Links for the Week Ending 20 April 2014

Apologies for the lack of posts over the last few weeks. The demands on my time have been intense recently, and I have found little time to read, let alone write.

  • The third instalment of The Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report (AR5) was published on 12th April, hot on the heels of the second instalment  which came out on 31st March. The latest report is from Working Group III and is titled “Mitigation of Climate Change”. “The Summary for Policy Makers”, which pulls out the most pertinent points, can be found here. With mankind currently emitting around 50 giga tonnes of CO2 equivalent, it looks almost impossible to constrain end-of-century warming to 2 degrees Celsius.
  • Real Climate has an interesting commentary on this IPCC report by Brigitte Knopf (which you can find here). It highlights the fact that mitigation strategies remain relatively low cost. To avoid dangerous climate change would likely only require a reduction in global GDP growth from 2.0% to 1.94% per annum. Further, the Real Climate post also contains the infamous chart that was excluded from the original “Summary for Policy Makers” since it showed upper middle income countries (led by China) driving emission growth.
  • I am still skeptical over the Chinese growth story remaining intact for decades to come. The Q1 GDP release saw growth slowing to 7.4% (see here). Business Insider has a series of ugly charts on China here, while a Morgan Stanley report suggesting that China may be reaching a Minsky Moment (a credit inflexion point) has received a lot of comment (for example, here). Barry Ritholtz at The Big Picture has a series of charts showing the credit madness here. Personally, I still think China will ‘do a Japan’; that is, experience a sudden and sharp drop in GDP growth. Not good for China, but certainly good for climate change.
  • More generally, the upbeat ‘hiatus’ mentality is everywhere. We have a ‘hiatus’ in global mean temperature rise, a ‘hiatus’ in oil price increases (although the oil price is certainly not going down despite the shale story) and a ‘hiatus’ in the global financial crisis. The International Monetary Fund in its April “World Economic Outlook” publication (WEO) publication, sees global growth of 3.6% in 2014 and 3.9% in 2015, up from 3.3% in 2013. More important, it puts the risk of a near-term global recession close to zero. The Federal Reserve Board-led super monetary ease and abundant access to credit has, for the time being, proved victorious. I still believe that there are longer term forces at work which will confront the average household with a whole new world of risk by the end of the decade. The current ‘hiatuses’ provide a golden opportunity to prepare for the  future, but are generally seen as a confirmation of good times are here again. For the vast majority of people, including the educated, global warming is dead, peak oil is dead, and financial/economic risk is dead. We shall see.

 

Data Watch: UAH Global Mean Temperature March 2014 Release

On April 7th, Dr Roy Spencer released the University of Alabama-Huntsville (UAH) global average lower tropospheric temperature anomaly as measured by satellite for March 2014.

The anomaly refers to the difference between the current temperature reading and the average reading for the period 1981 to 2010 as per satellite measurements.

March 2014: Anomaly +0.17 degrees Celsius

This is the joint 7th warmest March temperature recorded since the satellite record was started in December 1978 (35 March observations). The warmest March to date over this period was in 2010, with an anomaly of +0.57 degrees Celsius.

The El Nino Southern Oscillation (ENSO) cycle is the main determinant of when global mean temperature hits a new record over the medium term (up to 30 years). In this connection, the U.S. government’s Climate Prediction Center is now giving a 50% chance of an El Nino developing this summer or fall (here). Should this happen, I would expect the UAH anomalies to head back up into the 0.5s, 0.6s or higher. The next update is on the 10th of April.

As background, five major global temperature time series are collated: three land-based and two satellite-based. The terrestrial readings are from NASA GISS (Goddard Institute for Space Studies), HadCRU (Hadley Centre/Climate Research Unit in the U.K.), and NCDC (National Climate Data Center). The lower-troposphere temperature satellite readings are from RSS (Remote Sensing Systems, data not released to the general public) and UAH (Univ. of Alabama at Huntsville).

The most high profile satellite-based series is put together by UAH and covers the period from December 1978 to the present. Like all these time series, the data is presented as an anomaly (difference) from the average, with the average in this case being the 30-year period from 1981 to 2010. UAH data is the earliest to be released each month.

