Cow’s Blog

June 30th, 2008

photo: *L*u*z*a*

There is some fascinating research from Michigan State University about the use of online social networking sites by college students and the effect on their social capital. For non-economists, social capital is one of the three types of capital or “wealth”. The other two types are physical capital (what you own e.g. a computer, machines, money) and human capital (skills, experience). The third type of capital is your social connections - or social capital.

The study found that Facebook allows people to keep in contact with communities more efficiently, hence increasing their social capital. The authors of the study wrote, “Social capital has been linked to a variety of positive social outcomes, such as better public health, lower crime rates, and more efficient financial markets.” In addition, there was a correlation between Facebook usage and psychological well-being.

Of course, Facebook started off as a social networking site for college students only. Hence, it encouraged people to develop their relationships with people within their local college communities and people who they know offline which is more useful social capital than that which would be gained through forums and sites such as Digg.

photo: Kate_A

The study goes on to look at two different types of social capital: bonding (cementing networks of homogenous groups of people) and bridging (social networks of socially heterogeneous groups of people). The argument is that some types of social capital are bad: criminal gangs, racist and extremist groups have high levels of bonding capital. The study found that Facebook tends to generate the good type of social capital: bridging.

Perhaps my criticism of the study is how it can be shown that Facebook causes an increase in social capital. To me, it seems pretty likely also that people with greater social capital will be more likely to sign up to Facebook.

But it’s certainly an interesting study. There certainly hasn’t been much study in the general area but I think it’s an area which needs studying: just as the web allowed us to enhance our human capital by learning more about different kinds of things, the social web will allow us to enhance social capital.

The “social web” may have drastic implications for our society and economy.

• Economics , Facebook , Internet , Science , Web 2.0
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June 8th, 2008

photo: izarbeltza

The society of Star Trek invented by Gene Roddenberry is sometimes held up by fans as something we should strive towards. In the Star Trek universe, they don’t use money: people strive towards bettering themselves and humanity. Doesn’t that sound like communism to you?

If we tried to apply these principles in our world today, it certainly wouldn’t work. That’s been demonstrated in communism. Money is a much better way to carry out transactions than bartering: with bartering there needs to be a double-coincidence of wants. A baker may barter a few loaves of bread in exchange for a haircut with a hairdresser. Now, the baker only needs his hair cut once every month or two. Between haircuts, the hairdresser has nothing to barter and thus cannot have any bread on the table.

As for striving towards bettering ourselves and humanity? It doesn’t work in communism: communism gives people incentives to do as little as possible as they aren’t individually rewarded. Free-market economics (or capitalism) works simply because it gives people individual incentives to work and perform better: wages for workers, profits for companies and dividends for shareholders. Economics uses the fact that people act in their own self-interest to lead to an optimal outcome for society. I’d argue that economics is the single most important invention ever: one which paved the way for science, technology and pretty much every single aspect of life we experience today.

I was watching Visions of the Future on the BBC the other day and it did lead me to wonder whether we might be on the verge of this Star Trek age where we might be able to do without money. There are two bits of technology which I believe would allow this to happen.

photo: mugley

First of all, nuclear fusion. Nuclear fusion promises to be an abundant source of energy which is inexhaustible. Limitless and pollution-free, nuclear fusion could render the assumption of scarcity in economics out of date (that society doesn’t have enough resources to meet human wants). With an infinite amount of energy, we could do anything: mitigate global warming, travel to other planets, whatever we like.

Secondly, molecular assemblers or “replicators” as they are known in Star Trek. The development of replicators depends on further research into nanotechnology but the promise is that they can produce more or less anything at the touch of a button by constructing objects atom by atom. The only limitations would be the amount of energy required to replicate the objects and knowing what we want to produce with them.

Many scientists believe that nuclear fusion and molecular assemblers are both viable technologies and may only be about 50 years away.

In a world with limitless energy and the means to create anything that we wanted, nothing is scarce. We could immediately create anything that we want in order to fulfill our wants and needs. And it’s that fact which would render economics redundant. If everything costs nothing to make, why would you need money?

photo: fdecomite

So what would be the effect of such technologies on society? Wealth is more or less meaningless and there is no reason for money to exist, so there will be no such things as city stock traders or economists. In fact, anyone working in the primary and secondary sectors would be made redundant by replicators. The important people in such a society would be the scientists and engineers: in a world where we aren’t limited by resources, we are only limited by our ideas. Scientists and engineers are the people who will come up with those new ideas.

