Common sense answers (rooted in political economy) to things people have been saying about #demonetization

In November 2016, the Indian government announced a radical plan to immediately invalidate Rs. 500 and Rs. 1,000 notes. This rapid move happened without any real democratic debate. The government, as per usual, acted like everything would be OK and told Indians they needed to sacrifice a bit more the greater good. 

And chaos reigned.

Much debate has since been infused with typical jingoist arguments about giving the government the benefit of the doubt for acting in the good of the nation. This has highlighted stark divides between the minority of the country who participates in faux public discourse in traditional and social media, and who often lead the charge to put the nation first, and the actual majority of the nation who is largely left out of this conversation and are also the most marginalized by this great monetary transformation. 

Here in, various commentaries on various arguments re: demonetization all at once. This started as a short response to a few small points raised by a friend of my family. Then I didn’t stop writing for about 45 minutes.

Taken as a whole, these constitute a “common sense” reply to the utter gobar (cow shit) ideology floating around as economic justification for demonetization. These claims rooted in basic economics and, more importantly, political economy. Which is what I study/research.

 

I’ve since made a few copy edits or clarifications, but this remains more a working draft than a final argument. I also admit upfront that perhaps I have things wrong or that time will change what we know. I’ll continue to make updates when someone points out where I’m wrong. I’ll also add some citations later. Maybe.

One final note: I’m trying to write in a something of a common language wielding what hopefully seems like common sense to make it easier for others to engage this topic without falling back on pure ideology.