The official link to the data at UAH can be found here, but most months we get a sneak preview of the release via the climatologist Dr Roy Spencer at his blog.

Spencer, and his colleague John Christy at UAH, are noted climate skeptics. They are also highly qualified climate scientists, who believe that natural climate variability accounts for most of recent warming. If they are correct, then we should see some flattening or even reversal of the upward trend within the UAH temperature time series over a long time period. To date, we haven’t (click for larger image).

UAH March 14 jpeg

That said, we also haven’t seen an exponential increase in temperature either, which would be required for us to reach the more pessimistic temperature projections for end of century. However, the data series is currently too short to rule out such rises in the future. Surprisingly, The Economist magazine has just published a very succinct summary of the main factors likely accounting for the recent hiatus in temperature rise (here).

One of the initial reasons for publicising this satellite-based data series was due to concerns over the accuracy of terrestrial-based measurements (worries over the urban heat island effect and other factors). The satellite data series have now been going long enough to compare the output directly with the surface-based measurements. All the time series are now accepted as telling the same story (for a fuller mathematical treatment of this, see Tamino’s post at the Open Mind blog here).

Note that the anomalies produced by different organisations are not directly comparable since they have different base periods. Accordingly, to compare them directly, you need to normalise each one by adjusting them to a common base period.

Links for the Week Ending 6 April 2014

  • The second instalment of The Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report (AR5), titled “Impacts, Adaption and Vulnerability”, was released in Tokyo on the 31st March and can be found here. The “Summary for Policymakers” can be downloaded here. On page 19 of the Summary, the IPCC states that “the incomplete estimates of global annual economic losses for additional temperature increases of around 2 degrees Celsius are between 0.2 and 2.0% of income (± one standard deviation around the mean)” with the risk for higher rather than lower losses. The report then goes on to say “Losses accelerate with greater warming, but few quantitative estimates have been completed for additional warming around 3 degrees Celsius or above”. Given that it looks almost impossible that we will constrain warming to 2 degrees Celsius based on the current CO2 emission path and the installed fossil fuel energy infrastructure base, the world really is going into an unknown world of risk with climate change.
  • A key area of economic loss from climate change relates to drought. To date, most models have focussed on precipitation as the principal driver of drought. A new paper by Cook et al in the journal Climate Dynamics titled “Global Warming and Drought in the 21st Century” gives greater emphasis to the role of evaporation (more technically, potential evapotranspiration or PET) in drought. Through better modelling of PET, the paper sees 43% of the global land area experiencing significant dryness by end of 21st century, up from 23% for models that principally looked at precipitation alone. A non-technical summary of the paper can be found here.
  • Meanwhile, the general public has lapsed back into apathy around the whole climate change question, partially due to the hiatus period in temperature rise we are currently experiencing. However, evidence is slowly mounting that we could be about to pop out of the hiatus on the back of a strong El Nino event (periods of high global temperature are linked to El Ninos). Weather Underground has been doing a good job of tracking this developing story, with another guest post from Dr. Michael Ventrice (here) explaining the major changes in the Pacific Ocean that have taken place over the last two months and which are setting us up for an El Nino event later in the spring or summer.
  • Changing subject, The Economist magazine ran a special report last week on robotics titled “Immigrants from the Future“. In some ways, I came away less impressed by the capabilities of the existing generation of robots than more.
  • I often blog on happiness issues (most recently here). This may seem strange for a blog whose stated focus is on such global risks as resource depletion and climate change, but I don’t see the contradiction. For me, much of our striving to extract and burn as much fossil fuel as possible comes through the pursuit of goals that don’t necessarily make us more happy. A new book by Zachary Karabell titled “The Leading Indicators” adds a new dimension to this argument. Karabell argues that over the last century or so we have created a series of statistics that are more than pure measurements of economic success. In short, they are ideology laden more than ideology free. Political parties set out their manifestos based on a mishmash of economic achievements and goals based on GDP, unemployment, inflation, the trade balance, interest rates, the strength of their national currency and so on and so forth. But these number encapsulate only part of well-being. Yet such statistics totally dominate political discourse because that is how we have been taught to keep score in a modern capitalist economy. As we career towards extremely dangerous climate change, I think it is time that we recognise these economic indicators for what they frequently have become: false gods. Karabell has an article in The Atlantic setting out the book’s main ideas here and there is a good review in The Week here.
  • Rising inequality has been one of the major economic development over the past 40 years. I am a great fan of the Word Bank economist Branko Milanovic, who wrote a wonderful book called “The Haves and Have-Nots: A Brief and Idiosyncratic History of Global Inequality“, in which he pulls together many strands of the inequality literature within a global context. I blogged on this once here. A nice complement to this book is the new web site titled Chartbook of Economic Inequality, which has been put together by two academic economists Anthony Atkinson and Salvatore Morelli. If you like infographics, you will love this site.

