Climategate Unveiled

Posted on January 20, 2012 by Jimbo

Poor old Richard Nixon, his voyeuristic penchant for taping his own conversations and tapping his rivals remains to this day the benchmark in self-incriminating scandals.  So, how did a small bunch of climatologists from East Anglia manage to elevate their actions to en par with those that brought down a U.S. president? Why this parallel to WaterGate, what is ClimateGate?

Climategate, like its forbearer WaterGate, is a sensational and highly significant scandal.  It also could bring down a respected institution or, at least, its reputation.  In this case, the noble institution in question is non other than one of the pivotal, Global Warming evangelists, the Climate Research Unit (CRU).  The CRU are a part of the University of East Anglia.  But, why would the events in this relatively small university in the U.K. have such a significant, international impact on the Global Warming debate.  Well, the CRU and their partner, the Hadley Centre (which is part of the British Meteorological Office [M.E.T.]), compile a surface temperature record that is crucial evidence supporting the Global Warming theory.

The origins and significance of the CRU and Hadley Centre

The Hadley Centre was setup ironically by the “Iron Maiden”, Prime Minister Maggie Thatcher.  To say she’s not the environmentalists champion is perhaps an understatement.  But, her actions have been the greatest gift to their modern cause of CO2-based, “pollution” reduction.  Maggie wanted to prove Global Warming.  Strange but true, but what would motivate her to do that?  Why would she set up an “independent”, scientific body (the Hadley Centre) to provide the required evidence to prove Global Warming.  To be fair, Maggie didn’t really care about the possible “pollution” problem, but she did really care about accessing nukes: both in the form of weapons and energy production.  The seeming insurmountable problem she faced was the wide-ranging unpopularity of Nuclear in Britain at the time.  She needed to gain public support her pro-nuclear policy and the way to do that was find a worse evil; namely, CO2.  Later, in her memoirs, she admitted she never could have imagined the size of the collateral damage beast she unleashed in the process.  She thought Global Warming would be a temporary expedient to convince the British public of the need to go Nuclear.  Little did she know that it would fuel the Green’s, extremist, environmental movement for decades to come.

Anyway, needless to say the CRU and Hadley Centre are central to the Global Warming debate and are the focus of Climategate.

So, what is Climategate?  Well, it essentially involved thousands of CRU emails being dumped on a Russian, email server.  They were either hacked or, more plausibly, legally released by a whistle blower.  But, either way, the huge significance of these emails is that they are very self-incriminating and damaging to the Global Warming movement.

 

The story of Climategate

The search for the raw, temperture data

We are often told there is a consensus among the world’s climatologists that Global Warming is beyond reasonable doubt.  You then may be surprised to hear that hundreds of leading scientists actually describe themselves as “skeptical” of this doctrine.   Some of these inquisitive “skeptics” wanted to exercise their basic, scientific right: namely, to verify the CRU’s results.  Of course, without 3rd party replicability, any scientific result is groundless, unpublishable and, more importantly, wholly unacceptable at driving global, economic policy such as the push for Carbon Taxation.  Perhaps most famously, Steve McIntyre, but also importantly Warwick Hughes, and Willis Eschenbach, were at the forefront of the data verification process requesting the CRU’s raw data.  They wanted to see how the CRU interpreted their source data into a century of global, warming trends that backed Global Warming theory.

From around 2002, statistician, Steve McIntyre, among others, started asking the CRU for its source, raw, temperature data.  But, polite requests received answers like this by its Head, Phil Jones:

“Even if WMO agrees, I will still not pass on the data. We have 25 or so years invested in the work. Why should I make the data available to you, when your aim is to try and find something wrong with it.” Phil Jones (2005)

To blanket refusals like this, requests had to be bolstered by the saviour of democracy, the Freedom of Information act (FOI).  Skeptics wished to independently verify the CRU’s data analysis techniques.  As publicly funded bodies, the CRU and Hadley Centres are required to divulge the fruits of their labours.  Research paid for by the tax-payer is publicly open to the tax-payer.  However, openness was the last thing on their minds.

Initial FOI requests were answered by claims that the raw data was on “web”, vaguely hinting it was somewhere on the WMO’s (World Meteorological Organization) website.  However, when they were politely asked for greater clarification of where exactly on this website, the CRU repeatedly provided dead-end links.  Then, as that line of obfuscation ran dry and proved inadequate to the task of shaking off the requests, the CRU claimed the raw was actually destroyed.  Hold on here.  So, what we’re saying here is that the primary, source data for the climate models, that are encouraging the world’s leaders to implement rapid and massive carbon taxation, had unfortunately been destroyed?  How very inconvenient for the “inquisitive” skeptics?  Sadly, the CRU could only provide the condensed, massaged data.  The reason given, from the horses mouth, their own, was (and still is):

“Data storage availability in the 1980s meant that we were not able to keep the multiple sources for some sites, only the station series after adjustment for homogeneity issues.” CRU website

