Group items tagged

in complex systems, "no matter how effective conventional safety devices are, there is a form of accident that is inevitable" - hence the term "normal accidents".

system accidents occur with many technologies: Take the example of a highway blow-out leading to a pile-up. This may have disastrous consequences for those involved but cannot be described as a disaster. The latter only happens when the technologies involved have the potential to affect many innocent bystanders. This "dread factor" is why the nuclear aspect of Japan's ordeal has come to dominate headlines, even though the tsunami has had much greater immediate impact on lives.

It is simply too early to say what precisely went wrong at Fukushima, and it has been surprising to see commentators speak with such speed and certainty. Most people accept that they will only ever have a rough understanding of the facts. But they instinctively ask if they can trust those in charge and wonder why governments support particular technologies so strongly.

Industry and governments need to be more straightforward with the public. The pretence of knowledge is deeply unscientific; a more humble approach where officials are frank about the unknowns would paradoxically engender greater trust.

Likewise, nuclear's opponents need to adopt a measured approach. We need a fuller democratic debate about the choices we are making. Catastrophic potential needs to be a central criterion in decisions about technology. Advice from experts is useful but the most significant questions are ethical in character.

If technologies can potentially have disastrous effects on large numbers of innocent bystanders, someone needs to represent their interests. We might expect this to be the role of governments, yet they have generally become advocates of nuclear power because it is a relatively low-carbon technology that reduces reliance on fossil fuels. Unfortunately, this commitment seems to have reduced their ability to be seen to act as honest brokers, something acutely felt at times like these, especially since there have been repeated scandals in Japan over the covering-up of information relating to accidents at reactors.

Post Fukushima, governments in Germany, Switzerland and Austria already appear to be shifting their policies. Rational voices, such as the Britain's chief scientific adviser John Beddington, are saying quite logically that we should not compare the events in Japan with the situation in Britain, which does not have the same earthquake risk. Unfortunately, such arguments are unlikely to prevail in the politics of risky technologies.

firms and investors involved in nuclear power have often failed to take regulatory and political risk into account; history shows that nuclear accidents can lead to tighter regulations, which in turn can increase nuclear costs. Further ahead, the proponents of hazardous technologies need to bear the full costs of their products, including insurance liabilities and the cost of independent monitoring of environmental and health effects. As it currently stands, taxpayers would pay for any future nuclear incident.

Critics of technology are often dubbed in policy circles as anti-science. Yet critical thinking is central to any rational decision-making process - it is less scientific to support a technology uncritically. Accidents happen with all technologies, and are regrettable but not disastrous so long as the technology does not have catastrophic potential; this raises significant questions about whether we want to adopt technologies that do have such potential.

Here is another debating lesson -- before engaging in public not only should one read the materials that they are critiquing, they should also read the materials that they cite in support of their own arguments. This is not the first time that Bob Ward has put out misleading information related to my work.  Ever since we debated in public at the Royal Institution, Bob has adopted guerrilla tactics, lobbing nonsense into the public arena and then hiding when challenged to support or defend his views.  As readers here know, I am all for open and respectful debate over these important topics.  Why is that instead, all we get is poorly informed misdirection and spin? Despite the attempts at spin, I'd welcome Bob's informed engagement on this topic. Perhaps he might start by explaining which of the 10 statements that I put up on the mathematics and logic underlying climate pragmatism is incorrect.

In comments to another blog, I've identified Bob as a PR flack. I see no reason to change that assessment. In fact, his actions only confirm it. Where does he fit into a scientific debate?

Thanks for the comment, but I'll take the other side ;-)First, this is a policy debate that involves various scientific, economic, political analyses coupled with various values commitments including monied interests -- and as such, PR guys are as welcome as anyone else.That said, the problem here is not that Ward is a PR guy, but that he is trying to make his case via spin and misrepresentation. That gets noticed pretty quickly by anyone paying attention and is easily shot down.

China also sees hypocrisy in American discussions of Internet freedom. China comes in regularly for criticism over its "Great Firewall," but it suggests that the US government also restricts the Internet. While advocating Internet freedom, the US in fact imposes fairly strict restriction on cyberspace. On June 24, 2010, the US Senate Committee on Homeland Security and Governmental Affairs approved the Protecting Cyberspace as a National Asset Act, which will give the federal government "absolute power" to shut down the Internet under a declared national emergency. Handing government the power to control the Internet will only be the first step towards a greatly restricted Internet system, whereby individual IDs and government permission would be required to operate a website. The United States applies double standards on Internet freedom by requesting unrestricted "Internet freedom" in other countries, which becomes an important diplomatic tool for the United States to impose pressure and seek hegemony, and imposing strict restriction within its territory. An article on BBC on February 16, 2011 noted the US government wants to boost Internet freedom to give voices to citizens living in societies regarded as "closed" and questions those governments' control over information flow, although within its borders the US government tries to create a legal frame to fight the challenge posed by WikiLeaks. The US government might be sensitive to the impact of the free flow of electronic information on its territory for which it advocates, but it wants to practice diplomacy by other means, including the Internet, particularly the social networks. (The cyberspace bill never became law, and a revised version is still pending in Congress.)

Finally, there's pornography, which China bans. Pornographic content is rampant on the Internet and severely harms American children. Statistics show that seven in 10 children have accidentally accessed pornography on the Internet and one in three has done so intentionally. And the average age of exposure is 11 years old - some start at eight years old (The Washington Times, June 16, 2010). According to a survey commissioned by the National Campaign to Prevent Teen and Unplanned Pregnancy, 20 percent of American teens have sent or posted nude or seminude pictures or videos of themselves. (www.co.jefferson.co.us, March 23, 2010). At least 500 profit-oriented nude chat websites were set up by teens in the United States, involving tens of thousands of pornographic pictures.

