Thursday, February 26, 2009

Publius is moving...

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Monday, February 23, 2009

the decline of the port authority of new york

Early successes (documented in the rise of the port authority) endowed the Port Authority with a great amount of capital heading into the 1960s, however, the law of diminishing returns made it much harder for the agency to leverage its resources with its past efficiency. The principle transit problem of the day -- commuter railroads -- were of no interest to the Authority, as the the railroads were simply huge money pits, and while the Authority had a plan to turn around the previously unprofitable airports, it had no such plans for the railroads. Politicians, however, were anxious to move the losses off their books, and argued that the Authority should use its surplus to absorb some of the losses.

The agency reacted by finding big-money projects to make its surplus disappear. Unfortunately, the competency and discipline that served the Authority so well in building bridges disappeared along with the surplus. The agency's major project in the late-70s, the World Trade Center, saw its cost balloon from $355 million to $575 million, for example. Around the same time, the agency agreed to take part of the rail transit burden, while also seeking to expand its prerogative from port-area transportation to port-area economic development, a scope which would would include industrial parks, fishing ports, etc.

The Port Authority had always fought to expand its role, but this time its ambitions were greater than its expertise. By the 90s, the agency was facing annual deficits and was forced to contract. The agency had made a few unwise decisions, and political considerations limited its ability to make the politically unpopular business decisions (e.g., raise tolls) needed. The most significant development in the agency's recent history was the name change to Port Authority of New York and New Jersey. Fitting, that a symbolic appeasement underscored these later years, punctuating a period of "drift, patronage and favoritism, and the search for new goals" (Doig).

The Port Authority's early successes and later struggles reflect the organizational design and changing context. To begin with the latter, the Port Authority was born at a time when there was a large need for infrastructure. There were few bridges in New York, two piers in New Jersey, no major bus or truck terminals, and fledgling, unprofitable airports. By the 1960s, it was a different world. Generally, I'd shy away from this type of statement -- I'm sure there were many in 1921 that believed New York/New Jersey didn't need much infrastructure -- and I want to emphasize that I am not arguing that 1960s New York/New Jersey had maxed out its infrastructure. Indeed there is still work to be done today. I am arguing that the Port Authority of New York's engineers had a lot more blank canvas to work with in 1921 than 1960, and it's logical that the agency found it easier to plan and execute good projects.

And while the agency failed to effectively manage commuter rail, the World Trade Center, and some smaller projects that drew less traffic than anticipated, the Authority's greatest failure was in not finding a next "great" project after the piers and airports. If there was a great engineering project for the undertaking, neither the Authority nor anyone else could find it. Normally, a firm in the Authority's position would do one of two things: expand their business to less mature markets or expand their business offerings. The Authority was prevented from the doing the former by their restriction to the port district, and so the organization was relegated to the latter. At first, engineering competency and visionary planning allowed the agency to shift gracefully from bridges to tunnels to airports to piers; when there were no more airports or piers to expand, however, the agency floundered.

I've gone this far with only a brief mention of the elephant in the room -- central planning. It was no accident that FDR showered praise on the Port Authority for its early successes and modeled the Tennessee Valley Authority on the agency. The four-term president saw the agency as the embodiment of the technocratic central management that FDR would strive to spread to much of the American economy. I'm not interested in debating the tenets of central planning, but it's worthwhile to note that the Port Authority struggled with the same challenges that face all attempts to centrally manage a large, complex system -- like the transportation of New York and New Jersey.

You'll note that nowhere have I argued one way or another with regards to the Port Authority's planning -- only its execution of plans. Would it have been better to construct a bridge in the 50s? Was it wise to place a bus terminal in midtown? Maybe, maybe not; I am not fit to judge and certainly haven't read any compelling arguments on the matter. Instead I have judged the agency by its ability to produce self-sustaining public works in a timely and economical manner. Therefore, my praise of the agency's early work should not be confused with praise of its planning; I do not believe that the available facts allow for a judgment to be passed.

Anyhow, let's wrap up with a review of some of the variables that led to the Port Authority's early successes, later failures, and lessons.


Early Advantages

Late Disadvantages Lessons
Agency led by committee appointed by NY and NJ governors

Governors appointed gifted apolitical leaders and competent personnel

Personnel corrupted by political patronage by later governors

Have not figured out how to guarantee technocratic personnel management given democratic leadership's influence
Agency led by committee appointed by NY and NJ governors

Agency planning and execution was largely apolitical and governors supported the Authority against local interests

Influence of political interests grew Have not figured out how to sustain an apolitical government agency

Direct incentive to efficiently execute sustainable business strategy

Politicians eyed agency surplus and wanted to siphon from it for unprofitable projects Self-funding can greatly improve accountability, but need to protect integrity of agency budget autonomy
Depending on user payments for funding

Not relevant during growth period

Income through user fees threatened by political incentive to oppose all fees (politicians don't benefit from payments; easy populist issue) Clear understanding of user payment levels for each project beforehand
Agency limited to port district

Many growth opportunities within the port area

Forced to pursue less profitable enterprises within area, rather than more profitable elsewhere Don't make agencies servants of jurisdictions, but allow them to grow based on their core competency
Empty infrastructure landscape

Low-hanging fruit that would serve public need and could be profitable to construct and maintain

More mature market Frame long-term purpose of agency
Vague mandate

Allowed agency to find success outside initial purpose (rail)

Pushed mandate into areas outside expertise and struggled Allow flexibility

Good luck on timing of pier development with container revolution


Monopoly on port district planning and execution

Allowed for a coordinated development effort; competition was 'political' (not rational) with few rivals

Prevented the rise of a more effective competent replacement and allowed for the Authority's decay Powerful for initial coordination, but lack of effective marketplace for government agencies precludes destruction of decayed agencies

I still have some questions. While the Authority has not been 'destroyed' by market forces, it has been castrated by political forces; is this an efficient and/or acceptable end? It's certainly better than the institution growing in size, and likely worse than the institution being replaced by a more efficient and competent firm.

