The Apparent Paradox of Productivity Growth

On the one hand, we see that increasing productivity can kill jobs -- in today's manufacturing sector 177 American workers can produce the same output that required 1,000 workers in 1950. One the other hand, productivity is viewed as central to job creation, as this article in today's FT notes:

The rate at which workers are raising their productivity in the world’s advanced economies fell by half in 2011, and is even starting to slow in some emerging economies, according to a report that suggests that unemployment is likely to rise in the months ahead.

According to the Conference Board, the global business organisation, productivity – defined as output per worker – in the most advanced economies fell from 3.1 per cent in 2010 to 1.6 per cent in 2011.

It turns out that decreasing productivity also kills jobs:

Bart van Ark, chief economist at the Conference Board, said that in the short term, the drop in productivity suggested that employers would cut labour to match the drop in overall output. “But in the longer term, productivity gains come from technology innovation and investment,” he said.

Moreover, there are concerns that the focus on austerity by governments may exacerbate the loss of productivity because without expenditure on new technology, any gains will be limited. “With calls for austerity, you have to be cautious not to cut the investments in new technology that increase productivity,” he said.

Read that again. If labor productivity falls, then businesses will eliminate workers, but over the longer term innovation will more than compensate for the short-term losses -- or at least that is the argument.

Even leading economists are of two minds on productivity. Here is Martin Wolf writing in 2005, extolling the virtues of productivity growth:

Productivity determines the wealth of nations. The proportion of the population at work matters, too, and so does the number of hours worked by each person. But neither is as important as productivity.

And here is Martin Wolf writing last summer extolling the virtues of productivity decline:

[I]f one is going to pursue austerity, as the UK government does, it greatly helps to have poor productivity performance. With US productivity, too, the UK would have a jobless rate of over 12 per cent.

On balance, I am grateful that the UK job market has responded to this recession in this curiously continental way.

By a "continental" response to the financial crisis Wolf means "a market that adjusts to shocks via hours worked per person rather than via jobs." So from this perspective, poor productivity performance is a consequence of decisions about how to spread the pain of an economic crisis.

But labor productivity is only one element of total productivity -- other factors matter as well. An economy can weather declines in labor productivity -- even those that are self-imposed -- if total factor productivity continues to increase. Wolf's apparently contradictory statements can be reconciled if we understand that in 2005 he was referring to total productivity and in 2011 he was referring to labor productivity. On his blog I am going to strive to be very clear about what I mean by "productivity" when I use the term.

Understanding the modern economy requires making sense of the easily confusing concept of productivity and how it relates to jobs and economic growth. [Total and especially labor] productivity growth does indeed kill jobs, but it creates jobs as well. Creating a virtuous cycle of total productivity growth is a key challenge of managing the 21st century economy.

EU Decarbonization 1980 to 2010 and Non-Carbon Forcings

Welcome, if you have arrived at this blog after reading John Tierney's column in the New York Times on the recent Shindell et al. paper in Science on addressing climate forcings other than carbon dioxide. Shindell et al. was first discussed here early last year when it was released as a UNEP report.

In Tierney's column he references The Climate Fix and some updated data analysis that I did for him in response to a query about Europe's rate of decarbonization. When I wrote The Climate Fix data were available through 2006. I now have data through 2010 -- from BP (for carbon dioxide), Maddison (for GDP through 2008), and Eurostat (for GDP in 2009 and 2010).

Here is the relevant passage from Tierney's column that relies on the updated analysis:

Ever since the Kyoto Protocol imposed restrictions in industrial countries, the first priority of environmentalists has been to further limit the emission of carbon dioxide. Burning fewer fossil fuels is the most obvious way to counteract the greenhouse effect, and the notion has always had a wonderfully virtuous political appeal — as long as it’s being done by someone else.

But as soon as people are asked to do it themselves, they follow a principle identified by Roger Pielke Jr. in his book “The Climate Fix.” Dr. Pielke, a political scientist at the University of Colorado, calls it iron law of climate policy: When there’s a conflict between policies promoting economic growth and policies restricting carbon dioxide, economic growth wins every time.

The law holds even in the most ecologically correct countries of Europe, as Dr. Pielke found by looking at carbon reductions from 1990 until 2010.

The Kyoto Protocol was supposed to put Europe on a new energy path, but it contained so many loopholes that the rate of “decarbonization” in Europe did not improve in the years after 1998, when the protocol was signed, or after 2002, when it was ratified. In fact, Europe’s economy became more carbon-intensive in 2010, he says — a trend that seems likely to continue as nuclear power plants are shut down in Germany and replaced by coal-burning ones.

“People will make trade-offs, but the one thing that won’t be traded off is keeping the lights on at reasonable cost,” he says.

Here is information that I sent to Tierney in response to a question about whether Europe's decarbonization data looked any different if one used its ratification of Kyoto as a break point, rather than the signing of the treaty:

On European decarbonization, Europe was an original signatory of the Kyoto Protocol (1998) and a first to ratify (2002). To look into this further, I have just now looked at data using 2002 (ratification) as a break point instead of 1998, and the average for the 8 years prior to 2002 is identical to the rate of decarbonization the eight years after (a decrease of 1.8% per year in the ratio of CO2/GDP in both cases). (Note that I now have data through 2010.) In fact, the long-term rate from 1989-2010 is also 1.8% per year! So there is still no evidence that Europe has fundamentally increased its decarbonization rate in the post-Kyoto era, whether that break point is 1998 (signing) or 2002 (ratifying).

FYI, as I suspected 2010 data show a re-carbonization of the EU-15, at a rate of 0.3% from 2009 (there were only two years with higher rates since at least 1980.

You can see the decarbonization rates of the EU-15 from 1980 to 2010 in the graph at the top of this post.  As I mention above, there is no trend in the data since the late 1980s, but there is a decreasing rate of decarbonization if you start the analysis in 1980 (see the red trend line on the graph). A decreasing rate of decarbonization means that the European economy is becoming more carbon intensive than required to hit ambitious emissions targets. If you are interested in understanding how it is that Germany has come to rely more on coal, this paper is a good place to start.

Tierney's conclusion quotes Shindell sounding quite Hartwellian:

“But I also worry that carbon dioxide will go up even if we do focus on it,” he says. “We’re at a complete deadlock on carbon dioxide. Dealing with the short-lived pollutants might really be a way to bridge some of the differences, both between the two sides in the United States and between the developed and the developing world.”

No matter what people think about global warming, there aren’t a lot of fans of dirty snow, poor crops and diseased lungs.

Amen to that.

We are Not as Smart as We'd Like to Think

Writing at VoxEu.org Victor Ginsburgh, of the Université Libre de Bruxelles, notes that experts aren't so expert in many situations:

A paper by Fritz et al (2012) published last week in the Proceedings of the National Academy of Sciences shows that professional musicians are unable to distinguish between the tonal superiority of a violin built by Stradivari (which would cost up to $4 million) from that of a new American instrument (a couple of thousand). . .