Arguing that governments can pick winners, Professor Chang urges us to reclaim economic planning, not as a token of centrally-planned communism, but rather as the simple reality behind our market economies today:

Capitalist economies are in large part planned. Governments in capitalist economies practice planning too, albeit on a more limited basis than under communist central planning. All of them finance a significant share of investment in R&D and infrastructure. Most of them plan a significant chunk of the economy through the planning of the activities of state-owned enterprises. Many capitalist governments plan the future shape of individual industrial sectors through sectoral industrial policy or even that of the national economy through indicative planning. More importantly, modern capitalist economies are made up of large, hierarchical corporations that plan their activities in great detail, even across national borders. Therefore, the question is not whether you plan or not. It is about planning the right things at the right levels.

Drawing a clear distinction between communist central planning and capitalist 'indicative' planning, Chang notes that the latter: ... involves the government ... setting some broad targets concerning key economic variables (e.g., investments in strategic industries, infrastructure development, exports) and working with, not against, the private sector to achieve them. Unlike under central planning, these targets are not legally binding; hence the adjective 'indicative'. However, the government will do its best to achieve them by mobilizing various carrots (e.g., subsidies, granting of monopoly rights) and sticks (e.g., regulations, influence through state-owned banks) at its disposal.

Chang observes that: France had great success in promoting investment and technological innovation through indicative planning in the 1950s and 60s, thereby overtaking the British economy as Europe's second industrial power. Other European countries, such as Finland, Norway and Austria, also successfully used indicative planning to upgrade their economies between the 1950s and the 1970s. The East Asian miracle economies of Japan, Korea and Taiwan used indicative planning too between the 1950s and 1980s. This is not to say that all indicative planning exercises have been successful; in India, for example, it has not. Nevertheless, the European and East Asian examples show that planning in certain forms is not incompatible with capitalism and may even promote capitalist development very well.

As we have argued before, the current crisis raging through Europe (in large part caused by free-market economics), forces us to reconsider our economic options. More than ever before, now is the time to rehabilitate indicative planning and industrial policy as key levers in our arsenal of policy tools.

This is why, for example, large numbers of Americans oppose the idea of an estate tax even though the current form of the tax, slated to return in 2011, is very unlikely to affect them or their estates. In narrowly self-interested terms, that view may be irrational, but most Americans are unwilling to frame national issues in terms of rich versus poor. There’s a great deal of hostility toward various government bailouts, but the idea of “undeserving” recipients is the key factor in those feelings. Resentment against Wall Street gamesters hasn’t spilled over much into resentment against the wealthy more generally. The bailout for General Motors’ labor unions wasn’t so popular either—again, obviously not because of any bias against the wealthy but because a basic sense of fairness was violated. As of November 2010, congressional Democrats are of a mixed mind as to whether the Bush tax cuts should expire for those whose annual income exceeds $250,000; that is in large part because their constituents bear no animus toward rich people, only toward undeservedly rich people.

envy is usually local. At least in the United States, most economic resentment is not directed toward billionaires or high-roller financiers—not even corrupt ones. It’s directed at the guy down the hall who got a bigger raise. It’s directed at the husband of your wife’s sister, because the brand of beer he stocks costs $3 a case more than yours, and so on. That’s another reason why a lot of people aren’t so bothered by income or wealth inequality at the macro level. Most of us don’t compare ourselves to billionaires. Gore Vidal put it honestly: “Whenever a friend succeeds, a little something in me dies.”

Occasionally the cynic in me wonders why so many relatively well-off intellectuals lead the egalitarian charge against the privileges of the wealthy. One group has the status currency of money and the other has the status currency of intellect, so might they be competing for overall social regard? The high status of the wealthy in America, or for that matter the high status of celebrities, seems to bother our intellectual class most. That class composes a very small group, however, so the upshot is that growing income inequality won’t necessarily have major political implications at the macro level.

All that said, income inequality does matter—for both politics and the economy.

The numbers are clear: Income inequality has been rising in the United States, especially at the very top. The data show a big difference between two quite separate issues, namely income growth at the very top of the distribution and greater inequality throughout the distribution. The first trend is much more pronounced than the second, although the two are often confused.

When it comes to the first trend, the share of pre-tax income earned by the richest 1 percent of earners has increased from about 8 percent in 1974 to more than 18 percent in 2007. Furthermore, the richest 0.01 percent (the 15,000 or so richest families) had a share of less than 1 percent in 1974 but more than 6 percent of national income in 2007. As noted, those figures are from pre-tax income, so don’t look to the George W. Bush tax cuts to explain the pattern. Furthermore, these gains have been sustained and have evolved over many years, rather than coming in one or two small bursts between 1974 and today.1

At the same time, wage growth for the median earner has slowed since 1973. But that slower wage growth has afflicted large numbers of Americans, and it is conceptually distinct from the higher relative share of top income earners. For instance, if you take the 1979–2005 period, the average incomes of the bottom fifth of households increased only 6 percent while the incomes of the middle quintile rose by 21 percent. That’s a widening of the spread of incomes, but it’s not so drastic compared to the explosive gains at the very top.