Links for the Week Ending 30 March 2014

  • The second instalment of The Intergovernmental Panel on Climate Change (IPCC)‘s Fifth Assessment Report (AR5), titled “Impacts, Adaption and Vulnerability”, is to be released in Tokyo tomorrow. There have been lots of leaks, but I would prefer to read the actual report before commenting on it further. Nonetheless, we have seen some good climate change reporting over the last week in the run-up to IPCC publication; for example, “Borrowed Time on Disappearing Land” in The New York Times, an article looking at the plight of Bangladeshis displaced by rising sea levels.
  • I frequently quote Joseph Tainter‘s “The Collapse of Complex Societies” and now NASA has created a research project that tackles the same theme. The Guardian has a good introductory article here, and the academic paper introducing the HANDY model looking at ‘collapse’ is here. It is not a million miles away from the World3 model which sat behind “The Limits to Growth” report to the Club of Rome way back in 1972.
  • The economist Tim Hartford is a past master at doing a hatchet job on the latest intellectual fad. Here he is in The Financial Times (access to the article after free registration) putting the boot into ‘Big Data’, in particular, its claim to be both more accurate yet still remove the need for statistical sampling, model building and an understanding of causation. I will quote Hartford: “Unfortunately, these four articles of faith are at best optimistic oversimplifications. At worst, according to David Spiegelhalter, Winton Professor of the Public Understanding of Risk at Cambridge university, they can be “complete bollocks. Absolute nonsense.”” I have blogged on Robert Gordon before (here), an economist who takes the hype behind these new technologies with a pinch of salt. Big Data, driverless cars, nano-technology, 3D printer— the list goes on. The first and second industrial revolutions produced steam power and the internal combustion engine, which together have put us into a climate crisis. I am still to be convinced that the technologies of the third industrial revolution (encompassing everything from the integrated circuit to Big Data) will get us out.
  • There was a time when economists looked down their noses at psychologists as being ‘woolly’; this is ironic since psychology, rather than economics, is far more amenable to the application of controlled experiments, a key component of the scientific method.  Daniel Kahneman and Amos Tversky were pioneers in applying psychological experiments to economic questions, and together they helped invent the discipline of behavioural economics. Tversky died in 1996, but Kahneman is still going strong and has just passed his 80th birthday. His influence has never been higher, helped by the success of his book “Thinking, Fast and Slow” which brought his ideas to a general audience outside of economic academia. The Edge has an interesting article in which a series of thought leaders from a variety of disciplines explain how they were influenced by Kahneman’s work. For myself, Kahneman made me reevaluate how I look at risk and also helped me understand why humans find themselves unable and unwilling to respond to the clear and present danger of climate change.
  • Salon has lovely article by a son trying to deal with a father lost in the hatred and bile of Fox News. Thankfully, I never experienced such a dilemma with my dad; he was a mildly grumpy conservative, but with a lasting affection for the NHS within which he worked as a doctor for the best part of 40 years. Of course, The UK has The Daily Mail, which thrives on a diet of righteous indignation (and stories of how the country is going to the dogs), but the UK has no real broadcast equivalent of Fox News. Thankfully.

Happiology Comes of Age

For non-Brits, the U.K.  has a strange annual ritual called ‘The Budget’, at which time the Chancellor of the Exchequer (the U.K. minister of finance) unveils his tax and expenditure plans for the year. For two to three days, ‘The Budget’ acts as  a media neutron bomb, destroying any other debate. The odd geopolitical story (Crimea) or human interest (MH370) story may limp on, but nothing much else can survive. Most PR staffers are acutely aware that ‘The Budget’ is a Bermuda Triangle for any press release and take a long weekend off. But not all.