Likewise, Ashenfelter and Quandt (1999) [here in DOC] show that there is lack of concordance between wine judges. Hodgson’s (2008) [here in PDF] result is even stronger, since he finds that only about 10% of the judges are able to replicate their score within a single wine medal group.

In artistic skating, evaluation depends on the incentives and the monitoring faced by judges. Lee (2004) points out that they face an “outlier aversion bias” because they may be excluded from further competitions if they cannot explain why their rating is at odds with the mean of other judges. Therefore, they manipulate their ratings to achieve “a targeted level of agreement with the other judges,” which essentially implies that their judgement is based on previous achievements, and not on the one that is unfolding, since they have to cast their votes a couple of seconds after the performance of each skater.

In related news the Federal Reserve has released transcripts of their deliberations in 2006 on the eve of the financial crisis. NPR provides a nice round-up of coverage:

Here's how the Los Angeles Times frames the story: The transcripts, released Thursday after the usual five-year wait, "reveal in painfully embarrassing detail the high degree of overconfidence and lack of foresight just ahead of the real estate collapse and financial crisis that engulfed the nation" . . .

Perhaps, The Wall Street Journal's Real Time Economics blog found the best bit. During the March 27-28 meeting the Fed's chief economist, David Stockton described a dire situation, which Bernanke acknowledged but quickly dismissed:

"'Right now, it feels a bit like riding a roller coaster with one's eyes shut,' when discussing his forecast for a modest slowdown in housing. 'We sense that we're going over the top, but we just don't know what lies below.' Later, he notes that housing is 'the most salient risk' to the economy. 'I just don't know how to forecast those prices,' he says of housing prices.

"'Again, I think we are unlikely to see growth being derailed by the housing market, but I do want us to be prepared for some quarter-to-quarter fluctuations,' Bernanke says. He identifies housing as a crucial issue, but adds that he agrees 'with most of the commentary that the strong fundamentals support a relatively soft landing in housing."

We are not as smart as we'd like to think we are. Trust me on this, I'm an expert.

Follow Up: Nigeria Fuel Subsidies

Following the removal of fuel subsidies that led to a dramatic and instant increase in the price of fuel and food, Nigeria has seen protests (pictured above), strikes and violence. President Goodluck Jonathan, boxed into a corner, has partially removed the fuel subsidies:

Nigerian unions have suspended their crippling week-long strike, news agencies report, after Goodluck Jonathan, Nigeria’s president, cut petrol prices by 31 per cent on Monday and promised to investigate oil sector corruption.

Unions had called the strike after the removal of fuel subsidies. “In the past eight days through strikes, mass rallies, shutdown, debates and street protests, Nigerians demonstrated clearly that they cannot be taken for granted and that sovereignty belongs to them,” Abdulwahed Omar, president of the Nigeria Labour Congress (NLC), said during a press conference. “Labour and its allies formally announce the suspension of strikes, mass rallies and protests across the country.” It remains unclear whether the suspension of the strike is conditional.

It is unclear if the partial reinstatement of the subsidy will quell protests.

Manufacturing, Services, Resources: One is Different

The decline of jobs in manufacturing is the result of innovations that have led to dramatic growth in productivity, as shown in the graph above from a 2011 presentation by William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago. A consequence of productivity growth in manufacturing is that this sector has become smaller as a proportion of the overall economy, even as the absolute magnitude of manufacturing output has increased.

These dynamics should tell you that the simple mathematics of President Obama's new "insourcing" proposal's can only influence jobs at the very thin margin, if at all. The president explained:

“I don’t want America to be a nation that’s primarily known for financial speculation, and racking up debt and buying stuff from other nations,” the president said. “I want us to be known for making and selling products all over the world stamped with three proud words, ‘Made in America.’ ”

But here is the problem: Due to advances in manufacturing productivity that have exceeded the growth of the economy, manufacturing is a shrinking part of the global and national economy. If productivity growth were to slow or reverse, then jobs would be lost overseas anyway. Efforts to expand employment in manufacturing are simply swimming upstream against a strong current.

The Obama Administration does not seem to recognize, at least publicly, the implications of these various trends. The White House explains:

[C]ontinued productivity growth has – as several outside analysts have noted – made the United States more competitive in attracting businesses to invest and create jobs by reducing the relative cost of doing business compared to other countries.

Of course, one of the reasons for productivity growth is lower unit labor costs! 

Seeking to keep manufacturing as an important element of the US economy is not the same thing as increasing employment in manufacturing. The Administration will have far more success supporting job creation by focusing on areas that are expanding parts of the economy, meaning that policy will be going with rather than against the current. Specifically, two other areas of the economy are expanding in both absolute and relative terms, natural resources and services.

While manufacturing seems to garner a lot of attention, particularly in politically important states, that does not mean that the administration is neglecting natural resources, particularly energy (I'll have more to say on services in subsequent posts).

The White House explains the importance of energy resources with a lot less fanfare than its focus on manufacturing (PDF):

Of the major fossil fuels, natural gas is the cleanest and least carbon‐intensive for electric power generation. By keeping domestic energy costs relatively low, this resource also supports energy intensive manufacturing in the United States. In fact, companies like Dow Chemical and Westlake Chemical have announced intentions to make major investments in new facilities over the next several years. In addition, firms that provide equipment for shale gas production have announced major investments in the U.S., including Vallourec’s $650 million plant for steel pipes in Ohio.

An abundant local supply will translate into relatively low costs for the industries that use natural gas as an input. Expansion in these industries, including industrial chemicals and fertilizers, will boost investment and exports in the coming years, generating new jobs. In the longer run, the scale of America's natural gas endowment appears to be sufficiently large that exports of natural gas to other major markets could be economically viable.

The politics of resources, especially energy resources, are problematic for the Obama Administration, with the Keystone XL pipeline Exhibit A. But if expanding jobs means paying attention to those parts of the economy that are expanding rather than shrinking, then the Obama Administration won't be able to keep the ongoing energy revolution on a back burner for too long.

The Partisan Divide on the Tebow Question

Something to keep in mind when considering ongoing battles over public opinion on various questions related to science on issues like evolution, climate change, genetically modified foods and so on: Consider that about 4 in 10 Democrats and 5 in 10 Republicans think that Tim Tebow's success on the football field (pictured below) can be attributed to "divine intervention."  Data here in PDF from a polling firm called Poll Position.

Political debates that involve science will be far more productive-- for both policy and the health of the scientific enterprise -- if the focus of debates is on policy options rather than what people happen to think about this or that. As Walter Lippmann once said, democracy is about getting people who think differently to act alike, not to get them to think alike.