The raw data was not lost, but hidden

Later, through the Climategate emails, we found out that the raw data was, believe it or not, actually in their private hands all along; not destroyed.  Thus, they were shown to have actively avoided FOI requests through misdirection and falsehood.  However, the ironic thing is that if Phil Jones actually just admitted from the off that he couldn’t provide the data, then the story would never exploded in his face.  The truth of the matter was that the raw data was in total disarray, not that it “didn’t exist”.  He could have handled the situation, which is not as embarrassing as it may seem, in much more transparent and professional way and saved himself a lot of grief.  Phil Jones could have just handed over the data, that was presentable, and promised to forward on the “cleaned up” data when possible.  Instead, he decided to lie and hand over no data at all.  Thus, it seems he neither wished to admit that much of raw data was in disarray nor even hand over  the “clean” sections.   Have we something to hide perhaps?  Perhaps and he didn’t help his cause much by serially coming up with excuses.  A small lie grew into a bigger lie, and as he kept lying to protect the original lie, it turned itself into a juicy porker; talk about digging yourself 6 feet under.

Admitting data is in a poor state is no big deal.  Personnally, I work with masses of data myself and can sympathise with such a situation.  It’s normal for data to degrade over time as it becomes legacy.  As people come and go from an organisation and, in addition, as data series naturally evolve, they can be hard to maintain and keep homogenous.  Phil Jones had this problem.  But, it is a common problem, and not really an embarrassment at all.  The professional, and very acceptable thing to do, is to admit that the data needs “cleaning”, transparently show how you’re about to do it, then release it as soon as appropriate.  However, this is not the approach he decided upon.  Something to hide perhaps?

5 years of lies made possible by the U.K. governement

So, for about 5 years, scientists like McIntyre proceeded with their futile, FOI requests now via the U.K. government itself, but all to no avail.  Even the politicians were unwilling to enact their own laws and force the CRU into full disclosure.  This is where political posturing really shows its hand in the matter.  The U.K. government’s reticence, their stonewalling of the skeptics by blatantly ignoring their own law of the land, is a sad episode by the “Right Honourable” men of parliament.   They were willing to put their own reputations on the line to protect the CRU from investigation.  Why would they risk such a thing?  Surely, it wouldn’t be just to protect the reputations of a bunch of scientists in East Anglia?  No, the game is much bigger than that and the politicians knew this.  Consider this, without the CRU’s catastrophic, Global Warming, predictions where would the E.U.’s, massive, carbon taxation scheme be?  This massive cost to society would be proved unnecessary and redundant.  The E.U.’s Emissions Trading Scheme is Central Planning on a grand scale.   That’s the motive, to shelter the CRU from prying eyes: protect the CRU, protect Emissions Trading.  No, this is not a particularly bold or ground breaking statement.  I was a member of the European Youth Parliament.  We were frequently told that this is the prime objective of the E.U.  We are currently in the long-awaited process of the deconstruction of the nation state to be replaced with a United States of Europe.  Consequently, we wouldn’t want a few, “minor”, scientific anomalies from a research unit in East Anglia to put the Europe-wide, Carbon Taxation scheme into jeopardy would we?  Needless to say, all FOI requests were promptly ignored by the British government.

Enough is enough – whistleblowing time

Fast forward in time to 19th Nov’09, as all attempts by the public to access public information still continued to be successfully thwarted.  We are now on the eve of the much hyped, international conference on Climate Change (a euphemism for Global Warming).  This conference was to be the “climatic” moment for all the hopes and dreams of the Green Movement.  Copenhagen, was just about to start.  A month before this meeting of the world‘s political leaders, a cynical bombshell was dropped.  The explosion of inflammatory emails unleashed by a mystery “hacker” was to have large ramifications indeed.  The unexpected release of these CRU, private missives was obviously a thinly veiled attempt to scupper the forthcoming conference.  It was an attempt to overshadow and put an element of doubt into the validity of the Global Warming concept.  Hophenhagen (as it was fondly coined) had very high expectations.   It had the good intention of progressing the Kyoto protocol’s early foundations of tacit agreements and vague, emissions targets into a full, binding, international, Carbon Taxation scheme.  Could the Climategate email release really dash these Hopes in Copenhagen?

Could a 1000 or so private emails of banter at one research unit be the Achilles Heel of the whole Global Warming movement?  One thing about these CRU emails was that they were highly sorted and categorised.  This was no haphazard dumping of data.  One would almost say they were internally prepared by the CRU for their delayed but inevitable FOI release?  These delaying tactics could last only so long after all.  The emails were dumped anonymously on a Russian server either by this whistleblower or hacker.  To this day, the perpetrator is not known: Warmists consider it a malicious hacker, skeptics lean towards the whistleblower possibility.  I admit I also would lean to the latter.  The reason being that the scale and quality of information presentation is so complex that probably only an insider could accomplish it so successfully.  In addition, if they were a just a malicious fabrication as some rumour, surely the victims, namely the CRU, would refute them as baseless and libelous.  Contrarily, of course, to refute them and to be later caught out that you lied would be worse and most likely career ending in disgrace.  Consequently, Phil Jones is caught between a rock and hard place.  As the emails have never been refuted,  this logic is virtual proof of their validity.  Therefore, who really cares at the end of the day if it was a hacker or not, they were never refuted by those implicated and thus can pretty much be deemed true and valid.  So, what’s all this kerfuffle about?

