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Blog » Economics

11 Sep 2012

“Africa at work” report finally published

Filed under: Africa, Economics, Personal — paulcook @ 4:19 pm

The report I’ve spent quite a few months working on has been published — Africa at work: Job creation and inclusive growth. We look at the state of employment in Africa, and what needs to be done to create more wage-paying jobs. It’s awesome to see it getting lots of media attention, but also just good to get it out — it was a lot of work!

In other news, Claire and I are back in Johannesburg after a great year in London and a month of travel in Europe. I’m on a leave of absence for another month or so, still enjoying a more relaxed life!

17 Oct 2008

Size of the derivatives market

Filed under: Economics — paulcook @ 8:07 am

Fascinating analysis of the numbers involved in the murky, model-driven world of the derivatives markets:
The Size of Derivatives Bubble = $190K Per Person on Planet .

Thanks to @RubyGold for the link.

20 Sep 2008

Living through interesting times

Filed under: Africa, Economics, Noteworthy news — paulcook @ 5:12 am

What a week! It really has been full of momentous events, in two very different areas.

First, of course, came the complete reworking of the financial industry in the US (and elsewhere, to a lesser extent). Assuming, of course, that the worst is over — here’s hoping. No doubt there will be endless books and such written about this week in years to come. But right now three things come to mind: firstly, I find it interesting how rapidly “conventional wisdom” changes. I remember just months ago that learned figures were saying that the days of multi-functional financial firms were numbered, as their different divisions couldn’t realise benefits from working together — since a broker, for example, cannot preferentially sell his/her own company’s products to a client. Now, just a short time later, everyone is talking about the end of the narrowly-defined investment bank or other focused entity, as a concept, as it’s too hard to guarantee funding in a downturn. Secondly, there’s been the wholesale nationalisation of a large chunk of the financial sector in the US — which, if performed in another country, would probably have been labelled as completely against market principles. It has probably been wise, but still easy to label as hypocritical. Thirdly, it’s still sad to see how excesses amongst a few people drag so many more down with them. Poor regulation and dangerous practices in certain sectors of the US economy have now ruined markets elsewhere in the US, and around the world, despite that fact that many of those countries have very solid credit markets.

The other big news just broke: the National Executive Committee of the ANC (the ruling party in South Africa) has just decided after a marathon meeting to recall the deployment of Thabo Mbeki as president of South Africa. Now starts the constitutional process, but it seems that soon SA will have a new (acting) president. This is but the latest in a long sequence of events. But the hope now is that we can remove the poison of the accusations of political interference in the decision to continue the corruption prosecution of Jacob Zuma. By this stage, regardless of the truth, it seems hard to see how any legal events can be accepted without controversy, especially after the most recent judgment referred explicitly to possible political interference in the National Prosecuting Authority (not, I should stress, in the judicial system). Whether the legal process will continue (that is, whether there will be further appeals in the Jacob Zuma case) remains to be seen. But it at least seems that the ANC is trying to deal with its internal divisions, and are recalling Mbeki in a way that will not lead to unnecessary uncertainty and instability.

Of course, for all of the above, only time will tell. But it’s really interesting, in a morbid way, to be living through events that you know will be seen as momentous in retrospect.

5 Oct 2007

The energy challenge

Filed under: Economics, Technology and science — paulcook @ 6:17 pm

I just went to the first of a new lecture series at Caltech, NRG 0.1, during which various experts are going to be discussing various aspects of the energy problem (for which read “challenge”) that the world is facing.

This week was Steve Koonin, former Caltech provost and physics professor, and currently chief scientist for BP. I thought it was an excellent talk, covering a lot of the different aspects to the energy question, and some important principles that need to be kept in mind when looking for solutions in the near and medium term. I particularly enjoyed (and, yes, this probably says something about me too) how the talk assembled a large collection of numbers into a few key “back-of-the-envelope” facts, and then analysed the various options in terms of these constraints. While I’m not going to summarise the whole talk (which will hopefully be available here soon), here are some of the things which stood out:

2050 / twice pre-industrial
By BP’s Business as Usual (BAU) analysis, sometime before 2050 CO2 will hit twice pre-industrial atmospheric levels. This is a tipping point in many models, and so serves as a useful “safe” upper limit. Anything we do has to have a big effect well before 2050.

Running out of oil vs. global warming
A few years ago I was more concerned about the former; now I think I’m more concerned about the latter. The global economy is handling the high oil prices very well, so non-conventional oil, like oil sands in Canada, really start to look accessible. Oil prices may stay high, and national concerns about oil supply security may discourage oil use, but I think it’s here for a few more decades. My take home message: global warming will be solved, or not, before oil runs out.