Friday's Links and Music Video

Too few hours and too much interesting. Below are a few items worth noting that I did not get to this week, and above is a music video for your viewing pleasure.  Thanks for reading!

• Great news - No polio cases in India for a year
• The Economist has an excellent piece on disasters
• The Obama Administration's difficulties with science integrity continue to surface
• Gavyn Davies on the apparently shrinking labor force in the US
• Energy and the industrial revolution
• Supply chain vulnerabilities and robustness to big shocks
• The long-term consequences of the European partitioning of Africa
• The International Year of Sustainable Energy for All gets off to a quiet start

Does Basic Research Drive out Applied?

In the seminal 1945 report on science policy, Science -- The Endless Frontier, Vannevar Bush expressed a view of the relationship of basic and applied research in the federal government:

. . . under pressure for immediate results, and unless deliberate policies are set up to guard against it, applied science invariably drives out pure.

Writing in last week's Nature, Dan Sarewitz wonders if this relationship has now been reversed based on recent budget numbers:

[O]ver the past 15 years, mission agencies such as the USGS that seek principally to serve public goals rather than to advance science have experienced minimal budgetary growth, in some cases not even keeping up with inflation. Since 1996, research funds at the USGS have risen by a mere 16%; at the National Oceanic and Atmospheric Administration (NOAA), 11%; the Environmental Protection Agency, 33%; the National Institute of Standards and Technology (NIST), 38%; and the Centers for Disease Control and Prevention, 45%. Even Department of Defense research has grown relatively modestly, by 60% in 15 years.

Yet, over this same period, government funding for research doubled. Most of the increase went to the National Institutes of Health (NIH) and the National Science Foundation (NSF). The NIH's budget has tripled; the NSF's more than doubled. Together, they captured three-quarters of all the spending increases for federal science. (Although the NIH is in some respects a mission agency, its priorities, its work force and the image it has cultivated focus on fundamental science, a reality acknowledged in director Francis Collins's efforts to create an institute to translate research into useful technology).

Sarewitz explains that it is in the self-interests of the scientific community to support blue-sky research at the expense of that conducted by the mission agencies:

One important reason may be that the leading public voices speaking on behalf of research funding come mostly from the high-prestige frontiers of science, and from the institutions associated with such research — universities, the National Academies, the professional scientific societies, and so on.

Last November, for example, the head of the American Association for the Advancement of Science called for “rethinking the science system” to make the funding of university researchers more efficient (A. I. Leshner Science 334, 738; 2011). This is a worthy goal, but nowhere in his editorial, or in the many similar examples of hand-wringing, is it acknowledged that the main goal of rethinking science should be to ensure that the scientific enterprise continues to meet existing and future challenges to public well-being, not simply to protect science for its own sake.

Defending science for its own sake disproportionately benefits the fundamental-science agencies, which can claim to be doing the most prestigious and therefore the most apparently worthwhile science. In the face of the new budgetary reality, advocacy for science must take a new, strategic approach — one that insists on balance between the fundamental-science agencies and the mission agencies that link science to the public good. Otherwise, the value of the public investment in science will decline right along with the budget.

So-called "basic research" is important, but so too is research conducted by mission agencies. Nowadays it seems that basic drives out the applied.

Collateral Damage from Not Knowing What You Are Talking About

UPDATE #2 1/24: Harry Saunders eviscerates the CO2scorecard.org "analysis: here.

UPDATE 1/20: See the bottom of the post.

A group called CO2scorecard.org, whose efforts to compile energy data I have praised in the past, has issued a report which argues that so-called “energy rebound” at the micro-level might be in the range of 30% or less rather than the higher levels that have been argued by my colleagues at The Breakthrough Institute. While longtime readers of this blog and readers of The Climate Fix will know that I think that the debate over the rebound effect is largely inconsequential to the debate over efforts to decarbonize the economy, the report and reaction to it provide a great opportunity to highlight a key intellectual challenge that we all face when overwhelmed with information – beware promoting bad analyses simply because they accord with your tribal convictions.

The CO2scorecard.org report contains a fundamental error that will be instantly obvious to anyone familiar with energy data – they confuse energy intensity and energy efficiency. What is the difference you might wonder? Here is how the US Department of Energy describes the difference:

Energy Intensity is measured by the quantity of energy required per unit output or activity, so that using less energy to produce a product reduces the intensity.

Energy Efficiency improves when a given level of service is provided with reduced amounts of energy inputs or services are enhanced for a given amount of energy input.

When all else is equal, energy intensity – Energy/Output – is simply the inverse of energy efficiency – Output/Energy. But when all else is not equal things get tricky, as the DOE explains:

Declines in energy intensity are a proxy for efficiency improvements, provided a) energy intensity is represented at an appropriate level of disaggregation to provide meaningful interpretation, and b) other explanatory and behavioral factors are isolated and accounted for.

What might those other explanatory factors be? Again, DOE:

Other explanatory factors cause changes in the energy use that have no bearing on the efficiency with which energy is used. These changes may be structural, they may be behavioral, or they may be due to factors, such as the weather, over which we have no control. These are sometimes collectively referred to as structural elements and they give rise to a change in energy use per unit measure of output, but do not reflect improvements in the underlying efficiency of energy use.

Now back to the CO2scorecard.org report. In one of the examples in their report, they argue that the lack of trend in energy intensity of metal mining necessarily implies that there have been no efficiency improvements in that industry, writing:

Energy intensity is expected to worsen or remain stagnant over time as each mine extracts its metal from a lower grade ore at the margin (ore bodies have steadily declined in grade for decades, as high-grade ore-bodies have been depleted by mining). . . metal mining typically suffers from falling or stagnant energy efficiency.

I emailed the lead author of the report and he confirmed that throughout their analysis they do indeed equate energy efficiency with (the inverse of) energy intensity, just as they did in the metal mining example.

But in the first sentence of their report that I excerpted above is the key problem – there have indeed been “structural changes” in metal mining as the grade of ore has declined over time. Yet, even with this decline the same energy input has led to almost the same metal output from the ore. Thus, it is perfectly conceivable that as energy per unit output remains constant, the efficiency of extraction has improved as ore quality declines. Consequently, there may in fact have been energy efficiency gains while energy intensity has remained constant, but you just can’t tell that from the analysis of energy intensity. Whoops, big mistake by CO2scorecard.org.

Harry Saunders, author of the paper that CO2scorecard seeks to critique, told me by email that this is only one of many confounding structural factors at play in such data used in the paper:

The critical point here is that it is fundamentally impossible to discern from intensity trends what energy efficiency gains have occurred. On top of this, to then believe it is possible to discern the rebound effects hidden in these trends could kindly be called a fool’s errand.