The broader change in income distribution, the one occurring beneath the very top earners, can be deconstructed in a manner that makes nearly all of it look harmless. For instance, there is usually greater inequality of income among both older people and the more highly educated, if only because there is more time and more room for fortunes to vary. Since America is becoming both older and more highly educated, our measured income inequality will increase pretty much by demographic fiat. Economist Thomas Lemieux at the University of British Columbia estimates that these demographic effects explain three-quarters of the observed rise in income inequality for men, and even more for women.2

Attacking the problem from a different angle, other economists are challenging whether there is much growth in inequality at all below the super-rich. For instance, real incomes are measured using a common price index, yet poorer people are more likely to shop at discount outlets like Wal-Mart, which have seen big price drops over the past twenty years.3 Once we take this behavior into account, it is unclear whether the real income gaps between the poor and middle class have been widening much at all. Robert J. Gordon, an economist from Northwestern University who is hardly known as a right-wing apologist, wrote in a recent paper that “there was no increase of inequality after 1993 in the bottom 99 percent of the population”, and that whatever overall change there was “can be entirely explained by the behavior of income in the top 1 percent.”4

And so we come again to the gains of the top earners, clearly the big story told by the data. It’s worth noting that over this same period of time, inequality of work hours increased too. The top earners worked a lot more and most other Americans worked somewhat less. That’s another reason why high earners don’t occasion more resentment: Many people understand how hard they have to work to get there. It also seems that most of the income gains of the top earners were related to performance pay—bonuses, in other words—and not wildly out-of-whack yearly salaries.5

It is also the case that any society with a lot of “threshold earners” is likely to experience growing income inequality. A threshold earner is someone who seeks to earn a certain amount of money and no more. If wages go up, that person will respond by seeking less work or by working less hard or less often. That person simply wants to “get by” in terms of absolute earning power in order to experience other gains in the form of leisure—whether spending time with friends and family, walking in the woods and so on. Luck aside, that person’s income will never rise much above the threshold.

The funny thing is this: For years, many cultural critics in and of the United States have been telling us that Americans should behave more like threshold earners. We should be less harried, more interested in nurturing friendships, and more interested in the non-commercial sphere of life. That may well be good advice. Many studies suggest that above a certain level more money brings only marginal increments of happiness. What isn’t so widely advertised is that those same critics have basically been telling us, without realizing it, that we should be acting in such a manner as to increase measured income inequality. Not only is high inequality an inevitable concomitant of human diversity, but growing income inequality may be, too, if lots of us take the kind of advice that will make us happier.

Why is the top 1 percent doing so well?

Steven N. Kaplan and Joshua Rauh have recently provided a detailed estimation of particular American incomes.6 Their data do not comprise the entire U.S. population, but from partial financial records they find a very strong role for the financial sector in driving the trend toward income concentration at the top. For instance, for 2004, nonfinancial executives of publicly traded companies accounted for less than 6 percent of the top 0.01 percent income bracket. In that same year, the top 25 hedge fund managers combined appear to have earned more than all of the CEOs from the entire S&P 500. The number of Wall Street investors earning more than $100 million a year was nine times higher than the public company executives earning that amount. The authors also relate that they shared their estimates with a former U.S. Secretary of the Treasury, one who also has a Wall Street background. He thought their estimates of earnings in the financial sector were, if anything, understated.

Many of the other high earners are also connected to finance. After Wall Street, Kaplan and Rauh identify the legal sector as a contributor to the growing spread in earnings at the top. Yet many high-earning lawyers are doing financial deals, so a lot of the income generated through legal activity is rooted in finance. Other lawyers are defending corporations against lawsuits, filing lawsuits or helping corporations deal with complex regulations. The returns to these activities are an artifact of the growing complexity of the law and government growth rather than a tale of markets per se. Finance aside, there isn’t much of a story of market failure here, even if we don’t find the results aesthetically appealing.

When it comes to professional athletes and celebrities, there isn’t much of a mystery as to what has happened. Tiger Woods earns much more, even adjusting for inflation, than Arnold Palmer ever did. J.K. Rowling, the first billionaire author, earns much more than did Charles Dickens. These high incomes come, on balance, from the greater reach of modern communications and marketing. Kids all over the world read about Harry Potter. There is more purchasing power to spend on children’s books and, indeed, on culture and celebrities more generally. For high-earning celebrities, hardly anyone finds these earnings so morally objectionable as to suggest that they be politically actionable. Cultural critics can complain that good schoolteachers earn too little, and they may be right, but that does not make celebrities into political targets. They’re too popular. It’s also pretty clear that most of them work hard to earn their money, by persuading fans to buy or otherwise support their product. Most of these individuals do not come from elite or extremely privileged backgrounds, either. They worked their way to the top, and even if Rowling is not an author for the ages, her books tapped into the spirit of their time in a special way. We may or may not wish to tax the wealthy, including wealthy celebrities, at higher rates, but there is no need to “cure” the structural causes of higher celebrity incomes.

to be sure, the high incomes in finance should give us all pause.

The first factor driving high returns is sometimes called by practitioners “going short on volatility.” Sometimes it is called “negative skewness.” In plain English, this means that some investors opt for a strategy of betting against big, unexpected moves in market prices. Most of the time investors will do well by this strategy, since big, unexpected moves are outliers by definition. Traders will earn above-average returns in good times. In bad times they won’t suffer fully when catastrophic returns come in, as sooner or later is bound to happen, because the downside of these bets is partly socialized onto the Treasury, the Federal Reserve and, of course, the taxpayers and the unemployed.

if you bet against unlikely events, most of the time you will look smart and have the money to validate the appearance. Periodically, however, you will look very bad. Does that kind of pattern sound familiar? It happens in finance, too. Betting against a big decline in home prices is analogous to betting against the Wizards. Every now and then such a bet will blow up in your face, though in most years that trading activity will generate above-average profits and big bonuses for the traders and CEOs.