The Legatum Institute (a non-partisan London-based think tank) chose budget day to release an important report called “Wellbeing and Policy“. Not surprisingly, media coverage was meagre, with The Financial Times being a notable exception (here). The report is authored by the great and the good of happiness academics including Angus Deaton, Martine Durand, David HalpernRichard Layard  and  Gus O’Donnell.

In my humble opinion, the burgeoning field of happiness economics is a truly exciting field of the social sciences—whose time has really come; as such, this report is important.

Moreover, as we contemplate a world facing ever greater headwinds to that of the traditional metric of success, GDP, happiness economics provides us with a rare opportunity to have our cake and eat it. That is, it should help us intelligently adapt to low or zero growth due to climate change and resource depletion, but at the same time maintain, or even improve, our level of social welfare.

The Legatum Institute report gives ground for some optimism (which is usually lacking in this blog). For a start, a wave of national statistical offices have started to collect data on subjective wellbeing (click for larger image).

Availability of Official National Statistics on Subjective Wellbeing jpeg

Moreover, the somewhat vague concept of ‘happiness’ has now been deconstructed to the extent we can isolate its three main elements: life evaluation (the remembering self: how do your rate your life), affect (hedonic feelings of pleasure or pain, joy or sadness, stress or relaxation) and eudaimonia (a sense of purpose to one’s life or ‘flourishing’). I’ve posted frequently on this topic, as, for example, here and here.

These three categories provide a very rich metric for measuring differing aspects of happiness, and each of these three categories has its own nuances and idiosyncrasies. Nonetheless, the job of national statistical offices is one of trade-offs: complex questionnaires have a price, both in return rates and the cost to complete and process. The trick is to produce the minimum number of necessary questions that are both simple yet not naive. The Organisation of Economic Cooperation and Development (OECD) has come up with a set of core measures of subjective welling:

OECD Core Measures of Subjective Welling jpeg

A1 relates to life evaluation, A2 covers (very simplistically) eudaimonia and A3 through A5 positive and negative affect.

It is very easy to pick away at the arbitrariness  of these questions. The “Wellbeing and Policy” report references a New York Times article (here) covering the work of Martin Seligman, one of the pioneers of the ‘positive psychology‘ movement, in which Seligman struggles to reconcile the eudaimonia produced by ‘flow’ from that of the satisfaction of just winning.

You might also start to question some of your goals and activities, the way that Dr. Seligman occasionally wonders why he spends so much time playing bridge. It’s brought him some clear achievements — including a second-place finish in the North American pairs championship — but he doesn’t pretend that bridge provides any meaning in life. He says he plays for another element of well-being, the feeling of engagement. “I go into flow playing bridge,” he writes, “but after a long tournament, when I look in the mirror, I worry that I am merely fidgeting until I die.”

Is playing bridge for the feeling of flow any more worthwhile than playing it just to win? Dr. Seligman doesn’t want to judge.

“My view of positive psychology is that it describes rather than prescribes what human beings do,” he says. “I don’t want to mess with people’s values. I’m not saying it’s a good or a bad thing to want to win for its own sake. I’m just describing what lots of people do. One’s job as a therapist is not to change what people value, but given what they value, to make them better at it.”

I am not so sure. In Dr. Seligman’s world, there exist bridge players who evidence no sense of ‘flow’ nor sense of satisfaction in the game they play. But I wonder how they evaluate their life satisfaction or positive and negative affect. Yes, this is all difficult, but just because it is difficult does not mean it lacks depth.

A silent revolution appears in train, where we collect ever more data on happiness and decide what that data means. ‘Happiology’ is not GDP for hippies. I would turn this around: GDP is the measure of success for the educationally subnormal. It’s both simple and stupid. We are just starting to get to grips with what happiness means—and its complicated. But we are adults, and it is time to put  away childish things—such as our obsession with GDP.