  1. Statistics vary on just how many people (or how many households) are unbanked. But the number isn’t inconsequential. Some estimates say half. Some say a third. Some say two-thirds. Whatever proportion of our nation is unbanked, those people — who are almost exclusively poor and more likely to be rural — do not have the same access to banking services as the folks who are largely of the urban middle class who also assume themselves to be “regular people.” Documents needed to get a bank account are not universal for many people in rural areas as well as migrants to urban areas. Production of a PAN card, ID proof, address proof, etc., is not something everyone can do. As a (quasi) dual citizen, it took me many years to cobble together the needed paper trail to get my own bank account. Full stop. So the assumption by the government that everyone who has cash can easily move it into a bank account is willfully ignorant.
  2. Forcing previously unbanked into the banking system exposes them to the potential for severe risks. It opens the door to financialization, greater debt, complex banking products, shadow banking, derivatives, etc. While certainly some numbers of the unbanked need access to banking, not all do at this time. One of the main effects of this policy will be to force the unbanked into the banking system (or else they may lose what cash value they have), which is forcing them into risk. Full stop.
  3. There’s a notion floating around that this is a temporary inconvenience. To people who have sufficient safety nets, who participate in a plastic economy using cards, who consume through the Internet and large stores (where prices for some goods are invariably higher), perhaps this is indeed only a short-term annoyance. I dispute that it’s only trivial hardship even for the middle class (especially the poorer parts of that wide ranging category). Note the long, long lines of people who are attempting to move their money into banks. Or who wish to exchange their money for new valid cash. Daily limits on exchange complicate the matter and many people will for some time be stuck with large bills that are legally nothing more than pretty paper. Meanwhile, many are finding out how difficult it is to pay some bills in cash today even if a hospital or a particular service provider is legally required to accept the bill. In urgent scenarios, even people with substantial means may ultimately lose money by operating through grey-market or black-market changers for additional fees just to get their money converted quickly. Banks simply do not have a enough Rs. 100 notes to hand out to people to absorb the currency space previously occupied by larger notes in transactions. So yes, for the better-off portions of the middle class and for the upper class (i.e. folks who are even better off than the aam admi  farmer or laborer or construction worker or school teacher), this will still probably be more than minimal, temporary pain.
  4. I have watched this debate play out on social media among supposed “regular” people. But we on Facebook are not regular people. Full stop. A large majority of the country is poor. A large majority of the country is rural. A large majority of the country does not debate things in English on the Internet. Still today. But many people in official positions (such as media commentators) or unofficial positions (such as Facebook commentators) are applying their personal economic experience and ideas to the majority of the nation, which remains largely rural. That is folly.
  5. For anyone whose life and livelihood depends on cash transactions, even a few days of disruption is enough to trigger a debt and poverty trap. Consider a hypothetical: If I am sabzi wallah, I likely cannot afford to continue to make various payments in my economic circuit nor can my customers who now have great cash shortages. The lack of large bills creates the shortage of Rs. 100 notes which creates a shortage of even smaller bills. As this disruption drags on due to banking unpreparedness, dithering and changing of the rules by the government, refusal to follow the rules by some sectors (i.e. the hospital that doesn’t continue to accept the Rs. 500 notes), there are mounting hardships felt by me (sabzi wallah) and people like me (the actual aam admi) working in cash economy livelihoods. If I (sabzi wallah) must take a loan to make ends meet, I may be permanently indebted (especially as another effect of this will be to permanently reduce cash business). If I expend my savings to cover my lack of business, I am also more precarious. Maybe not in debt now, but my safety net is gone. This applies to me, the sabzi wallah, as well as many other cash-only livelihoods. Think of the autorickshaw driver, who most likely does not own his own rickshaw outright. He largely works on a commission basis to pay back a kind of debt to the vehicle owner. But his customers can’t easily pay him in plastic and they don’t have small bills. A lack of small bills also likely makes it more difficult to buy petrol, whatever his rights might be. The cash economy worker is both losing income and losing the currency needed to maintain his him. In short, there will be people who previously operated in the cash economy who will see their livelihoods evaporate, permanently.
  6. Why permanently? That is because this move will force a transition to a plastic economy. That might not seem like such an issue for people like me (PhD student) who already order many things on Amazon and BigBasket and travel by Uber. But this is a HUGE sop to e-commerce and larger-scale credit card-based vendors. Consider our corner store in Sanjay Nagar that does not have a credit card processing machine. We may still return to him if this debacle eventually clears (i.e. if there are enough small bills one day put into circulation). Some people certainly will. But a healthy percentage of his customers have been forced into plastic transactions — people who now turn to netbanking and credit cards and so on — and they will be less likely to return to the corner store. The same holds for the sabzi wallah or the auto-rickshaw driver or the dhaba. Meanwhile Amazon and BigBasket and Uber (and their competitors) will see business boom. The point is that it’s not just cash economy livelihoods that are phased out or temporarily asked to sacrifice. There are also clear economic winners, and that is a huge injustice.
  7. Now, I finally get to the government’s supposed rationale for this. Let’s start with the idea that there are fake bills endangering the economy through fraud and inflation. Maybe some folks are counterfeiting bills. If the Rs. 2,000 notes are drastically more technologically complex, this could tamp down some fraud temporarily. But if fraud can occur at one level of technology it can almost certainly occur at another. Of course, our Rs. 500 and Rs. 1,000 were already relatively high tech with watermarks, embedded security strips, etc. So we are right to be skeptical that this will slow down counterfeiters drastically. Furthermore, I’d like to see convincing evidence that it’s widespread. The existence of “black money” doesn’t automatically mean that counterfeit bills are a massive problem. I’ve encountered two fake bills, both Rs. 50 notes they’re really, really poor forgeries. And changing out the bills for higher-tech ones by itself won’t change an economic system that overlooks cheating and has a thriving money laundering sector. I hear the argument that terrorists are massively trading in counterfeit bills. I am skeptical that this is true, but perhaps policy/police should target the laundering systems that allows them to legitimize fraudulent currency, rather than just targeting all people who use currency.