To this mix we can add the fact that many money managers are investing other people’s money. If you plan to stay with an investment bank for ten years or less, most of the people playing this investing strategy will make out very well most of the time. Everyone’s time horizon is a bit limited and you will bring in some nice years of extra returns and reap nice bonuses. And let’s say the whole thing does blow up in your face? What’s the worst that can happen? Your bosses fire you, but you will still have millions in the bank and that MBA from Harvard or Wharton. For the people actually investing the money, there’s barely any downside risk other than having to quit the party early. Furthermore, if everyone else made more or less the same mistake (very surprising major events, such as a busted housing market, affect virtually everybody), you’re hardly disgraced. You might even get rehired at another investment bank, or maybe a hedge fund, within months or even weeks.

Moreover, smart shareholders will acquiesce to or even encourage these gambles. They gain on the upside, while the downside, past the point of bankruptcy, is borne by the firm’s creditors. And will the bondholders object? Well, they might have a difficult time monitoring the internal trading operations of financial institutions. Of course, the firm’s trading book cannot be open to competitors, and that means it cannot be open to bondholders (or even most shareholders) either. So what, exactly, will they have in hand to object to?

Perhaps more important, government bailouts minimize the damage to creditors on the downside. Neither the Treasury nor the Fed allowed creditors to take any losses from the collapse of the major banks during the financial crisis. The U.S. government guaranteed these loans, either explicitly or implicitly. Guaranteeing the debt also encourages equity holders to take more risk. While current bailouts have not in general maintained equity values, and while share prices have often fallen to near zero following the bust of a major bank, the bailouts still give the bank a lifeline. Instead of the bank being destroyed, sometimes those equity prices do climb back out of the hole. This is true of the major surviving banks in the United States, and even AIG is paying back its bailout. For better or worse, we’re handing out free options on recovery, and that encourages banks to take more risk in the first place.

there is an unholy dynamic of short-term trading and investing, backed up by bailouts and risk reduction from the government and the Federal Reserve. This is not good. “Going short on volatility” is a dangerous strategy from a social point of view. For one thing, in so-called normal times, the finance sector attracts a big chunk of the smartest, most hard-working and most talented individuals. That represents a huge human capital opportunity cost to society and the economy at large. But more immediate and more important, it means that banks take far too many risks and go way out on a limb, often in correlated fashion. When their bets turn sour, as they did in 2007–09, everyone else pays the price.

And it’s not just the taxpayer cost of the bailout that stings. The financial disruption ends up throwing a lot of people out of work down the economic food chain, often for long periods. Furthermore, the Federal Reserve System has recapitalized major U.S. banks by paying interest on bank reserves and by keeping an unusually high interest rate spread, which allows banks to borrow short from Treasury at near-zero rates and invest in other higher-yielding assets and earn back lots of money rather quickly. In essence, we’re allowing banks to earn their way back by arbitraging interest rate spreads against the U.S. government. This is rarely called a bailout and it doesn’t count as a normal budget item, but it is a bailout nonetheless. This type of implicit bailout brings high social costs by slowing down economic recovery (the interest rate spreads require tight monetary policy) and by redistributing income from the Treasury to the major banks.

the “going short on volatility” strategy increases income inequality. In normal years the financial sector is flush with cash and high earnings. In implosion years a lot of the losses are borne by other sectors of society. In other words, financial crisis begets income inequality. Despite being conceptually distinct phenomena, the political economy of income inequality is, in part, the political economy of finance. Simon Johnson tabulates the numbers nicely: From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.7

There’s a second reason why the financial sector abets income inequality: the “moving first” issue. Let’s say that some news hits the market and that traders interpret this news at different speeds. One trader figures out what the news means in a second, while the other traders require five seconds. Still other traders require an entire day or maybe even a month to figure things out. The early traders earn the extra money. They buy the proper assets early, at the lower prices, and reap most of the gains when the other, later traders pile on. Similarly, if you buy into a successful tech company in the early stages, you are “moving first” in a very effective manner, and you will capture most of the gains if that company hits it big.

The moving-first phenomenon sums to a “winner-take-all” market. Only some relatively small number of traders, sometimes just one trader, can be first. Those who are first will make far more than those who are fourth or fifth. This difference will persist, even if those who are fourth come pretty close to competing with those who are first. In this context, first is first and it doesn’t matter much whether those who come in fourth pile on a month, a minute or a fraction of a second later. Those who bought (or sold, as the case may be) first have captured and locked in most of the available gains. Since gains are concentrated among the early winners, and the closeness of the runner-ups doesn’t so much matter for income distribution, asset-market trading thus encourages the ongoing concentration of wealth. Many investors make lots of mistakes and lose their money, but each year brings a new bunch of projects that can turn the early investors and traders into very wealthy individuals.

These two features of the problem—“going short on volatility” and “getting there first”—are related. Let’s say that Goldman Sachs regularly secures a lot of the best and quickest trades, whether because of its quality analysis, inside connections or high-frequency trading apparatus (it has all three). It builds up a treasure chest of profits and continues to hire very sharp traders and to receive valuable information. Those profits allow it to make “short on volatility” bets faster than anyone else, because if it messes up, it still has a large enough buffer to pad losses. This increases the odds that Goldman will repeatedly pull in spectacular profits.

Still, every now and then Goldman will go bust, or would go bust if not for government bailouts. But the odds are in any given year that it won’t because of the advantages it and other big banks have. It’s as if the major banks have tapped a hole in the social till and they are drinking from it with a straw. In any given year, this practice may seem tolerable—didn’t the bank earn the money fair and square by a series of fairly normal looking trades? Yet over time this situation will corrode productivity, because what the banks do bears almost no resemblance to a process of getting capital into the hands of those who can make most efficient use of it. And it leads to periodic financial explosions. That, in short, is the real problem of income inequality we face today. It’s what causes the inequality at the very top of the earning pyramid that has dangerous implications for the economy as a whole.

