Free-market solutions to saving the environment?

December 28, 2011

The new Republican flavor of the week is Ron Paul, and since he looks like a contender to win the Iowa caucuses, I’ve been reading up on libertarianism and its proposed solutions on several issues that critics historically identify as failings of the free market.

I think that Ron Paul has not properly addressed the issue of climate change and environmental protection. He claims to have approached the problem “the same way [he] look[s] at all other serious issues: as objectively and open-minded as possible.” His interpretation of climate data, although a step up from his fellow party members, is still wishy-washy. Maybe, considering the results of the recent Berkeley Earth Surface Temperature Study might warrant a second look from Mr. Paul.

However, many libertarian solutions to saving the environment are intriguing, and they might end up saving us. While most Western countries’ governments debate the best ways to combat climate change, Congress seems to spend its time arguing about whether it’s even real.

And what if it isn’t? I remember a quote from somewhere a few years ago, which went something like, “Maybe one day, when we’re independent of foreign energy and our environment is clean and well-preserved, it’ll turn out that global warming was a hoax after all. Then we’ll say, ‘Man, those liberals really got us, huh?'” There are a lot of free-market incentives to searching for sustainable and environmentally friendly energy sources. Solar power can be cheap, abundant, clean, and non-political. Much of the turmoil in the Middle East would effectively end, and corrupt and repressive dictatorships from Venezuela to Russia would collapse.

Solar power doesn’t even have to be a cute little thing that wealthy liberal Western European countries such as Germany or Denmark subsidize – according to this article, solar power could be, in terms of efficiency and cost, a better alternative to hydrocarbons in just a few years. Cost of solar energy has been decreasing exponentially, or approximately halving every two years (a similar trend as Moore’s law regarding the number of transistors on a computer chip). Meanwhile, oil isn’t getting any cheaper or tech-savvier.

This is still largely speculative. Free-market environmentalism doesn’t properly address many topics such as protecting endangered species (there may not be strong incentives for the majority of individuals to do so),  or negative externalities in general. A lot of environmental protection involves solutions that are realized over a long period of time, or don’t allow a do-over – two situations which historically have not been the free market’s strong points. However, maybe it’s not too naive to hope that the world may be saved by those who would profit immensely from doing so.

Two Pieces of Food for Thought

August 30, 2011

Looks like I haven’t posted in a while, and this post will be on the shorter side. However, here are two interesting ideas I’ve come across recently that are definitely worth sharing:

1) Money: The Unit of Caring – Eliezer Yudkowsky. Yudkowsky says it quite bluntly –

In our society, this common currency of expected utilons is called “money”. It is the measure of how much society cares about something.

This is a brutal yet obvious point, which many are motivated to deny.

And that is true. Many people complain that those who donate money “don’t care.” It does seem callous, donating money. You just thrust your hand into your fat wallet, grab a greasy handful of crumpled green pieces of paper, and walk away and enjoy the rest of the day, having “done a good thing.” What’s there to love? A social worker who gave a talk at my school once said, “There’s a difference between involvement and commitment. In eggs and ham, the hen’s involved but the pig’s committed.” And so on.

Yet at the same time, those greasy crumpled notes aren’t magically appearing in your wallet to opaquely sustain your opulent first-world lifestyle. You’re working for those bills. You paid a lot of money for a college education (might still be doing so), and you work in a job that you are specifically qualified for in order to maximize not only the wealth of yourself but that of your employer and society on a whole. Yudkowsky notes that a lawyer volunteering at a soup kitchen is a total waste because they could instead spend that hour working and then donate an hour’s pay to fund someone to work for 10 hours. Perhaps in a hunter-gatherer society, caring could only be expressed in direct actions, but in a market economy, it may be abstracted through currency, but its impact is very real.

I was glad to see this article. I got tired of my old school’s community service model which was 90% fundraising. But looking back, wasn’t it better to get lots of money from some really rich kids (it’s their parents’ money, they don’t care) rather than force them to do something they’re bad at and don’t want to do but still “help?”

2) Machiavellian Intelligence Hypothesis – we may share 99% of our genes with chimps, but is anyone really denying that we aren’t vastly more intelligent than they are? But the source of this exponential intelligence/brain size explosion still requires full explanation. An interesting theory is the Machiavellian Intelligence Hypothesis  – social intelligence brought about intelligence in general. There’s a book, Frans de Waal’s Chimpanzee Politics: Power and Sex among Apes which argues that escalating social manipulation and shifting coalitions among advanced primates fueled human evolution because intelligence became so essential to survival along with physical strength. The MIH agrees with the theory of “modularity of the mind” that I blogged about earlier – that humans are much better at solving abstract problems when they concern someone cheating in a social situation than when they have to do with something trivial like playing cards. So there you go. We’re all Machiavellians at heart.

We’re really good at catching cheaters

July 15, 2011

I just finished reading Wall Street iconoclast Nicholas Nassim Taleb’s Fooled By Randomness, which was basically a toned-down precursor to the inflammatory (yet highly accurate) Black Swan. A particularly interesting thing that Taleb mentions is that a lot of human irrationality comes from modularization, or using different parts of the brain for different situations. Some parts of the brain, especially those geared towards abstract reasoning, tend to be weaker for most. However, the part that we use to catch cheaters happens to be exceptionally strong.

I found this interesting enough that I made a mental note to research it some time. Fortunately, the next book I picked up, Malcolm Gladwell’s Tipping Point (I’m going through books pretty quickly at this point) referenced a study on this exact thing! So here goes:

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Black Swans, the “Ludic Fallacy”, and Bayesian inference

June 28, 2011

A few days ago, I finished reading The Black Swan by Nicholas Taleb, which goes in-depth on topics such as judgment under uncertainty and the issues relating to unrealistic models which deliberately ignore unlikely but possibly highly influential phenomena in order to stay simple. Taleb emphatically argues against the use of the Gaussian bell curve, or the GIF (“great intellectual fraud”), as he likes to call it, pointing out that it forecasts events several standard deviations from the norm as extremely unlikely. He points out that an event 4 SD away is twice as likely as 4.15 SD, and that “the precipitous decline in odds of encountering something is what allows you to ignore outliers. Only one curve can deliver this decline, and it is the bell curve (and its nonscalable siblings). Nassim instead expounds scalable “Mandelbrotian” curves, which, like all things Mandelbrotian, are fractal – The speed of the decrease of odds as one moves from the mean is constant, not declining. So the odds of having a net worth of over 8 million pounds is 1 in 4,000, for higher than 16 million pounds it’s one in 16,000, for 32 it’s 1 in 64,000, etc. So not only does the Mandelbrotian curve put more importance on outliers (“Black Swans”, or unpredictable but highly influential events such as stock market crashes that Gaussian models miss), but any small portion of the graph resembles the larger curve in a fractal sort of way.

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The Allais Paradox and Misunderstanding Probability and Randomness

June 4, 2011

The Allais Paradox:

Suppose you are given two gambles to choose from, 1A and 1B:

1A: 1 million with 100% certainty
1B: 89% chance of 1 million, 1% chance of nothing, and 10% chance of 5 million

Later, you are given two more gambles to choose from, this time 2A and 2B:

2A: 1 million with 11% probability, nothing with 89% probability
2B: 5 million with 10% probability, nothing with 90% probability.

Which combination do you choose? The “paradox” is not logical but rather just highlights a quirk in human reasoning. Most people, for some reason, choose the combination 1A-2B. I can see why. I really have to fight the inner urge not to, but this is completely inconsistent.

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