  8. On the subject of terrorism… As I understand it, another justification for this demonetization is that terrorists will lose whatever amount of rupees they have stockpiled in Rs. 500 and Rs. 1,000 denominations because they don’t want to risk being ID’d when they try to change out that money. First of all, I ask for some definitive proof of this before subjecting the entire country to a debacle such as this one. Second, a terrorist like anyone else go through the painful process of changing small amounts at a time. An inconvenience, maybe. But remember, the government believes that everyone in the nation can endure this inconvenience. So also could a terrorist. Third, if terrorists are really, truly were willing to commit terrorism, it seems like they also probably are willing to commit other crimes and coerce or pay people to change money for them.
  9. I’ve seen scant instances of serious evidence that economy altering forms of black money are held in cash as a “stock.” Can a non-political entity (I realize there isn’t actually one) give me a percentage? A lot of this “stock” is in property. A lot is in gold. A lot is out of the country in other currencies. Can the government really justify all the hardship I’ve outlined above to pursue some amount of black money that is perhaps unknown and also perhaps not significant? Are there not other ways — i.e. actual investigation of illicit revenues and improving financial bureaucracy — that don’t punish all of us in order to punish some of us. But, for the sake of argument, let’s suppose I do have a substantial amount of black money that I was intending to put to some nefarious purpose. At the very least, I don’t wish to pay taxes so I keep my money sitting around in cash. If I’m that chalu, don’t you think I’ll still try to work around demonetization in the same way that a terrorist could? What’s more, if I’m rolling in that much black money, then it’s probably very little skin off my nose to employ enough people to help me get around it. Or I turn to the grey market for money changing. Or I work through a temple or a hospital or another service that is required to accept cash in a way that may very well become a money laundering window. Those folks who support the government on this are tacitly saying that the holder of black money in cash will simply say, “Oh, you got me. Here are those back taxes, and I’ll be a good person from now on.” Does that strike you as reasonable?
  10. A related point is that this move (and illogical justifications for it) would seem to misunderstand black money. Demonetization does absolutely nothing to address the system that generates black money. Black money is not a “stock.” It is a “flow.” Black money is really the output of a black business (or a white business with a black accounting system). These businesses are a separate problem not addressed by this. Sure, as the owner of said “flow” of black money, I may lose some money on trading my black bills in through elaborate measures, but I can continue to operate my under the radar enterprise easily with the new Rs. 2,000 bills. As outlined above, this is unlikely to get someone who benefits from a black money stream to straighten up and fly right.
  11. I hear the word “corruption” thrown around. As though this will stop making people pay bribes. (I’m not sure that anyone argues this will stem a deeper version of corruption that comes from legal manipulation of the system or corruption enterprise as a stream of black money). It seems like this really is meant to address a cartoon character of someone with a briefcase of cash (ostensibly black money) that changes hands illicitly. First question, which is easier to pay as a bribe: four Rs. 500 or one Rs. 2,000? As with counterfeiting, it seems like this might be at best a temporary disruption in such trade. But briefcases can still be configured to carry Rs. 2,000 notes.
  12. A more complex justification says that perhaps property buying via hordes of black money cash will be curtailed if the cash economy is constricted. But it seems I’ve laid out a way around the black money rationale of the government, which then suggests I can still figure out how to buy property. Also, when Rs. 2,000 notes are back in circulation, won’t cash purchase of houses return to business as usual?
  13. There’s been a justification that there is no perfect solution to a huge complex problem like this one — Multiple tentacles. Corruption, lack of tax paying, corruption, exploitation, cheating, lots of sectors that need to be regulated differently, hugely diverse economy, etc. This logic says, the Indian economy itself is a huge “problem” and therefore the government must take “surgical strike” action to fix it without the hindrance of democracy. A follow-up point is usually that, yes, there is likely to be some collateral damage but we need action. This viewpoint is naive. Huge problems are not solved by autocratic, magic bullet solutions. They’re just not. Complex systems require careful, reasoned recalibration (if even that is possible) with adequate protection and consideration lest the react unpredictably. Based on the logic above, it seems like we could predict that this anti-democratic magic bullet option wouldn’t work.
  14. Which suggests that all the popular justifications, which I have tried to dispense with above, are not actually the real justification. I don’t honestly think that Modi et al. are this stupid (i.e. that they actually thought this would just “fix” things), which really makes me think more a collective change to give a massive sop to the financial and credit-based economic sectors. When a solution doesn’t bring benefits or answers to supposed problem, perhaps there are other people/sectors/issues it was intended to benefit all along.
  15. I have to address the idea that this is something good and we have to give the government benefit of the doubt. Simply put, that’s not how it works in a democracy. In a democracy, which we sometimes pretend we still are, large decisions that will have large impacts are discussed, debated, reasoned. Yes, that means that sometimes “decisive” action can’t be taken. Sometimes that discussion leads to gridlock or causes them to be turned down or subjects them to mob rule. OK. That’s how democracy goes. Because it’s still better to have wide participation and general consensus about the way we all move ahead in this world than to have a few experts making decisions at the expense of the many.
  16. A related charge — and one of the most scary — is that people who dissent are unreasonable. That we’re anti-national. Yeh sabse bada gobar hei. Dissent in a democracy is healthy; it’s the essence of participation in the setting of the collective will and agenda of a democratic country. But then we barely live in a democracy. We’re headed toward fascism, and I have no problem saying that. It’s one thing to have faith in a nation or the ideal of a nation. But it’s also very democratic to criticize a government or a politician or a leader. Dissenting over a policy a core principle of democracy. Calling someone an anti-national because they dissent? Suggesting that we must support the government for the good of nation? That’s drifting toward fascism. The other side of the “aren’t people too worked up” coin is “people shouldn’t be worked up at all.” And, what is that? Fascist.
  17. More on that point. Some folks seem to argue that critics of demonetization are really just anti-BJP and pro-Congress. Well Congress flirted with this idea and it was a bad idea then, too. And the BJP said so at the time. Congress made stupid policy, too. And deserved criticism. But the BJP bhakts seem to not take criticism well. Worse, some often interpret criticism of BJP as criticism of Hindus or being “anti-national.” Which sucks us back into that rabbit hole of the previous point and tacitly argues that the nation can only be represented by Hindu politicians (i.e. the BJP).

