Sunday, January 3, 2016

Peak/Pique Oil, Peak/Pique University

I have pasted below an article from Project Syndicate. I am no expert in this field, so the argument may well have  serious defects. Still I thought it worth distributing.  

    Many of you have spoken to me about Peak Oil, and I thought this analysis might be of interest. The basic point here is that resources are a matter of materials, markets, and invention. Whether or not we will "run out of" petroleum, other materials might well be good substitutes, and markets, however imperfect they are, guide people in choosing them and also in seeking inventions.

    When I read the article, I also thought Peak University. Prices for the most prestigeous college educations have been rising, in part because the quality of the ancillary services provided (eg. health clubs, eating facilities,...) have increased dramatically, there have been delayed maintenance costs that are very large, and there has been a need for greater administrative services, in part to serve students, in part to serve grants (which rarely actually pay their full costs), in part to monitor adherence to regulations and laws. As far as I know, faculty salaries and benefits and overhead are surely less than 1/3 (maybe 1/4 or 1/5) the university budget at a large research university such as USC, and tuition may be a major revenue source but is often dwarfed by other sources of revenue.
    Imagine that a high quality but low service university were put together--not MOOCS or others--but a research university that rented space from a large downtown building, but had a large library or nowadays used internet facilities. I imagine the cost/student would be substantially less, and there would be fine graduate and doctoral education as well. Laboratories and other such facilities would have to pay for themselves out of grants (so the overhead computed would be realistic). Would that make a top 25 university much less viable? Of course, prestige counts, the benefits of a campus are genuine, etc. I do not mean to demean the advantages of a place like USC--I went to Columbia University and benefitted from them. But there might be a time when it is time to sell off the campus and become a very different sort of institution.

MK


 
www.project-syndicate.org
Anatole Kaletsky is Chief Economist and Co-Chairman of Gavekal Dragonomics. A former columnist at the Times of London, the International New York Times and the ...

Anatole Kaletsky is Chief Economist and Co-Chairman of Gavekal Dragonomics. A former columnist at the Times of London, the International New York Times and the Financial Times, he is the author of Capitalism 4.0, The Birth of a New Economy, which anticipated many of the post-crisis transformations o… read more
    DEC 23, 2015 20

    Why Big Oil Should Kill Itself

    LONDON – Now that oil prices have settled into a long-term range of $30-50 per barrel (as described here a year ago), energy users everywhere are enjoying an annual income boost worth more than $2 trillion. The net result will almost certainly accelerate global growth, because the beneficiaries of this enormous income redistribution are mostly lower- and middle-income households that spend all they earn.
    Of course, there will be some big losers – mainly governments in oil-producing countries, which will run down reserves and borrow in financial markets for as long as possible, rather than cut public spending. That, after all, is politicians’ preferred approach, especially when they are fighting wars, defying geopolitical pressures, or confronting popular revolts.