What about controlling bank risk-taking directly with tight government oversight? That is not practical. There are more ways for banks to take risks than even knowledgeable regulators can possibly control; it just isn’t that easy to oversee a balance sheet with hundreds of billions of dollars on it, especially when short-term positions are wound down before quarterly inspections. It’s also not clear how well regulators can identify risky assets. Some of the worst excesses of the financial crisis were grounded in mortgage-backed assets—a very traditional function of banks—not exotic derivatives trading strategies. Virtually any asset position can be used to bet long odds, one way or another. It is naive to think that underpaid, undertrained regulators can keep up with financial traders, especially when the latter stand to earn billions by circumventing the intent of regulations while remaining within the letter of the law.

For the time being, we need to accept the possibility that the financial sector has learned how to game the American (and UK-based) system of state capitalism. It’s no longer obvious that the system is stable at a macro level, and extreme income inequality at the top has been one result of that imbalance. Income inequality is a symptom, however, rather than a cause of the real problem. The root cause of income inequality, viewed in the most general terms, is extreme human ingenuity, albeit of a perverse kind. That is why it is so hard to control.

Another root cause of growing inequality is that the modern world, by so limiting our downside risk, makes extreme risk-taking all too comfortable and easy. More risk-taking will mean more inequality, sooner or later, because winners always emerge from risk-taking. Yet bankers who take bad risks (provided those risks are legal) simply do not end up with bad outcomes in any absolute sense. They still have millions in the bank, lots of human capital and plenty of social status. We’re not going to bring back torture, trial by ordeal or debtors’ prisons, nor should we. Yet the threat of impoverishment and disgrace no longer looms the way it once did, so we no longer can constrain excess financial risk-taking. It’s too soft and cushy a world.

Why don’t we simply eliminate the safety net for clueless or unlucky risk-takers so that losses equal gains overall? That’s a good idea in principle, but it is hard to put into practice. Once a financial crisis arrives, politicians will seek to limit the damage, and that means they will bail out major financial institutions. Had we not passed TARP and related policies, the United States probably would have faced unemployment rates of 25 percent of higher, as in the Great Depression. The political consequences would not have been pretty. Bank bailouts may sound quite interventionist, and indeed they are, but in relative terms they probably were the most libertarian policy we had on tap. It meant big one-time expenses, but, for the most part, it kept government out of the real economy (the General Motors bailout aside).

We probably don’t have any solution to the hazards created by our financial sector, not because plutocrats are preventing our political system from adopting appropriate remedies, but because we don’t know what those remedies are. Yet neither is another crisis immediately upon us. The underlying dynamic favors excess risk-taking, but banks at the current moment fear the scrutiny of regulators and the public and so are playing it fairly safe. They are sitting on money rather than lending it out. The biggest risk today is how few parties will take risks, and, in part, the caution of banks is driving our current protracted economic slowdown. According to this view, the long run will bring another financial crisis once moods pick up and external scrutiny weakens, but that day of reckoning is still some ways off.

Is the overall picture a shame? Yes. Is it distorting resource distribution and productivity in the meantime? Yes. Will it again bring our economy to its knees? Probably. Maybe that’s simply the price of modern society. Income inequality will likely continue to rise and we will search in vain for the appropriate political remedies for our underlying problems.

Mr [Andrew] Baum [of Morgan Stanley] argues that the solution for drug companies is to share the risks of research with others. That means reducing in-house investment in research, and instead partnering and licensing experimental medicines from smaller companies after some of the early failures have been eliminated.

Chas Bountra of Oxford university calls for a more radical partnership combining industry and academic research. “What we are trying to do is just too difficult,” he says. “No one organisation can do it, so we have to pool resources and expertise.” He suggests removing intellectual property rights until a drug is in mid-stage testing in humans, which would make academics more willing to co-operate because they could publish their results freely. The sharing of data would enable companies to avoid duplicating work.

The challenge is for academia and biotech companies to fill the research gap. Mr Ratcliffe argues that after a lull in 2009 and 2010, private capital is returning to the sector – as demonstrated by a particular buzz at JPMorgan’s new year biotech conference in California.

Patrick Vallance, senior vice-president for discovery at GSK, is cautious about deferring patents until so late, arguing that drug companies need to be able to protect their intellectual property in order to fund expensive late-stage development. But he too is experimenting with ways to co-operate more closely with academics over longer periods. He is also championing the “externalisation” of the company’s pipeline, with biotech and university partners accounting for half the total. GSK has earmarked £50m to support fledgling British companies, many “wrapped around” the group’s sites. One such example is Convergence, a spin-out from a GSK lab researching pain relief.

Big pharmaceutical companies are scrambling to find ways to overcome the loss of tens of billions of dollars in revenue as patents on top-selling drugs run out. Many sound similar notes about encouraging entrepreneurialism in their ranks, making smart deals and capitalizing on emerging-market growth, But their actual plans are often quite different—and each carries significant risks. Novartis AG, for instance, is so convinced that diversification is the best course that the company has a considerable business selling low-priced generics. Meantime, Bristol-Myers Squibb Co. has decided to concentrate on innovative medicines, shedding so many nonpharmaceutical units that it' has become midsize. GlaxoSmithKline PLC is still investing in research, but like Pfizer it has narrowed the range of disease areas in which it's seeking new treatments. Underlying the divergence is a deep-seated philosophical dispute over the merits of the heavy investment that companies must make to discover new drugs. By most estimates, bringing a new molecule to market costs drug makers more than $1 billion. Industry officials have been engaged in a vigorous debate over whether the investment is worth it, or whether they should leave it to others whose work they can acquire or license after a demonstration of strong potential.