Look, I study political economy and with it some economics. I’m not going to claim to be an expert in all matters of economics or monetary policy. There’s a lot more nuance to the all of the above and maybe I’ve overstated or understated some things. But I’ve also tried to reason in common sense terms that are understandable to most folks.

That’s because — and I say this with the gravest of faces — this is an anti-democractic, strong-arm tactic that will have few of its supposed benefits. But it will cause a lot of people long-term pain and an even larger number of people short-term pain. And almost no one had a say it whether it happened.

Who thinks that’s what government in a democracy should do?

<small>Note: I made some style, copy and organizational changes on Friday, 18 Nov. No change in the argument.</small>

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Sherlock Holmes and the nature of data(mining)

Holmes… thinking.

I spend many days sitting at my desk just thinking, reading, writing and then thinking some more about survey method, instruments, data and analysis. It’s all great fun, because while I’m comfortable with qualitative, I’m also quantitative.

But after a solid day of switching from one spreadsheet to another (fisher socioeconomics and mobility preferences of SE DC), my mind is drifting off and I’ve randomly recalled quotes from Sir Arthur Conan Doyle’s Sherlock Holmes, on the subject of data, research and hypothesizing.

Holmes rather ingeniously contradicts at least some of our ideas of scientific method and hypothesis testing. This is hardly just Holmes being fanciful; he actually does a rather good job of showing us why we need to be careful about putting too much stock in our brilliant hypotheses.

It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.
A Scandal in Bohemia

Our scientific method generally tells us that we should do the opposite. We should theorize and then design experiments or collect data to analyze/test our hypothesis. My master’s thesis, for example, examined a macroeconomic theory — of productivity conditioned upon physical and human capital — using socioeconomic census data of coastal fishers in India.

My own hypothesis, based on political economy/ecology literature, was that the basic elements of the production function theory were inadequate to explain poverty. I tested data and largely confirmed my hypothesis. Holmes suggests we do the opposite, on multiple occasions.

It is a capital mistake to theorise in advance of the facts.
The Adventure of the Second Stain

It is a capital mistake to theorize before you have all the evidence. It biases the judgment.
A Study in Scarlet

It seems that Holmes would advocate the kind of research that is castigated by some scientists as “data mining” or “data dredging.” Described negatively, data dredging involves looking at a whole range of statistics and picking obscure ones to form a thin hypothesis about any observed patterns and relationships. I suspect that some folks who dismiss statistical analysis (“Anyone can say anything with statistics”) may be thinking of data mining. More generously described, however, data dredging is simply post-hoc analysis or looking at data after the fact for trends or patterns that were unknown or inconceivable prior to the experiment/data collection.