 

The secrets behind the Climategate emails

So, what’s all the hype about, are these emails just a storm in a teacup and little more than inconsequential office banter?  Well, they have told us a lot more than just idle gossip.  They have been very interesting indeed actually, an explosive exposé one could say.  They are a behind-the-scenes insight into the machinations behind the pro-Global Warming movement.  A lot of the concerns sceptics had previously hinted at regarding data methodologies (most famously the “Hockey Stick“) were suddenly proved valid.  For years, Steve McIntyre had called into question the statistics that underpinned the “Hockey Stick”.  But, without access to the raw data, he could not prove his concerns beyond reasonable doubt.  Climategate was just the proof they required of the large-scale malfeasance that was going on to save the the “Hockey Stick” juggernaut from, let’s face it, its inevitable demise.

The dirt dished up by Climategate; the CRU were guilty of…

  • Active attempts to prevent the FOI release of their data and methods
  • Attempts to prevent rivals from publishing in respected journals / IPCC reports:
    • “I can’t see either of these papers being in the next IPCC report. Kevin and I will keep them out somehow – even if we have to redefine what the peer-review literature is!” (Phil Jones ’04)
  • Large amounts of dubious, data manipulation (e.g. “Hide the Decline” scandal):
    • “I’ve just completed Mike’s Nature trick of adding in the real temps to each series for the last 20 years, and from 1961 for Keith’s to hide the decline.” (Phil Jones ’99)
  • Raw data deletion (under the pretense that storage requirement was too high)
  • Privately admitting there’s no temperature rise in past decade (publicly denying it)

I guess if you believe strongly enough in something, in an emotive cause such as imminent, catastrophic, man-made, Global Warming, you’ll do anything to defend and justify your position?  The ends surely justify the means in this case?  I’m sure the intentions were honourable by the CRU, at the start at least.  This sort of “unprofessionalism” didn’t happen over night.  It occurred by baby steps.  As the threat of discovery of the data “fudging” became more and more serious, the little white lies multiplied and compounded upon each other.  This lead to an eventual cover-up of quite considerable proportions and a few dirty tricks had to played along the way.  Maybe someone from within the CRU, said enough is enough, at some point along this arduous process and he or she became the whistleblower?

 

The aftermath

Climategate indeed did create quite a stir, not the huge, wide-ranging one that it perhaps deserved, but, within certain circles, fairly significant.  It sort of hit the mainstream press but not seriously.  True, many people today would recognise the term, Climategate, but I would guess far fewer would know any particulars.  Climategate was designed by the “hacker” to put a big tabby cat among the climate pigeons.  It succeeded perhaps in many ways.  It forced the U.K. government and the University of East Anglia (CRU’s parent) to hold a number of investigations into the alleged claims of professional misconduct.  Not one, not two, but three major investigations later, however, and the CRU has been fully exonerated.  2010 was a golden year for the CRU and, thus the Global Warming movement.  They re-established their credentials.  Whether you think these investigations were truly “independent”, however, is another story altogether…

 

Full disclosure at last?

On 27th Jul’11, “encouraged” by the FOI act, the CRU finally released their data; well, a version of most of the raw, station data, anyway.  Six months on, to their credit however, the reliability has not been seriously analysed and questioned.  I have to say I agree with some of the comments being made at the flag-bearing, Warmist site, RealClimate.com on this one:

“Still no sign that any of the skeptics who had been demanding access to the CRU raw data have done anything meaningful with it”. RealClimate (Jan 2012)

 

The silence is deafening.

Are skeptical climatologists busy beavering away checking the methodologies employed on the raw temperature data?  Is a comprehensive, or even a partial, review of the data about to be imminently published showing analytic inconsistencies?  Or, is the Global Warming temperature trend sound after all?  To date, the skeptics have kept stum about the whole affair.  Have they embarrassingly realised they were wrong all along..?

Well, true, this silence is rather unhelpful and could even be a sheepish admonishment of guilt on the part of the skeptics?  However, this is not necessarily so.  There have already been plenty of studies that really put into question the quality of the CRU’s (and their collaborators in the U.S., NASA) methodologies.  When reviewers have actually managed to access the raw data, and compare them to the CRU’s published, massaged results, the inconsistencies have been, for a long time, been shown to be blaring.  If you’re interested, here’s just a few notable examples:: Mt.Isa, Gladstone, Darwin (in Australia), and New Zealand.