There are too many drivers of energy intensity at work, all operating in different ways. For example, changes in energy intensity are driven not just by energy efficiency gains but by movements in energy prices. Worse, they are also driven by price movements in all other factors of production. Worse still, they are driven by technology gains for all other factors. Without knowing these, it is impossible to know how energy efficiency has evolved in any particular sector.

But the thorniest problem is that one cannot measure rebound effects without evaluating two counterfactuals: what energy use would have looked like in the absence of any energy efficiency gains, and what energy use would have looked like had energy efficiency gains “taken” on a one-for one basis. Only with these in hand can one make any definitive statements about rebound magnitudes. One certainly cannot do it by looking at a single trajectory of energy demand, let alone a single trajectory of energy intensity.

I don’t need to know much more than the fact that the authors don’t know the difference between intensity and efficiency to dismiss the report as a poorly done analysis, which is a common-enough occurrence on the web.

If it were just an error-riddled report on the internet it might be worth ignoring. But CO2scorecard.org use the report to dismiss an entire peer-reviewed literature and to attack the motives of those they disagree with – specifically Harry Saunders and the Breakthrough Institute (where I, along with Saunders, am a Senior Fellow), who recently did an excellent literature review of the subject of energy rebound. In their report the CO2scorecard.org folks decided to get nasty and make stuff up about the policy positions of BTI that bears no resemblance to reality, perhaps to help their analysis get picked up.

Not surprisingly then, the CO2scorecard.org report was favorably published by Joe Romm, who apparently liked it for who it attacked, but did not do his homework by reading and evaluating the report’s substance. Egg on Joe.

The likelihood of an obscure group revising an entire literature via a short internet report is of course possible, but pretty unlikely. But if CO2scorecard.org think that they are on to something important, they should do what scholars do and publish their work in the peer-reviewed literature.

I am confident that over the long run good arguments sort themselves out from bad ones. In the meantime, while there is no crime in being wrong, there is a big risk for those who accept bad arguments simply for tribal reasons, rather than the merit of what is being argued.

UPDATE 1/20:  CO2scorecard.org have responded to this post. they state:

[T]he dataset used in Saunders 2010 is itself inappropriate for analysis of energy rebound.

They later state:

[W]e used energy intensity measured in physical units at the same level of industry aggregate as Harry Saunders.

If Sauders' data isn't appropriate for analysis of rebound, then why are they using it to make claims about the magnitude of energy rebound? Enough said on that. They then have some silly passage about me and grey literature and the IPCC in an effort to somehow change the subject. Snore.

Note: For those actually interested in the academic literature on rebound effects (not me!) please see this report of the EU (PDF) and this report from The Breakthrough Institute. And lest there be any confusion, I am a big supporter of energy efficiency, as I have written on extensively, such as this piece.

Follow Up: NOAA to Redo its Billion-Dollar Disasters Database

This is an interesting follow up to this post on Bad Economics at NOAA . . . 

The Washington Post reports that NOAA has decided to address the fundmanetal errors in its tabulation of billion-dollar disasters:

Capital Weather Gang and many other major media outlets, using information from NOAA, have reported 2011 set a record for most billion dollar weather disasters in the U.S. NOAA even developed a glitzy website to highlight the record. But a professor at the University of Colorado says NOAA’s information - the basis for the record - is “extremely misleading and scientifically inaccurate.”

Roger Pielke, Jr., professor of environmental studies, says the problem is that NOAA excludes certain disasters from the early years of its 1980-2011 record, that would be billion dollar weather events in today’s dollars.

Although NOAA adjusts for inflation the dollar amount for all of the events in its record using the Consumer Price Index (CPI), the database is limited to those events that caused at least $1 billion in damage “at the time of the event”. In other words, many events in the 1980s and 1990s that produced damages in the hundreds of millions of dollars at the time are not included. But they would likely reach the $1 billion mark in today’s dollars.

“...by focusing on a $1 billion threshold, as $1 billion comes to represent less and less over time, NOAA has built in a strong bias in their analysis which creates the illusion of trend,” Pielke wrote in a blog post.

NOAA does not deny its billion dollar weather disaster database could be enhanced.

“...these sub-billion-dollar disasters are important to handle correctly” wrote Justin Kenney, a NOAA spokesperson in an email.

Let me gently suggest that the time to get the science correct was probably before the creation of a "glitzy website" advertising the flawed results.

There is one major concern I have however, based on this statement from NOAA:

For its part, NOAA is reworking its billion dollar weather disaster record to be more comprehensive says Kenney. Via email, he wrote:

“We are in the process of re-analyzing all of our data on billion-dollar events since 1980. At the upcoming American Meteorological Society meeting in New Orleans, we will present a preliminary analysis that represents one approach to accounting for sub-billion dollar events that, after the CPI adjustment, exceed the one-billion dollar threshold.”

High quality science in this area -- essentially a reanalysis of 30+ years of weather extremes, some of which lack basic economic loss data, is probably going to take more than a week!

But the larger point here should not be missed -- if you are looking for evidence of changes in climate or on record extremes, you should be looking at weather and climate data, not economic data. Hopefully, NOAA (and people who use NOAA's data) will get that basic point. Now that NOAA is taking steps to improve their product, they should be encouraged for doing the right thing.

Colorado Takes Another Step Towards Levelized Tuition Rates

The Boulder Daily Camera reports today that the University of Colorado, where I teach, is proposing to change how it charges for in-state tuition with an implication being that by the 2014, academic year tuition for in-state student could increase by as much as 40% from the current rate.  The Camera writes:

The Boulder campus is looking to change the way it charges tuition.

Now, full-time students pay for 11.25 credit hours a semester at $341 apiece -- yet they can take up to 18 credits, or sometimes even more with campus approval.

Campus officials are suggesting that next school year, full-time students be charged for 12.5 credit hours, and that the cost of a credit hour increase 4 percent to $355 to account for inflation. By 2014-15, CU plans to charge full-time students for 15 credit hours a semester.

Meantime, the Chronicle of Higher Education is reporting today that the public may be reaching its limits in its willingness to pay ever-increasing tuition bills for a college education:

By now, in most industries, customers would have said, enough is enough. But along with health care, higher ed has enjoyed something no other sector in the U.S. economy can claim: Raise prices and people will go to almost any end, including huge amounts of debt, to pay the bill (well, maybe housing enjoyed that too, but we saw how that ended).

Colleges have been helped greatly by a blip in the birth rate 20 or so years ago, which meant there were three million more 18-to-24-year-olds in the population. That spike has now ended, and colleges are already dealing with the consequences, particularly in the Northeast. What’s more, many experts are predicting a nationwide drop in the number of affluent, well-prepared high-school graduates whose parents attended college, the types of students who propelled growth at so many institutions in recent years.