In the end, I think the lessons of the Port Authority suggest that a thoughtfully designed 'public goods' marketplace, populated by *private* firms, with well-designed, long-term contracts, would be best, but I also know that this glosses over a lot.

For now, I'll just look for more books on innovations in government design and public contracting. Your thoughts?
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Tuesday, February 3, 2009

the rise of the port authority of new york

I grew interested in the Port Authority of New York and New Jersey (previously the Port Authority of New York) after reading of its role in creating containerports in the The Box, an excellent history of "How the Shipping Container Made the World Smaller and the World Economy Bigger." I picked up Empire on the Hudson (not recommended) and scoured the internet for information on the bi-state agency. I've quoted from the book below and condensed my learnings to two (free!) blog posts (the second is now up: the decline of the port authority of new york.)

The Port Authority of New York was one of the first government programs designed to be "efficient and nonpolitical ... vigorous and experimental." The agency’s significance does not emanate from its good intentions, however, but from its innovative design, many accomplishments, and gradual decline. Many times before, I have stated the importance of understanding the impact of political economy and organizational design on government program effectiveness. Yet many liberals -who should be the most concerned with a high-functioning government- are ambivalent about the subject, and to no one's surprise, small-government conservatives share this ambivalence. This post will not fill this huge void on its own, but it will provide the first half of a two-part organizational biography of the Port Authority of New York. And to tell the Port Authority's story, we must begin with the history of the port itself.

The Port of New York is the United States' largest port, with "nearly 800 miles of waterfront, dwarfing Boston with its 140, Philadelphia with 37, and Baltimore with 120." New York City capitalized on this great natural advantage, with "nearly half of the nation's international commerce - counting both export and import commodities - [passing] through the Port of New York" in 1919. You'll notice in the accompanying image, however, that New York shares the waterway with New Jersey. Yet while New York enjoyed 230 piers at the time, New Jersey had but two.

New Jersey was understandably frustrated by this state of affairs. Its waterfront was actually better oriented for transit, because it was cheaper to ship cargo by rail from New Jersey to the rest of the country than from the island of Manhattan or Brooklyn. However, freight rates were not dictated by actual transportation costs, but set by a government regulatory body, the Interstate Commerce Commission (ICC). Despite New Jersey's multiple petitions, the ICC maintained that there would be a single rate for rail transit to the Port of New York, whether it was to the New Jersey or New York side, which carried the hidden cost burden of floating freight across the river.

In 1921, New Jersey lost its appeal to the ICC, and New York’s counsel in the case, Julius Henry Cohen, capitalized on the opportunity to win support for a Port Compact, which provided for a bi-state agency to coordinate development for the New York/New Jersey port district. And thus, under the banner of cooperative planning, the Port Authority of New York was born. Each governor would appoint six commissioners to oversee the agency, which would rely "on revenue bonds and user payments (rather than general taxes) to carry out large capital projects," a characteristic unique to the Authority at the time. Furthermore, the Authority worked with the states’ governors to limit local government leaders’ power to disrupt the agency’s plans; a victory for technocratic governance and a (well-deserved) slap in the face of direct democracy.

The autonomous, self-sustaining public agency would largely fail in its initial objective, to resolve the rail problems that had led to the rate discrimination case, but it would leverage its vague prerogative to take on an array of other projects. The Authority’s early years were dominated by bridges, completing the Outerbridge Crossing, Goethals Bridge, Bayonne Bridge, and George Washington Bridge by 1932. The Port Authority wasn’t the first to build bridges, but it managed to build all four bridges under budget and ahead of schedule. A factoid that should make every Boston taxpayer fume. In addition, the agency had beaten out a competing government institution to win control over the Holland Tunnel and its lucrative user fees.

Former New York Governor and then-President Franklin Roosevelt congratulated the Port Authority for its "skill and scientific planning," and celebrated the agency an example for government institutions across America. This praise not only reveals the fantastic reputation the Authority enjoyed in its early years, but also provides the context necessary to understand the agency as the poster child for technocratic progressive government. The Authority’s successes were counted as victories for government-run corporations and cooperation, in contrast to the failure of private firms and dog-eat-dog capitalism. (I’ll return to this subject in the next post).

The Port Authority’s next twenty years were filled with piers and airports. The agency had long lobbied NYC and New Jersey to develop their respective waterfronts, but New York was disinterested in assistance, and Jersey simply couldn’t close the deal. This delay actually ended up working in New Jersey’s favor, however, as by the time the state got its act together in 1955, the shipping container was about to render traditional piers obsolete.

Accordingly, blind luck corrected the ICC’s injustice in the rate discrimination case, with Port Elizabeth leapfrogging its Manhattan and Brooklyn competitors to become the largest containerport in the world. The timing of the waterfront development was a stroke of luck for the Authority as well. The agency had fought hard to construct traditional piers up until the container’s arrival, and only their failre to build the necessary coalition saved them from the embarassment of building infrastructure for the horse-and-buggy of shipping.

In addition to the bridges, the Holland Tunnel, and the containerports, the Port Authority created the Lincoln Tunnel and world’s largest bus and truck terminals downtown, and transformed the Newark, LaGuardia, and JFK airports into the profitable, consumer-driven facilities we know today -- all by 1955.

And there ends the good news. I'l leave the bad news (and the synthesis) for the next post.
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Thursday, January 29, 2009

when cross-disciplinary studies go bad

I have long respected the work of the Santa Fe Institute, home to "multidisciplinary collaborations in the physical, biological, computational, and social sciences" in pursuit of an "understanding of complex adaptive systems," which are found everywhere from cells to cities. I was therefore disappointed by a recent article on Santa Fe Institute President Geoffrey West, who appears to believe that mankind is on the path to "imminent destruction" (to his credit, those are the journalist's words, not his.) Beyond the sensational conclusion, I was put off by the surprisingly questionable logic employed by the theoretical physicist and the disconnect between his conclusions and reality.