To what extent can approached to innovation influence the trend line in the graph above?  I don't think that anyone really knows the answer.  The different approaches being taken by Merck and Pfizer, for instance, represent a real world policy experiment: The contrast between Merck and Pfizer reflects the very different personal approaches of their CEOs. An accountant by training, Mr. Read has held various business positions during a three-decade career at Pfizer. The 57-year-old cited torcetrapib, a cholesterol medicine that the company spent more than $800 million developing but then pulled due to safety concerns, as an example of the kind of wasteful spending Pfizer would avoid. "We're going to have metrics," Mr. Read said. He wants Pfizer to stop "always investing on hope rather than strong signals and the quality of the science, the quality of the medicine." Mr. Frazier, 56, a Harvard-educated lawyer who joined Merck in 1994 from private practice, said the company was sticking by its own troubled heart drug, vorapaxar. Mr. Frazier said he wanted to see all of the data from the trials before rushing to judgment. "We believe in the innovation approach," he said.

One might think that such an esteemed organization would prove an insurmountable challenge for a bunch of disaffected kids to hack. World-renowned, government-recognized experts against Anonymous? HBGary should be able to take their efforts in stride. Unfortunately for HBGary, neither the characterization of Anonymous nor the assumption of competence on the security company's part are accurate, as the story of how HBGary was hacked will make clear. Anonymous is a diverse bunch: though they tend to be younger rather than older, their age group spans decades. Some may still be in school, but many others are gainfully employed office-workers, software developers, or IT support technicians, among other things. With that diversity in age and experience comes a diversity of expertise and ability.

From 2005-2007 I conducted interviews of 7 former science advisors to the US president, who had served presidents from Lyndon Johnson to George W. Bush.  What we learned from them suggests that we should not be too surprised by what has happened in Australia. Our analysis of those interviews concludes as follows (PDF): The position of science advisor has evolved and changed over the past half-century, as has both science and government. The experiences of the science advisors that we were fortunate to visit with chronicle those changes. Underneath the anecdotes and stories that describe presidents over the past half-century is a deeper story, one of the long-term decline of the influence of the president’s science advisor while at the same time, the importance of expertise to government has increased tremendously. The decline of the science advisor, juxtaposed against the rise of government expertise, provides ample reason to reconsider the future role of the presidential science advisor, and to set our expectations for that role accordingly.

Professor Sackett's departing advice is well worth heeding: When quizzed about what improvements could be made to the role of chief scientist, Professor Sackett said it was the Government's responsibility to clarify what role the chief scientist should play. "I think the responsibility rests firmly with the Government to make it, to decide how the role of chief scientist for Australia will fit into the variety of advice that it receives on matters of science"

R. A. Pielke, Jr. and R. Klein (2009). The Rise and Fall of the Science Advisor to the President of the United States. Minerva 47 (1) 7-29, doi: 10.1007/s11024-009-9117-3.

Anyone who really values the progressive civilising potential of science should argue (in a qualified way as here) against Beddington's intemperate call for "complete intolerance" of scepticism. It is the social and human realities shared by politicians, non-government organisations, journalists and scientists themselves, that make tolerance of scepticism so important. The priorities pursued in scientific research and the directions taken by technology are all as fundamentally political as other areas of policy. No matter how uncomfortable and messy the resulting debates may sometimes become, we should never be cowed by any special interest—including that of scientific institutions—away from debating these issues in open, rational, democratic ways. To allow this to happen would be to undermine science itself in the most profound sense. It is the upholding of an often imperfect pursuit of scepticism and tolerance that offer the best way to respect and promote science. Such a position is, indeed, much more in keeping with the otherwise-exemplary work of John Beddington himself.Stirling's eloquent response provides a nice tonic to Beddington's unsettling remarks. Nonetheless, Beddington's perspective should be taken as a clear warning as to the pathological state of highly politicized science these days.

I suspect Indian scientists have retired hurt to the pavilion. They were exposed to some nasty public scrutiny on a deal made by a premier science research establishment, Indian Space Research Organisation (ISRO), with Devas, a private company, on the allocation of spectrum. The public verdict was that the arrangement was a scandal; public resources had been given away for a song. The government, already scam-bruised, hastily scrapped the contract.

Take the issue of genetically-modified (GM) crops. For long this matter has been decided inside closed-door committee rooms, where scientists are comforted by the fact that their decisions will not be challenged. Their defence is “sound science” and “superior knowledge”. It is interesting that the same scientists will accept data produced by private companies pushing the product. Issues of conflict of interest will be brushed aside as integrity cannot be questioned behind closed doors. Silence is the best insurance. This is what happened inside a stuffy committee room, where scientists sat to give permission to Mahyco-Monsanto to grow genetically-modified brinjal.

This case involved a vegetable we all eat. This was a matter of science we had the right to know about and to decide upon. The issue made headlines. The reaction of the scientific fraternity was predictable and obnoxious. They resented the questions. They did not want a public debate.

As the controversy raged and more people got involved, the scientists ran for cover. They wanted none of this messy street fight. They were meant to advise prime ministers and the likes, not to answer simple questions of people. Finally, when environment minister Jairam Ramesh took the decision on the side of the ordinary vegetable eater, unconvinced by the validity of the scientific data to justify no-harm, scientists were missing in their public reactions. Instead, they whispered about lack of “sound science” in the decision inside committees.