But beyond demographics, what has really helped sustain the anything-goes pricing model in higher ed is the so-called wage premium. The reason so many students want to go to college, and the reason so many families are willing to pay anything for it, is the lifetime payoff of a degree: A typical bachelor’s-degree recipient earns about 66 percent more than a high-school graduate during a 40-year career.

Although wages for college grads actually fell over the last decade, the wage premium is not going to disappear. Employers may disagree about what they want in their workers, but they do agree on one thing. “They want education,” says Anthony P. Carnevale of Georgetown University’s Center on Education and the Workforce.

So going to college is worth it, but going to any college at any price may no longer be worth it. About half of Americans think that the higher-education system is doing a poor or fair job in providing value for the money spent, according to a survey last spring by the Pew Research Center.

The Chronicle says that most university leaders are apparently unconcerned:

College presidents seem tone-deaf to those concerns. In a companion survey conducted with The Chronicle, three-fourths of college leaders said the system was providing a good or excellent value.

For some presidents, it’s easy to ignore public and political consternation over college prices. Their elite institutions can continue to charge almost anything because they enjoy so many qualified applicants that they can easily fill their freshman classes 10 times over.

For the vast majority of colleges, however, the time has come to prove their worth if they have any plans to continue the price increases of the past several years.

At state universities like Colorado, the problem is that the price tag on tuition does not reflect the costs of providing the degree. Historically, the difference between the price and the cost was made up by a subsidy provided by the state government. In Colorado, like many places, the amount of this subsidy has diminished dramatically.

But since bills have to be paid, the University makes up the lost subsidy by cutting costs, bringing in more out-of-states students (who are charged a premium) and raising the in-state tuition. This situation makes no one happy. For university employees they see austerity, at times severe, and for students and their parents they see a rising price tag on a college education. The austerity has, in some cases on campus, led to a diminishment in educational quality which exacerbates the frustrations all around. 

Last year I proposed in the Chronicle of Higher Education that one way out of this situation would be to reform the in-state/out-of-state tuition distinction, and charge the market rate for tuition. The state subsidy, such as it is, would be given directly to in-state students (rather than to the campus). I discussed this proposal here and here and here and here and here.

I won't repeat the details of the proposal here, but such reform would close the budget gap, make the state contribution transparent to voters (and importantly parents and students) and create a culture of excellence that is presently at risk at the state's flagship university.

The current proposal to increase tuition by 40% or more by 2014 is a step in the direction of a levelized tuition. The university would be better off by simply embracing this reality, before the marketplace rejects a college education at any cost.

The Problem with Anti-Globalization as Innovation Policy

Writing in The Washington Monthly, Michael Mandel of the Progressive Policy Institute has an essay on innovation and productivity provocatively titled "The Myth of American Productivity." Here I critique the argument in the article made by Mandel, specifically his argument that "supply chain innovation" is somehow a bad thing whereas what he calls "domestic innovation" is a good thing. I disagree.

First, here is Mandel's core argument in his own words, in which he argues that increasing agricultural productivity is fundamentally different than increasing productivity in manufacturing:

Consider, for a moment, what a farmer has to do to improve the yield of a corn or wheat field in Kansas or Nebraska. Machinery has to be purchased to plant and harvest the crops. Pesticides and herbicides have to be applied to fight bugs and weeds. Irrigation has to be used appropriately to make sure the crops mature as desired.

In a very real sense, agricultural productivity is intrinsically rooted in American soil. Yes, the tractor might be imported from Japan. But a farmer cannot plant crops in Iowa and then outsource the harvesting to Vietnam. Pesticides have to be sprayed on American bugs, and crops have to be irrigated with American water. Most of the value created by agriculture is made in America.

By contrast, most manufactured goods these days are the product of global supply chains, which may include multiple countries and border crossings. Your smartphone, for example, is assembled from components that were manufactured all over the world. On a less high-tech note, the cedar hangers that organically keep your suits and dresses free of pests may be made of wood grown in the U.S., shipped to China for manufacture, and then shipped back to the U.S. again.

Mandel argues that with respect to productivity gains, it is important to distinguish between "domestic productivity improvements" and "global supply chain management." Mandel argues that the former is to be preferred -- it is a more sophisticated way of saying "Buy American."

Imagine if you will a big factory building.  Let's say that it has two big doors, one on the front market "Inputs" and one on the back market "Outputs." The company produces Widgets which are sold in the marketplace. Employees, raw materials, tools, machines, processes and techniques are brought in through the Inputs door, and Widgets emerge from the Outputs door.

Let's say that the factory employs 100 people. Consider a first case in which a newfangled machine in brought into the factory which increases efficiencies in the production of Widget components and lowers costs, meaning that the company can now produce the same amount of widgets with only 90 employees. This then would be an example of a productivity gain. Now consider a second case, in which a different machine is brought into the factory, with the key difference being that the new machine is actually a transporter device (a la Star Trek 1967) that can beam in from overseas Widget components and lowers costs, meaning that the company can now produce the same amount of widgets with only 90 employees. This too would be scored as a productivity gain.

Under Madel's argument the first machine would be preferred to the transporter, even though they both have exactly the same effect on productivity and number of jobs. However, the different technologies might have profound effects on the kind of jobs that the factory employs, and it is this effect which Mandel notes and disapproves of:

If companies reconfigure themselves to better scour the globe for the lowest-priced goods and services, then their essential personnel are multilingual business school graduates with the ability to parachute into Shanghai or Bangalore and negotiate the best deals with suppliers, logistics experts who can keep the goods flowing, marketers to sell the goods, and software engineers to program the computers that communicate with the suppliers. In other words, the bulk of the company’s own workers essentially perform a creative or coordinating function, rather than a manufacturing one.

One might wonder what is wrong with multilingual business school graduates, logistics experts, marketers and software engineers, especially if such jobs are higher paying than the low value manufacturing jobs that have been displaced. This is of course not a happy situation for those whose manufacturing jobs actually have been displaced, just as it was for farmers a century ago. Hence, in the context of growth in productivity it is essential that the workforce implications of the effects of such growth be addressed proactively. Efforts to freeze in place a particular economic configuration are certainly doomed as strategy.

Mandel actually hits on what really matters but quickly glosses over it:

Without innovation, a supply chain strategy fails over time.

Of course, without innovation a "domestic productivity improvement" strategy falls over also -- productivity improvements are actually the quantified definition of innovation! The focus thus should be on innovation and how to manage it -- both its positives and negatives -- rather than trying to protect certain American jobs from the consequences of innovation.

Mandel confuses "competitiveness" with "protectionism" and sees barriers to trade (or perhaps more accurately, incentives not to trade) as a key to improving American job prospects. The results of the policies that Mandel proposes might actually to make the American economy less competitive and less innovative.

