Crops, speculation and starvation

Farmers are having a hard time in Europe. Production (“yield”) is falling due to drought:

  1. In this video [in Dutch], an organic farmer near Amsterdam discusses the low yields of crops in drought-hardened clay soil. (We are in his CSA.)
  2. Meanwhile, English farmers complain that householders are not being told to use less water. The farmers think that hosepipe (outdoor-watering) bans would “free” water for suffering crops. Sadly, I think the water companies oppose the hosepipe ban because they earn far more from selling water to households. Farmers would pay them little or nothing in the current system (raise prices! water markets!) so food security is getting short shrift.

I could easily find many more examples from around the world, since various chaoses (droughts, floods) are disrupting agriculture everywhere.

The traditional hedge against food insecurity is storage (“after 7 years of fat, come 7 years of lean”), but markets are more efficient for storage if they can replace local losses at a reasonable price.

The criterion of “local losses” vs “market supply” is usually easy to meet, as global agricultural production is, by definition, far greater than any local production, but it weakens if/when many crops are failing in many places and/or politicians “protect” their citizens by banning exports that could help other citizens. As of June 2022, 34 countries were doing this.

The criterion of “reasonable price” brings me to the title of this post, i.e., to the role of speculators in markets.

In general, market traders and speculators help markets by smoothing spikes in supply and demand. They buy when prices are low and sell when prices are high; they arbitrage between markets where prices are not well matched (usually due to legal or logistical barriers); they bet on future scarcity… and thereby reduce it.

But some speculators go farther, pursuing profits in ways that can destabilize markets:

We spoke to experts, whistleblowers and industry veterans, who expressed concerns that current levels of speculation may be driving and exacerbating price increases. Experts also helped to identify how structural weaknesses have remained unaddressed since the 2007-2008 food crisis, and how attempts by regulators to curb excessive speculation since then have withered in the face of determined industry lobbying.

In the past, I have dismissed these types of claims, since speculators — who often trade “paper” commodities without any intention of taking physical possession of the underlying good — do not represent “final” (in-the-mouth) demand. I assumed that a speculator buying @ $50 per unit would have to sell @ $30 per unit if that price represented physical demand, but my “equilibrium” thinking was wrong. Here’s why.

If the speculator buys at $50, then there’s less supply for other buyers. If that supply is greater than remaining demand, then prices will fall in equilibrium (when everything is lined up and matched); if supply is lower, then prices will rise in equilibrium.

But what about “before equilibrium”? At that point, buyers are not sure of where prices will end up. They are not sure of supply (more drought? more trade restrictions?), and demand can rise if others are buying due to panic, new crop failures and/or greater risk aversion (i.e., buying to store), so it’s easily possible that prices can keep rising.

Few buyers will be able to hold out for lower (hoped for) equilibrium prices when there’s a risk of (a) higher prices and/or (b) falling short in meeting known future needs.* So those buyers will jump in “early” and “high” to avoid the chance of a future disaster.

In these cases, the speculators can make a killing.

tl;dr: If speculators “mop up” supply by purchasing at low prices at the start of a crisis, then they can resell for profit before they are forced to take delivery (the “chicken game” in game theory). If buyers are afraid of losing out to faster buyers (a “prisoners dilemma” in game theory), then some will  buy quickly, at “spectator prices,” to avoid the risks of even higher prices  — or no food at all.

Market note: Unlike the case with a non-perishable commodity like silver whose supply and demand is not time sensitive (remember the Hunt Brothers), food is perishable (hence the haste and angst over Ukrainian crops) and overall demand (“hunger”) is easier to predict, so the speculators can forecast demand, supply and shortfalls.

None of these “squeeze the hungry” trades are ethical, but they are legal. Although it might be tempting to regulate them, such actions can easily backfire (law of unintended consequences) or fail (food is traded in global markets without a single regulator).

What if some traders denounce speculation, as a means of helping the poor? That won’t help as long as others don’t care — or care more about their poor  (another prisoners dilemma) — so that’s no solution.

My one-handed conclusion is that fragile food markets and volatile prices** mean that many people will spend more on food while others go hungry or starve.

H/T to PB


* Governor Gray Davis signed long-term contracts in the middle of California’s 2000 energy crisis, locking the state into  high prices for a decade or more.