West is an expert in universal scaling laws, and has focused his recent research on "[understanding] the dynamics of organisms, their structure, their organization, how they grow, how they evolve, how they live and how they die." He adds, "I wanted to see in what way an elephant is just a blown up mouse or a blown up human being, or in what way we are just a blown up cell." West's research has succeeded in uncovering principles of scale: "the pace of life gets slower and slower the bigger you are - in a very systematic, predictable way. You can do this from ecosystems down to cells. All of biology, pretty much across the whole spectrum, obeys this kind of behavior." The differences between the mouse and the elephant exemplify these principles.

How do these principles hold up when applied to human societies? According to West, not well. Greater size in human societies, be they cities or firms, does not lead to greater efficiency. West concedes that larger human societies bring about more wealth produced per capita, but argues that as "the number of patents that are produced goes up, the greater the number of AIDS cases there are, the greater the number of crimes there are, and the greater the amount of pollution that is produced."

Whereas larger organisms will have less disease and consume less energy relative to its size, West found that disease and energy consumption did not decline, leading him to conclude that human societies do NOT benefit from economies of scale like organisms in nature. From West's perspective, human societies grow less efficient as they grow larger. In nature, large animals use less oxygen per gram of weight than small ones, while humans seem to have a unyielding demand for money (the connection between oxygen and money being that each is a "vehicle for transforming goods into something useful"). And while the pace of organisms slows with greater size, activities within human societies grow more rapid with size, from bank transactions to the speed of walking.

It's hard to know where to start in rebuttal. First, if we are to test the applicability of scaling laws in organisms to scaling laws in human societies, it's important to properly assign our roles and keep them consistent. This should be straightforward, as small organism: large organism what small society: large society.

I will note that West fails to maintain the integrity of this relationship; for instance, when he argues that the pace of societies speeds up with size (unlike organisms), he is not talking about society, but its components. The speed of walking or activity of humans within that society is not the speed of society. Individual human beings: society is analogous to cells: organism. Once again, human accumulation of money (in surplus of what is necessary for reasonable expectation of survival) is not analogous to organisms' consumption of oxygen. There are in fact numerous reasons why this analogy doesn't hold, but there's no reason to go beyond the logic found in an SAT handbook – the analogy is violated by comparing a part (man) with a whole (organism).

To restate, West is, in theory, comparing the scaling laws of organisms to the scaling laws of human societies, so the wholes are organisms and societies; analysis of the parts of the wholes (e.g., cells and humans) may indeed be relevant, but they must be contrasted with one another, not with the wholes, to maintain consistency.

Perhaps more striking than the bizarre logic employed is the contrast between the reality and West's perception of cities. He sees larger human societies as more inefficient, yet the greater the size of human settlements, the more efficient they are – whether we are talking about environmental impact or otherwise. He sees the prevalence of disease canceling out the wealth created by economies of scale, but in what world is this born out? Wealth creation has allowed those who participate in the economies of scale to live longer, better lives. Economy of scale has given societies more productive, healthier cells, to the benefit of the whole (the society) and its parts (man).

The societies and the people who are least healthy, the least productive, and the least well-off are those who are least able to participate in the economies of scale. They are the mice. Their lives are short, nasty and brutish. These people and these societies would love to cope with the problems West associates with societies of great scale, and few if any members of large societies would trade their New York residency for a few acres in New Guinea.

West misses an opportunity to demonstrate the scaling laws of organisms actually apply quite well to human societies. From cells to human beings, living things are better able to survive in large vehicles – be they organisms or societies. That is not say greater size is always evolutionary advantageous, but is to say the principles of greater efficiency and durability West found in large organisms applies to large societies as well.

Finally, as the article nears the end, West argues that human society is unsustainable because "the pace of life is constantly quickening and the time between major innovations is necessarily getting shorter." He apparently believes it's a bad omen that while "it may have taken 50,000 years to go from stone to iron, and it may have taken 100 years to go from steam and coal to oil … how long did it take to go from being dominated by computers to being dominated by information technology, as being distinct from computers?"

Wow. And the final head-scratcher: "Products are coming out one after another. I have in front of me this marvellous Mac, but it is already becoming outdated. It's not only that we are on this treadmill that is getting faster and faster, but we are accelerating it."

Perhaps I'm missing something, but I am not sure why any of this is supposed to worry me. Notice that there is no resource depletion argument being made: he's not arguing that we're going to consume our ecosystem into nothingness. Apparently, the human productivity and technological innovation that has come with larger webs of cooperation and exchange have put us on a path to disaster.

Given Mr West's credentials, I'm wary of being too critical
–especially, when judging his work through the lens of a journalist– but I am left at a loss. Read more!

Saturday, January 24, 2009

the city: good for migrants, bad for genes?

Arnold Kling and Richard Florida have recently started up blog conversation on whether cities are creative growth centers or urban death traps.

Kling quotes Razib Khan:

up until the year 1900 the world's cities were massive genetic blackholes. Cities only kept their population up through migration, which explains how Rome shrunk to 30,000 inhabitants by the 7th century.
Kling asks how this jives with Jane Jacobs, who contends that urban settlements have been the catalysts of economic growth. Jacobs isn't directly contradicted by the genetic data, but the two certainly appear to point in different directions. If cities were genetic graveyards up until 1900, how can it be that cities were simultaneously hubs of economic growth?

One way to reconcile the two perspectives is to restate Jacobs' position: when circumstances allow for economic growth, returns on agglomeration will concentrate this growth in urban settlements, which will in turn spur further development. Population density is not a guarantor of growth. Furthermore, when lacking the conditions necessary for growth, urban settlements' negatives, such as disease, may outweigh any benefits to agglomeration, leading to a relatively poor genetic expectancy.

The Jacobs question, however, really only touches on a more fundamental question: if cities were genetic graveyards, why did migrants continue to flock to these urban death traps?

Why were genetic returns to agglomeration negative during a period when economic returns were relatively high, according to Jacobs and historical migration patterns? What in the name of Charles Darwin was going on?