Just as was the case in agriculture a century ago, efforts to prop up a part of the economy that is fundamentally and globally in decline as a proportion of economic activity is a losing strategy. Mandel is certainly correct that the policies proposed by both political parties leave much to be desired, but calling for a new version of anti-globalization or trade protectionism (whether soft or hard) is not the right way to go either.

The key to economic growth, jobs and competitiveness in the United States lies in enhancing productivity, where ever opportunities exist, while at the same time managing the consequences (which can be profound and negative for some) of success in that endeavor.

The Best Manual

A reader writes in to call my attention to an interview of Sir Peter Gluckman, New Zealand's science advisor, on Radio New Zealand from last year. In the interview Gluckman identifies The Honest Broker as one of the books that has influenced his thinking and calls it "the best manual for a person in [his] position."  Nice!

The full interview can be heard below.

Thanks to CM in NZ!

Bad Economics at NOAA

UPDATE 1/12: See this interesting follow up.

The National Oceanic and Atmospheric Administration is a federal agency that does a lot of excellent work related to weather, climate and the oceans. In fact, it is the primary sponsor of CIRES here at the University of Colorado where I serve as a Fellow. However, NOAA has been publishing information related to disasters that is extremely misleading and scientifically inaccurate.

The graph above shows NOAA's tally of "billion dollar disasters" which NOAA defines as "the 1980-2005 events which resulted in at least $1 billion in overall damages/costs at the time of the event" (emphasis added, source here in PDF).  The bolded part of that sentence is where NOAA's methodology has a serious flaw, as $1 billion does not mean the same thing today as it did in 1980.  In fact, adjusting just for inflation means that $1 billion today would have been the equivalent of $400 million in 1980. And that is not all, because there has been considerable development across the nation since 1980, meaning that there is more property and wealth to be damaged, $1 billion in damage today is actually equivalent to about $170 million in 1980.

Events which would have caused $1 billion in damage today, but did not when they occurred are not included in the NOAA listing. So by focusing on a $1 billion threshold, as $1 billion comes to represent less and less over time, NOAA has built in a strong bias in their analysis which creates the illusion of trend. If the point of the analysis is to say something about trends in weather, it will always be better to look at weather data, not damage data. 

Think of this analogy: Imagine if you had a shopping cart and added up the number products in your basket costing more than $5. In 1980 you would not have very many, and today you'd have a lot. Would a index of "number of products costing more than $5 in a basket" tell you anything about the overall cost of food?  No.

The New York Times recently published an editorial that serves as a good example of how NOAA's data is misleading (Nature however is not fooled):

 A typical year in the United States features three or four weather disasters costing more than $1 billion. In 2009 there were nine. Last year brought a dozen, at a cost of $52 billion, making it the most extreme year for weather since accurate record keeping began in the 19th century.

To be sure, 2011 saw some very extreme events in the United States. But was it the "most extreme year for weather" since the 19th century? Not by a long shot, whether the metric is dollar damage or loss of life.

The NOAA "billion dollar" data has only 1 event from 1980 costing $1 billion, a major drought.  I have quickly compiled a list of other events that would  have certainly resulted in more than $1 billion in damage were they to occur today and a second list of events that lack detailed accounting, but would be worth a further look (note that a rigorous analysis would implement the methodology of economic normalization that we have applied in a range of contexts).

1980 Disasters Greater than $1 Billion in Normalized 2011 Dollars But Not on the NOAA List

Certain additions:

Hurricane Allen - Aug 9, 1980 - $2.0 billion
Grand Island Tornadoes - June 3, 1980 - $1.7 billion
Western Wisconsin Derecho -- July 16, 1980 - $3.8 billion
California/Arizona Floods -- February 13-21, 1980 -$2.0 billion

Other candidates for inclusion but lacking a rigorous quantitative accounting:

Hawaii storms -- January
Hampton Roads "Circus" Blizzard --  January
Texas/Alabama/Louisiana Storms -- May 
Midwest Floods -- June
Panorama Fire -- December

There are thus 4 events that clearly would have been $1 billion events had they occurred in 2011 and I can find 5 other candidates for which data is lacking, but which could possibly have reached $170 million in damage in 1980 (especially if data collection were as intensive as today).  Regardless, of whether the total is 4 or 9 missed events or somewhere in the middle, NOAA's data misses at least 80% of the billion dollar disasters in 1980. Not good. No doubt that a reanalysis of the years 1981 to present would turn up many more such events that failed to meet the contemporary billion-dollar threshold but would certainly do so today.

It is extremely misleading to use economic impacts as the basis for making claims about weather and climate. NOAA should take immediate steps to improve the scientific quality of its tabulation of "billion dollar disasters" lest it find itself accused of misleading the public and decision makers with scientifically unsound information.

Japan: What Lost Decades?

Sunday's NYT had a provocative essay by Eamonn Fingleton challenging conventional wisdom of Japan's "lost decades" (Fingleton blogs here). Here is an excerpt:

Time and again, Americans are told to look to Japan as a warning of what the country might become if the right path is not followed, although there is intense disagreement about what that path might be. Here, for instance, is how the CNN analyst David Gergen has described Japan: “It’s now a very demoralized country and it has really been set back.”

But that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.

Japan has succeeded in delivering an increasingly affluent lifestyle to its people despite the financial crash. In the fullness of time, it is likely that this era will be viewed as an outstanding success story.

While per capita GDP in the US has outperformed Japan, the graph at the top of this post shows that over the past decade Japan's per capita GDP has increased by more than 40% whereas the US has has seen its increase by less than 30%. If Japan seems like it is getting wealthier faster than the US, well, it is. Fingleton writes:

As longtime Japan watchers like Ivan P. Hall and Clyde V. Prestowitz Jr. point out, the fallacy of the “lost decades” story is apparent to American visitors the moment they set foot in the country. Typically starting their journeys at such potent symbols of American infrastructural decay as Kennedy or Dulles airports, they land at Japanese airports that have been extensively expanded and modernized in recent years.

William J. Holstein, a prominent Japan watcher since the early 1980s, recently visited the country for the first time in some years. “There’s a dramatic gap between what one reads in the United States and what one sees on the ground in Japan,” he said. “The Japanese are dressed better than Americans. They have the latest cars, including Porsches, Audis, Mercedes-Benzes and all the finest models. I have never seen so many spoiled pets. And the physical infrastructure of the country keeps improving and evolving.”

The data above show that Japanese are enjoying their wealth over increasingly longer lifespans than Americans since 1989.

But all is not well in Japan either. Last week the FT reported on Japan's concerns about its shrinking competitiveness in manufacturing:

Since the country’s economic bubble burst in the 1990s, real income per worker has fallen by 10 per cent and the loss of more well paid manufacturing jobs would accelerate the downward trend. Although official unemployment remains low, at a little more than 4 per cent, the government calculates that the rate would increase more than threefold if companies cut their workforces to match the actual level of demand. So far, that outcome has been deferred by worker-friendly labour laws, government job subsidies, sometimes called a dole for the idle employed, and the legacy of postwar “lifetime employment” schemes but it is unlikely to be avoidable for ever.