** Don’t mix up cause and effect here! Far too much food is used as biofuel and animal feed. Excess emphasis on industrial agriculture increases crop-risk-failure. Climate chaos is disrupting all farms. This “speculators-will-fuck-you” post wouldn’t exist without those three causes increasing risk!

Interesting stuff

  1. Read: An increasingly popular retirement plan is figuring civilization will collapse before you have to worry about it or (for a brighter side?) listen to Why the end of civilisation might just be the beginning of a better one
  2. Read: The Age of Algorithmic Anxiety
  3. Read: Atmospheric levels of PFAS (a chemical byproduct) now exceed the EPA’s maximum health standards. PFAS are now, like carbon, a global public bad that will affect everyone, everywhere. Since PFAS include 4,700 chemicals that are used everywhere in everything it will be hard to reduce or regulate their use, but it’s possible, since it means going back to pre-1960 manufacturing methods (e.g., “no plastic”). Is it probable? Not in my opinion. What’s the likely future then? Maybe mass sterility. #theProblemSolvesIteself :-\
  4. Read: Lessons for improving public health with good urban design (e.g., ventilation in and between buildings) have been forgotten in an attempt to squeeze more people in less space. That’s probably a false economy when one considers the resulting spread of diseases. Related: Using AI to re-imagine streets, mostly by replacing cars with people-friendly spaces. Also related: An experiment adding trees to squares [in Dutch] that are normally without dropped temperatures by 5-6C (e.g., from 28 to 23C). Start planting!
  5. Read: “Social” media is straining and killing our sense of social reciprocity. It’s better to talk with friends instead of “liking” their posts.
  6. Listen: How McCarthy led to Trump (via Roy Cohn’s advice to “lie aggressively).
  7. Watch: Why Many Cities Suck (But Dutch Cities Don’t)
  8. Watch: Gas stoves are worse then you think — and the industry is even more evil than I imagined…. <sigh>
  9. Watch: How North America fucks up transit (and land use)

H/T to PB

It ain’t easy doing the right thing

… when that costs you something.

So anytime that someone claims it’s easy, or a win-win, then I’d suggest replying with: “No, it’s not easy, but I’ll do it because it’s the right thing to do.”

That’s why humans everywhere are familiar with some version of the Golden Rule: Do unto others as you would have them do unto you.

Ignorance of this reality, whether it’s willful or hopeful, is counter-productive. Some people do look out for others, of course, but those others are often family, friends or people with whom we have an ongoing (reputational) relationship. Those others are not strangers, people on the other side of the planet, or those not yet born, which is relevant to most discussions of local and global commons.

This post may seem obvious to most of you, but maybe not so obvious is how its lesson explains war, theft, violence, bad behavior and even just laziness.

In all these cases, you’ve got people taking benefits for themselves and leaving costs to others, e.g.,

  • Stealing.
  • Violence.
  • Rape and war.
  • Littering.
  • Cheating.
  • …and any other activity with negative externalities (everything from eating meat or fish to emitting carbon or excess consumption).

How can we steer people away from their default desire to have something for nothing? Moral education is a good start, but many people lack such intrinsic motivations. That leaves extrinsic motivations such as rules, regulations, taxes and social stigma.

My one-handed conclusion is that humans who cannot be “civilized” need to be “caged” in some way, for the good of the community.

Interesting stuff

  1. It’s hot, so people are (temporarily) thinking about climate chaos: Read about heat waves and the accuracy of climate models. Also read about the problem with air conditioning (as opposed to being poor and/or building for the local climate).
  2. Listen: What So Many People Get Wrong About The Energy Transition
  3. Listen: This podcast on Putin (there are many many people working on “understanding Putin,” so he’s getting the same treatment of his hero, Stalin) offers a sad but insightful analysis of his personality: A lonely guy who was recruited by the mafia before he started working for the KGB. A man who never personally experienced Soviet failures (Chernobyl, Afghanistan, the economy), and thus incorrectly blames for Soviet collapse on outsiders, when it collapsed from within. A man who’s death cannot come soon enough. Listen to it.
  4. Read: Amsterdam’s mayor on the “right” kind of tourists
  5. Read: How Tokyo allows small innovations in a sprawling metropolis
  6. Read: When the Dutch ran into an American billionaire
  7. Read: Taking back roads from cars
  8. Longread: How to confront the growing threat to American democracy. Related: How US gun sellers turned male angst about their masculinity into sales (and mass murders) and how social media DOES undermine democracy (“people are more willing to commit violence when they are immersed in a community they perceive to be morally homogeneous”)
  9. Read: Why houses are so expensive (interesting that 20 years inflation in the US is 72% but 22% in NL)
  10. Listen: Good discussion of the origin and dynamics of conspiracy theories