The matter did not end there. The minister commissioned an inter-academy inquiry — six top scientific institutions looked into GM crops and Bt-brinjal — expecting a rigorous examination of the technical issues and data gaps. The report released by this committee was shoddy to say the least. It contained no references or attributions and not a single citation. It made sweeping statements and lifted passages from a government newsletter and even from global biotech industry. The report was thrashed. Scientists again withdrew into offended silence.

The final report of this apex-science group is marginally better in that it includes citations but it reeks of scientific arrogance cloaked in jargon. The committee did not find it fit to review the matter, which had reached public scrutiny. The report is only a cover for their established opinion about the ‘truth’ of Bt-brinjal. Science for them is certainly not a matter of enquiry, critique or even dissent.

the world has changed. No longer is this report meant only for top political and policy leaders, who would be overwhelmed by the weight of the matter, the language and the expert knowledge of the writer. The report will be subjected to public scrutiny. Its lack of rigour will be deliberated, its unquestioned assertion challenged.

This is the difference between the manufactured comfortable world of science behind closed doors and the noisy messy world outside. It is clear to me that Indian scientists need confidence to creatively engage in public concerns. The task to build scientific literacy will not happen without their engagement and their tolerance for dissent. The role of science in Indian democracy is being revisited with a new intensity. The only problem is that the key players are missing in action.

Whereas 99.9 percent of all the chemicals we ingest are natural, 78 percent of the chemicals tested are synthetic. So when more than half of all synthetic chemicals are found to cause cancer in rodents, it's not surprising that people link cancer with synthetic chemicals. But of the natural chemicals in our diet that have been tested in animals, half also cause cancer, Gold says.

"We need to recognize that there are far more carcinogens in the natural world than in the synthetic world, and go after the important things, such as lifestyle change."

Misconception: Cancer rates are soaring. In fact, the researchers say, if lung cancer due to smoking is excluded, overall cancer deaths in the U.S. have declined 16 percent since 1950.

Misconception: Reducing pesticide residues is an effective way to prevent diet-related cancer. Because fruits and vegetables are of major importance in reducing cancer, the unintended effect of requiring expensive efforts to reduce the amount of pesticides remaining on fruits and vegetables will be to increase their cost. This will lead to an increase in cancer among low income people who no longer will be able to afford to eat them.

Misconception: Human exposures to carcinogens and other potential hazards are primarily due to synthetic chemicals. Americans actually eat about 10,000 times more natural pesticides from fruits and vegetables than synthetic pesticide residues on food. Natural pesticides are chemicals that plants produce to defend themselves against fungi, insects, and other predators. And half of all natural pesticides tested in rodents turn out to be rodent carcinogens. In addition, we consume many other carcinogens in foods because of the chemicals produced in cooking. In a single cup of roasted coffee, for example, the natural chemicals known to be rodent carcinogens are about equal in weight to an entire year's work of synthetic pesticide residues.

Misconception: Cancer risks to humans can be assessed by standard high-dose animal cancer tests. In cancer tests, animals are given very high, nearly toxic doses. The effect on humans at lower doses is extrapolated from these results, as if the relationship were a straight line from high dose to low dose. However, the fact that half of all chemicals tested, whether natural or synthetic, turn out to cause cancer in rodents implies that this is an artifact of using high doses. High doses of any chemical can chronically kill cells and wound tissue, a risk factor for cancer . "Our conclusion is that the scientific evidence shows that there are high-dose effects," Ames says. "But even though government regulatory agencies recognize this, they still decide which synthetic chemicals to regulate based on linear extrapolation of high dose cancer tests in animals."

Misconception: Synthetic chemicals pose greater carcinogenic hazards than natural chemicals. Naturally occurring carcinogens represent an enormous background compared to the low-dose exposures to residues of synthetic chemicals such as pesticides, the researchers conclude. These results call for a reevaluation of whether animal cancer tests are really useful guides for protecting the public against minor hypothetical risks.

Misconception: The toxicology of synthetic chemicals is different from that of natural chemicals. No evidence exists for this, but the assumption could lead to unfortunate tradeoffs between natural and synthetic pesticides. Recently, for example, when a new variety of highly insect-resistant celery was introduced on a farm, the workers handling the celery developed rashes when they were exposed to sunlight. The pest-resistant celery turned out to contain almost eight times more natural pesticide in the form of psoralens -- chemicals known to cause cancer and genetic mutations -- than common celery.

Misconception: Pesticides and other synthetic chemicals are disrupting human hormones. Claims that synthetic chemicals with hormonal activity contribute to cancer and reduced sperm count ignore the fact that natural chemicals have hormone-like activity millions of times greater than do traces of synthetic chemicals. Rather, lifestyle -- lack of exercise, obesity, alcohol use and reproductive history -- are known to lead to marked changes in hormone levels in the body.

Misconception: Regulating low, hypothetical risks advances public health. Society -- primarily the private sector -- will spend an estimated $140 billion to comply with environmental regulations this year, according to projections by the Environmental Protection Agency. Much of this is aimed at reducing low-level human exposure to chemicals solely because they are rodent carcinogens, despite the fact that this rationale is flawed. Our improved ability to detect even minuscule concentrations of chemicals makes regulation even more expensive.

4. Even a low carbon tax will make some goods cost a bit more, so it is important to help those who are most affected.Our carbon tax proposal is revenue neutral in the sense that we will lower other taxes in direct proportion to the impact, however modest, of a low carbon tax. We will do this with particular attention to those who may be most directly affected by a price on carbon.In addition, some portion of the revenue raised by a carbon tax will be returned to the public. But not all. It is important to invest in tomorrow’s energy technologies today and a carbon tax provides the mechanism for doing so.