CO2 has to drop hugely
CO2 has a lifetime of many centuries once it’s in the atmosphere. Thus to reach CO2 stability at twice pre-industrial levels by 2050, we actually need to cut emissions by about half from today’s level. (A useful figure: due to CO2 longevity, a drop of 10% in CO2 emissions growth delays by about 7 years the crossing of any given atmospheric CO2 concentration). But by business as usual estimates, economic growth, even including historically extrapolated improvements in efficiency, will have raised emissions by a factor of 4. So we have to improve somehow by a factor of 8. As Koonin points out, efficiency gains are generally overwhelmed by increased consumption.

CO2 drops have to start now
As CO2 stays in the atmosphere, delaying change by a few years’ delay makes the required drops much larger in future. Furthermore, the main drivers of emissions (power plants, houses, cars, etc.) all have lifetimes of decades — so the power plants being built now will still be emitting by 2050. Basically, if nothing dramatic changes in the next 5 to 10 years, stability by 2050 becomes nearly impossible.

Many “solutions” just don’t scale
There’s huge enthusiasm for corn-based biofuels in the US at the moment. Koonin’s figures were that about 20% of the corn crop is now going to fuels, contributing about 2% of the US’s transport fuel needs. This doesn’t scale to solve the problem. Another example: solar. It’s a lot more expensive, and so will never be accepted commercially. But even if it was, we need to cover (if I recall the figure) a million rooftops with solar panels every year, starting right now, to reach stability by 2050. I’m not sure if that was globally or just the US.

$30/ton CO2
Currently, emitting CO2 is free in most places (Europe is a partial exception). That makes coal the cheapest power source. Most emissions reduction schemes assign a cost, one way or another, to CO2. Koonin had an interesting comparison graph: below about $20/ton CO2, coal remains cheapest. Above about $40/ton, there are no further major changes to the ordering of energy sources. So the magic number of balancing economic cost and yet still changing behaviour is around $30/ton. This would add only about 15% to the cost of petrol in the US or SA, and a little less in Europe, say. So the biggest changes will be in fixed electrical generation plants (which anyway are the biggest emitters).

The plan
Koonin’s take on matters, and I think I agree, is that given the size and cost of the changes needed, as well as their urgency, market forces have to be used to make changes. That is, we can’t pick an “ideal solution” and decree that that is what will be done — the political will isn’t there over the time scale required. Rather, the correct policy incentives need to be put in place right now — like a fixed, predictable cost for CO2 (which, interestingly, argues against a cap-and-trade approach), for the next 50 years. Without such definiteness, it becomes really hard for power companies to spend, say, an extra billion dollars now on a power plant that does CO2 sequestration.

Koonin’s roadmap would seem to be: policy incentives right now, leading to CO2 sequestering power plants still running predominantly off fossil fuels; a growing but still far from dominant contribution from sustainable power sources; and revolutionary improvements in next generation biofuels (using plant material that we do not, in fact, want to eat). He justifies hope in a biofuel revolution by pointing out that biotechnology is a very young and rapidly developing field — unlike, say, fusion. He also thinks there’s a chance for a solar revolution, but not with current technology.

As I overheard a participant say on the way out, though, “He could have given a much more pessimistic talk with the exact same slides”. We do have to make immediate, dramatic changes to an area of human endeavour that has vast pre-existing infrastructure, very long time-lines and huge costs. This for a problem that is hard to easily demonstrate now, and exists over a time scale far longer than political cycles. I think there’s a fair chance that, come 2050, we’ll have to be involved in some sort of huge active geoengineering (ie. a modification designed to “cancel out” our CO2 emissions), in order to stabilise the climate.

30 Nov 2005

Microsoft and global knowledge assets

Filed under: Digital revolution, Economics — paulcook @ 2:13 pm

Microsoft is gradually approaching the release of its next versions of Windows and Office. For the largest software R&D spender in the world, their progress has been rather like a dead turtle swimming backwards through treacle. But at least that means the products will be bug free and secure, right? Yeah, right. But it does have interesting implications for total global knowledge capital.

You can probably guess my opinion on Microsoft software in general. But one aspect of the release does interest me: the Office user interface. It seems Office 12 will have a number of substantially different user interface tools, such as a much more context-sensitive “ribbon” toolbar, and much less use of menus. And it’s about time.