I, for one, am surprised and disappointed that we haven’t see a flood of reviews from skeptics concerning this data disclosure.  It looks somewhat poor for their cause.  However, conversely, this is not necessarily proof that the CRU’s data analysis was kosher all along.

 

Let sleeping dogs lie? No, the story continues…

Just when you thought the scandal had gone its full course: 5 long years of CRU procrastination and dissemination, an explosion of Climategate controversy, then a few years later “full”, CRU, data disclosure and exoneration.  Well, it hasn’t.  A few months ago, on 22 Nov’ 2011,  there was a 2nd  release of climate emails.  This time the “hacker” has dumped even more, 5000 emails, on his preferred Russian server, and, guess what, it  coincides with another major climate conference.  This time it’s the turn of Durban, South Africa.  Admittedly, this conference has none of the hype of Copenhagen: none of the world’s leaders are in attendance, none of the great hopes and aspirations of the Green movement are riding upon it.  There is little sign of a binding, global, Carbon Tax coming from it.  Nevertheless, just in case this were suddenly put on the agenda, more, potentially scandalous, emails have been released.  As we speak, skeptics, such as Anthony Watts, are trawling through this “interesting” treasure trove of missives for possible juicy bits.  Watch this space…

“It’s been fascinating to get a look at the climate hoax from the inside.  The data fudging, the demonization of doubters, the knee-jerk rejection of alternate hypotheses, the quest for funding, the travel to exotic locations, the pal review, the left-wing politics, the fear of debate, the swagger in the early days, then the panic as the skeptics closed in–it’s all there.”
Anthony Watts (2012) of Watts Up With That?

Conclusion

In a nutshell, we can perhaps pose the question: has Climategate, as intended, inflicted terminal damage to the Global Warming movement?  Well, many would argue that it was the detrimental bombshell that took the wind out of the sails of the very high profile Copenhagen conference.  It may have swung public opinion enough to prevent important proponents such as President Obama from signing up to an international Emissions Trading Scheme.  Alternatively, you could say Climategate had nothing to do with it.  The problems of the GFC were quite enough to curb lavish, climate-based spending.  The global economy is teetering on a double dip recession.  Perhaps, there just isn’t enough money left in the pot for extra extravagances such as Carbon Taxation?

It has to be said, the discoveries of Climategate were not a particular surprise to many skeptics.   The skeptics’ criticism of pro-Global Warming evidence was already at a very complex and mature state.  So, when Climategate hit, it didn’t really tell us anything new.  It was more just verification that the Global Warming argument could be deemed relatively flawed and some major players had tarnished their reputations by employing questionable tactics.  Proponents will have to work hard to recover their professional respectability.  Well, they won’t, as it happens, as most of them seem to be in complete denial and have just pretended Climategate never happened.  They seem to prefer the use of the term, Whatevergate.

True,  man-made, CO2-driven, Global Warming may exist.  Never say never.  But, one of the most important pillars of the argument, the CRU’s temperature dataset, crumbled in disgrace with Climategate.  Can the rest of the Church of Global Warming remain standing in the face of such an important loss of structural (and scientific) integrity?

 

 

Summary Slides

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Man-made, Global Warming is happening. The “Hockey Stick” graph proves it?

Posted on January 16, 2012 by Jimbo

In a nutshell, why is the central argument proving man-made, Global Warming, the “Hockey Stick” graph, almost universally discredited?

The most emotive and pivotal evidence for catastrophic, Global Warming is the legendary, “Hockey Stick” graph.  The evidence proving Global Warming has been thinner on the ground than many would believe considering the vehemence of those you promote it.  However, with a dearth of other evidence available, the “Hockey Stick” was always there to wave in front of the masses.  Without the hard Stick to do the convincing, do we still have CO2-based, Global Warming?

What is the “Hockey Stick”?

It shows a 1000 years or so of low stable temperatures and the last 100 of rapid increases.  Famously in “An Inconvenient Truth” Al Gore uses it to great, dramatic effect and the IPCC (the body of scientists promoting Global Warming) have used it as the gold standard for their Warming message.

Most scientists, who have looked under the bonnet of the “Hockey Stick” (famously Steve McIntyre), have come to the opinion that it isn’t worth its weight in salt.  Not only could you relatively easily deem the math behind it lazy, you could claim it farcical.

I thought the “Hockey Stick” saga was dead and gone, but recently commentors have cited and resuscitated it as sound, valid evidence for Global Warming.  The attrition of the validity of “Hockey Stick” was a slow and painful process for those involved.  But, I think that story has come to the end of its road.  Scientists are usually pretty poor at stats, strange but true, but, in this story, the stats won the day.  It is reasonable to say that the “Hockey Stick” hasn’t got a leg to stand on.

What’s wrong with the Hockey Stick (in just one sentence)?

The Hockey Stick has been pretty much universally discredited, even in the face of proponents, such as Amman and Wahl, that have tried to resuscitate it? How so?