At first glance, the utopian society as described in ‘Star Trek’ can seem like a communist society which would never function in the real world. I believe that today we are beginning to see the glimpses of technology which would bring society into a new age where we are no longer constrained by resources, scarcity and economics. The only constraints would be our ideas and dreams. Gene Roddenberry’s dream of our futuristic society might not seem so farfetched afterall.

• Economics , Sci Fi , Science
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June 1st, 2008

photo: PPDIGITAL

Why is popcorn at the cinema so expensive? At my local cinema, you’d expect to pay about £3 ($6) for some popcorn or about £8 ($16) for a meal deal including maybe a hot dog and nachos. This is absolutely extortionate given you can get popcorn for a third of the price at the supermarket just across the road and for £8 you could get a decent sit-down meal at a good restaurant.

So is this a rip off for consumers? In this article, I discuss the issue of expensive popcorn, how it can be explained with price targeting and suggest that isn’t a rip off at all.

A cup of coffee…

Let us imagine a cup of coffee which costs £1 to produce.

There are 6 consumers who all value the cup of coffee differently. Person A is willing to pay £1 for a cup of coffee, going all the way up to Person F who would be willing to pay £3.50 for a cup of coffee.

The shop decides to charge £2 for a cup of coffee so for every cup of coffee sold the shop makes a profit of £1. As we can see in the table, Persons A and B would not buy the coffee because it costs more than what they would be willing to pay. 4 people would buy the coffee, giving the shop a total profit of £4.

Let’s increase the price…

Of course, the owner of the coffee shop wants to increase his profits. So he could increase the price of a cup of coffee: say to £2.50.

What’s happened? Well, Person C no longer wants to buy a cup of coffee as it would cost more than they were willing to pay. Persons D, E and F will continue to buy the cup of coffee. The coffee shop sells 3 cups of coffee and makes a total profit of £4.50. The downside is that Person C no longer has access to a cup of coffee.

We could try increasing the prices further with the aim of trying to increase profit. If the price of coffee rose to £3, the profit on each cup of coffee is £2. But only Persons E and F would buy it, giving a total profit of £4.

As we can see, the optimal price to charge is £2.50. This would give the coffee shop maximum profit without using price targeting.

What if we use price targeting?

My argument lies around “price targeting”. What exactly is price targeting? It means charging people exactly what they are willing to pay. Take the following scenario:

So what has happened here?

Well, every single person now has access to a cup of coffee at the price that they would be willing to pay. Not only that, but the shop has managed to increase it’s profit to £7.50: almost double what it could have made without price targeting.

Leakages

But there is a big problem with this plan which economists call “leakages”. How can the firm know exactly how much customers are willing to pay? They could ask the customers but everyone would say they were willing to pay the bare minimum figure: £1. Because who would pay more than they would have to for some coffee? So we end up with the following scenario where everybody ends up paying the bare minimum:

Everyone has access to a cup of coffee. But it costs £1 to make a cup of coffee and everybody pays £1: the shop owner makes no profit at all.

The problem with this form of price targeting is that people will find ways to abuse the system. Everybody will pay the bare minimum. This is why you won’t see it used this way in practice: when was the last time you sat down at a restaurant where you could pay however much or little as you wanted?

There are several ways that companies can implement price targeting without explicitly asking you how much you’d be willing to pay. I would like to argue that popcorn at the cinema is one example.

Popcorn as a form of price targeting

photo: Midnight-digital

At the start of this article, I said that popcorn was a form of price targeting. Why?

Everybody would love popcorn and a drink to go with a film. If you don’t believe me ask yourself the following question: if I was given a free popcorn and drink with my cinema ticket would I take it? For most people, the answer will be a resounding yes.

Let’s say it costs the cinema £5 to screen Indiana Jones. For £9 my local cinema could provide everyone with a film and a popcorn.  For every ticket sold, they make a profit of £4. But instead they offer two options:

£7 - Film Only
£10 - Film and Popcorn

Let us imagine a customer who is willing to pay £8 to see Indiana Jones. In the original scenario without price targeting, everybody is charged £9. Since he is only willing to pay £8, he won’t go to the cinema: it’s too expensive. But if the cinema offered a £7 option, he will now decide to go. The cinema will make a £2 profit.

