Friday, December 29, 2006

"Fair Trade Oil?"

I just finished reading The Prize by Daniel Yergin. Fascinating (but long!) history of the past 150 years or so, as told through the lens of the oil industry. It starts out talking just about the industry itself, which occasionally starts bumping up against events of the day, but shortly into the 20th century an interesting inversion takes place whereby the significant events (such as the world wars) can be described in terms of oil itself as oil takes on strategic national significance for many nations of the world. He's not trying to claim that the wars or economic policy were specifically about oil (as many people claim about the current Iraq war) or anything radical like that; rather, he describes how the need for reliable oil supplies shaped strategies and policies and international relations.

Anyhow, I didn't intend this post as a book report; however, it did get me thinking.

Many nations have been "blessed" with rich deposits of oil. But this is a decidedly mixed blessing. Most nations with oil reserves have used that oil to help provide income for the country (in most oil-exporting nations, oil is nationalized) - and for most of these nations that income is (or was) badly needed. However with startlingly few exceptions, most of these nations have also not progressed very far at all, because the wealth stays captured within the government and the well-connected; on the whole, many of these governments are quite repressive, and even the ones that aren't rarely reinvest this money wisely in a way that diversifies the economy, creates a vibrant middle class, increases education, decreases poverty, or otherwise makes life better and more secure for everyone in the country.

My personal opinion is that this results from the fact that the income is "free" - once the well is in the ground, you don't have to do incremental work to gain incremental income. And if the government is getting a stream of income that is reliable, there isn't much incentive to improve its efficiency or reduce corruption. And worse, if that stream of income is coming from oil importing countries rather than from its citizens, then it doesn't need to be terribly responsive to its own citizens, and in fact has a strong incentive to ignore them in their effort to satisfy the foreign customer. A classic economic game of getting what you reward - frankly, nobody should be surprised.

I look at the coffee industry. Economic realities have incentives aligned for some pretty nasty environmental and labor practices in the industry. As a result, over the past few years we've seen a pretty strong rise in "fair trade" coffee, whereby producers and retailers commit to sustainable agricultural processes and fair wages to farmers, and label the resulting product as such, and consumers "agree" to pay a little bit more for the resulting coffee. Heck, even Starbucks, the Wal-Mart of the coffee world (yeah, I'm just saying that; I like Starbucks just fine) has embraced the concept, which says to me that the concept must be economically viable.

So I ask myself this: if its possible to alter the basic economic equation in coffee to account and correct for the intangible social consequences, is it idealistic/naive to suggest that perhaps we find a way to do the same with oil? We could add a "fair trade" certification for oil that comes from countries who:
  • Have certifiably open/transparent government processes that are free of any meaningful degree of corruption
  • Respect human rights - for example, if they want to drill a well in your yard, they actually pay you for your property
  • Respect their environment
  • Plow petroleum profits back into proper investment in their citizenry
  • Work to diversify their economies in order that people outside of the oil industry can have opportunities, and so that the country is not so wholly dependent on oil.
Obviously, you can't very well go in and make Iran or Saudi Arabia or Nigeria adhere to guidelines such as these - particularly when their ruling classes are making so much money from oil sales. However, unlike coffee where the fair-trade rules increase the cost of the resulting product, in this case I don't believe that adhering to these guidelines needs to increase the cost of the oil at all. As such, you can turn the economics around: raise taxes on all oil by some amount, and then eliminate taxes for "fair trade" oil. You could even do this in a revenue-neutral way, making by making the total tax rise fluctuate based on the amount that gets reduced for the fair-trade exemption. That way, you're not hurting the economy or paying more in total for oil, but you are introducing price discrimination into the equation to favor behavior we approve of over that which we do not. Classic economics: if you want a different outcome, change the incentives equation.

Doing so would sure be a whole lot cheaper and easier than going to war over the point.

Friday, December 22, 2006

And people complain about political correctness run amock?

You may have heard about a massive wind storm that hit Seattle last week. It knocked our power and Internet access out for 6 days, and my in-laws still don't have power more than a week later.

