Brad Setser has a disturbing post about the risks that the hedge fund industry is taking, and which might cause a market crash. Puts are looking cheap these days, and I’m buying a modest amount of them just in case.
I was recently surprised to discover that California has price controls which are designed to encourage hoarding in emergencies and to discourage stockpiling in preparation for emergencies. The law in question is called an anti-gouging law, and temporarily limits price increases to 10 percent in some emergencies. I’ve seen conflicting reports about whether Bush’s declaration of emergency triggers the price controls, or whether it requires a state declaration of emergency. The governator has indicated that he has no plans to join the Bush/Lockyer exploitation of Katrina, but my limited observations suggest that gas stations in the bay area have limited their gas prices increases to 10 percent, and a few of them ran out of gas over the weekend.
It looks like the gas supply problems will ease soon enough that the price controls won’t have done much harm this time (diversions of gas shipments that were intended for other parts of the world will any week now spread the supply reduction over large enough regions that a fairly small price premium over what would have prevailed without Katrina should keep supply and demand in balance).
On a related note, Alex Tabarrok made a claim that suspending gas taxes won’t help consumers. I’m suspicious of his belief that a temporary suspension will have little effect on supply. I expect that oil companies will have an important incentive to draw down their inventory more than they otherwise would, especially just before the taxes are reinstated (since their profit margins will decline when taxes resume). I expect this effect to reduce prices to consumers by a modest fraction of the amount of tax relief. This will come at the cost of increased vulnerability to new supply disruptions. I doubt that the voters who have caused politicians to suspend gas taxes have given much thought to the wisdom of this tradeoff.
Last week’s issue of Nature has a review of a recent Michael Crichton book (dismissed as “Viagra for climate sceptics”) which contains an interesting claim about the reaction to the movie The Day After Tomorrow:
Surveys of public opinion conducted before and after the film was released found that it made people think climate change is less likely
Apparently its obvious lack of realism caused people to associate the more respectable claims about global warming with Hollywood escapism.
I wonder if this is the tip of a much larger iceberg. It seems to me that a wide variety of political movements tend to promote the most alarmist versions of their ideas in order to get respect and/or money from their strongest supporters. I don’t find it hard to imagine that it is common for activist groups to hurt the causes they claim to be fighting for by sounding unrealistic to swing voters.
Book Review: Catastrophe: Risk And Response by Richard A. Posner
This book does a very good job of arguing that humans are doing an inadequate job of minimizing the expected harm associated with improbable but major disasters such as asteroid strikes and sudden climate changes. He provides a rather thorough and unbiased summary of civilization-threatening risks, and a good set of references to the relevant literature.
I am disappointed that he gave little attention to the risks of AI. Probably his reason is that his expertise in law and economics will do little to address what is more of an engineering problem that is unlikely to be solved by better laws.
I suspect he’s overly concerned about biodiversity loss. He tries to justify his concern by noting risks to our food chain that seem to depend on our food supply being less diverse than it is.
His solutions do little to fix the bad incentives which have prevented adequate preparations. The closest he comes to fixing them is his proposal for a center for catastrophic-risk assessment and response, which would presumably have some incentive to convince people of risks in order to justify its existence.
His criticisms of information markets (aka idea futures) ignore the best arguments on this subject. He attacks the straw man of using them to predict particular terrorist attacks, and ignores possibilities such as using them to predict whether invading Iraq would reduce or increase deaths due to terrorism over many years. And his claim that scientists need no monetary incentives naively ignores their bias to dismiss concerns about harm resulting from their research (bias which he notes elsewhere as a cause of recklessness). See Robin Hanson’s Idea Futures web pages for arguments suggesting that this is a major mistake on Posner’s part.
Rare Earth : Why Complex Life Is Uncommon in the Universe provides some fairly strong (and not well known) arguments that animal life on earth has been very lucky, and that planetary surfaces are typically much more hostile to multicellular life than our experience leads us to expect.
The most convincing parts of the book deal with geological and astronomical phenomena that suggest that earth-like conditions are unstable, and that it would have been normal for animal life to have been wiped out by disasters such as asteroids, extreme temperatures, supernovae, etc.
The parts of the book that deal with biology and evolution are disappointing. The “enigma” of the Cambrian explosion seems to have been explained by Andrew Parker (see his book In the Blink of an Eye) in a way that undercuts Rare Earth’s use of it (dramatic changes of this nature seem very likely when eyes first evolve). This theory was apparently first published in a technical journal in 1998 (i.e. before Rare Earth).
They often assume that intelligence could only develop as it has in humans, even suggesting that it couldn’t evolve in the ocean, which is rather odd given how close the octopus is to qualifying. But the various arguments in the book are independent enough that the weak parts don’t have much affect on the rest of the arguments.
I was surprised that they never mentioned the Fermi Paradox, which I consider to be the strongest single argument for their position. Apparently they don’t give it much thought because they don’t expect technological growth to produce effects that encompass more than our planet and are visible at galactic distances.
Their concern over biodiversity seems rather misplaced. I can understand why people who overestimate mother nature’s benevolence think that preserving the status quo is a safe strategy for humanity, but it seems to me that anyone sharing Rare Earth’s belief that nature could wipe us out any time now should tend to prefer a strategy of putting more of our effort into creating technology that will allow us to survive natural disasters.
I am disappointed that they rarely attempt to quantify the range of probabilities they would consider reasonable for the risks they discuss.
Stephen Webb has written a book on roughly the same subject called Where is Everybody? that is more carefully argued, but less entertaining, than Rare Earth.