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    But not all producers will lose equally. One group really is cutting back sharply: Western oil companies, which have announced investment reductions worth about $200 billion this year. That has contributed to the weakness of stock markets worldwide; yet, paradoxically, oil companies’ shareholders could end up benefiting handsomely from the new era of cheap oil.
    Just one condition must be met. The managements of leading energy companies must face economic reality and abandon their wasteful obsession with finding new oil. The 75 biggest oil companies are still investing more than $650 billion annually to find and extract fossil fuels in ever more challenging environments. This has been one of the greatest misallocations of capital in history – economically feasible only because of artificial monopoly prices.
    But the monopoly has fallen on hard times. Assuming that a combination of shale development, environmental pressure, and advances in clean energy keep the OPEC cartel paralyzed, oil will now trade like any other commodity in a normal competitive market, as it did from 1986 to 2005. As investors appreciate this new reality, they will focus on a basic principle of economics: “marginal cost pricing.”
    In a normal competitive market, prices will be set by the cost of producing an extra barrel from the cheapest oilfields with spare capacity. This means that all the reserves in Saudi Arabia, Iran, Iraq, Russia, and Central Asia would have to be fully developed and exhausted before anyone even bothered exploring under the Arctic ice cap or deep in the Gulf of Mexico or hundreds of miles off the Brazilian coast.
    Of course, the real world is never as simple as an economics textbook. Geopolitical tensions, transport costs, and infrastructure bottlenecks mean that oil-consuming countries are willing to pay a premium for energy security, including the accumulation of strategic supplies on their own territory.
    Nonetheless, with OPEC on the ropes, the broad principle applies: ExxonMobil, Shell, and BP can no longer hope to compete with Saudi, Iranian, or Russian companies, which now have exclusive access to reserves that can be extracted with nothing more sophisticated than nineteenth-century “nodding donkeys.” Iran, for example, claims to produce oil for only $1 a barrel. Its readily accessible reserves – second only in the Middle East to Saudi Arabia’s –will be rapidly developed once international economic sanctions are lifted.
    For Western oil companies,the rational strategy will be to stop oil exploration and seek profits by providing equipment, geological knowhow, and new technologies such as hydraulic fracturing (“fracking”) to oil-producing countries. But their ultimate goal should be to sell their existing oil reserves as quickly as possible and distribute the resulting tsunami of cash to their shareholders until all of their low-cost oilfields run dry.
    That is precisely the strategy of self-liquidation that tobacco companies used, to the benefit of their shareholders. If oil managements refuse to put themselves out of business in the same way, activist shareholders or corporate raiders could do it for them. If a consortium of private-equity investors raised the $118 billion needed to buy BP at its current share price, it could immediately start to liquidate 10.5 billion barrels of proven reserves worth over $360 billion, even at today’s “depressed” price of $36 a barrel.
    There are two reasons why this has not happened – yet. Oil company managements still believe, with quasi-religious fervor, in perpetually rising demand and prices. So they prefer to waste money seeking new reserves instead of maximizing shareholders’ cash payouts. And they contemptuously dismiss the only other plausible strategy: an investment shift from oil exploration to new energy technologies that will eventually replace fossil fuels.
    Redirecting just half the $50 billion that oil companies are likely to spend this year on exploring for new reserves would more than double the $10 billion for clean-energy research announced this month by 20 governments at the Paris climate-change conference. The financial returns from such investment would almost certainly be far higher than from oil exploration. Yet, as one BP director replied when I asked why his company continued to risk deep-water drilling, instead of investing in alternative energy: “We are a drilling business, and that is our expertise. Why should we spend our time and money competing in new technology with General Electric or Toshiba?”
    As long as OPEC’s output restrictions and expansion of cheap Middle Eastern oilfields sheltered Western oil companies from marginal-cost pricing, such complacency was understandable. But the Saudis and other OPEC governments now seem to recognize that output restrictions merely cede market share to American frackers and other higher-cost producers, while environmental pressures and advances in clean energy transform much of their oil into a worthless “stranded asset” that can never be used or sold.
    Mark Carney, Governor of the Bank of England, has warned that the stranded-asset problem could threaten global financial stability if the “carbon budgets” implied by global and regional climate deals render worthless fossil-fuel reserves that oil companies’ balance sheets currently value at trillions of dollars. This environmental pressure is now interacting with technological progress, reducing prices for solar energy to near-parity with fossil fuels.
    As technology continues to improve and environmental restrictions tighten, it seems inevitable that much of the world��s proven oil reserves will be left where they are, like most of the world’s coal. Sheikh Zaki Yamani, the longtime Saudi oil minister, knew this back in the 1980s. “The Stone Age did not end,” he warned his compatriots, “because the cavemen ran out of stone.”
    OPEC seems finally to have absorbed this message and realized that the Oil Age is ending. Western oil companies need to wake up to the same reality, stop exploring, and either innovate or liquidate.

    Read more at https://www.project-syndicate.org/commentary/marginal-pricing-end-of-western-oil-producers-by-anatole-kaletsky-2015-12#dQOAWrrgtSeWgfTi.99


    Friday, January 1, 2016

    Specious Arguments and Their Effect on Others' Respect to You

    Recently, several of my students have offered arguments for why their grades might be higher (often from A- to A). Much like the proverbial lawyer, they throw arguments and evidence against the wall and hope that some of it sticks. The problem is that specious arguments decrease my respect for their case. The stuff that does not stick stinks up the room.

    I am not talking about disagreement, but about internal inconsistency in the presented argument, about the relevance (actually lack of relevance) of the evidence or mode of analysis, and the mixture of potentially good reasons with manifest nonsense.