More broadly, Japan’s industrial problems have coincided with the country’s shrinking role on the world stage. Two decades ago, its economic output accounted for 14 per cent of global gross domestic product; today, it is less than 9 per cent. Even in Asia, it has been eclipsed by China as an economic and a diplomatic power.

And of course last year's earthquake and tsunami was a huge setback that the country continues to recover from, particularly as related to energy supply and costs. Japan is also grappling with the changing nature of the global economy, including the loss of low-value manufacturing to locales where labor costs are cheaper. Like the US, Japanese wonder about where future jobs will come from.

For anyone who has not had their investments tied up in the Nikkei stock index since 1990, claims of Japan's "lost decades" are indeed vastly overstated. Japan remains an industrial powerhouse that has delivered notable benefits to its citizens, especially over the past 10 years. Could things be better? Sure. But they also could be much worse.

Trust, Respect and Civility in Expert Blogging

Jerry Ravetz (pictured above) has a commentary in Nature in which he argues that as the walls come down between scientists and the public, largely because of digital media (such as blogs), the credibility and legitimacy of science as an institution will depend upon maintaining the trust of the broader society. Maintaining trust depends, among other things, on respectful and civil discourse via the new media technologies, among experts and between experts and the broader public.

Ravetz concludes:

Ultimately, effective quality assurance depends on trust. And science relies on trust more than most institutions. As Steven Shapin, a historian of science at Harvard University in Cambridge, Massachusetts, showed in his 1994 book A Social History of Truth, trust is achieved and maintained only by mutual respect and civility of discourse. In a digital age, civility should be extended to, and reciprocated by, the extended peer community.

Scientists have a special responsibility, but also a special difficulty. When their training has been restricted to puzzles with just one right answer, scientists may find it hard to comprehend honest error, and may condemn those who persist in apparently wrong beliefs. But amid all the uncertainties of science in the digital age, if quality assurance is to be effective, this lesson of civility will need to be learned by us all.

Not everyone agrees. Paul Krugman, for one, sees incivility as a virtue and strongly defends his brusque approach to discourse:

I understand that many people find the notion of a world in which Nobel Laureates and ECB presidents declare that 2+2=5 very unappealing, and that they wish we lived in a different and better world. But we don’t — and it’s not my job to create the illusion that we do. . .

I realized that I also wanted to say something in response to the concern trolling, the “if you were more moderate you’d have more influence” stuff. Again, this amounts to wishing that we lived in a different world. First, there is no such thing in modern America as a pundit respected by both sides. Second, there are people writing about economic issues who are a lot less confrontational than I am; how often do you hear about them? This is not a game, and it is also not a dinner party; you have to be clear and forceful to get heard at all.

Krugman, and other bloggers who adopt discourteous approaches, may be confusing getting attention with being correct, being forceful with being influential and being a pundit with being an expert. After all, Kim Kardashian also gets a lot of attention and Rush Limbaugh is plenty forceful and Bill O'Reilly is a pundit. Of course, all are very effective, in the contexts in which they operate. But are they models for what experts really wish to become?

If the goal of public discourse is to divide people along partisan lines, to raise their intensity and to demonize one's opponents, then Krugman no doubt has the correct strategy. But if the goal is to help society pursue common interests, to open up opportunities for compromise and to reinforce the integrity of institutions, then Ravetz surely has the more appropriate approach.

Society is a big place and there is plenty of room in the blogosphere and elsewhere for Krugmans and Ravetzes -- both play important roles in a democracy. However, for the scientific community broadly, Ravtez is correct that science is more constrained in its options -- seeking to be "respected by both sides" is not just the right thing to do, but it is the only way that science will sustain as an effective institution in the broader society.

Image above (of Ravetz and a few other academics) and a hat-tip to Klimazwiebel.

The World's Biggest Engine of Innovation

Think of institutions that successfully foster innovation over many decades and you might put on a short list a few companies like Apple or DuPont. But I'd argue that at the top of that list would be the US Department of Defense. For many decades that government agency has developed technologies, processes and products that shape aspects of our everyday lives, including everything from the tread pattern on your shoes to the architecture of the internet that enables you to read this post.

Last Friday, the New York Times warned of the effects on innovation of a decreasing military budget, quoting my close colleague Dan Sarewitz:

Professor Sarewitz, who studies the government’s role in promoting innovation, said that the Defense Department had been more successful than other federal agencies because it is the main user of the innovations that it finances. The Department of Energy and the National Institutes of Health, which also finance large volumes of research, are not major consumers of energy or healthcare. The Pentagon, which spends billions each year on weapons, equipment and technology, has an unusually direct stake in the outcome of its research and development projects. “The central thing that distinguishes them from other agencies is that they are the customer,” Professor Sarewitz said. “You can’t pull the wool over their eyes.”

Another factor is the Pentagon’s relative insulation from politics, which has allowed it to sustain a long-term research agenda in controversial areas. No matter which party is in power, the Pentagon has continued to invest in clean-energy technology, for example, in an effort to find ways to reduce one of its largest budget items, energy costs.

The scale of investment that DOD is able to make is of course crucially important, but as alluded to by Sarewitz, it is how DOD does its business that differentiates it from almost all of civilian mission agencies (exceptions might include Agriculture and NIST). Unfortunately, discussion of R&D policies typically devolves into discussions of "how much" rather than "how." Consider how the Washington Post's Ezra Klein reacted to the NYT story:

There’s an argument health reformers occasionally face that goes something like this: Sure, America way overspends on health care. But that overspending ultimately encourages medical innovations of incalculable value. Sharp cuts to health-care spending could lead us to lose out on those innovations.

I thought of that argument while reading Binya Appelbaum’s article warning that cutting the defense budget could kill off the military’s historical role as a driver of consumer-friendly innovations. The chain of reasoning goes something like this: We funnel huge amounts of money to the military; some of that money goes to R&D; some of that R&D unexpectedly pays off for consumers; and so cutting the military budget could ultimately hurt consumers.

He argues:

[F]unding military R&D is probably an inefficient way to fund nonmilitary innovations. If what we want is R&D focused on innovations with broad applications, we should fund that R&D directly rather than hoping that some of the military’s innovations turn out to also be of use to consumers.

But to argue that R&D funding simply needs to be redirected is to miss the point -- innovation outcomes related to government R&D are a function of far more than just funding amounts. Imagine if you took the DOD R&D budget and gave it to NASA or DOE or NSF. A lot of good work would get done, no doubt, but arguably you'd have much less innovation, commercialization and societal impact.
A key reason for these differential outcomes is -- as Sarewitz suggests -- that DOD is a mission agency that innovates to serve clearly defined operational functions. To put it bluntly, if DOD fails to innovation then American soldiers die. That will focus attention.