I'm interested in hearing theories (perhaps the immediate prospects for the migrant is better in the city, but their genes are more likely to be wiped out generations later by a plague...), but for now, I am skeptical that millions of people, throughout history, have lowered their genetic expectancy by migrating to urban death traps.
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Thursday, January 22, 2009

in defense of historical context

I was struck by a recent article by Ed Glaeser, which takes a historical look back at the policies and ideologies of politicians from Henry Clay to Woodrow Wilson.

While I generally find Glaeser's perspective to be in line with my own, I found his historical characterizations grating: positive depictions of Andrew Jackson and Woodrow Wilson, negative characterizations of Alexander Hamilton and Teddy Roosevelt -- yikes.

I can't claim complete objectivity in this matter, as the latter are two of my favorite American historical figures, and the former float around the bottom of my informal ranking of American presidents. For reasons distinct from his economic policy, Jackson may be one of the most despicable blemishes on our national record (I'll be reading the "American Lion" soon - we'll see if that sways me.)

But more significant than the details of Glaeser's particular article is what it represents, that is, a tendency amongst modern thinkers to distort the thoughts, motivations, and actions of past figures through a decidedly modern prism.

Many small-government folks will pick up the "Jeffersonian" mantle and sneer at Hamilton, with his love of federal power. Now, people do all sorts of crazy stuff, but this bothers me because I happen to otherwise agree with a lot of these people. Often these are disciples of Friedrich Hayek and Milton Friedman, who view the Hamiltonian legacy as a threat to state -and by extension- individual power.

These moderns have the nasty tendency of reading the words and actions of men and women (namely men) long since dead and gone as if they were writing and acting in the modern world. 'Hamilton - oh jeez, he loves federal power, he'd be all about expanding the reach of The Man at the expense our Ron Paul revolution!'

And so, these men of history are stripped of their historical context.

This is unfortunate. A careful consideration of context allows for a more precise understanding of the historical person, a more objective and apt judgment of their actions, and a sounder understanding of just what lessons to learn from their experiences.

Myself, I believe Hamilton's presence may have carried the second most weight in securing the United States' future prosperity and relative security while also believing that the US would currently benefit from a devolution of power from the federal to the state level (and from the government to the individual): there is no contradiction inherent in these positions.

The age of Hamilton saw the competition of great Atlantic nation-states. The countries were powerful, aggressive, and keen to elbow out competition and expand wherever they might find opportunity. (Just ask the Dutch Republic.) The American colonies were weak and divided, and, without Hamilton's supposedly nefarious central bank and consolidation of debts, would doubtlessly have drifted further apart.

Even with Hamilton's work, the United States had to fend off foreign intrigues that sought to play one state off the others to secure geopolitical and economic interests in America. Given the history of Europe, I feel confident speculating that a country with a Spanish Florida, British Texas/South, French Bayou, and/or Mexican/German/Japanese Pacific would have led to considerably more wars and considerably less economic growth.

My argument, by the way, implies that this added value also supports the westward expansion (unfortunately named 'Manifest Destiny') in the name of continental integrity (the later Mexican/German intrigue and Japanese hostilities would seem to support this logic), as well as forbidding the South from succession (a tricky issue likely deserving of its own post).

Economic liberty should be fought for and celebrated, and Americans are right to be suspicious of any actions that usurp this personal freedom in the name of fighting some greater enemy.

That does not necessarily mean that there are no times when such a sacrifice is not just wise, but necessary for the long-term preservation of this economic liberty. In the early 21st century, with the world's great states at rest and a federal government infinitely more powerful than its 18th century counterpart, there are few if any reasons to further concentrate power (and indeed many to devolve it). As noted above, Hamilton's America was an entirely different beast struggling to survive in a far different jungle. And just as evolution may favor a smaller or larger animal at different points of time, the same is true for the natural selection of human societies.

The intertwining fates of survival and liberalism are recent developments, and to attack figures like Hamilton for failing to live up to 20th century ideals is as silly as criticizing Caesar as a murderer of democracy. To say that circumstances vary widely is to understate the point: in many cases, it may be more effective to use different terminology for different periods of time, so as not to confuse common terms with common realities.

I should note that I don't mean this post to be a final word on the defense of Hamilton, but simply to raise a principled disagreement with the method by which he -and many others- are judged. Economists with no historical background can be just as inane as historians with no economic learning.

That said, I think the econs are right on about FDR. ;-)
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Thursday, January 8, 2009

three millenia of waste management

For the past few months I have searched high and low for a book that would provide me with a comprehensive understanding of the history of waste management in relationship to the rise and decline (or perhaps more appropriately, growth and diseased death) of human societies. This book would cover the history of sanitation, from aqueducts to soap to sewers, and explain how proper waste management acted as an upper bound on city growth, with failure resulting in biblical plagues that would wipe out entire towns and set back development hundreds of years.

I came across The Big Necessity and Flushed, among others -reading the latter and adding the former to an increasingly formidable "to-read" pile- but neither had the historical context I was looking for.

I then set about to leverage my limited knowledge and the endless information available on the internets to write a blog post on the matter (if I couldn't read it, perhaps I could write it...)

Up until the last couple hundred years, waste management amounted to nothing more than disjointed efforts -- e.g., Indus Valley, Greece, Rome -- with little relevance to the society's death or survival (sure, Rome reigned supreme at the time, but I've seen no reason to believe that their water works were the key to, rather than the the product of, this greatness).

My hypothesis, of course, is not that waste management leads to glory, but that waste management acts as an upper bound on the growth of human societies; at some point, a city's ability to support their population without falling prey to death and disease depends on waste management. As a further clarification, that is not to say that through adequate waste management a city can avoid the possibility of disease altogether: plagues have many vectors by which they can decimate a population, waste management will not eliminate them all.

This hypothesis jives with the lack of waste management innovation for most of the history of mankind. Looking at the population chart graphic, it's striking just how flat the world population was up until ~1500 - ~1800.