H/Ts to CD, DL, ED and PB

New paper: Teaching water economics

I’d love to get your thoughts/feedback on this paper, which distills around 15 years of my teaching experiences — successful and not — into advice:

Abstract: Economic theories and tools provide only partial insight into the many complexities affecting various uses and flows of water. To usefully teach water economics, it is therefore necessary to understand and cooperate with other disciplines. Many economic concepts can be used to understand different facets of water (mis)management, but these concepts are often pushed far away from their basic (classroom or textbook) models. Institutions, history and culture play a big role in understanding those deviations and how to address them. Water economics courses can use case studies to organize these complexities and uncover useful results.


Addendum: Interested in the fight between cars and citizens for streets? Read taking back roads from cars (via CD).

Interesting stuff

  1. Read: Indian and Pakistanis are living with “unsurvivable” heat.
  2. Read: George Orwell on Hitler’s Mein Kampf in 1940: “Whereas Socialism, and even capitalism in a more grudging way, have said to people ‘I offer you a good time,’ Hitler has said to them ‘I offer you struggle, danger and death,’ and as a result a whole nation flings itself at his feet.
  3. Listen: Yuval Noah Harari Thinks Life Is Meaningless and Amazing
  4. Listen: This podcast is more about citizen governance than big tech, so definitely worth a listen
  5. Watch: Who controls gas prices? (It’s not the president)
  6. Read: The Netherlands has the “least best” surface water quality in the EU. This is mostly due to agricultural pollution (=animal shit) and has been known for years. The Dutch need to decide whether they value their environment or their meat exports. This article [in Dutch] explains how they’ve received two 6-year extensions since the original deadline of 2015 and will probably miss the 2027 deadline. Other EU countries are also having problems, but not as badly as the Dutch, who have natural (peat bog) challenges as well as a very strong pro-pollution lobby (the farmers).
  7. Watch: My colleague Paul gave a great TEDx talk on climate and tipping points.
  8. Listen: Robin Dunbar (of Dunbar number fame!) on why religion keeps evolving
  9. Read: How to minimize hassle and maximize facemask safety on planes
  10. Read: A rising share of humans is exposed to heat stress — and most of them are in poorer countries where relief is out-of-(financial)-reach.

George Carlin on our failing species

In 2001, I was lucky to see George Carlin (1937-2008) live in Las Vegas, as he is (or was) one of the sharpest commentators on contemporary life. I recently watched the 2021 documentary about his life, American Dream, and came across the clip below, which captures his “trick” of staying sane in our current world.

In his 1997 book, Brain Droppings, he explained it as:

“I frankly don’t give a fuck how it all turns out in this country—or anywhere else, for that matter. I think the human game was up a long time ago (when the high priests and traders took over), and now we’re just playing out the string. And that is, of course, precisely what I find so amusing: the slow circling of the drain by a once promising species.”

I find this perspective to be quite healthy for me, mentally. Although I only recently decided that I was more of a pessimist than a realist, it’s been clear to me for some time now that humans are miraculous not for their achievements and good works (many of them in the “excludable goods” side of life) but merely for not destroying themselves so far. Unlike other species, we experience, tolerate and choose for war, genocide, inequality, corruption and other nasty ways of harming each other (in the “non-excludable goods” side of life), but it’s in our war on the environment where the wheels are truly coming off. I’ve written plenty about this, so I’ll leave it to Carlin to summarize.

(Note how many of the people listening to him continue to insist that he’s trying to “help” us with his comments. He’s not. He’s written our species off.)