Let us imagine another customer willing to pay £12. He will go for the “film and popcorn” option at £10. It’s essentially exactly the same product: the popcorn only costs pennies to produce. But there is sufficient difference between the two options that the customer won’t “leak” into the £7 group.

photo: DMBFreakNo41

Why aren’t you allowed to take your own food and drink into the cinema? Because that’d cause £10 customers to “leak” into the £7 group.

Conclusion

Popcorn is a form of price targeting: a way of charging people the amount they are willing to pay. I have shown that this not only leads to increased profits for the cinema chain, it also means the cinema is affordable to a lot more people. Of course popcorn doesn’t cost £3 to produce. But that expensive popcorn serves an important purpose in allowing price targeting to work. Ultimately, consumers benefit from great access to the cinema.

Based on research from an article at Physorg.

• Economics
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May 27th, 2008

photo: B a m s h a d

As a student currently embarking on a university degree, I’m looking forward to the freedom university will offer and meeting a whole bunch of new people from across the world. But one major worry is the finance: the cost of going to university.

Many people only look at tuition fees when they think about going to university. In the UK, university tuition is roughly £3,000 a year. For a 4 year masters degree course, this adds up to £12,000.

Tuition Fees: £12,000

But there’s the cost of accommodation, which is typically at least as large as the tuition costs. The cost of accommodation varies. In some of the larger cities, a room will typically cost £120/week. In some smaller town universities, £80/week might be closer to the norm. A 40-week let on university accommodation will set you back £4,000 a year. However, in later years of university, most students will live outside of university halls and this will be more expensive. Assuming an average accommodation cost of £4,500 per year, this adds up to £18,000 over a 4 year degree course.

Accommodation Cost: £18,000

photo: paolo màrgari

There is a much bigger cost which most people don’t even think about. Because studying at university and getting a full-time job are mutually exclusive options, by choosing to go to university you are actually saying “I will not be going to work” as well as “I will be going to university”. Economists call this the opportunity cost.

By choosing to study at university, you are foregoing 4 years of salary which you would have earnt otherwise. The typical starting salary for somebody leaving school with A-Levels but no university degree is £15,000 a year. By working, you’d potentially have earnt £60,000.

Opportunity Cost: £60,000

The other significant cost which needs to be considered is housing. Over the last few years, house prices in the UK have been rising by about 10% a year. What this means is that a house which will cost £100,000 today will cost £110,000 this time next year. Leaving university with £30,000 of debt and without £60,000 of salary means that university graduates must wait even longer before they can put together a deposit and get a foot on the housing ladder. On top of that, graduates may have to take out a larger mortgage on their first home because they cannot make a large upfront payment. Obviously, the appreciation in housing value depends on market conditions, but I think £10,000 is a reasonable ballpark estimate.

Housing Appreciation Cost: £10,000

So to sum it all up, when we take in all the costs of university:

£3,000 a year for tuition X 4 years = £12,000
£4,500 a year for accommodation X 4 years = £18,000
Direct Financial Costs: £30,000

£15,000 a year could have earnt in basic non-graduate job X 4 years = £60,000
Opportunity Cost: £60,000

House price rise in the additional time you must wait before buying = £10,000 (obviously this depends on whether house prices are rising)
Housing Appreciation Cost: £10,000

Total Cost of going to university: £100,000

It’s pretty depressing reading. University is a very, very expensive enterprise. It’s easy to see from these calculations why so many lower income families find it very difficult to send their children to university.

photo: Thiru Murugan

But I think it also calls into question whether it’s worth going to university to study certain degrees. According to the government’s graduate prospects website, graduates in humanities earn £51,549 more in their lifetime and graduates in arts earn £34,949 more. Are the real costs of going to university greater than the benefits?

On average for all degree courses, those who graduate from university earn on average £160,000 more over their lifetime. This would still seem to indicate that going to university is good value for money. But the net benefit is probably less than people would think.

I really don’t want to put anybody off studying at university and I don’t think money should ever stop anybody from pursuing their dreams. But what is true is that going to university is an extremely expensive enterprise these days and students may be getting a bit of a raw deal.