    I've seen this in deans and department chairs, where their arguments or their comments are both self-serving and embarrassing (they would be embarrassed at their arguments or comments were they not so involved with pushing their case).

    It is all right to want your position to prevail. It is terrific to provide arguments and evidence for your position, and attacks on the arguments and evidence of your adversaries. But if you are inconsistent, lacking in relevance, or just throwing stuff at a wall and hoping that some of it sticks, you are likely to hurt your case. Of course, you might well prevail, your adversary having become exhausted (or even convinced) by the unending variety of argument and evidence you offer, whatever their quality. But if you don't prevail, and even if you do, you will find that others will find you much less credible and effective in the future.

     

    Writing and Mindfulness

    I was reading an article about mindfulness, and realized that when I am writing a paper or even my blog, I am in the present, totally focused (with some distraction...). I had always wondered why writing was so good for me, and other than the satisfaction of getting work done, I believe this present-ness is part of it. Of course, once you are editing, and so you are dealing with bits and pieces, you are not so totally focused.

    Thursday, December 24, 2015

    I need a 3.5 to get into the XY Degree. Also, Arguing about grades and grade points

    1. When students tell me at the end of the semester, grades having been submitted, that they need a 3.5 grade-point average, say, to get into a certain degree program, and all I need do is change their grade from A- to A, or B+ to A-, my immediate thought is what were they doing in their other classes--not doing well, telling their instructors the same story, suddenly discovering they were not where they needed to be. Students who tell me they "always" get As, may well be just lucky, and ought to have gotten at least one A- or B+, or again did they tell all their instructors such stories. We always talk about the 4.0s at graduation, or sometimes the 4.0+s, but what I keep wondering is whether those persons are really good at something. They surely deserve their summa cum laude. I just don't know what I should take from such a grade point average. 

    2. I received the following argument, from a student who received As on five projects and a B on a sixth, the projects to be weighted equally in the final grade. My point here is that such arithmetic is highly suspect, and there are arguments that are both reasonable and not at all inconsistent that come to a different conclusion.:
    What this survey of the university regulations shows is 
    A = 4.0 points
    A– = 3.7 points and so on

    This indicated that an A- is 3.7 out of 4 points, which is a 92.5. 

    I received a 96! percent in your class (23/24), an A, not A-!

    -----------------
    The analysis is defective, since there is a mixing of percentages with grade points. If we look at the chart above, it is surely the case that you would get an A if you did 3.85 or better work (3.85 is halfway between 4 and 3.7), which is as little as 96.25% of the maximum grade, and if you got as little as 3.5 you would still get a A-, which is 87.5% of the maximum. You assume that an A means 100% but it could mean 96.5% in percentage terms. And a B might be as low as 2.85/4 which is 71.5% of the maximum. I have here assumed linearity, but in my experience excellent work is much much better than good work--you see that in your most distinguished professors who are much better than your quite good professors (who are very strong indeed). You really do not want to get to percentages when asking about excellence.

    Actually, it is likely that your A's, were you graded in percentage terms, might well have been 95%.  Virtually no one does a perfect job. (Nor do we give A+ or say 110%, for spectacular.) So the letter grades tend to be a bit more generous than percentage grades, at this end of the scale.

    If we were to go to the middle of the range of A's, that would be 3.925 and the B's would be 3, so the total of 5 As and 1 B would be 3+5x3.925, or 22.525 grade points, and dividing by 6 it is 3.777, well in the range of the A- (3.5 to 3.85). You might well have been in the upper tail or lower tail of the distribution, but that is not known here.

    Wednesday, December 16, 2015

    "Obstructions" Laziness, embarrassment, slowness, cynicism, digressiveness...

    from the description of a new book by Nick Salvato (a prof of performing arts at Cornell...):

    that for those engaged in scholarly pursuits laziness, digressiveness, and related experiences can be paradoxically generative. Rather than being dismissed as hindrances, these obstructions are to be embraced, clung to, and reoriented.  . . .  Salvato finds value in five obstructions: embarrassment, laziness, slowness, cynicism, and digressiveness.... Salvato expands our conceptions of each obstruction and shows ways to transform them into useful provocations. ... Salvato demonstrates the importance of these debased obstructions and shows how they may support alternative modes of intellectual activity. In doing so, he impels us to rethink the very meanings of thinking, work, and value. 