Now, world population growth does not necessarily mean city growth; for a city growth proxy, I took the average of the historical estimates for the top two most populous cities at various points in history:

100 AD Rome / Luoyang (Honan), China: 435,000
1000 AD Cordova, Spain / Kaifeng, China: 425,000
1500 AD Beijing, China / Vijayanagar, India: 586,000
1800 AD Beijing, China / London, United Kingdom: 980,500
1900 AD London, United Kingdom / New York, United States: 5,361,000
1950 AD New York, United States / London, United Kingdom: 10,661,500

Currently, Tokyo and Mexico City are Nos. 1 and 2, averaging ~23,000,000.

In this context, it should be no surprise that there was little development in waste management until the 19th century. Little changed in terms of the demands placed on waste management, and so the history of waste management up until the 19th century is nothing more than series of blips, for the most part.

That is not to deny that some societies appreciated the value and convenience of fresh and streaming water in a central location, however, which sometimes also involved proper waste management.

Water works got an early start, with the the Harappan constructing water systems in the Indus Valley in the third millenium BC. Everyone within the town walls -not just the elite- had running water and indoor plumbing.

Outside of the Romans, there would be little improvement over this flash of brilliance until the 19th century (~4500 years). In the mean time, the Persians developed qanats (like aqueducts, but for agriculture); a Minoan ruler built a luxurious castle in Crete with running water and primitive toilet; and finally the Greeks began capitalizing on aqueducts in the 4th century, setting the stage for the Romans.

The Romans' passion for plumbing grew out of a greater love for baths. The city's plumbers utilized lead (in place of terracotta and other materials) to construct the pipes of the aqueducts, which were built to provide a continuous flow of water to foundations and the baths.

In a trend that continues even up through the 19th century, waste management systems were not created to deal with health issues. Convenience and luxury bear most of the credit for the innovations that did take place. The science of sanitation simply did not exist.

Now I must take a moment to talk about the plagues that struck some of the world's greatest cities before 1800. First, before the Black Death struck down ~400 million in the 14th century (with additional waves sweeping Europe and elsewhere for hundreds of years), the bubonic plague decimated the emperor Justinian's Byzantine empire in 541-542 AD. In both cases, it appears disease spread was spread through fleas and rats, which many speculate came to their new homes free-riding on merchant ships.

These plagues may have been the first large-scale tests of waste management. Would a 21st century sewage system have saved any of these cities? I'm no expert, but surely the plague would still have made an appearance. The effects, however, would likely have been far less devastating with the appropriate disposal of diseased bodies and waste.

For instance, one of the few places with plumbing, Canterbury monastery, escaped unscathed during the darkest days of the plague in London.

But still, the science of sanitation remained a mystery, and no lessons were learned form the terrible episodes.

The waste management innovations that did eventually emerge were not thoughtful responses to newfound health risks, but responses to superficial concerns.

In the 1800s in England, water closets (think toilets) were popular luxury items amongst the have's. These water closets should not be confused with advances in waste management. Quite the contrary, as the water closets grew more popular, more waste emptied into the rivers.

(Fun fact from Flushed: sewers originally only meant waterways for drainage, it was only after they became deluged in feces that the word took its modern meaning.)

In this same period, cholera devestated London, and England's mortality rate rose close to 50%,.

Yet if a plague devestating the entire citycouldn't incite a change in waste management, infants dying of dirty water certainly wouldn't do trick. It would take the "Great Stink" of the summer of 1858, which saw the Thames' stench drive Londoners out of the city and, more impressively, drive the Houses of Parliament, which sit on the Thames, to act.

Dead babies were a problem, putrid stench was unacceptable.

Parliament empowered Joseph William Bazalgette, a civil engineer, to construct a sewage network. Bazalgette's system survives today, and successfully ended London's woes, even making the Thames fishable after decades of dead, diseased water.

At the same time, from 1840 to 1870, the number of communities with water works increased from 50 to 240. Shortly thereafter, the British OK'd public water closets, and inventors brought to bear the innovations that would become the world's modern toilets.

And so the stench of feces set in motion the development of the modern sewer system and the principles of separating the water that goes in from the stuff that comes out.

But just in case you thought that 20th century innovations in waste management would be rooted in medical knowledge, it would take a powerful Boston politico stepping in poop while running around Quincy before the cesspool known as Boston Harbor would be cleaned up in the 1980s.

And here we are, 4600 years after the Indus Valley civilization set a standard for indoor plumbing that was largely ignored up until the late 19th century. While I am troubled that we still haven't guaranteed this basic standard to every man, woman, and child alive today, I am struck by the remarkable progress we have made in the past 150 years, as well as disappointed how small of a role understanding of health risks played in the creation of the waste systems that could have been created hundred of years earlier.

I'm not sure what exactly to take away from the history of waste management, but it is both troubling and fascinating nonetheless.

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Saturday, December 20, 2008

first crack at transport cost impact

I recently read Marc Levinson's The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, and was reminded of a task on my to-do list that I have yet to cross off: I want to create one of those fancy maps I love where distance represents transportation cost/time. I'm still not sure of the details. Perhaps I'd take each major market and then have all the other countries orbiting around the market, with distance based on transport cost and country size based on GDP.

Unfortunately, I haven't gotten to that point because it's proven damn difficult to get anything near comprehensive data on the subject. Levinson has a few nuggets:

Being landlocked, one study calculated, raises a country's average shipping costs by half. Another study found it cost $2,500 to ship a container from Baltimore, on the U.S. Atlantic coast, to Durban, in South Africa - and $7,500 more to haul it by the road the 215 miles from Durban to Maseru, in Lesotho.
I checked the bibliography and snagged the source PDFs online. One of them, Infrastructure, Geographical Disadvantage and Transport Costs, has some interesting data on African country transit costs, albeit from 1999.