Lack of Growth Economics

Various individuals have been writing about ‘no growth’ or ‘negative growth’ economics in recent years: Richard Heinberg of the Post Carbon Institute springs to mind; or for those who like to ski off piste, James Kunstler at Clusterfuck Nation or Nicole Foss at Automatic Earth. But don’t expect to find any hypertext links to Heinberg et al’s writings at Economist’s Viewthe highest profile aggregator of economic commentary collated by economics professor Mark Thoma—since the CVs of all three can best be described as lacking gravitas in the area of formal economics.

Then something strange happened back in September 2012. Heinberg, Foss and Kunstler unknowingly recruited the most unlikely of allies.

The doyen of growth economists Robert Gordon wrote a short commentary for the Centre for Economic Policy Research suggesting that the glory days of economic growth in the U.S. were gone for good. Gordon’s “Is US Economic Growth Over? Faltering Innovation Confronts the Six Head Winds” is still an important read and can be found here. In the paper, Gordon  suggested that the last 250 years of high growth could be considered an exception rather than the rule:

Since Solow’s seminal work in the 1950s, economic growth has been regarded as a continuous process that will persist forever. But there was virtually no economic growth before 1750, suggesting that the rapid progress made over the past 250 years could well be a unique episode in human history rather than a guarantee of endless future advance at the same rate.

The unique nature of recent growth can be put in perspective by looking at the following chart from Gordon’s paper that splices together a times series from the U.S. and England (obviously data doesn’t go as far back as 1300 for the U.S.):

Growth in Real GDP per Capita jpeg

Gordon then went on to make what he calls a “fantasy forecast”, under which growth in GDP per head declines to the rate of 0.2% per annum by the end of the century.

Real GDP Fantasy Forecast jpeg

By fantasy, he meant a hypothetical growth rate that would be consistent with the six headwinds to growth that he identified, albeit accepting a degree of uncertainty in the chosen variables. The six head winds are as follows:

  1. Poor demographics
  2. Faltering educational attainment
  3. Rising inequality
  4. Globalisation
  5. Energy depletion and environmental degradation
  6. The burden of household and government debt

Each headwind is given a rough value that subtracts from the 1.8% average GDP per head growth rate that was sustained for the two decades up until the credit crisis of 2007.

Growth Subtraction Gordon jpeg

For some additional colour on his thinking, you can find a TED talk of Gordon’s here.

Eighteen months on and Gordon is back with a paper for the National Bureau of Economic Research (NBER) called “The Demise of U.S. Economic Growth: Restatement, Rebuttal, and Reflections”. It’s behind a paywall (here), although you can buy a copy for $5, but I will pluck out a few charts and the main points. First, this critical chart:

Disposable Real Income Growth jpeg

At first glance, it looks similar to Figure 6 from the original commentary that I reproduced above, but actually there are some substantive differences.

First, our starting point is the average GDP growth rate from 1891 until 2007, encompassing the entire Second Industrial Revolution (to use Gordon’s terminology) and its aftermath;  the growth figure (GDP per head) he gives for this period is 2.0% per annum. We then subtract bad demographics (-0.3%), the stagnation in education attainment (-0.2%), rising inequality for the bottom 99% of the income distribution (-0.5%) and debt transfers (-0.2%).

The last bar is critical since it captures faltering innovation (-0.6%), which Gordon sees as a central concern for all advanced economies. He contrasts the three general purpose technologies—electricity, the internal combustion engine and remote communications by telegraph and then telephone—developed during the Second Industrial Revolution with the lesser value information technologies of the so called Third Industrial Revolution currently taking place.

Gordon is lukewarm with respect to the degree to which the current information and communication technology revolution have contributed to human welfare. Here are the main fruits of the so called IR3 as he sees them (click for larger image):

Third Industrial Revolution

Yet, despite these innovations, productivity has already slowed substantially:

Annualised Growth Rates of Output per Hour jpeg

Gordon is at pains to stress that he is not forecasting a new slowdown in productivity, just extrapolating one that has already taken place:

There is no need to predict any faltering or slowdown in the rate of innovation over the next 40 years. My baseline productivity growth forecast (for the total economy) of 1.30 percent per year starts from the realised growth rate over 1972-2012 of 1.59% and subtracts Jorgenson’s 0.27% precent for the likely effect of the slower advance of education attainment.