    Sunday, December 13, 2015

    Doing Your Best may not lead to Excellence, and That is All Right

    1. Some of you wish to see me about your work, so that you can have the benefit of my counsel about how to make it better--a few days before the Final.  Whatever advice I can offer now will not necessarily lead you to a much higher grade--for you have set up your projects and done the fundamental work already. I have tried over the semester to help you, but many of you have not had your preliminary work ready to show in class. More to the point, no matter what I say and what you then do, your work may not in the end be very strong. That you come back to me more than once at this time of the year only means that your work, as it is, will be better--but it may be a very good B rather than an A-.

    2. (No matter what I do, I cannot achieve my son's stature of 6'5", since I start out at 5'7". I could stand up straighter, wear clothes that emphasized height, maybe even elevator shoes (Adler Elevator Shoes were surely available once and may still be available), and I can buy the right clothing at Jimmy Au's. But none of that will make me look even close to 6'5. No matter what I do, I am unlikely to achieve an A in a graduate course in algebraic geometry, either, and probably not in a course in Torts or Contracts. Talent and aptitude are differentially distributed. 

    (As for your GPA and getting into law school or wherever: The best way of getting a leg up in the admissions world is for you to have good grades and lots of relevant experience. So if you want to become a dentist, perhaps you can work in a dental office. A lawyer, maybe even office work at a law firm, etc. Then there is a sense of your purposefulness and there is a chance that someone in the profession or field can write a letter of reference for you that is informed by their experience of your performance.

    (One last point. In no sense has many a university been considered a nationally-ranked university prior to the previous 30 years, although each has grown and improved significantly in that period so that its prestige and ranking are much stronger now. Yet its earlier graduates, whose grades may not have been stellar, have gone on to distinguished careers. The campus and the distinguished professors you encounter are a consequence of their generosity. )

    3. I appreciate you kind words, such as "I hope you have had a good weekend," or that your Hanukkah was good, or your ..., but that does not help you when you ask for something. It is much better to be direct. If you are in some difficult situation why not write something like, 

    Dear Professor Krieger,
    I am being forced into marriage by my parents, and my psoriasis has flared up. Might I have an extension of one week for handing in the work.
    OR  I screwed up, overslept, and missed a crucial deadline. I will get the work in tomorrow.
    OR  It is hard to believe, but three of my grandparents are in different hospitals. I am close to all of them. I will need a two-day extension.

    By the way, most successful people rarely ask for favors. Rather they extend favors to others, so that when they really need a favor it is a matter of others owing you rather than you owing them. Very powerful people are in a different realm.

    4. And, by the way, showing up in class, participating, showing up on time, is actually noticed by instructors even if they do not take attendance and the class is large. If you are regularly late, or if you show up infrequently, and do not appear before holidays and the like, you become a stranger--and when you want a favor you are pressing your luck. People who show up, on time, participate, and in general are good academic citizens, will find that the world is more likely to grant their special requests. None of this need affect your grade directly, but the question always being asked is whether the professor could trust you with a major task. You often act as if you are anonymous and not noticed. And perhaps that is the case. But in a class of 45 students that is only rarely the case. And students who are good citizens are noted in conversations among faculty.

    Put differently, you are always being noticed, watched, evaluated. Even at a large university. 

    MK

    Sunday, November 29, 2015

    Learning to Walk in Las Vegas. "Traffic Calming" in Action.

    There is a famous book Learning from Las Vegas, by Venturi and Scott-Brown.

    There is more to be learned. Las Vegas, on The Strip (Las Vegas Boulevard), is actually one of the most programmed walking experiences I know of. Yes, there is the snakelike path you make through an IKEA store, with little chance of cutting across, or getting to just the furniture you wish. You have to see it all. Usually on two levels. And there are attractions at amusement parks that are also so programmed. And many a museum exhibit is also without a way of cutting across various rooms.

    Las Vegas shows what can be done with "traffic calming," the term of art from city planning, but now with an ironic twist-- For there is now compression and congestion, frenzy and disorientation.