I threw the data into Excel, popped in the current GDP (PPP) per capita, and below is the result. In the original paper linked above, the transport cost for US to Germany was 1.0. I created a "large market" proxy transport cost by averaging the transport costs from each city to the US, Germany, and Japan.

*Oil-rich country, transport costs for non-oil products may be underestimated

In the bubble chart below, bubble size is proportional to GDP per capita, with the Transport Cost on the Y-axis, countries sorted by GDP per capita (lowest to highest) along the X-axis.

When I sorted by transportation cost, three countries stood out to me as having some of the lowest transportation costs yet only average GDP per capita: Senegal, Togo, Gambia

Further down on the list, three more countries stood out with average transportation cost rates associated with much higher GDP (e.g., $2,000 range) than they achieved: DRC, Guineau-Bissau, Sierra Leone.

I don't know a ton about the countries besides violence, but thought I'd bring them up in case an African aficionado happened to have something to offer.

For my part, I make no conclusions. This is just the first attempt at exploring transportation costs. I'm still on the lookout for better data, but for now, I'll leave you with conclusions from that 1999 paper.
Our main results are, first, that infrastructure – both own infrastructure and that landlocked countries’ transit routes -- is a significant and quantitatively important determinant of transport costs and of bilateral trade flows. For example, improving destination infrastructure by one standard deviation reduces transport costs by an amount equivalent to a reduction of 6,500 sea km or 1,000km of overland travel.

Second, being landlocked raises transport costs by around 50% (for the median landlocked country compared to the median coastal economy). However, improving the infrastructure of the landlocked economy from the median for landlocked economies to the 25th percentile reduces this disadvantage by 12 percentage points, and improving the infrastructure of the transit economy by the same amount reduces the disadvantage by a further 7 percentage points.

Third, combining estimates from transport cost data with the trade data we are able to compute the elasticity of trade with respect to transport costs; it is high, at around –2.5. This means that the median landlocked country only has 30% of the trade volume of the median coastal economy.

Improving infrastructure to the 25th percentiles raises this to over 40%.
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Tuesday, December 9, 2008

stay loyal to principles, skeptical of means

Once we've acknowledged the potential for regulation to improve the functioning of a market, the next task is to determine the likelihood that regulation will indeed accomplish its stated goal. Just as our market skeptics are right to point out that we need to judge 'capitalism' by it's real-world performance, we must judge government action by the same. And our pluralistic democracy, for all its strengths, does a remarkable job of turning the most noble of causes into dismal and destructive regulation.

The more we break down 'regulation' into its specific components, the better we are able to assess the respective likelihood of attaining stated aims and creating additional negative externalities. Only then can we weigh the likely effects of our darling regulation with the likely effects of inaction. Presumably, at the end of such an exercise, support or opposition of 'regulation' would be less broad and more tailored to specific types of interventions in specific instances.

For example, the appeal of government subsidies for investment in alternative energy is clear. It's become a proxy battle for those who support a large commitment to reducing carbon emissions and those who oppose it. Those that support this large commitment, however, should be more circumspect, and allow for the possibility that they might support the principle of carbon abatement, but still oppose subsidies because of what the regulation will look like at the end of the day.

Ezra Klein has said as much:

"One more time: 79 cents of every dollar the federal government invests in renewable energy goes towards corn ethanol, a heavily subsidized boondoggle that is little better than gasoline. Which is why I worry about targeted investment strategies. It's not impossible to conjure up massive investment strategies that would make a tremendous impact on global warming. Gary Lipow does a nice job of it here. But it's hard to imagine such an initiative entering the United States Congress and not emerging as pork encrusted in corn. The incentives are too poorly aligned."
Klein goes on to briefly mention the idea of a cap-and-trade system, before again agreeing with skeptics that "so much will be exempted and rebated and set aside that it will, in practice, be nearly as bad."

He finally allows that a straightforward carbon tax may indeed be the best option (sidenote: supported by Al Gore and Ralph Nader, among others).

Of course, these aren't the only carbon abatement programs in place or in consideration. We have CAFE standards, which many want to make more stringent, despite the fact that "the premise of CAFE is a little bizarre—that manufacturers are responsible for the choices of their customers and penalized if car-buyers prefer more fuel-intensive vehicles. Across the political spectrum from left to right, the more direct, logical and efficient alternative of a carbon tax has its advocates, but they remain a persecuted minority," as the Economist points out.

Unfortunately, the conversation about what to do about carbon has not allowed much room outside a broad-based support or opposition to carbon abatement programs en sum. Opposition to particular programs is seen as a proxy for half-hearted committment to the principle. Yet it's perfectly possible that Ezra believes more in the destructive power of carbon emissions than John Q, yet supports fewer of the abatement programs.

Subsidies, CAFE standards, cap-and-trade systems, carbon taxes, and gas taxes represent only some of the regulations applicable to a single unpriced externality (carbon emissions). What's more, I don't want to dismiss the potential of subsidies, for instance, out-of-hand because of their massive failure in alternative energy. In fact, I would invite those sympathetic to subsidies to refine their argument, perhaps forming a push for (and only for) 'subsidies for basic research independent of commercial applications.'

I would like to see educated debate move beyond principled support/opposition for more or less government action, and toward a pragmatic analysis of the means. It only takes a look at today's headlines of proposals for a "car tsar" to underscore the importance of differentiating between the principle (well-functioning auto industry that doesn't blow up the planet), which is the end, and the proposal itself (see: tsar, drug... tsar, terrorism), which is nothing more than an often shoddy means.

In the mean time, be just as wary of he who supports all efforts to save the world from carbon and auto bankruptcies as you are of those who make the same pledge to protect us from Islamo-fascists (what a term!) If he can't discriminate between wasteful and ineffective means to serve his principle, he probably is an irrational zealot.
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Tuesday, November 18, 2008

Gas Prices Fall as Big Oil Reduces Profits

NEW YORK -- Consumer advocates are dancing in the streets after successfully lobbying Big Oil to forego the record profit strategy agreed upon by the cartel this past summer in hopes of improving the competitiveness of the American economy (home to the greatest workers in the world) and the strength of the American family.