I really dislike the existing interface, in Word in particular — it’s hard to find useful tools, and Word is forever making the wrong assumptions about the formatting I want. Oh, I miss the days of WordPerfect’s “reveal codes” feature! Unfortunately, open-source competition such as OpenOffice.org is forced to essentially duplicate Word’s broken interface, since that is what everyone is familiar with. Apparently nearly all user-requested features these days are in fact already in Office, but users are unaware of their presence. So I really hope that this release introduces some new ideas in user interfaces. Chances are, since it is Microsoft, that the features will be a little too “cute” to be really useable, but it will hopefully open up some new ideas and options for others to use.

3 Jun 2005

Citibank’s absurd pricing policies

Filed under: Economics — paulcook @ 1:10 pm

I recently opened a Citibank Dividend credit card, which provides 5% cash rewards on groceries, and 1% on all other transactions. It seems great, and has lots of other nice features too. But they use some really dubious pricing policies for an additional feature.

As part of the signup process, they entice you to sign up for a credit protection plan, which suspends payments in the event of injury or income loss. It’s not something I need, and costs 85c/$100 of your balance each month. Nevertheless, I signed up, because the first month is free and they give you a $15 no-obligation voucher.

That was about 20 days ago. Today I cancelled the service. The service person asked my reasons, and I said that I didn’t really need it for the amount that it was costing. He immediately offered to drop the price to 65c/$100. I still refused, since anything above 0c/$100 was more than I wanted to spend. But the point is: just by complaining about the price, they offered to drop it!

9 May 2005

Barclays and foreign investment in Africa

Filed under: Africa, Economics — paulcook @ 10:30 pm

If you’ve looked at Google News at any stage in the last day or two, you’ll have seen headlines about the 60% purchase by UK-based Barclays Bank of South Africa-based ABSA. Valued at R33 billion (US$5.5 billion), this is the single biggest foreign investment into South Africa ever. In the aftermath, I thought I’d say a few things about foreign investment in Africa generally.

The ABSA deal is actually a return by Barclays to South Africa. Barclays was forced to sell (at a loss) its South African holdings in 1986, in response to huge protests in Britain against apartheid. Today those holdings are First Rand Bank, another of South Africa’s big four commercial banks. Ironically, Barclays has bought one of its original competitors.

Both Barclays and ABSA have operations in a number of other African countries, around 13 together — making the combined entity Africa’s largest commercial bank. Barclays has said that it wants to invest lots more in Africa, which is growing far more rapidly than the British market. It has also agreed that ABSA will remain listed on the Johannesburg Stock Exchange and be run by a South African board, so the deal should avoid getting labelled as economic imperialism.

8 Apr 2005

Why “Peak Oil” isn’t what really worries me

Filed under: Economics — paulcook @ 7:13 pm

To flog a dead horse, here’s another post on oil depletion. This one is a few thoughts, mostly rebuttals to some points that have arisen about the validity of the argument around “Peak Oil” — that we’re a few years away from the greatest oil production we’ll ever see, and it’s downhill from there.

This post follows from my post on Price Elasticity of Oil, as well as this post on blogwaffe, and a whole collection of excellent, but scary, posts on Ted Brenner’s blog.

One of the more common replies to Peak Oil concerns is that oil production is not merely a function of how much oil there is in the ground, but rather a raft of other factors — such as the price of oil (determing what deposits are economical to drill), technology, investment in expanding existing fields, and political stability. I have two points here: the problems of keeping up with demand, and what higher prices mean.

23 Mar 2005

Price elasticity of oil

Filed under: Economics — paulcook @ 12:49 pm

A post on blogwaffe has reminded me of some of the economic implications of oil depletion, in areas like production of plastics.

As rightly pointed out there, many uses of oil have alternatives that could be pursued, such as plant-based synthesis for plastic. But many areas of oil use, particularly agriculture and some types of transport, would require huge societal shifts to move to alternatives. Unfortunately, however, the economics of oil depletion are not going to help that shift.

17 Feb 2005

Kyoto Treaty takes force

Filed under: Economics, Noteworthy news — paulcook @ 12:57 am

Yesterday, Wednesday 16 February, marked the entry into force of the Kyoto Treaty, designed to control and reduce the global emission of greenhouse gasses.

Of course, the most noteworthy part of the whole thing is that the US, producer of about a quarter of the world’s greenhouse gasses, is not a signatory. Nevertheless, it’s great to see the EU, most notably, committed to controlling emissions.

There’s lots that could be said, and perhaps I will if people are interested. But for now, I’ll comment on the three most commonly used criticisms of the treaty: developing country exceptions; effects on economic growth; and effectiveness in reducing emissions.