Basically, after years of Hockey Stick criticism, Amman and Wahl in 2005 tried to publish a few papers defending it however within one of them they let the cat out of the bag…

“buried deep within the paper, Amman and Wahl had quietly revealed their verification r2 figures, which were, just as McIntyre had predicted, close to zero for most of the reconstruction, strongly suggesting that the hockey stick had little predictive power.”

“Caspar and the Jesus paper” (by “Bishop Hill”, an awesome blog where the convoluted becomes crystal clear)

This one sentence shows us that the statistics underlying the “Hockey Stick” were fudged and manipulated.  As is normal scientific practice, Steve McIntyre (et al) badgered (err, requested) the authors of the Hockey Stick (esp. the progenitor Michael Mann) to disclose their methods.  After 5 years of pursuit, Amman and Wahl quietly slipped the magic number out (the r2).  They were probably, unwillingly forced to disclose this information as a prerequisite for their paper being published.  Consequently, this magic number, the coefficient of determination (r2), was finally released.  With a r2 close to “0″,  this finally and unequivocally proved the “Hockey Stick” was no only baseless, but also decidedly misleading.

Anyway, it’s 40oC outside and boiling hot in here.   I’m off to turn my rumbling air conditioner on full…

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The battle of 2 the schools of economics – Keynes vs Hayek. Err, don’t forget Steve Keen now.

Posted on January 12, 2012 by Jimbo

Steve Keen is an excellent, left-field economist, and more importantly, is a fellow Australian.  He hosts a fascinating and prolific blog called “Debtwatch”, that reports monthly on the dangers of excessive, private debt.

His primary message is that the “Efficient Markets Hypothesis”, which has dominated academic thinking about finance, even after the Global Financial Crisis, is fundamentally flawed.  This hypothesis essentially states that all information is always built into markets.  Hence, they operate perfectly in line with how Neoclassical Theory would expect them to operate (i.e. with supply and demand in perfect equilibrium and prices reflecting this perfectly).

Neoclassical Economics assumptions (John Keynes)?

1.         People are rational
2.         The market tends to equilibrium
3.         Individuals have full information (“Efficient Markets Hypothesis”)
4.         Individuals and firms maximize profit (“utility”)
 
N.B. is taught in the majority of classrooms around the world
 

Austrian School assumptions (Friedrich Hayek)?

1.         People are irrational
2.         The market only tends toward a constantly changing equilibrium
3.         Individuals lack full information
 

To keep the economy going, the models would differ by:

Neoclassical would fight unemployment with inflation (government spending is needed to bolster aggregate demand in times of unemployment)
 
Austrian would fight inflation with unemployment (no government spending, it’s arbitrary and intrinsically votes motivated)
 

 

However, Steve Keen’s main research focus has been the development of an alternative, empirically grounded theory, known as the “Financial Instability Hypothesis”.  Echoing somewhat the Austrian school of thought, he argues that financial markets are inherently unstable.  Well, that’s perhaps not a particularly big stretch of the imagination?  Nevertheless, many economists, including those who work with me, frequently cite models that pivot on the premise that markets tend to a perfect equilibrium – it makes the Math easier for one.  However, surely commonsense would tell us that no complex system ever obtains equilibrium.  All systems are constantly influenced by external stimuli and thus the playing field is always moving and evolving; hence creating new equilibria.  Consequently, I wholeheartedly agree with Steve Keen’s scepticism about the “Efficient Markets Hypothesis”.

In addition, the “Efficient Markets Hypothesis” implies that people operating within a market generally act in line with the expectations of Neoclassical Theory, namely Rationally.  However, many economists have disputed the this concept.  Behavioural economists attribute the imperfections in financial markets to a combination of cognitive biases such as overconfidence, overreaction, information bias, human errors in reasoning, and let’s not forget, irrational, emotional responses.  Humans are fallible, markets can surely never really be perfectly efficient and rational in their decision-making?

Thus, yes, I do agree with Steve Keen’s sentiments about the tenuousness of rational economic models, but I don’t necessarily follow his view all the way.  A few days ago, a heated discussion about his blog occurred among some friends and one of them, Les Richardson, summed up the prevailing opinion quite eloquently.  So, here’s a guest-post by Les commentating on Steve Keen’s economic philosophy:


Click here for the original post by Steve Keen.

 
 

Commentary by Les Richardson on Steve Keen:

Here’s my take on Steve Keen’s views of global economics as stated in his blog “The Debtwatch Manifesto“.

To be fair, I think he misses the point entirely. Well, there you have it… in a nutshell.

Right, for a start he’s a modern Keynesian.  Keynes was about using the government to stimulate the economy, but that doesn’t mean he believed governments should just throw money out of the window, squandering it.  Modern Keynesians no longer understand the differences between successful investment, unsuccessful investment, and just plain excessive spending.