Here’s a direct link if you want to download

Interesting stuff

  1. Listen: A “dotcom millionaire” who later wasn’t on the market, and crypto meltdown.
  2. Read: Aridzona’s silly water laws are leaving owners of $600k houses dry.
  3. Read: Time for a post-Roe-Wade vasectomy? (I’m very happy with mine!)
  4. Read: Some researchers claim that large, rich Dutch cities are not “happy,” but they failed to back out the impact (good and bad) of inequality. That’s a fail because the entire point of cities is opportunity (thus inequality), not homogeneity.
  5. Read: E-scooters aren’t green if they are only used a few months.
  6. Read: Americans are losing millions to overseas “scam relationships.” Related: How Wall Street made millions as Main street lost to crypto scams
  7. Read: Stop reading the news to stay sane — and connected to reality. Related: Going offline in Wales to slow down and enjoy life
  8. Read: Rich people’s yachts as the ultimate (and movable) “fuck u, I’m rich”
  9. Read: This interview with Herman Daly, an ecological economist behind “steady-state [no growth] economics” presents his ideas clearly. I agree with all of them, since he’s talking about the right way to do economics.
  10. Read: One reason for higher prices? Abuse of market power by ocean shipping companies

 

Review: Adapt

I found this 2011 book by Tim Harford in the local “book exchange” on teh corner and grabbed it, since I’ve read his Undercover Economist and listened to his fun “Cautionary Tales” podcast.

I was glad I did.

Harford’s books fall into the space between Malcolm Gladwell and Nassim Taleb, as he’s both an economist and journalist, and that’s where I like to hang out. (Fun fact, this book came out before Taleb’s 2012 Anti-fragile, which covers, AFAIK, the same topic.)

This book’s premise is that we can hardly hope to get it right the first time, especially when exploring new ideas or facing new challenges, so he says we should focus on adaptation, which is useful for dealing with climate change but also to any other change.

The way to do this is summarized as the Palchinsky Principles*:

  1. Seek out new ideas and try new things.
  2. Try new things on a small scale, so failure is survivable.
  3. Seek feedback and learn from mistakes as you go.

You can stop reading here, as that’s “the lesson,” but I will (as usual) add a bunch of notes (only a fraction of the notes I made while reading) that give more context to those steps.

  • Life as hunter-gathers was simple: eat, walk, sleep, fuck. The leader had a few simple responsibilities but got respect. In our extremely complex world, leaders cannot hope to understand or manage those systems, but our primitive mind keeps assuming they can.
  • The survival or success of firms has little to do with their leaders, which should make you question their stupid-high salaries.
  • The Soviets were spectacularly bad planners, but the USSR survived on the wits of its citizens, many of whom were punished for “deviations.” Palchinsky (*mentioned above) was murdered by Stalin’s goons for making too much noise about all that was going wrong.
  • “If formal experiments hold few joys for traditional leaders, informal feedback will often fail to reach them, too… There is a limit to how much honest feedback most leaders really want to hear; and because we know this, most of us sugar-coat our opinions whenever we speak to a powerful person. In a deep hierarchy, that process is repeated many times, until the truth is utterly concealed inside a thick layer of sweet-talk” (p 30)
  • High modernism and grand visions are dangerous because they over-reach.
  • Whistle-blowers and short sellers are hated for interfering with the vision, but they should be rewarded for pointing out dangers (and actual fraud).
  • “No plan survives contact with the enemy,” or, in Mike Tyson’s words, “everyone has a plan until they get punched in the face.”
  • Hayek said a lot of this in his amazing 1945 paper (one of my favorites)
  • The US only recovered from early failures in Iraq (recall the book came out in 2011) due to local leaders giving local soldiers authority to ignore orders from the top (“frag the lieutenant”) and solve local issues.
  • Variation in ideas (and actions) is safer (see #2) than pursuing one big idea (cf., market indexing vs superstars).
  • Many good ideas (and many more failures) come from “skunk works” filled with engineers and others freed from corporate oversight (#1, #2).
  • Don’t be fooled by the “success” presented to you. Look at all the data (#3).
  • A simple (sophisticated) economy usually makes simple (sophisticated) products due to many factors. Simple economies are usually poorer than sophisticated ones, but that’s not always true. Saudi Arabia is rich, but simple (selling oil), which is why its people have trouble making sophisticated products. Israel’s current wealth could be predicted by the  (educational and cultural) sophistication of its people.
  • The northern European port city of Lübeck (now in Germany) exported it successful model and founded the Hanseatic League (which dominated European commerce for centuries) because its ruler, Henry the Lion, established a stable and open trading policy in 1158.
  • John Tyndall’s 1859 description of the Greenhouse effect was based on some pretty clever science (he showed that sunlight would heat water vapor in a flask but not if the flask was a vacuum)
  • Most of our understanding of cause and effect, as applied to climate chaos (e.g., recycle! drive an electric car!) is off or wrong, so we should be worried about “targeted policies” (looking at you, politicians) and favor a direct instrument like a carbon tax: “What the carbon tax would do, then, is recreate the fantasy carbon calculator app, and give it teeth. No central database would be needed. Every product in the world would change in price according to the carbon content of the energy that produced it, and that would give every decision maker, fromthe electricity company to Geoff himself, an incentive toreduce their carbon footprint using whatever tactics occurredto them” (page 168).
  • A complex, tightly coupled (think falling dominos) system is vulnerable to blowing up. That’s what happened in the Global Financial Crisis, when everyone realized that the bankers had no fucking idea what they were buying and selling. The current crypto-market blow up is a smaller, far less regulated, version of this (see #2) that would NOT have been avoided with regulation. (Lack of regulation is a feature, not a bug, when you’re inventing a market.)
  • Separating banks into “utility” and “speculative” was a good idea in 2011, and it’s still a good idea, but bankers have bribed politicians to keep the casino open — and they’re gambling with your money.
  • Financial regulators and auditors don’t spot corporate fraud: Journalists, whistle-blowers and other (non-financial) regulators. Why? None of these later types are paid by the firms they “oversee.”
  • Individuals die as the population adapts, via selective breeding. That’s bad news for the individual but good for the species.
  • Peer monitoring is far more effective than the boss looking over your shoulder.
  • Disruptive innovations only get going because incumbents don’t see the potential in better ideas. They are comparing a new, rough idea to their old, refined one. “Big mistake” — Elon Musk.
  • “The first principle is that you must not fool yourself — and you are the easiest person to fool.” — Richard Feynman. It’s for this reason that I named my website kysq (kill your status quo), since (#3) the first step to learning is admitting (not denying) that you’ve made a mistake. This is why good writers can “kill their babies” (paragraphs); they need to make peace with their losses.
  • “I am not a failure. I have made a mistake.” (p 257)
  • Self-employed people tend to be happier than employed because their customers give immediate feedback, good and bad, whereas employees need to rely on bosses who may not pay attention or know what’s good or bad.