The critical view has some merit; the more one looks at the data, the more one finds connections that may have no logic or good theoretical basis; in short, one may find trends that just don’t make sense and may only be artifacts of the data rather than descriptions of reality.

However, hypothesis-experiment designs can also be as flawed. They rely on the researcher’s own judgment to get the conditions/variables of the experiment/observation right. One might incorrectly reject the null hypothesis (Type I error) if, for example, the variables or purported causal chain of the hypothesis don’t actually relate but instead happen to proxy a real-but-untested relationship; at the same time, one might incorrectly confirm the null hypothesis (Type II error) if the proper model isn’t specified in, say, a regression.

Example from my own work: I’m interested in power, social organization and political economy (of natural resources); along those lines I read literature often originating from political economists and political ecologists. My thesis attempted to show that a supposedly apolitical macroeconomic hypothesis simply didn’t fit the facts when one dug (dredged?) a little deeper into the data. I included sociopolitical variables that began to control away the effects of the neoclassical macroeconomic predictors.

I had some theory to back me up, but at the outset, I did not hypothesize the power that geography would have on my model as well. Only when I also controlled for fixed geographic effects or removed geographic outliers did I really begin to see the macroeconomic model break apart. Another variable I found to matter highly — the presence of a post office. This really starts to seem like data mining, but by looking deeper at the statistics, I could see that post offices proxy overall levels of development in a broader economy, so the variable actually made sense. That’s a bit of post-hoc analysis, but without the social, geographic and post office variables, my research would have actually supported the overarching macroeconomic theory.

What’s more: Even my best models didn’t explain even two-thirds of the variation in my dependent variable (poverty). A first-order question: What other variables might the theory (macroeconomic or other) be missing? One of the first steps toward answering that: Looking closer at the data for unexpected interrelationships.

Says Holmes:

“Data! Data! Data! I can’t make bricks without clay.”
The Adventure of the Copper Beeches

Indeed, most of Holmes’ genius comes as Conan Doyle invents scenarios where the seemingly obvious hypothesis is wrong; only upon dredging up more data and observations does Holmes typically arrive at the correct conclusion.

And, in reality, most hypotheses are rarely designed in a purely a priori fashion. In practice, we look at some data, consider some experience, examine results of other research, design our hypothesis accordingly and go out and look at data. After a first pass analysis, we may alter our thinking on the fly, which perhaps approaches data dredging but gets us closer to describing a real relationship or explaining a real trend.

My own statistics professor, for whom I have great respect, told me that looking deeply at the data wasn’t wrong — I do tend to nerd out on my spreadsheets — as long as I had good theoretical, logical (sensible) reasons for seeing relationships.

And now, back to work and survey method/instrument design.

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Environmental appeals should be tagged: “Time done already run out”

553099_10151769751889684_1817248498_n

A good, smart friend recently pointed out that while the science really does argue that there is no going back to a time before climate change or Arctic ice melt or dying polar bears or ecosystem disruption, Greenpeace, an environmental NGO that I support with heart, hand and wallet, continues a campaign that suggests it’s not too late to fix things.

Note: I don’t believe we’re really taking issue with Greenpeace’s campaign to fight uber-consumptive capitalism and industrial destruction of remaining Arctic resources. Rather, it’s the message which obfuscates and confounds a deeper truth: Time really has run out. We’re past a point of no return.

My friend Michael:

Is this a good appeal, still? Time is not running out, it has already run out. Already released GHGs are forcing the warming that will within a few years likely make the Arctic ice free during the summers. We cannot save the polar bear, or rather, we cannot save the polar bear’s habitat. I think Greenpeace knows that.

Better that we be honest about this and understand the implications, and how serious of spot we are in. To keep using this as a tool to get people on board can have the effect of giving people a sense that a) look people are doing something about this and since the polar bear is “being saved” its working, and that b) things are not all that serious if we can still do things like “save the polar bear.”