The GFC was a bubble bust.  Bubbles can occur for a variety of reasons, but usually it arises from a distortion in the market – and nothing creates distortions like government intervention and regulation.

The property bust in the U.S. (if the cause of the GFC), and the property bust in China, which will probably hit big time in 2012 or 2013, are interesting bubbles to examine because they are both the unforeseen results of government policy, but for quite different reasons.

In the U.S., the housing bubble was a direct consequence of deliberate policy to make housing more affordable, but through a Fascist approach (i.e. government coercion of the private sector) rather than Socialistic (i.e. government providing the housing itself).  Banks were legislated to give high risk loans, essentially as a cost of doing business in a particular area.  As a tax, that can be done (and the effects are like any other tax), but in the U.S., they took it a lot further.  Business will go wherever it can – the government wanted people to get housing, and the banks to fund it, so the oft-described “greed” aspect was really just delivering government policy at a profit.  Sensible credit considerations did not apply, as the banks were required to do it anyway (there are parallels here to the building of blatantly, non-viable, wind farms).  Government, guaranteed entities (Freddie Mac and Fannie Mae) were underwriting these mortgages, and in any case, as long as property prices continued rising, repossessed properties could be sold and all outstandings recovered.  Buyers/Investors also had minimal risk, provided they used mostly borrowed money, as they could return the keys at any time and effectively end the mortgage at any time, leaving the bank to cover any shortfall (here in Australia, if the property cannot be sold to cover the entire mortgage, the mortgagee must make up the shortfall).

Put together a “no risk” position for investors, and a “no risk” position for the lender, insurers, enablers etc, and you have a bubble forming.  Because the whole set-up was underpinned by rising house values (this was how everyone could liquidate their positions) it lasted for as long as the house prices went up.  When they waivered in 2007-2008, the entire system collapsed very quickly.

The contribution of CDO’s (Collateralized debt obligations), and ratings agency’s, and AAA-rated, credit wrapping – the whole Wall Street phenomenon – served to make it a bigger bubble than it might otherwise have been.  This is because everyone got in on the act to trade in the “extra” market created by the simple fact that so many houses were being built to be sold to people who could not afford them on sub-prime loans.  Sub-prime loans grew in volume over decades, so it was actually part of the business landscape, but changes in the law from the initial Carter era laws, beefed up under Clinton, and run riot with under the last 6 years of Bush once the Democrats got control of Congress, escalated the growth.  Freddie Mac and Fannie Mae blatantly lied about their exposures to sub-prime loans to Congress (they have recently pleaded guilty to the SEC for this), and Barney Frank, as Chairman of the overseeing House Committee, blocked all attempts to investigate.

The markets can be criticised for acting stupidly in attempting to implement government policy, but, like electricity retailers mandated to source “renewable” energy, to a large degree they had little choice.

This policy of coercing banks to lend massively to customers who could never afford to pay the loans back, was doomed in the long term, and the crash was inevitable.  Like any crash, the longer it took to occur, the bigger the bubble, the worse it became.  Government intervention, and a system which protected investors from losses, underscored by 25 years of rising house prices, put off the day of reckoning, but it was inevitable in the end.

The corporate profit motive was a component in the process, true, but only to the extent that it encouraged active participation by the private sector.  It was not the cause of the problem (and if it had been, the bubble would have burst a lot earlier because of the lack of artificial, warping factors).  The banks were just a catalyst to flawed, governmental policy.

In China, the story is a bit different. The government there has made it very difficult for individual investors to invest their money profitably.  Interest rates on deposits are regulated and too low – lower than inflation.  One of the few avenues open to the small scale investor is the property market – and with a billion people, that’s also what the government wants.  But, by only allowing that one basic investment avenue, the government has created a market distortion, and artificial incentive which has guaranteed property development has moved ahead of demand – ergo a bubble has formed.  It is a completely different type of distortion to the U.S. government’s, but the effect will nonetheless be similar.  It hasn’t been going on as long, but the scale of China is so big that the effect will be a strong one.

Steve Keen talks about Neoclassical economics – basically (his namesake) Keynes – and clearly has no time for it.  Like a lot of left-leaning economists or commentators, he misunderstands Keynes as badly as he does, his great rival of the day, Hayek.

Whilst Keynes is about what the benefits that government can do, Hayek is about the damage they can do – which viewpoint is correct really depends on the outcome.  Keynes is used as an excuse for unbridled government control and expenditure, and governments generally have a poor record at getting it right.  Hayek’s basic premise is that the government sucks resources from the private sector, and lacks economic corrective mechanisms (i.e. when the private sector gets it wrong, it goes bust – whereas when the government squanders money it just increases taxes and suck more resources from the economy).

