Sunday, May 28, 2017

Anti-progress: The case of airline travel

We are so used to rapid progress in so many fields, especially in the communications devices and computers that we can hold in our hands and that keep getting cheaper. In addition, the media is filled with thrilling advances in biotechnology, robotics and artificial intelligence. It's hard to imagine that there might areas of our lives in which progress has not only ceased but been reversed.

One area with which many readers are certainly familiar is air travel. I was struck by Robert Gordon's account of this phenomenon in his marvelous tome, The Rise and Fall of American Growth. Here is what Gordon discovers:

Sunday, May 21, 2017

Stock hedges, home insurance, and our misunderstanding of risk

"If you own stocks without a hedge, it's not rational." So says the world's most famous student of risk Nassim Nicholas Taleb in a recent interview with Bloomberg as many of the world's stock markets hover near all-time highs. "It's like buying a house without insurance," he explained. "We have tail risks today that we didn't have before, and every day it gets worse."

"Tail risks" refer to the possibility of unusual, rare, catastrophic events, often of a nature that cannot be anticipated or even imagined. Such events are frequently dubbed black swans, a term made famous by Taleb's book called The Black Swan.

So, what is the perceived difference between houses and stocks and what does that tell us about how we judge risks elsewhere in our lives and societies? First, houses. Houses are very expensive consumer items or investments or both, depending who is buying them and why. Taleb's point is that the value of a house will not track the market if the house burns down.

Sunday, May 14, 2017

The trouble with infrastructure

The trouble with infrastructure is that it breaks down and needs to be repaired, it wears out and needs to be replaced, and it gets destroyed and needs to be rebuilt. All that requires energy, resources, labor and money.

Conceptually, here's the problem we face. The bigger we make any part of our infrastructure--roads, pipelines, electricity grids, water and sewer systems--the more expensive it becomes just to keep it in operating order. The same is true for our industrial plant, transportation system, commercial buildings and private homes. Things fall apart over time; entropy makes sure of that. To keep things from degrading to the point where they cannot function requires resources, labor and money--all of which cannot be spent on new infrastructure or productive investment, that is, all of which must go to maintain what we have rather than grow the economy.

The ancient Romans came face to face with this reality. Expansion of the empire had been paid for with booty seized from conquered populations. But once the expansion stopped, so did the booty. The Romans increasingly had to tax themselves in order to pay for large armies to protect the now very long border and for the necessary improvements in roads and other infrastructure to maintain their administrative and military presence throughout the empire.

It didn't last. Eventually, the Romans had to pull back. They had to shrink the empire.

Sunday, May 07, 2017

Taking a short break - no post this week

An exceptionally heavy consulting and writing workload has forced me to take a short break from posting. I expect to post again on Sunday, May 14.