• Economics , Politics , UK
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May 26th, 2008

photo: Topyti

The World Wildlife Fund’s Living Planet report (full report as PDF) is an interesting read. Page 19 of the report contains an interesting observation. The graph plots Human Development Index against Ecological Footprint.

The Human Development Index is the UN’s measure for standard of living and development. “Human Development Index (HDI) is an index combining normalized measures of life expectancy, literacy, educational attainment, and GDP per capita for countries worldwide.” The threshold for acceptable human development is defined as a HDI of 0.8.

The Ecological Footprint measures the use of natural resources and effects on the ecosystem.

It compares human consumption of natural resources with planet Earth’s ecological capacity to regenerate them. It is an estimate of the amount of biologically productive land and sea area needed to regenerate (if possible) the resources a human population consumes and to absorb and render harmless the corresponding waste, given prevailing technology and current understanding.

An ecological footprint of 1 means that if everybody in the world made use of resources in the same way as the citizens in this country, the Earth could just sustain it. An ecological footprint of 2 means two planet Earths would be needed to sustain this lifestyle if everybody in the world lived like this. Of course, if the ecological footprint is more than one planet Earth, this lifestyle is not sustainable.

photo: Drown

As you’d expect, the two are correlated. The higher the standard of living, the greater the ecological footprint.

It’s interesting to note that the only country which is sustainably developed is Cuba. If everybody on Earth was to adopt the Cuban lifestyle, everybody would have an acceptable standard of living and we would be operating at 80% of our planet’s ecological capacity.

What this suggests is that if everybody in the world adopted the lifestyle of US citizens, we would need more than 5 planet Earths to sustain it. The USA is obviously appropriating well more than it’s fair share of natural resources.

Of course, I’m not seriously suggesting we all adopt Cuban laws and lifestyles but I think it’s a good way of visualising how sustainable the lifestyles of different countries are. Perhaps there are a few ideas we could adopt from Cuba though.

• Economics , Environment , Politics
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May 15th, 2008

photo: 708718

Congestion and pollution are two “external costs to society” which are associated with driving. When you take your car out of the garage and take a trip down to the local supermarket or pick up the kids from school, you are imposing costs on other people: exhaust fumes which others must breathe and you take up space on the road contributing to traffic jams.

To correct for social costs, governments use taxes to make sure the individual pays for the costs they impose on society or to “internalise the external costs”. There are three taxes which are used to try and discourage driving:

• VAT on Buying a Car
• Road Tax
• Fuel Tax

People hate taxes. People remark that death and taxes are the only two certain things in life and I think that fuel tax is one of the most hated (in the UK, fuel tax is 64p for every litre). The government argue that this fuel tax is to correct for “external costs” but I will argue that the fuel taxes is unfair and are targeting the wrong people.

The Costs of Driving

photo: Pro-Zak

Urban motorists impose greater external costs on society. City roads are full to their capacity and that means traffic jams everywhere. An extra car on the road is only going to make it worse. Congestion wastes everybody’s time. Secondly, population density is so much higher in cities meaning that the exhaust fumes produced will affect a lot more people. And not to mention noise pollution…

In contrast, rural roads are much quieter and less congested. Because there is so much spare capacity on the roads, an extra car on a rural road isn’t really going to add to congestion or effect anybody else. And although exhaust fumes are still emitted and noise pollution is still produced, it effects a lot less people: there are less people for it to affect.

So the external costs imposed by drivers in cities are greater than the external costs imposed by drivers in the country.

The effects of taxes

photo: kevindooley

When you buy a car, you pay value added tax on the vehicle. To keep the car on the road, you must also pay road tax. Both of these taxes will discourage people to own a car because they increase the cost of owning one. But once you own a car and it’s licensed to drive on the road, these taxes will play no part in your decision about whether to use the car to drive to work or not: whether you use it or not you’ve already paid the tax. And whether you live in the city or the country you pay the same amount of VAT and road tax.

The other tax is fuel tax. This affects people’s decision on whether to drive to work or school. If it costs £2 to drive to work you might choose to do it every day but if it cost £8 you’d probably only drive if it was raining or for some reason the trains weren’t operating.