I think its better to start being clear about what we have messed up and cannot fix. If I’m not wrong, the Arctic is one of those things.

His point — one that many people have certainly discussed — has been kicking around my brain for the better part of a day.

I do absolutely agree that we need to come to serious terms with reality. Full stop. There is so much that we’ve already broken and we’re kidding ourselves if we think we can fix it. Again, full stop. A realistic picture would be a drowned polar bear washed up on a flooded city waterfront.

But for the sake of discussion… There are two concerns here. The content of the message (bears can be saved) and the goal/strategy of the message (enlist people/donors/members/activists).

The content is wrong. Polar Bears 1.0 cannot be saved. Whatever survives will be a different kind of polar bear (Not-Quite-Polar Bear V2.7.1) in a different place.

It’s the strategy that I’m wrestling with. And I admit that I’ve more often advocated going radical/brutal first. Soft touch isn’t my strong suit.

But I find myself asking, what would a picture of a drowned bear washed up in Sandy-induced flooding with a tag line of “You broke it, you bought it” or “Time done run out already” achieve? Does it move us to the goal of getting people off the bench and into the game?

Source: The Guardian and Ashley Cooper/Global Warming Images

Source: The Guardian and Ashley Cooper/Global Warming Images

It would be the brutal and honest truth, and I hope, would shake some people awake to reality. But would it also risk encouraging others to throw up their hands? Maybe such a message would just convince people to say, “Well, screw it. Smoke ‘em if you got ‘em. Let’s drive Hummers.” After all, humans are much at denial than acceptance.

This is a question we’ve gone round on before, but I’m asking it again. How do we communicate the truth of it?

The truth, at least to me, would seem to sound something like,

“We have screwed the pooch; a lot of people are going to suffer; a lot of natural systems — including humanity — will be irrevocably changed. Things are going to be different, which is our fault, but we have to move forward and work toward adapting to a new normal. This “normal” will ultimately be unstable and not feel very normal. But we must do [insert painful, landscape-changing, status quo-disrupting policies here] until we can achieve some sort of balance in our socio-economic-political relations with our environment. Don’t get your hopes up that we’re going to “fix” much of anything. Remember, we effed things up a lot. The future is going to hurt, but we have to at least try to make it hurt a little less.”

So how does one communicate that and get people involved, when we’re essentially saying that the best we can do is really not much? It seems like an appeal that is tagged “We’re mostly munted” isn’t much of an appeal.

Note: I think that the new distant future, if we succeed, will be pretty nice. Social capital, growing our own food, loving our neighbors, loving strangers, putting down roots, more biking and bowling and sweating, less plastic wrap and fake nacho cheese.

But that’s my version of success, which may not get a lot of people into the game.

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Reading about foreign investment in India and seeing Victoria’s Secret?

WTF

I’m in the middle of a giant research project on India’s engagement with the international economy and what it means for sustainable development. So it’s particularly weird when, as I read news stories from the Times of India about foreign institutional investor outflows, I am treated to Victoria’s Secret ads.

I get that Web advertising senses where I am and delivers me local advertising. But VS ads seem a bit of stretch.

I suppose it does add humorous new meaning to portfolio investment’s derogatory moniker: hot money.

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Now that BP is over, a new rush to drill in the ocean?

The NYT this week had a story noting that as the BP Gulf oil spill court case winds down, the Obama administration (cautiously) and the GOP presidential front-runners (with absolute abandon) want to open up U.S. coasts to more drilling.

Their flawed logic goes like this: More drilling = more oil = lower gas prices = happy voters = elected.

Hogwash and pandering. And unfortunately, it’s hogwash left unchecked by the NYT.

Here’s a bit of reality, that any reasonable natural resources economist could tell you: Any extra oil from drilling will come over decades, not months, and certainly not in time to save an election. And the amount of extra oil that does bubble up from the deep (at least that which isn’t spilled again) will only be a drop in the world barrel.

Yes, oil prices are a function of world supply and demand. Just because it comes from our EEZ instead of someone else’s doesn’t mean we get it on the cheap.