    In LV, they have made traffic calming appear much less programmed, but it is actually much more deliberate. If you want to cross a street, there are elevated walkways between buildings/across-streets, reminding me of the elevated walkways in Minneapolis downtown among the buildings (especially useful when it is very very cold). The walkways in Minneapolis create a whole second level of commercial activity.

    In LV, in order to allow for the fluid flow of vehicles on LV Blvd, The Strip, much of the time you need to use an elevated walkway to cross the street E/W. Often, you cannot cross a side-street, N/S, unless you use another elevated walkway. And these elevated walkways guide you to floors of commercial establishments, and you can look down on the ground floor for more such establishments. Of course, it helps that the environment on the street and in the signage/buildings/iconicity there is much to see through the windows of the walkways.

    Moreover, in most of the hotels on The Strip, you cannot get to anyplace without going through the gaming/casino area. Often, you have an entryway on The Strip, but you will go through the gaming area to get to the Registration or other such, and even then you may also have to go through the commercial areas as well. Many of the hotels are actually about a block in from The Strip, and you are really entering a low rise building housing gaming and shopping, before you can enter the hotel. (You may be able to enter the hotel from the rear of the complex, about two blocks to the east or west of The Strip, and go directly to Registration.) Sometimes one hotel's complexity is directly linked to another (Paris to Bally, so you get a second dose of gaming and commerce).

    It gets better. While hotels are arranged so that it is difficult to find your way out to the street (usually The Strip), with no significant signage (no big EXIT signs), since you are buried by commerce and gaming--once you are on The Strip, you find nothing but more hotels, more gaming, more ways of expending money, time, energy. Moreover, the highly articulated ground floors are often accompanied by further articulated second or third floors. If you ask for directions, they will get you to the next step, but at that point it's not so clear where to go next. There is always temptation--gaming, shopping, eating, gawking--at every such decision/walking point.

    The hotels share many of the same high-end shops (sort of Rodeo Drive/Fifth Avenue), the same food-court eateries, and for all I know the same slot machines. So if you cannot find just the exact Louis Vuitton purse you want, another hotel's Louis Vuitton might have it.

    If you choose to use the elevated monorail, you will find that it connects with the rear of hotels, and often the monorail station is sufficiently out-of-the-way, you may get tempted and distracted further, never to leave your hotel. But if you do get to the monorail stations, you will get a tour of backstage LV, so for example you see a very large parking structure just for the employees of Wynn LV, at the back of the back of the back of the site. And if you go to one end of the monorail, you find yourself at the SLS hotel, wondering why it is so far from the main action. But there is even more. If you walk out of the SLS to the Stratosphere Hotel, to go to the top (104 stories, they say), you have to walk through a rather more seedy area, with the world's largest souvenir shop and at least two wedding chapels (the hotels have them, too). Looking down, you see how much of LV is flat and residential, how much you have have been guided to attend to this small sliver of LV that is The Strip.

    By the way, The Strip is adjacent to the airport, and right off the main highway from Los Angeles (I15).



    Monday, November 16, 2015

    Personal Responsibility (=PR) and Individuals

    1. Individuals emerge from society and are seen as individual as a social process, in that the individual would appear to be autonomous and well defined. In particle physics, a quantum field has individual particles, in that they can be defined so that for the moment we can consider them as well-defined, with stable properties, and whatever happens is a matter of their interactions with other particles (and fields). Those particles that arise in a quantum field are "dressed" by all their stronger interactions with the field, with all the other particles--and what is leftover is their capacity to interact comparatively weakly with other particles. In other words, the particles, the individuals, are "social" to start out with.

    2. In the research we have about neighborhoods, there is something called the neighborhood effect. Namely, one's range of choices and expectations are to some extent molded by neighborhood you are brought up in. I did not understand what it was to be a professor, since no one in my neighborhood or ... had anything like a PhD etc. It was working class ethnic Brooklyn.  Eventually I discovered all this, but I was perhaps 15 and a junior in high school, when I went beyond my neighborhood at a Summer program at Columbia University...  Similarly, if you come from some neighborhoods, you might never think of going into the Armed Services, or becoming an artist, or ...

    Also, there is what is called cumulative and concentrated (dis-)advantage. Them who has, get more; them who is surrounded by those who have, get even more; and correspondingly, them who haven't...