Steve Keen talks about private debt being the problem, but that’s misplaced.  It is to a large degree the symptom not the cause.  He doesn’t look at the root causes, I believe.  Private borrowing, particularly in respect of the property market in the U.S., flourished because people thought it was risk free.  They could just return the keys to wipe the obligation, but of course it is never that simple.  Many bankrupted themselves first, trying to avoid giving up the property(s), because they were living beyond their means.  Here the irresponsibility – and Moral Hazard – clearly lay with the lenders rather than the borrowers.

This is a very important point – Keen absolves investors of blame.  And many would agree with him.

What he is really saying is people lack the ability to be responsible for their own actions (every sub-prime loan had an real-live applicant at the other end ).  They really need the government to manage things for them – and we can see how that turns out.  Give a person a handout and he’ll take it without much consideration.  Even if instead of giving him a fish to eat, you could have given the fishing rod and would have quickly figured out how touse it and be self-sufficient.  Try to think of any prosperous countries where the government controls the economy so voraciously?  Ones like China have only started to find prosperity by freeing their economies up.

Central planning had its “fair go” in the Soviet block and it limped slowly and inevitably to economic collapse.  A vibrant economy needs a government to empower its citizens and encourage them, not treat them all like the lowest common denominator and give them unsustainable handouts from the diminishing few who are actaully productive.

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The Nervous System

Posted on November 22, 2011 by Jimbo

What makes us tick?  Hopefully, there aren’t too many “nervous ticks” involved, but the nerves are central to who we are.  They are signal pathways and, when combined into interwoven bundles, are control centres.

A few days ago a gentleman, who was giving our company an interesting talk on the harmful effects of drugs and alcohol on performance, asked for a few details of the nervous system.  So, I thought a simplified summary of the whole nervous system (both Central and Peripheral) could be just the ticket…

The Nervous System

The Nervous System is your body’s decision and communication centre. The Central Nervous System (CNS) is made up of the brain and the spinal cord whereas the Peripheral Nervous System (PNS) is made up of nerves (neurons). Together they control every part of your daily life, from breathing and blinking to helping you memorize facts for a test. Nerves reach from your brain to your face, ears, eyes, nose, and spinal cord… and from the spinal cord to the rest of your body. Sensory nerves gather information from the environment, send that info to the spinal cord, which then speed the message to the brain. The brain then makes sense of that message and fires off a response. Motor neurons deliver the instructions from the brain to the rest of your body. The spinal cord, made of a bundle of nerves running up and down the spine, is similar to a superhighway, speeding messages to and from the brain at every second.

Central Nervous System vs Peripheral Nervous System

Sources: Brain, Brain, Autonomic Sites, Nerves

Central Nervous System

This consists of 2 structures: the brain and spinal cord. Different sections of the brain regulate and control various regions of our bodies.  The main ones are:

  • Cerebrum (or brain) is divided into two regions, or “hemispheres”, that are connected by an information highway, the corpus callosum.  Often the right hemisphere is associated with creativity, whereas the left is associated with logic.
  • Cerebellum (or “little brain”) regulates the coordination of movement and balance.
  • Brain stem controls vital, life support, involuntary activities (breathing and heart rate).

- Each half of the Cerebrum is further divided into four different lobes:

  • Frontal lobe is the higher, control centre where consciousness lies and is involved in problem solving.
  • Parietal lobe perceives stimuli such as taste and somatosensory (touch) as well as aiding speech and reading.
  • Occipital lobe is devoted to the most information intensive sense of all, vision.
  • Temporal lobe controls hearing and speech, as well as being involved in the integration of 2 or more senses into a meaningful concept (Gestalt).

Peripheral Nervous System

This consists of sensory and motor nerves, whereby the sensory carry information to the CNS, whilst the motor carry information away from the CNS. It can be divided into the Autonomic Nervous System (ANS) and the Somatic System.  The former regulates involuntary, subconscious activities such smooth muscle tone, the heart rate and digestion, whilst the latter controls voluntary, skeletal, muscle movement. The Autonomic Nervous System can be further divided into the Sympathetic and the Parasympathetic systems.  These work in a complimentary manner and are 2 halves of control processes that maintain optimal, body conditions (homeostasis).

  • Sympathetic response prepares us for “fight or flight”, which is most commonly known for its increased heart rate, dilated bronchial muscles, increased blood pressure, and digestive slowdown.
  • Parasympathetic response is described as “rest and digest”, which  promotes energy conservation such as a slower heart rate, decreased blood pressure, and bronchial muscle and urinary bladder constriction.

 

Further Reading

Dustin Curtis is a neuroscientist turned graphic designer and his web site combines the best of both these worlds: interesting concepts of the brain and stunning visuals, Check it out.

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Can CO2 reduction policies be an apt proxy for universal, pollution reduction?

Posted on October 25, 2011 by Jimbo

Global Warming theory may well be proven false.  But, it promotes Carbon Dioxide reduction and thus can be a useful proxy for our Green future?