So if oil prices are controlled by the world market, then so are gas prices. Sure, some extra oil will result in some decrease. That’s likely going to be three or four cents, per government estimates. Consider that the Energy Information Administration in 2008 (under President George W. Bush, mind you) said that any impact from opening up a large new source (such as ANWR) will be almost nil.

And if the U.S. brings online more oil, OPEC could close down some production to keep the price higher.

Oh wait, and then there’s ever increasing demand from China, India, Brazil and the other big developing economies.

So yes, hogwash. Whatever marginal amounts are obtained in the future from expanded drilling will do very, very, very little to decrease pain at the pump.

Sadly, the NYT didn’t take the time — or even a couple grafs — to give this a bit of scrutiny. I’m sure their reporters and editors know it. But somehow that counter opinion was left out.

The answers instead can be found in alternatives, in a new economy and in new consumption patterns. For example: offshore wind, a green global public transportation network and using less energy.

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Finals blogging hiatus and “I wish I were here…”

The view from Namchi

In between fevered bouts of studying for Environmental Economics and Environmental Science, I’ve been dreaming of the himalayas. Here’s an old favorite photo.

I’m officially powering down the blog for a while (possibly until after the new year, but I almost never succeed at leaving it alone). Happy holidays to all.

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Fertilize Me: Dead zones of the Gulf

Green cloudy, dead water

Fertilizer runoff from the Mississippi River basin creates a tremendous environmental and economic externality as it washes downstream to the Gulf of Mexico each spring and summer. The water becomes so depleted of oxygen that life nearly ceases to exist a vast swatch of the sea.

Here’s the short explanation: Farmers, being risk averse, apply excessive amounts of fertilizers (namely nitrates and phosphorous) to their land. This invariably washes to the nearest stream or creek which feeds the watershed of the Mississippi River system. This basin covers more than 40 percent of the contiguous U.S.

Once in the Gulf of Mexico, the fertilizers fuel massive algae growth. When the algae die (or are eaten and excreted by zooplankton), their decomposition by bacteria robs the water of dissolved oxygen, which other life needs to survive.

The result: The creeping dead zone visible above in the cloudy, green water.

The problem is rooted in agricultural policy, lack of science and inappropriate property rights/controls. There are economic and social answers, but they won’t be easy. The primary one involves ag subsidy reform and taxes, which would almost certainly anger the farm lobby.

If you want to read more, click here for an economic analysis in PDF form.

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Is shark finning the answer to shark finning?

Cruising behind him

Global shark catch is staggering. As many as 73 million sharks are taken from the ocean each year; most are relieved of their fins and dumped back in the water while still alive. These beautiful and important predators now face serious threats from our wanton harvesting, mostly to satisfy the demand for shark fin soup.

First and foremost this is tragic simply in terms of human decimation of biodiversity. Excepting that ecological concern, there are real reasons to worry from an entirely anthropocentric standpoint. For one, sharks provide ecotourism benefits to many coastal economies, as divers pay substantially to see them. Also, as apex predators, a decline in shark populations can lead to explosions of other species on lower trophic levels, which can threaten ecosystems of commercial importance For example, fewer sharks lead to more rays which lead to less scallops for us to sell for dipping in butter.

Is there an answer? Shark sanctuaries are fantastic; they represent the ideal of conservation. However, given problems with enforcement and the potential for bans to simply displace degradation rather than curtail it, national prohibitions don’t seem realistic as a complete solution.

I argue, rather, that we need to recognize — at least in the interim — the reality that shark finning will likely continue. We would do well then to incentivize conservation and better management so that fishermen and fleets develop an interest in preserving rather than over-harvesting. In this class paper, I lay out the economic reasoning for a nation-by-nation transferable shark fishing quota system.

This would push harvests toward social and biological optimums; in conjunction with marine protected areas and fishing best practice standards, a quota system might actually slow the destruction of shark populations worldwide.

It’s not a particularly palatable option for shark lovers (myself included). Under a quota system, some number of sharks like the one above will still be killed for an overpriced, elitist broth. But it also might do better to ensure that a sustainable population of sharks sticks around.

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