As I’ve mentioned, the external costs of urban driving are greater. So a fair tax which “internalises external costs” should penalise urban drivers more. But the taxes on urban driving are actually lower than taxes on rural driving. Places in the city are situated much closer to each another and so less fuel is needed to drive between them. As the amount of tax paid is directly linked to the amount of petrol used, this means urban motorists are paying less tax than rural motorists. This is unfair.

Is it essential to drive?

photo: fabbio

Another factor that economists must consider is “how necessary is it to drive?”

In the city, there are a huge range of alternatives to driving. In London, there is a flat rate 90p charge on all bus journeys, where ever in London you go. Buses are also very frequent: you shouldn’t have to wait any more than 10 minutes. I’ve found that I rarely have to wait more than a few minutes.

When I’m in the country, it often costs £3 for a single bus journey and the bus only comes once an hour or sometimes even every 2 hours. And there is about a 20 minute window for the time that the bus arrives.

In the city, everything is also much closer to each another. That makes cycling or walking a much more viable option.

So in the country there is often no choice except from to drive because everything is so far away from each another and there are no viable public transport options. In these areas, motorists must pay extortionate amount of taxes. Meanwhile urban city drivers, with the luxury of viable alternatives such as the bus, escape with lower amounts of tax. I think this is the fundamental unfairness of fuel tax.

Solving the problem

photo: billjacobus1

The problem is that fuel tax penalises the wrong people. The solution is to tax urban drivers more to account for the greater amount of “external costs” they impose by driving.

In London we also have the congestion charge zone (£8 to enter Central London per day) and the low emission zone (£200 per day for heavy polluting vehicles to enter London). I think this somewhat solves the issue but it’s only restricted to London.

A few years ago the Labour government floated plans for a national road charging scheme.

Motorists will receive regular bills, possibly monthly, charged at variable rates by time and geography: rural country lanes would likely be charged at the bottom of the range, around 2p a mile, with inner city rush hour roads attracting the top £1.30 rate. The government hopes motorists will change their driving habits - by staggering journeys, sharing cars or switching to public transport - to the extent that there could be a 50% cut in congestion.

From a point of view of an economist, I feel that this is the perfect solution to the problem. It would reduce congestion which would lead to time savings for everybody and stop country motorists from being unfairly penalised.

In 2007, 1.7 million people signed a petition against the national road charging scheme. The idea seems to have fallen from the agenda. Because of the inherent unfairness in fuel taxation, I hope the government will reconsider a national road charging scheme.

• Economics , Environment , Politics , UK
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May 10th, 2008

photo: jenn_jenn

A few years ago, Microsoft introduced the ability to “hide” on Appear Offline on MSN Messenger and to keep talking to people. This is quite a useful feature for the anti-social types who really don’t want anybody to talk to them!

I’ve noticed some interesting trends since this feature has been introduced. The people who used to have their status stuck on “away” now use appear offline. This is perhaps frustrating when you then end up calling or texting at extortionate rates your friend instead whilst you’re actually both sitting at your computer!

The reason why people use “appear offline” is so they can be selective about who they talk to. Fair enough. But when other people also use “appear offline”, it doesn’t work. This could be illustrated using a bit of game theory.

Initially, lets say that both persons A and B gain 2 units of utility from being online in MSN Messenger. This utility could be in many forms: pleasure gained from sharing gossip, money saved in not having to text or time saved. The exact form of the utility isn’t important.

Let’s go into hiding… 

photo: striatic

Now lets say Person A decides to “Appear Offline” but Person B is still “Online”. Person A will only talk to Person B when it is beneficial to him. Person A will still gossip with Person B but only in times convenient to himself and when he’s stuck on his particle physics essay, he can still see when Person B is online and get help from him. For this reason, Person A’s utility increases from 2 to 3.

But Person B won’t derive any utility. When he needs somebody to talk to, or has run into a brick wall upgrading to Service Pack 3, he won’t be able to get through to Person A on MSN Messenger. Instead, he might end up calling or find a more sociable person to talk to! Hence Person B derives no utility from this arrangement.

Notice that the payoffs are symmetrical. If Person B decides to “Appear Offline” but Person A doesn’t, Person B will gain 3 units of utility whilst Person A will gain nil.

