seem thin-tailed, and so are not existential risks.  Even so, it seems we should still devote more attention to them:

What is the likelihood that the U.S. will experience a devastating catastrophic event over the next few decades — something that would substantially reduce the capital stock, GDP and wealth?  …  How much should society be willing to pay to reduce the probability or likely impact of such an event?  We address these questions using a general equilibrium model that describes production, capital accumulation, and household preferences, and includes as an integral part the possible arrival of catastrophic shocks. …

We model catastrophes as Poisson events with some mean arrival rate, and an impact characterized by a one-parameter [thin-tailed] power probability distribution. … We calibrate our model so that it fits the basic data for the consumption-investment ratio, the risk-free interest rate, the equity premium, Tobin’s q , and the average real growth rate.  We thereby calculate the implied characteristics of catastrophes, and also determine how those characteristics vary over a range of values for the preference parameters. …

We found the annual probability of a catastrophe to between 0 and about .04. A reasonable estimate would be in the middle of our range, i.e., around .02. This is close to Barro’s (2006) estimate from historical data, but was obtained in a very different way. Our estimates of the impact distribution and expected loss should a catastrophe occur are tighter, but depend on the index of risk aversion (which we take to be between 2 and 4). However, the expected losses are large; about 26 to 32 percent …  We calculated … the permanent tax on consumption that society would accept to reduce the annual probability of a catastrophe by some percentage. Using the mid-range estimate of .02 for the annual probability, a permanent consumption tax of about 9 percent would be justified if it could cut this probability in half. Even if the probability is lower than .02, our results suggest that governments should devote greater resources to reducing the risk and potential impact of a global catastrophe.

Nature is Doomed

Long ago humans pioneered some very powerful innovations, innovations that have allowed us to grow in capability much faster than the rest of nature.  As humans grew more capable, we learned to live in more kinds of places, and to use more of the plants and animals in each place.  We didn’t always destroy non-human living nature – sometimes we converted it to farms, pets, or parks.  But we only left nature alone when we couldn’t figure out how to make use of it, or of what it used.  Our expanded use of nature has left less for other species, often leading to their extinction.

This trend has continued in recent times: as we learn more ways to use nature, we use nature more.  There has been, however, one notable exception: rising wages over the last few hundred years have made us abandon some old practices.  For example, during the depression my grandparents farmed marginal land in Kentucky that is now forest.  We still know how to farm the land, and with free immigration it would still be farmed, but as it is labor is too expensive for farming.

This reprieve won’t last.  Wages have risen because economic growth rates have outpaced feasible rates of growing well-trained people.  But current growth rates simply cannot continue at familiar levels for ten thousand more years.  We’ll eventually learn everything worth knowing about how to arrange atoms, and growth in available atoms will be limited by the speed of light.  So over this timescale growth rates simply must fall below feasible population growth rates.  (I actually expect a new brain emulation tech to allow very fast population growth in a century or two, but this is tangential to my argument here.)

With familiar competitive habits, this growth rate change implies falling wages for intelligent labor, canceling nature’s recent high-wage reprieve.  So if we continue to use all the nature our abilities allow, abilities growing much faster than nature’s abilities to resist us, within ten thousand years at most (and more likely a few centuries) we’ll use pretty much all of nature, with only farms, pets and (economically) small parks remaining.  If we keep growing competitively, nature is doomed.

Of course we’ll still need some functioning ecosystems to support farming a while longer, until we learn how to make food without farms, or bodies using simpler fuels.  Hopefully we’ll assimilate most innovations worth digging out of nature, and deep underground single cell life will probably last the longest.  But these may be cold comfort to most nature lovers.

Yes, nature would be saved if we destroy ourselves without destroying nature in the process, but hopefully we’ll avoid this scenario.  We might also somehow coordinate to prevent competitive growth.  For example, we might empower a world government to protect nature, prevent innovation, or prevent population growth.  But I honestly see little prospect of this.  We now live in a very competitive world, and even governments mainly just redirect competition, toward controlling those governments.

We like nature, but aren’t really willing to pay the price it would take to save most of it.  Nature than cannot survive as farms, pets, or small parks, is doomed.

The Dark Side of Cooperation

Cooperation is a popular topic these days.  For example, see this Science review article and this Nature book review of de Waal’s The Age of Empathy:

A repeated foil throughout is Gordon Gekko, from the 1987 movie Wall Street, who reiterates in various forms the basic credo that “greed is good”. … [de Waal's] main political message is that we should not continue to harp on about evolution justifying only the selfish side of human nature, although of course that exists. He urges that we must also capitalize on the empathetic and cooperative attitudes that evolution has equipped us with, writing: “A society that ignores these tendencies can’t be optimal”.

Here is a New Scientist book review:

Given all that we know about empathy in animals, why do so many persist in seeing ours as a dog-eat-dog world? De Waal chalks it up to what he calls “macho origin myths”, which insist that “our species has been waging war for as long as it has been around”. But humans have shown empathy for as long as we’ve been around too.

Many stories discuss recent research on how cooperation can be sustained by norms to punish non-cooperators, and punish those who don’t punish non-cooperators, etc.  For example, New Scientist:

The temptation to freeload – reap the rewards without contributing anything – often leads to rapidly disintegrating cooperation.  Previous research found that cooperation is promoted by allowing players to punish freeloaders: cooperative players would pay a small cost that enables them to inflict a loss on the offender.

The unstated moral behind most media stories on our biological instincts to cooperate seems to be that we would do better to empower and emphasize these instincts.  Such as, oh, taxing carbon, and shaming those who don’t tax carbon. Continue Reading "The Dark Side of Cooperation" »

Downturns Are Not Existential Risks

Epidemics, wars, and quakes are distributed with long tails, so that most of the expected harm from such events are in the largest possible events.  Most who are expected to die in epidemics die in events that kill much of the population.  These long tail disasters plausibly embody existential risk – a risk to the existence of civilization and humanity.

A new paper on economic downturns suggests that such events do not have long tails, and so are not existential concerns:

In the rare-disasters setting, a key determinant of the equity premium is the size distribution of macroeconomic disasters, gauged by proportionate declines in per capita consumption or GDP. The long-term national-accounts data for up to 36 countries provide a large sample of disaster events of magnitude 10% or more. For this sample, a power-law density provides a good fit to the distribution of the ratio of normal to disaster consumption or GDP. The key parameter of the size distribution is the upper-tail exponent, alpha, estimated to be near 5, with a 95% confidence interval between 3-1/2 and 7. …

We work with the transformed disaster size z ≡ 1/(1-b), which is the ratio of normal to disaster consumption or GDP. … We start with a familiar (single) power law, which specifies the [probability] density function as f(z) = Az.

For a long tail, alpha needs to be two or less.