My one-handed conclusion is that we can all benefit from Palchinsky’s Principles — and reading this book, especially as we enter an era that (in my evolving opinion) will not look like the 1930s or 1970s, but the 2020s, and it’s going to full of chaos and the need to adapt. FIVE STARS.


Here are all my reviews.

Interesting stuff

  1. Read: The Petty Pleasures of Watching Crypto Profiteers Flounder
  2. Read: Dam removals are happening in Europe, but there are many many (useless) dams to go. [Insert “something something circular” comment here, to move old concrete into new construction?]
  3. Watch: John Oliver describes the clusterfuck of water in the Western US — something I’ve warned about for 15+ years.
  4. Watch this amazing collaboration: Dutch Cities are Better for the Environment, which links into (?) The Suburbs Are Bleeding America Dry
  5. Read this paper on “climate insecurity,” which points out that loss of (potential) GDP — the conventional measure of “damage” — does not capture the damage (physical and psychological) from losing secure access to food, water, energy, etc. These insecurities will — as I have said many times — really harm what we consider “quality of life”
  6. Read: San Francisco voters have recalled their “over-woke” local officials for discarding a working system in favor of counterproductive virtue signaling. I hope that the “radical Left” continues to lose power in favor of the center. (The Republicans on the Jan 6 committee are doing that job from the Right.)
  7. Read: Dutch festivals are cutting back on disposable plastic beer cups. Good.
  8. Read: The fish-of-the-day comes from much warmer waters than 100 years ago. Climate chaos will hit our diet in many ways, but this is clearly quantified.
  9. Listen: “Today on Hot Take, Amy and Mary talk with David Wallace-Wells about the lessons we can learn from Covid-19, the parallels between pandemic response and climate response, and how Russia’s war in Ukraine sits at the intersection between the two.”
  10. Think: US gun violence is well known, but consider: There were 45,000 firearm deaths in the most recent year (2020), which is over 120 per day. That’s more than die due to motor vehicles (110/day) but not “poisoning,” i.e., mostly drug overdoses, @ 265/day). Most gun deaths (24k) are suicide, then homicide (19k), with police “legal intervention” coming in at 600 or so (Source CDC). So cops may be violent, but look at their environment! Here’s more, and more recent, data. Why can’t the US “get things under control”? Maybe because of the 1996 “Dickey Amendment,” which banned use of federal funding for research that “may be used to promote gun control.” Well, fuck.

H/T to DW