    Now, none of this takes away PR. Folks like me transcend their neighborhoods in some ways, but in others I am still a guy from Brooklyn. But most people do not make such big leaps. Surely, people who don't have can work so that they do have, and then they too can start having more (perhaps). And some of those who have lots live lives where they are downtrodden--perhaps by choice, perhaps due to drugs or ...

    I don't deserve what I have. I got to where I am through the kindness of strangers, to use a phrase, some good fortune, and my own efforts. Also, I have made some less than stellar choices, but have been able to recover from them to a large extent.

    I take responsibility for my life, but I have a sense of where it could have gone (not bad, just very different), a sense of how hard I have worked (although in fact I do not give myself much credit my friends tell me), some good fortune and the kindness of strangers, ... I don't deserve it, but I was fortunate to have it.

    Hence, when one speaks of Personal Responsibility, I think it is important to have a sense of neighborhood effects, fortune, and cumulative and concentrated influences...  People don't make it on their own. Government and society provides them with lots of support, and this has been true as long as there have been governments and societies. People don't fail on their own either. They get help from the unkindness of strangers, bad fortune, ...

    MOREOVER: If you are taller, whiter, male-er, handsomer, beautiful... you start off with advantages others may not have. And if you are female, shorter, fatter, dark skinned, ugly,... you start off with disadvantages ... You can convert your advantages into barriers, and your disadvantages into leap-springs. Usually, you need the help of others to do so. If you have some gift or some challenge (what is sometimes called, disability), what you can do with that is in part determined by the opportunities made available to you.

    Wednesday, November 4, 2015

    Mathematics in Current Academic Macroeconomics

    The mathematics is used in engineering, and perhaps sometimes in statistical physics. But it is not the math that particle physicists use. 

    Physicists' mathematics is often differently focused, depending on the field.  So for example, Lie groups, aspects of topology and geometry, and partial differential equations are more present in the fields I know. Stochastic differential equations appear much more often in finance theory, but of course they also explain diffusive processes in gases, and the behavior of plasmas (as in fusion, or in the universe). There is a wonderful book by Cedric Villani about his proving a result in this field--you don't need to know math, just human nature.

    A doctoral student in some fields in engineering is much more acquainted with all of this.

    A macro guru such as Larry Summers is of an earlier generation. Also, at the levels of discourse he participates in, whatever you learn from the Lucas and other such books, and their research, has been made into a way of thinking--  BUT I suspect that it does not even have much of an effect there. Janet Yellen's staff does not show her a stochastic differential equation, or a Markov process, or a Martingale--but perhaps they have something useful to help her think about these things. There are wonderful ideas in dynamic programming (often, that a differential equation and an optimization problem are nicely related, and in effect the present is where all the action is). I do not expect that the head of the Fed in 25 years, having been trained in all the math stuff will ever talk about it, either. It will be interesting what the insights will be.

    Tactical, Operational, Strategic--Planning is Different for Each

    At the tactical level, one is concrete and particular, and complex planning with what-if's is possible--although you know that invention on the part of the actors will be required.

    Operational and strategic levels do not deal with many contingencies, except when things go big awry. Then you go back to the drawing board, so to speak. The Colonels' and Generals' planning teams have to think differently than does the Captain and Major, who are often tactical.

    What the Operational and Strategic have to do is to figure out big goals and how to go about it. I think of arguments toward the end of WWII about whether to go to Germany directly or in a pincer. I am surely getting this wrong, since my memory for such details is likely fuzzy. But the point is that Eisenhower made a choice  and all else followed. If it did not work out, presumably they had to think about what next.

    The complexity planners face is in part that the other side (or the customers, in business) has their own agenda, may act surprisingly (even as they think of themselves), etc. So the question becomes whether one's judgment is mildly reliable, and whether you have enough feedback and agility to know and deal with reverses. To use my current hobby horse, Rumsfeld got lots of feedback, but he had little of the requisite agility (or so the historical record seems to show--it may be wrong). Pride is useful in forcing one to persevere, but it is disastrous when one has to acknowledge things are not going your way. Strength lies in taking that disappointment and dealing with what needs to be done next. That is, do you have an ability to either have backup plans, or to generate them, when they might be needed. That's real strength.