The Global Warming debate is bit like a pantomime at times: “Oh, yes it is.  Oh, no it isn’t. Oh yes…”  What are we punters on the street then meant to believe?  In some ways, potentially, it doesn’t matter either way, true or not.  Irrespective of the effects of Carbon Dioxide on the Greenhouse Effect, isn’t CO2 reduction a great way to lead ourselves down a Green future.  CO2 is a pollutant and a by-product of many of our modern, industrial, polluting ways.  By cleaning up CO2 , surely are we not cleaning up are environment as a whole?  You price CO2 , you price all pollution – what a great, simple way to improve our fragile environment?

This argument, that CO2 is a useful proxy for industrial pollution, is pretty convincing, perhaps.  I have heard many people involved in the energy industry and the wider Green movement cite this as an ultimate justification for large-scale Emissions Trading Schemes (carbon taxes).  For example, in the words of the highly influential Gavin Schmidt, a climate modeller at the NASA, who is also the lead writer at one of the foremost, pro-Global Warming, websites, RealClimate:

Gavin Schmidt “articulating both the science and the history of the science, and putting the recent politicizing of climate science into context.” from “A Well Deserved honour” at RealClimate.com (full version)
 

So, people like Gavin Schmidt argue that, if we price Carbon Dioxide via an Emissions Trading Scheme, then we are pricing pretty much all types of industrial pollution in a “coherent holistic way”.  Back in the day, environmentalists fought individual battles.  “Historically we’ve dealt with environmental issues on a piecemeal basis, we’ve dealt with acid rain, we’ve dealt with dirty rivers, we’ve dealt with oil spills”.  However, now we have climate, predicting models to unify our understanding of the planet as a complete ecosystem.  Thus, we can use CO2 reduction regulation and taxation to encourage all forms of business to clean up their act.

That sounds fair enough, I guess.  Well, I do agree with Gavin in regards to his sentiment of encouraging pollution prevention measures.  I also don’t want dirty rivers full of micro pollutants such as the human, contraceptive hormone, oestrogen that is making our male fish hermaphrodites.  I also think all due care should be taken by oil companies to put a top priority on safety in their industry.   I also don’t want acid rain destroying our forests or historic buildings.  However, each of these measures and environmental concerns are quite different.  You can even say that they are even fully mutually exclusive.  Putting a “price on Carbon” will not prevent women’s hormone-laced urine from getting into the food chain.  High quality micro filters installed in sewage plants do.  Putting a price on CO2 will not stop the Exxon Valdez from hitting the rocks off Alaska, a little less “drink driving” (allegedly) by the captain might help though.  Putting a price on CO2 will not stop acid rain.  The modern filters used on coal, power station, exhaust stacks and the obligatory, car, catalytic converters do that already.  A question, did any of these pollution, mitigation initiatives ever require a Carbon Tax to happen?

The world has never been Greener.  Well, I should qualify this and say that the world has never been more green minded.  In the Middle Ages the ancient forests of Spain were largely cut down to build King Philip’s Spanish Armada used in a the failed conquest of England.  Did he care about the ecology of this? No, not too much, though admittedly environmental protection didn’t matter as much in those days as it does now.  The population of the Earth was much lower then and our ability to extract essential resources much more limited.  However, with the onset of the industrial revolution, our ability to extract and process our natural resources has exponentially increased.  This could be a recipe for environmental disaster and, indeed, we do have the occasional, Exxon Valdez style disaster.  However, put things into perspective.  The vast majority of our global corporations have an emphasis on being Green these days (these BP core values are common practice).  Green sells.  You see it being advertised everywhere.  Environmentalists do play an important role in policing the large, Green, marketing claims by corporations.  Every system needs it checks and balances.  However, be mindful that Big Business is already doing a reasonably good job at cleaning up its act.  This is because industry is “Going Green”, and all this is happening without a hugely inefficient, fully rortable “price on Carbon” (see the EU carbon scheme problems) .

A price on CO2 is not a proxy for universal, pollution reduction.  This is a common misconception.   This is like hitting a nail with a sledgehammer.  Emissions Trading Schemes are not only massively expensive, but also largely ineffective at producing anything other than minor CO2 emissions reductions.  Furthermore, as for cleaning up the acts of the vast gamut of industries that will be taxed under the scheme, it will make very little difference to their polluting status.  Every polluting, industrial process is different and its harmful by-products must be mitigated uniquely.  They are all different.  In addition, be very mindful that the world is actually pretty Green already.  We are becoming Greener and Greener every day without any massive governmental, tax-based intervention.  Sharks now swim again in the Sydney’s, now clean, iconic harbour, London’s horrendous smog‘s are a thing of the past, cars have “clean” emissions from catalytic converters.  None of these measures needed CO2 legislation.

Life has complexity, simplifying it to just blaming CO2 emissions is plain ludicrous.  Ironically enough, take away the controversial, Global Warming effect of CO2, and you’d quite easily argue that we should me making more CO2 on purpose.  CO2 is actually one of the most important plant and, thus food fertilisers, on Earth.  The more the merrier.

 

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