The fourth possible situation is when both Persons A and B decide to “Appear Offline”. Neither persons derives any utility from this arrangement as they’ll never talk to each another. They might as well actually be offline.

The best arrangement 

photo: J. Random

As we can see, in this analysis the best possible outcome is that both persons A and B are online. They both derive 2 units of utility from this arrangement and 4 units of utility are gained in total.

Person A or person B could seek to increase the utility they gain by appearing offline. This increases their own utility to 3 units. Would they do this in reality? Rationally, probably yes.

If person A decided to stay “online”, person B would gain 2 units of utility from staying online and 3 units from appearing offline. So in this situation, person B should appear offline to maximise their own payoff.

If person A decided to “appear offline”, person B gains no utility either way. So it really doesn’t matter whether person B stays online or appears offline. But they don’t lose any utility by appearing offline.

By considering all the possible outcomes, person B will rationally choose to appear offline to maximise their payoff. As the situation is symmetrical, person A should also rationally choose to appear offline. The outcome? Both persons A and B “appear offline” and nobody gains any utility.

Back to the real world…

In this discussion and game theory model, I’ve abstracted from reality. Of course, it isn’t true that everybody on MSN Messenger appears offline these days. But I will say that amongst my contact list, I know quite a few people do and it has lead to some annoying situations. I’m even guilty of “appearing offline” on many occasions without realising the person I want to talk to is also appearing offline and waiting for me to come online.

• Economics , Games , IM
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May 5th, 2008

photo: dlemieux

New Scientist (subscription required) had a really interesting article this week about how crime in cities can be modelled and predicted through some parameters such as how “connected” a road is and it’s proximity to bars and fast food restaurants.

There was also an aside about some economies of scale and increasing returns to scale found in cities.

Quantities related to physical infrastructure, such as the total length of pipes carrying water, seem to grow in proportion to the city population N raised to the power , with equal to 0.8. This implies that these quantities grow less quickly than the population, as cities benefit from certain economies of scale. Meanwhile, quantities related to social or economic development, such as the number of investors, total economic output or overall crime, all grow slightly faster than population, with equal to 1.15, suggesting that cities also realise certain increasing returns associated with social interaction.

You can read the full paper at the PNAS website. It’s interesting to look at the full table of exponents. Things such as R&D and patents increasing faster than population are economies of scale and reasons why it’s great to live in a city. They also save on some resources as we see that the number of roads and gas stations increase slower than population. But it’s worth highlighting that crime and AIDS cases increase faster than population - obviously negative side-effects of living in cities. I don’t know why I find this stuff interesting. Perhaps it really is interesting, or it’s just the economist in me.

• Economics
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April 22nd, 2008

It’s Earth Day today. This is a day to raise awareness about the environment and issues such as climate change and resource depletion. But I’d like to raise something which is often overlooked though, to do with the economics of climate change. But can we really cut our energy usage by switching to more efficient appliances?

Let’s take energy-saving light bulbs as an example. An standard 100W incandescent light bulb is exceptionally inefficient - it produces about 95% heat, only 5% of that energy is turned into visible and useful light. However, new energy-saving fluorescent light sources can produce the same amount of light for just 20W.

OK, so there are considerations such as the amount of energy which used in manufacturing new fluorescent light bulbs for us to use or the costs of installing additional insulation to reduce heat loss because less heat is now produced by light bulbs. Although they are very valid points, they’re not the issues I wish to explore.

On the face of it, if we all switched from 100W incandescents to 20W fluorescents, there would be a 80% drop in the energy consumption! Hey, presto! But that isn’t the whole story. Because economics tells us that when the price of something falls, consumption increases. In other words, because our lighting systems now consume less energy and cost less to run, people will demand more lighting systems.

Take a look at this graph from the presentation “Energy Services and Energy History: Lighting and Transport in the UK” (slide 11).

The cost of lighting (and efficiency) has been falling steadily since 1300, yet it is obvious that we are using much more lighting now as costs have been falling. Since 1900, the efficiency of lighting improved 50 times. Meanwhile, the amount of lighting used has increased by 155 times. So despite all the huge efficiency improvements over the last 100 years, we’re still using 3x as much as energy as we were before.