It also fits perfectly into a political strategy that holds that arguments about science can help to resolve political debates.  Climate change is only the most visible of this tendency, where the empirical evidence shows that efforts to wage climate politics through climate science have had the greatest effect in magnifying the partisan divide.  Some are blinded by these dynamics -- for instance Chris Mooney excuses the extreme partisanship/ideology of AAAS members by blaming  . . . George W. Bush.

Anyone concerned with political decision making in a society that contains a diversity of partisan and ideological perspectives should be concerned that, in one sector at least, the experts that we rely on have views that are far different than the broader society.  One response to this would be to wage a political battle to try to convert the broader society to the values of the experts, perhaps through the idea that improving science communication or education a great value transformation will occur.

My sense is that this strategy is not just doomed to fail, but will have some serious blowback effects on the scientific community itself.  More likely from my view is that such efforts to transform society through science will instead lead to the partisan debates across society taking firmer root within our expert communities. This is a topic that deserves more discussion and debate.  Dan Sarewitz concludes provocatively that, "A democratic society needs Republican scientists."

It is important to recognize that hyper-partisans like Joe Romm and Chris Mooney will continue to seek to poison the wells of discussion within the scientific community (which is left-leaning, so this is a discuss that needs to occur at least to start within the left) through constant appeals to partisanship and ideology.  Improving the role of science and scientists in our political debates will require an ability to rise above such efforts to associate the scientific community with only a subset of partisan and ideological perspectives.  But science and expertise belongs to all of us, and should make society better as a whole.

anecdote is not the singular of data.

One benefit of the politicizing of science is that it caused smart people outside the field to look closely at what was going on behind the curtain. That has been harmful to the short run reputation of science, but helpful to the long run competence of science.

I think that the Nisbet report missed the point entirely.This is a better summary of the problem the AGW promotion industry is facing:http://www.publicserviceeurope.com/article/136/climate-fatigue-leaves-global-warming-in-the-cold#commentHere is a nice part:"The public's concern about global warming as a pressing problem is in marked decline not least because of the growing realisation that governments and the international community are ignoring the advice of climate campaigners. Instead, most policy makers around the world refuse to accept any decisions that are likely to harm national interests and economic competitiveness.They are assisted in this policy of benign neglect by a public that has largely become habituated to false alarms and is happy to ignore other claims of environmental catastrophe that are today widely disregarded or seen as scare tactics."Nisbet's intricate mechanisms resolutely avoid facing this reality, and in doing so is left with little meaning.

However, if you look at the placement of the three photos and the choice of headlines, it also tells you something else has not changed. The top photo is of a People’s Action Party (PAP) leader, in a pose resembling that of a victor acknowledging the people’s acclamation. Only sitting under it are pictures from the Singapore Democratic Party’s rally and the Workers’ Party’s.

Arguably, an objective measure of newsworthiness would suggest that the biggest news story from the evening before would be the size of the crowd at Hougang, the traffic jams leading up to it, and the way people were responding to the Workers’ Party’s “star candidate” Chen Show Mao, making his first rally appearance, and not what who-and-who said. After all, plenty of candidates were saying all sorts of things. Why was George Yeo’s the leading choice for front-page headlines?

On the rightside column is another story that gives a sum-up of (most) of the rallies the night before. You can see the text of it here. What I was more interested in was to analyse, using the internet version of the same article, the share of mentions devoted to the respective parties and their placements. I think my annotations on the left side of this graphic say it all.

In a nutshell, the editorial policy is this. While giving more space to opposition campaigns this time around (and perhaps fairer reporting angles as well) the pole position is still reserved for the PAP. You see this in the relative positions and sizes of the front page pictures and in the text share within the column above.

You also see this policy at work in terms of the allocation of the inside pages. Two whole pages (pages 4 and 6) are devoted to the PAP:

Deeper in, pages 8 and 9 are devoted to opposition parties:

The first thing you’ll notice is that there is a bigger version of the Hougang rally picture, for which I am estimating a crowd of about 100,000. This indeed confirms the view that wide-angle pictures can no longer be suppressed. Or can they? What we don’t see are comparative wide-angle pictures of other parties’ rallies, particularly those of the PAP’s. And this is not likely to happen until netizens also publish such pictures. The problem with that of course, is that netizens are in the main uninterested in attending PAP rallies, so having pictures out in cyberspace may not be a likely thing. But surely, until we see comparative pictures of other parties’ rallies, one cannot fully judge the significance of the Hougang pictures.

That said, having two pages devoted to the PAP and two to the opposition parties, seems relatively fair. It would be nice though if on some other days, the opposition’s pages came before the PAP’s.

When science is used (and misused) in political advocacy, there are frequent opportunities for such situations to arise.

I don't think you're being fair to Mike Lemonick. In the article by him that you cite, MIke's provocative question was framed in the context of an analogy he was making to the risks of smoking. For example, in that article, he also says: "So should the overall message be that nobody knows anything? I don’t think so. We would never want to pretend the uncertainty isn’t there, since that would be dishonest. But featuring it prominently is dishonest ,too, just as trumpeting uncertainty in the smoking-cancer connection would have been."Thus, I think you're reading way too much into Mike's piece. That said, I do agree with you that there are implications of the Daisey case for climate communicators and climate journalism. My own related post is here: http://www.collide-a-scape.com/2012/03/19/the-seduction-of-narrative/"

I don't want journalists shading the truth in a desire to be "effective" in some way. That is Daisey's tradeoff too.