After a closed-door meeting this fall, the powerful transnationals agreeing to lower the Big Oil Required Set Price (BORSP) from more than $140 per barrel in June to $55 this November.

"You know, they were right to suspect massive collusion and corruption behind the soaring oil prices," said Bud Budderson, former head of Collusion & Pricing, and now VP of Smiles & Sunshine at BP. "You know who set the prices? Me. And you know how I did that? I created a formula based on how many new toys I wanted to buy that week.

"I was a bad guy. But I did some thinking, listened to Barack explain the unfairness of our windfall profits, and decided to make a change."

Along with the rest of Big Oil, BP made the difficult decision to stop selling oil at a price they now admit was completely detached from supply and demand, supported only by backroom dealing sealed with sweaty handshakes, evil cackling, and whale steaks marinated in peasants' blood.

The price reduction has in turn won over many former critics.

"The fact that Big Oil, in these tough economic times, has chosen to lower prices by nearly 2/3  for the good of America, serves as a beacon of hope for all those who believe in the essential awesomeness of America," said Tuck Tuckerson, senior analyst at MSNBC, and author of "Speculation, Gouging, and Waterboarding: A Year in Big Oil as a Super-Secret Embedded Reporter."

"We just grew tired of being so goshdarn evil," said Exxon CEO Money Monerton. "You can only read headlines like"Record Gas Prices, Record Oil Industry Profits," for so long without rethinking your decision to put excessive personal profit over the humble dreams of hard-working Americans.

"Sure, the record profit strategy had its benefits, but this time around, we made the right choice, both for our companies, and for America."
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Monday, November 17, 2008

why bet on climate forecasts?

I have long enjoyed Bjorn Lomborg's critiques of the climate change mitigation plans (e.g., Al Gore's trillion dollar 10-year plan, T. Boone Pickens' giveaway), as he has used numbers of the UN's scientific consensus to show how little sense most (not all) of the plans make.

Funnily enough, when "green" advocates see the small impact (and immense cost) of the Kyoto Protocol spelled out, they become far more amenable to perhaps a more interesting discussion on the viability of the UN's forecasts.

Furthermore, in the wake of a financial crisis brought on (partly) by a reliance on the financial community's consensus statistical modeling, it's not a bad time to question the reliability of these models in the first place.

Both financial and environmental modeling portend to predict the behavior of a complex system, where even small errors can lead to catastrophically wrong predictions thanks to the great number of feedback loops in the system.

And while the financial system saw the failure of the (Nobel winning) Black-Scholes financial model with the collapse of Long-Term Capital Management, environmental forecasters believed we were actually entering a "global cooling" only 30 years ago (quickly forgotten by the environmentalists' new Nobel-led movement).

In both cases, these massive failures are dismissed with a wave of a hand - 'oh, we have better models this time. I mean, we'd never make a mistake like that again. We just needed to add variable X that my stupid old partner missed and not pay attention to variable Y, which I always thought was wrong.'

I greatly enjoyed Nassim Taleb's "The Black Swan" as Taleb took the financial modelers - indeed all forecasters - to task for just this arrogance and failure to admit their projections should not be relied upon.

He states that he wouldn't trust a projection over five years; for the sake of context, the climate forecasts are 100 years (!) into the future.

I should add that I believe I did read somewhere that Taleb has spoken vaguely in favor of conserving the environment as a natural resource. I won't disagree with this. I have already written on what I think makes sense for climate change (Obama's $150 billion for R&D=good, subsidies for inefficient alternative energy applications right now=bad). This post is about the scientific modeling put forth as a consensus by a community with a long history of making drastically wrong forecasts.

Taleb advises, "Learn to read history, get all the knowledge you can, do not frown on the anecdote, but do not draw any causal links, do not try to reverse engineer too much-but if you do, do not make big scientific claims."

It appears to me that not only are our forecasters drawing causal links based on highly-fragile models, but also making "big scientific claims."

Some of my few readers are likely chomping at the bit to add the comment/question: 'Sure, you can criticize the models, or whatever, but Taleb's book is all about protecting yourself from Black Swans - highly improbable events that carry catastrophic risk - how can you possibly distort his arguments into a critique of climate forecasts: you are missing the forest for the trees!'

Maybe so - only Taleb knows, as he has been uncharacteristically reserved about commenting on climate change from what I've seen - but I do not believe I am misrepresenting his logic.

Taleb writes: "Many of the prediction failures come from hedgehogs who are mentally married to a single big Black Swan event, a big bet that is not likely to play out. The hedgehog is someone focusing on a single, improbable, and consequential event, failing for the narrative fallacy ["creating a story post-hoc so that an event will seem to have an identifiable cause"] that makes us so blinded by one single outcome that we cannot imagine others. Hedgehogs, because of the narrative fallacy, are easier for us to understand- their ideas work in sound bites."

Taleb emphasizes that Black Swans are Black Swans because they are indeed unknowable -- uncertainty is just that. His advice is to "to focus on the consequences (which you can know) rather than the probability (which you can't know)... Likewise, do not try to predict precise Black Swans- it tends to make you more vulnerable to the ones you did not predict. ... These thinkers advocate the opposite: invest in preparedness, not in prediction."

Does this sound familiar? It should, because Bjorn Lomborg has advocated investing in preparedness that will pay dividends regardless of climate change (e.g., "malnutrition policies, immunization and agricultural research and development"). These proposals stand in stark contrast to the energy-exclusive solutions of people like Gore and Pickens, which will make us indeed more vulnerable to the Black Swans we don't predict.

To wrap up, I'll return to Taleb: "I do not forbid myself from using the word cause, but the causes I discuss are either bold speculations (presented as such) or the result of experiments, not stories."