What I hope this has demonstrated is that improving energy efficiency won’t necessarily decrease energy usage. But would switching to more energy-efficient bulbs cut energy usage in our developed world today? Perhaps. For me, the cost of leaving the light bulb on is so small that I barely even think about it. So a light bulb which costs less to leave on probably won’t cause me to leave the light on for any longer then I currently do. But in some countries, if the price of leaving the light bulb on is now a fifth, I could envisage households which might decide that rather than just having one light bulb in the lounge on, they could now install a light bulb in every room in the house. This increased usage of lighting would negate any of the benefits of improved energy efficiency.

It might all seem a bit pointless talking about light bulbs, but I chose it as an example because it’s easy to explain and there’s a lot of good data. But this same theory can apply to all kinds of other things.

Let’s say that a new generation of cars has twice the fuel efficiency. This means the cost of running the car is half what it was before. More people will therefore decide to use cars, and perhaps to use cars on those short journeys they wouldn’t have before. Also in the less economically developed countries, this could make running a car a viable proposition for many people.

My conclusion is that we can’t rely on improvements in efficiency to reduce our energy usage. It simply won’t work. In fact, it could even lead to increased energy usage and make things worse. That’s not to say we shouldn’t create efficient light bulbs and cars but they’re not going to save the environment. We need more proactive ways of dealing with our use of fossil fuels.

• Economics , Environment , Science
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April 10th, 2008

There’s an article in this week’s New Scientist (12th April 2008, p17) by William Laurance from the Smithsonian Tropical Research Institute entitled “Expect the unexpected” which I thought was really interesting. He talks about some of the unexpected ways in which we’re damaging the planet.

Take biofuels. Many countries, including the USA, have promoted biofuels as alternatives to using fossil fuels. Why? Because when you grow corn, the plant will “breathe in” carbon dioxide. When you put it into your car and burn it, it’ll release an equal amount of CO2. So biofuels are supposed to be carbon neutral and won’t contribute to climate change.

In order to encourage people to use biofuels, governments have subsidised them. In essence, they tell farmers that they’ll give them an additional amount of money for every gallon of biofuel they produce, on top of the amount of money they sell it for. This encourages farmers to produce biofuel because they can earn more money from it: basic economics.

So what’s been the effect of this? Well, US farmers have switched from growing soya to growing corn. This made soya more scarce and drove up the price of soya across the world. The higher soya prices then acts as an incentive to others to produce soya; you can now make more money by selling soya.

That’s lead to deforestation in the Amazon in order to clear the way for soya production. And the deforestation has lead to forest fires.

In the Amazon, the trees help to generate their own rainfall. Why? Rain falls and the dense vegetation quickly recycles the moisture, returning it to the atmosphere so it’ll rain again. As deforestation continues, less water vapour is recycled. That means less rain in the future: a feedback loop.

Anyway, I won’t repeat the entire contents of the article as Laurance gives many other examples of unexpected consequences of rising demand for wooden furniture, logging and fishing.

It does really make you think about how everything in the world can be linked together in so many ways and all impact upon each another. In some of my own physics research, I found that an increase in global temperature would lead to a greater occurrence of lightning. Effects of lightning? Forest fires may be created and nitric oxides are produced. A significant number of forest fires could reduce CO2 absorption. Nitric oxides are fertilisers: could this lead to better forest growth? Nitric oxides also lead to the production of ozone in the atmosphere which is a greenhouse gas. More greenhouse gases = further global warming. Did anybody expect that?

The fact is there are just so many different interlinked processes going on in the world around us. It reminds me slightly of James Lovelock’s Gaia Hypothesis:

The Gaia hypothesis is an ecological hypothesis that proposes that living and nonliving parts of the earth are a complex interacting system that can be thought of as a single organism. Named after the Greek earth goddess, this hypothesis postulates that all living things have a regulatory effect on the Earth’s environment that promotes life overall.

It’s a controversial theory. Says Lovelock on climate change:

He says the global climate treaty, the Kyoto Protocol, is simply an attempt to appease a self-regulating Earth system.

Professor Lovelock thinks the Earth’s attempts to restore its equilibrium may eliminate civilisation and most humans.

He wants a rapid end to the destruction of natural habitats, which he says are key to planetary climate and chemistry.

• Economics , Environment , Science
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