While a few people died from flooding and trees falling onto their homes - quite tragic under any circumstances - the largest single cause of deaths appears to have been from carbon monoxide poisoning, from people moving generators or grills indoors. This is particularly tragic because it is so obviously preventable. After all, when the wind is blowing, you can't necessarily stop a tree from falling on you, but you sure as heck don't have to bring a generator or grill inside.

Anyhow, responding to this, our major daily, the Seattle Times, published big bold front-page headlines a few days ago in about 6 different languages warning about what a bad idea it was to bring these fuel-burning devices indoors. Great public service announcement.

Would you believe that the Times actually got letters from people protesting the fact that they published this in a bunch of languages other than English? I understand the goal of having people that move here learn to speak English; heck, I've blogged on this very topic. But let's get some perspective, folks. Which is more important: (a) keeping people alive by giving them some very basic information in a form that they can understand, or (b) advancing your ideology about "English Only?"

Whether or not English is or should be our official language, the facts on the ground are that many people don't speak it or read it, and suggesting that they should not be presented with potentially life-saving information is simply a disgusting elevation of ideology over humanity. Let's save the English-only debate for non-life-threatening issues, OK?

Hard for me to build on this

So I won't even try. I think Fareed is one of the most clearheaded analysts out there, and this is a great summation of the Iraq war.

Sunday, December 10, 2006

Transfats and Foie Gras

Motherhood and apple pie may epitomize "America," but governments lately are taking this literally as they try to act like parents and police what we eat. Chicago, of course, gained notoriety this summer for banning the sale of foie gras (though, in a humorous loophole, I understand that they can still give it away - leading to $100 pizzas with free foie gras on top!) And now New York has banned the sale of foods with trans-fats in them, and is considering following Chicago's lead with foie gras.

The trans-fat issue is one where I think the government might actually have a legitimate role, but is going about it all wrong. Trans-fats raise legitimate health issues, but an outright ban makes no sense - it's heavy handed, and restricts many legitimate uses along with the problem scenarios. Bans like this for decisions that a rational adult should be perfectly capable of making should be anathema to anybody that loves freedom.

Most trans-fats in cooking are a relatively recent (last century or so) invention, and are not naturally occurring (though some small amounts are natural). More to the point, switching away from trans-fats to other fats can generally done transparently, with no obvious effects on taste or outcome. I say "generally" because there are places where these fats fill a unique role - a little bit of Crisco in a pie crust can make it somewhat flakier more effectively than butter.

So going without trans-fats is, with a few minor exceptions, a fine and doable option, and a good thing for people to do. If this is the case, and if a ban is a bad idea, what is a reasonable approach to addressing the health issues associated with trans-fats? The best idea I've heard is one where the government doesn't ban trans-fats explicitly, but requires (a) clear labeling of any foods that contain them, and , (b) taxes levied to recover the associated health costs. This is similar to the approach with cigarettes, of course, and smoking has been declining steadily over the last several years.

The two best ingredients to people making smart personal decisions are good information, which the labeling provides, and an economic proposition that reflects more or less the realities and tradeoffs of the decision at hand, which a tax would provide. Then let people make their own choice. If they decide to get fat and have a heart attack, why shouldn't that be their prerogative, as long as the rest of society doesn't have to pick up the tab for that decision?

The ban on foie gras is not quite the same, in that the issue here is not so much a personal decision as it is one based on an argument of animal cruelty. I would have a hard time trying to justify animal cruelty, but the issue is not whether or not you support animal cruelty, but whether what happens meets the definition of animal cruelty. (I think this argument is analogous to the one I recently made about abortion being a debate about where the line is for infanticide).

"If God didn't want us to eat animals, why did he make them out of meat?"
-- Homer Simpson

If foie gras truly is animal cruelty, then tasty as it is, it is reasonable for governments to ban it. I argue above that the decision to eat trans-fats is a personal one and a "victimless crime," but abusing animals is hardly victimless; it is certainly within the reasonable jurisdiction of governments to ban such activities or their outcomes.