Environmental forecasters have treated us to bold speculations presented as scientific fact as part of a grand narrative that ends in apocalypse -- a Mad Max end of humanity unless if not for drastic, expensive, collective action (but secretly great for our economy!) to reduce our carbon footprints -- and thereby meaningfully mitigate climate change in an environment that has undergone catastrophic changes without the help of mankind for millions of years.

Whew. Maybe that is right on target, but I hope that even believers will admit that it just oozes all mankind's cognitive biases and failings that are now well documented in behavioral economics, psychology, and indeed Taleb's work.

The ceremonial rain dance is also well documented. People observed climate change. They created a narrative whereby they were responsible for it. They used their scarce resources to participate in ceremonies that would theoretically change the environment. Even after doing it for a period of time, they were able to explain away the many failures of their efforts to preserve the narrative. At least these ceremonies didn't cost trillions of dollars.

The late Michael Crichton said, "Nobody believes a weather prediction twelve hours ahead. Now we’re asked to believe a prediction that goes out 100 years into the future? And make financial investments based on that prediction? Has everybody lost their minds?"

I'll end with some more wisdom from Taleb. We should not play the role of hedgehog, but that doesn't necessarily mean we slump on the couch and wait or a new wild theory to take root. We should take the advice of Lomborg and Taleb in maximizing our exposure to positive Black Swans by expanding R&D and allowing for the trial-and-error process necessary to innovate, while also investing in multi-use preparedness, e.g., malnutrition, disease prevention, poverty alleviation efforts, etc.

And lastly, a disclaimer: there are lots of good reasons to reduce our impact on the earth, to use resources more efficiently and expend less energy doing the business necessary to provide humans with a healthy and fulfilling life. This post is specifically criticizing the forecasts that have been coopted and the narrative they support.
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Tuesday, November 11, 2008

quigley's critique of the clerks of history

I've already posted my summary of Carroll Quigley's narrative of historical development here, and now I'll move straight to the end, where Quigley concludes the Evolution of Civilizations with takeaways for students of the social sciences to better frame inquiries into the past and present. Quigley is disturbed by the inconsistencies and contradictions running rampant in historical study, which he attributes to students focusing on knowing every detail of their area of historical expertise, while failing to carefully consider a deliberate analytical framework from which to understand their historical area.

The eager student would be slower to make bold assertions about the past if he appreciated the complexity of the system he studied. Understanding civilization, and social phenomena more generally, is intrinsically very difficult, as human experience is not static but dynamic: it is a continuum:

"A continuum is a heterogeneous unity each point of which differs from all the surrounding points but differs from them by such subtle gradations in any one respect that no boundaries exist in the unity itself, and it can be divided into parts only by imaginary and arbitrary boundaries."
We are left to cope with the past the same way we deal with the colors of the rainbow, drawing arbitrary lines between red, orange, and yellow. These artificial categories or labels are necessary for discussion, but we must realize they are arbitrary.

Quigley asks students to be ‘executives’ of history, rather than simply its clerks. The distinction is that the clerk concerns himself with knowing the details of history, while the executive is interested in understanding history. The executive’s understanding is only as good as his analysis, and to this end he uses deliberate techniques to provide a systematic understanding of historical development.

These techniques will not be perfect – a fact Karl Popper and Nassim Taleb would insist upon more forcefully than Quigley – but only through the deliberate choice of one technique or another will the student be aware of the potential blind spots of his understanding. That is to say, every understanding of historical development depends on assumptions, whether the student deliberately makes them or remains blissfully unaware.

It is a tremendous err, however, to not deliberately pick a set of assumptions from which to interpret. By unknowingly operating off whatever assumptions make sense at the time, the student ends up with a contradictory and inconsistent assumptions (and interpretation of history). What's more, he never even understands the assumptions implicit in his own garbled understanding.

Quigley also takes issue with the how historical phenomena are compartmentalized into incomprehensible units, such as “nations” or “the middle class.” For the purpose of studying historical development, it is necessary to study distinct groups; a nation-state may have more than one distinct group, or may contain part of a distinct group that exists in another nation-state as well. Defining distinct groups is not easy, but it necessary for rational study.

Quigley also objects to the language of history. Historical terms should be selected to correspond to the process being studied and the technique being employed. Instead, historical development is explained in a language devoid of consistency or meaning, e.g., periods classified as “medieval” and “classical.” At best, terms are descriptive, at worst they are highly misleading. The exact lines drawn to classify different periods or peoples will always be somewhat arbitrary, but that doesn’t excuse sloppiness.

For another example, the time period between 400 and 1400 AD is referred to as the middle ages, medieval period, and the dark ages (for the beginning). The first term provides the student with the knowledge that this period is in the middle of two other periods. Medieval describes the period as “outdated,” which provides the student with the knowledge that this period is less up-to-date than more recent periods. The dark ages provides the student with a similar perception.

None of these terms convey how the events within this period figure in the process of historical development. If anything, they suggest that historical development stopped for 1,000 years. Quigley breaks down the same time period into four parts – mixture, gestation, expansion, and conflict. Quigley deliberately chooses a set of consistent and relevant labels for historical phases that correspond with the process of historical development and the on-the-ground reality; therefore, his technique is better able to explain supposed exceptions to the dark ages or medieval period, such as the Carolingian Renaissance. This periodization is more than a small nuisance: it has led to a high degree of specialization limited within these arbitrary designations. Now the most fruitful studies are likely to come from those who study the gaps and borders of these false categories.

In sum, Quigley joins Arnold Toynbee in arguing for the importance of analytical technique in historical and social analysis. A systematic technique not only provides a more coherent historical narrative, but also provides the self-awareness needed to understand one’s own potential blind spots. Toynbee properly identified these problems in his studies, but failed to provide proper definitions for his own terms and indeed fell prey to the same sloppiness he condemned.

It would be silly to argue that Quigley’s technique of understanding the rise and fall of civilizations is perfect, but with the ubiquitous disclaimer to handle all post-hoc narratives with care, he offers a superior history, an insightful critique of popular history, and a sound reminder for students of history to carefully choose a technique - even if it's not Quigley's.
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