He is also highly skeptical of those techno-optimists like Brynjolfsson and McAfee who see a technical nirvana.

They remind us Moore’s Law that predicts endless exponential growth of the performance capability of computer chips, without recognising that the translation from Moore’s Law to the performance-price behaviour of ICT equipment peaked in 1998 and has declined ever since.

Moreover, all those new technologies beloved by newspaper columnists receive short shrift including small robots, AI, 3-D printing, gene-based medicine, Big Data and driverless cars. In Gordon’s view, most of these are merely refinements of existing technologies that date back decades. Further, although there was a short-lived jump in technology led productivity during the tech boom of 1996-2004, such gains have since slumped. So why should the future be any different?

Lastly, and critically, the new paper leaves out two head winds to growth from his older analysis: globalisation and energy/environment. If you add these into the new new forecast, then it is easy to take future growth into negative territory.

Factor in some geopolitical instability, and a low level class war as the 99% bite back, and things could get even worse. And this is without any consideration of Joseph Tainter-style fragilities. Our complex societies have been built on the assumption of ever-lasting growth. Reverse growth and our socio-economic institutions look weak—just look at the challenges facing health provision and pensions in the West.

In total, it may not all add up to Kunstler’s dystopian vision of the future chronicled in his “Made by Hand” series of novels, where society cannot even maintain the necessary technology to sustain transport by bicycle, but it could certainly be a very different world from the one which we inhabit today.

Links for the Week Ending 9 March 2014

Apologies for the late posting of this week’s links. Has been a crazy week.

  • For those of a non-business background, any reference to The Economist magazine with respect to climate change may appear strange. Who cares what The Economist writes on the subject? I would beg to disagree. Few, if any, senior business executives will read posts on Real Climate or Skeptical Science, let alone academic articles on the subject. For English speakers, most climate change commentary will come out of the pages (much of which will, of course, be online these days) of The Wall Street Journal, The Financial Times, other serious non-financial dailies like The New York Times in the U.S. and The Telegraph in the U.K., a motley collection of weeklies like Forbes, and, of course, The Economist. And The Economist is rather special in terms of its reach into board rooms across the globe (and for that matter cabinet offices). For example, Playboy Magazine once asked Bill Gates what he reads. The answer: “The Economist, every page”. A year ago, The Economist wrote an extended article on the global warming ‘hiatus’ that, I thought, gave too much weight to a few studies suggesting that climate sensitivity was far lower than previously thought (here, free registration). This week, however, the magazine made amends by publishing an excellent piece titled “Who pressed the pause button?” on the so called ‘hiatus’ in temperature rise. It ended with this statement:  “Most of the circumstances that have put the planet’s temperature rise on “pause” look temporary. Like the Terminator, global warming will be back.”
  • Talking of ‘The Terminator’, The Guardian carries an interview with the Crown Prince of techno-optimists and Google geek in chief Ray Kurzweil. God help us if anyone actually believes this stuff.
  • Up the road from me in Oxford is the NGO Climate Outreach and Information Network (COIN). Its founder George Marshall has an interesting blog that looks at the narratives surrounding climate change. In a post called “How the Climate Change Messengers Became Blamed for the Floods” he deconstructs the media’s reaction to the recent U.K. floods. It’s somewhat depressing stuff.
  • One of the sharpest observers of the shale hype has been the petroleum geologist Art Berman. He has a site called The Petroleum Truth Report, but, frustratingly, doesn’t keep it current. Fortunately, he has just given a new interview with Oilprice.com updating us on his recent thinking. The interview is full of gems such as this: “Oil companies have to make a big deal about shale plays because that is all that is left in the world. Let’s face it: these are truly awful reservoir rocks and that is why we waited until all more attractive opportunities were exhausted before developing them. It is completely unreasonable to expect better performance from bad reservoirs than from better reservoirs.” I highly recommend you read the whole thing.
  • The economist Noah Smith writes a lively blog called Noahpinion. In this post he makes some keen observations on the ‘jobs and robots’ debate, while in this article in The Week he compares America’s decline with the collapse of the Ming Dynasty.