I personally love seared foie gras, and would hate to see it banned. (And frankly, I think Chicago and NY should focus on more pressing problems facing their populations.) Given that geese do not have a natural gagging relfex, it is also not clear to me that this crosses the line to animal cruelty.

Absent a clear distinction between foie gras and other "cruel" foods (veal, factory-farm poultry, etc.), then I worry that banning foie gras is just the first step down a slippery slope towards banning a host of other food products.

Monday, December 04, 2006

Profiling - what's wrong with it?

Profiling seems to be getting a bad rap these days, whether it's racial profiling (getting pulled over for "driving while black", for example) or other forms of profiling, such as suspicions of anyone doing anything overtly Islamic, such as the recent detention of several Muslim clerics from a US Airways flight. (Note that I am deliberately using simply "profiling" rather than the more commonly used "racial profiling" because profiling can go beyond simple race, as the example above illustrates.)

Is profiling inherently problematic? The answer, surprisingly, I think is "no." From a civil-rights perspective, I think there is nothing wrong with profiling per se, provided that it meets one critical test: is it effective. Most of the time, it isn't, and this is where profiling inevitably crosses the line from inconvenience to personal infringement for the person being profiled.

Consider two examples to prove my point about effectiveness. In the first, there is a report of a shooting in a predominantly black neighborhood. If the police are out looking for suspects and focus exclusively on blacks, that IMO is "bad" profiling - you're casting unfair and undue suspicion upon someone because of skin color (seems like an infringement on their rights to me), and you're also ineffective because you are needlessly cutting off leads that could be fruitful.

On the other hand, suppose in the same situation there are eyewitness reports that the shooter was black. In this case, I don't think anybody would think it controversial to focus on black suspects; frankly, I doubt anyone would actually call this "profiling" in this situation.

Over the past few years, I think we've seen a lot of hysteria over profiling with regard to terrorism. The imams mentioned above are not the first example of Muslims being removed from airplanes because of middle-eastern looks or because they were overtly Muslim. I hope I'm not saying anything scandalous in saying that this is pretty bad profiling. After all, I'm not aware that we've ever actually caught a terrorist this way. On the other hand, the sort of profiling that has actually stopped terrorists has been looking for people who, say, try to light their shoes on fire on an airplane.

Much of this hysteria I think arises from a mistaken understanding of statistics and probability. For example, it is a fact that the most deadly of terrorist attacks (9/11) and the vast majority of terrorist attacks around the world over the past several years have been committed by Muslims. Sad fact, but pretty obviously true. So the odds that a given terrorist is Muslim are much higher than the odds that the terrorist is, say, Catholic. However, we aren't looking at random terrorists, we're looking at random people. And even if the odds that a random Muslim is a terrorist are twice that of a random non-Muslim, you're still looking at minuscule odds in either case. Stated another way, with over a billion Muslims in the world, if there are even 1 million terrorists among them (which I'm sure there are not), that's still only a 0.1% chance that any given Muslim is a terrorist.

So suspecting a given Muslim of being a terrorist simply because of his religion is a lot like trying to solve a rape case by detaining all of the men in the city. You haven't really narrowed the problem in any meaningful way, and you're violating the rights of a lot of people in the process.

This isn't just an academic point - efficiency in security is actually critical. Trying to achieve good security without efficiency has two very dangerous side effects: (a) it overwhelms the process that you are trying to keep secure, and (b) all the effort expended on pointless security procedures distracts resources from genuinely useful security work, thus creating security holes or lapses that can be exploited by people who don't simply look like the stereotype of the bad guys but who actually are the bad guys.

Removal of shoes and bans on liquids at the airport both offer examples of the latter, and as far as I can tell neither of these time-consuming, arduous, and expensive procedures has stopped a terrorist. Alert passengers on a plane stopped the shoe bomber, and good intelligence stopped the liquids-bombers.

Frankly, I've yet to hear of examples of profiling that are actually effective in practice. And that is what makes the inconvenience and infringement that results so unacceptable.