Tag Archives: free market

Will peak oil solve global warming?

desert oil rigHere’s a contentious idea from the intersection of climate-change pragmatism and free-market ideology: what if Peak Oil is a no-brainer no-effort fix for global warming?

The drop in oil prices since last summer doesn’t affect the validity of the Peak Oil hypothesis. Peak Oil only says that the rate of oil extraction is peaking, not that the price will never go down. In fact, the peaking of oil supply will result in the same boom-and-bust cycle that characterizes real estate markets, as Henry George noted over a century ago. Real estate speculators will hold land off the market in anticipation of a future price rise, just as the oil companies sit on those untapped offshore oil reserves. The amount of drilling and exploration has actually dropped considerably in response to the lower prices, which means that when demand gets back to Summer 2008 levels the price rebound will be even more vicious.

And if a fluctuation of a few percentage points in demand can cause oil to fall from $140 to $40 a barrel, imagine what will happen when the supply falls by half or more over the next generation!

Now, I’ll confess to having a fair degree of faith in truly free markets, but I’m not convinced that the energy markets as they stand under the current geopolitical and economic climate are currently anywhere near as free as they’d need to be to self-regulate effectively; I only need look at my gas bills for the last couple of years to find evidence of that. Nor am I convinced that the reduction in carbon output resulting from declining oil reserves and the escalating prices thereof would be sufficient to pull retrieve our bacon from the campfire quickly enough to prevent significant change to the environment. [image by Janz Images]

That said, the idea of market forces working hand in hand with scarcity to wean us off of our oil dependence is seductively appealing. So seductive, in fact, that I’m inclined not to trust the idea on that basis alone. But the notion that using less oil derivatives will become a matter of simple economic logic for businesses and end-users alike? That seems like common sense, as well as the only way we’ll break the addiction. Hell knows that explaining the consequences of failure hasn’t had much of an effect as yet.

Capitalism 2.0

plant_curveFlaneur and creator of the black swan theory Nassim Nicholas Taleb has written an engaging article for Edge describing the principles of what he calls Capitalism 2.0:

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

Taleb’s highly bombastic style may not be to everyone’s liking but I rather enjoy the iconoclastic tone of both The Black Swan and Fooled by Randomness. Both are highly recommended – especially as they have direct relevance to thinking about the near future.

[image from James Jordan on flickr]

Wired’s manifesto for radical financial transparency

stock value reportsIf there’s one thing every politician seems able to agree on at the moment, it’s that we need to overhaul the way the financial sector works so as to (hopefully) avoid another catastrophic screw-up like the one we’re currently mired in. Part of the problem was caused by regulatory bodies being simply unable to keep up with the huge amount of publicly filed data  from financial businesses, and by some of that data being… massaged, shall we say. [image by pfala]

The obvious answer is “more regulation” (though we might want to throw in brainscans for CEOs while we’re at it), but that’s just going to build another baroque architecture on top of the one we already have… and baroque architecture has plenty of hiding places for gargoyles, if I might overextend my analogy.

Daniel Roth at Wired has a different idea, and it’s one that resonates with the way the web works. He calls it radical transparency: a way to sum it up in a nutshell might be to say that instead of worrying about who should watch the watchers, why don’t we make sure everyone – and anyone – can get at all the data in standardized formats?

The whole article is well worth a read, but here’s Roth’s three-point manifesto:

Set the data free

Today, public companies and financial institutions disclose their activities in endless documents stuffed with figures and stats. Instead, they should be forced to file using universal tags that make the data easy to explore.

Empower all investors

Once every company’s data carries identical tags, anyone can manipulate the numbers to compare performance. And they can see details of every financial instrument—not just balance sheets and income statements.

Create an army of citizen-regulators

By giving everyone access to every piece of data—and making it easy to crunch—we can crowdsource regulation, creating a self-correcting financial system and unlocking new ways of measuring the market’s health.

Those of you with no trust in free markets probably find this even less appealing than the current system, but it makes a certain amount of sense to me. As Roth points out, the web has enabled a similar sea-change in journalism, and as a result changes are afoot in governmental and corporate practice around the world, because it has become easier for whistleblowers and contrary voices to have their say.

TechDirt‘s Mike Masnick came up with a similar idea late last year; as he points out, it’s unlikely to gain much support right away because it takes the power away from the financiers, and they’re unlikely to be particularly keen on that arrangement. But that’s all the more reason to discuss the notion now, while trust is at an all-time low; after all, as Masnick says:

We’re not going to fix a broken Wall Street by throwing extra money at the problem, but we might be able to fix it by opening up, adopting radical transparency, and then letting the market more accurately value things based on real data.

Amen to that.