In addition, Congressional oversight of military performance is far more rigorous than other federal agencies where R&D investments are not measured in terms of societal impacts. Not surprisingly then DOD invests far less in what it calls "basic research" than do other agencies (see figure above, DOD spends less than half on "basic research" than does NSF, but its total R&D budget is about 20 times bigger). DOD learns a lot by doing and has close relationships with contractors and others in the private sector, who depend upon DOD funding but also take DOD technologies to the marketplace in non-military applications.

Academics and others who prefer to do largely unaccountable "basic research" understandably are not big fans of the DOD model. But if a goal of federal R&D is to stimulate innovation in productive directions, then the Defense model offers much to learn from -- whatever total amount the government ultimately devotes to federal R&D.

Revolutionary COI Disclosure Principles from the American Economic Association

Watch Oscar-Winning `Inside Job' Director Attacks Economists' Ties to Financial Sector on PBS. See more from PBS NewsHour.

The American Economic Association yesterday issued revolutionary -- and I do mean revolutionary -- principles for disclosure of potential financial conflicts of interest, as reported by The Chronicle of Higher Education today.  This issue was discussed one year ago today on this blog and I encourage you to watch the PBS report above for background.

Here are the principles:

STATEMENT OF PRINCIPLES

Chicago, January 5, 2012
At its meeting today, the Executive Committee of the American Economic Association adopted extensions to its principles for authors’ disclosures of potential conflicts of interest in the AEA’s publications. The added principles are:

1. Every submitted article should state the sources of financial support for the particular research it describes. If none, that fact should be stated.
2. Each author of a submitted article should identify each interested party from whom he or she has received significant financial support, summing to at least $10,000 in the past three years, in the form of consultant fees, retainers, grants and the like. The disclosure requirement also includes in-kind support, such as providing access to data. If the support in question comes with a non-disclosure obligation, that fact should be stated, along with as much information as the obligation permits. If there are no such sources of funds, that fact should be stated explicitly. An “interested” party is any individual, group, or organization that has a financial, ideological, or political stake related to the article.
3. Each author should disclose any paid or unpaid positions as officer, director, or board member of relevant non-profit advocacy organizations or profit-making entities. A “relevant” organization is one whose policy positions, goals, or financial interests relate to the article.
4. The disclosures required above apply to any close relative or partner of any author.
5. Each author must disclose if another party had the right to review the paper prior to its circulation.
6. For published articles, information on relevant potential conflicts of interest will be made available to the public.
7. The AEA urges its members and other economists to apply the above principles in other publications: scholarly journals, op-ed pieces, newspaper and magazine columns, radio and television commentaries, as well as in testimony before federal and state legislative committees and other agencies.

I note that the statement is of "principles" and not "guidelines" or "requirements." There is no indication of what consequence, if any, there is for authors who ignore or violate the principles. On the other hand, there are more than 300 academic economists on record calling for such principles, so it will look bad for any of them to now object or even ignore them when publishing.

The principles are a good idea for economists and others who publish policy-relevant work, but outside of the AEA's publications, the principles carry no weight, and even there it is not clear how implementation and oversight will occur.  But make no mistake, the issuance of the principles are a big deal in the profession and certain to result in much further discussion.

Nigeria and Higher Priced Energy

CNN asks, "What is behind Nigeria fuel protests?" and explains the context (see also above):

On January 1 2012, Nigeria, Africa's largest oil producer, ended oil subsidies that had kept gasoline prices artificially low.

The cost of a liter of gasoline shot up from 65 naira (40 cents) to at least 141 naira (86 cents) virtually overnight.

Furious Nigerians have since taken to the streets, staging 'Occupy Nigeria' protests and mass demonstrations across the country.

CNN provides an answer to the question that it posed:

Nigerians are angry because they believe the government has introduced the plan without any regard to how it will affect the cost of living in the country.

They say they are already experiencing undue hardship as a result of the move, which they say has already affected the cost of transport, food, medicine, rent and school fees.

Feyi Fawehinmi, an accountant and analyst, told CNN the government's abrupt move was like having a "tooth pulled without a plier."

"When you have so much poverty, a lot of business and lives have been built on petrol being at N65, which is not exactly cheap, even at subsidized rates. People are just not moving out of poverty quickly in Nigeria. There is an economic case but this is not something that can be quantified economically," he said.

"The government cannot tell how many businesses will be ruined or even how many people will die," Fawehinmi continued. "The impact will be so wide-ranging. There should have been a plan to remove this in a sensible way, not in this crude manner." he said.

Many Nigerians see the subsidy, which gives them the cheapest gas price in the region, as the only benefit of being an oil producing country. Most live in grinding poverty and on less than $2 a day. There is little infrastructure, high unemployment and only intermittent electric power.

In 2010, India tried to reduce its liquid fuel subsidies, and with similar consequences. It sees inevitable that the Nigerian government will have to go back on the price increases. People do not want higher priced energy, even if reducing subsidies makes good economic sense. Another way must be found.

Are Big Earthquakes Becoming More Frequent?

The figure above comes from a new paper by Shearer and Stark in PNAS which is titled, "Global risk of big earthquakes has not recently increased" which clearly answers the question posed in the title to this post. The figure above showing earthquake rates for different magnitudes since 1900 comes from their paper.  Here is their conclusion:

Our conclusion that the global threat of large earthquakes has not recently increased is based both on the lack of statistical evidence that regionally declustered seismicity is temporally heterogeneous on a global scale and on the implausibility of physical mechanisms proposed to explain global clustering. The estimated global rate of very large (M >9) earthquakes is still very uncertain because only five such events have occurred since 1900. The recent elevated rate of large earthquakes has increased estimates of large earthquake danger: The empirical rate of such events is higher than before. However, there is no evidence that the rate of the underlying process has changed. In other words, there is no evidence that the risk has changed, but our estimates of the risk have changed.

Although there is little evidence that the global threat of earthquake occurrence has changed in areas far from recent activity, the current threat of large earthquakes is certainly above its long-term average in regions like Sumatra, Chile, and Japan, which have recently experienced large earthquakes. Finally, of course, even if the danger has not increased recently, that does not mean that the ongoing danger is small or should be ignored.

Central to that passage is this phrase: "there is no evidence that the risk has changed, but our estimates of the risk have changed." Think about that for a minute. When you negotiate a reinsurance contract or make some other decision that depends upon risk estimates, the key variable is not what the risk is but our estimates of that risk. When a gap exists between the two, arbitrage is possible.

Here also is a neat figure showing the recent high magnitude earthquakes in historical context from my colleague here at CIRES, Roger Bilham.