Correlation vs. Causality

Take a look at this graph:

Looks like a pretty strong statistical relationship to me. To quote Steve’s Politics Blog (no, not me):

Derek Lowe of Corante’s ‘In the Pipeline’ (a drug-discovery blog) points to this graph in an article by Bristol-Myers Squibb’s Stephen Johnson, titled, The Trouble with QSAR (OR How I Stopped Worrying and Embrace Fallacy).

Lowe writes, ‘The most arresting part of the article is the graph found in its abstract. No mention is made of it in the text, but none has to be. It’s a plot of the US highway fatality rate versus the tonnage of fresh lemons imported from Mexico, and I have to say, it’s a pretty darn straight line. I’ve seen a lot shakier plots used to justify some sweeping conclusions, and if those were justified, well, then I’m forced to conclude that Mexican lemons have improved highway safety a great deal. The vitamin C, maybe? The fragrance? Bioflavanoids?

It just proves my saying:

“Sometimes statistical significances are just measured coincidences.”

HT: Chart Porn

A Case for the Investment Tax Credit

Obama has recently sparked debate about a proposal to spark job creation.  He wants the proposal to include incentives for small businesses to hire more workers, spend more money for infrastructure projects and offer rebates for homeowners who update their homes with energy efficient durable goods and weatherization renovations — that has come to be known as “cash for caulkers.”  The debate around the blog world has included some interesting ideas, including the “cash for caulkers” idea itself and a cut in the minimum wage, which has spurred tremendous uproar in the blogging community for and against it.

One proposal that has caught my eye is the Investment Tax Credit. (ITC) Mankiw has made several good points about the ITC that is well worth looking at.  First, a temporary ITC could help act as a similar mechanism to create negative real interest rates, much like what inflation could do, even though quantitative easing is now out of the question given Bernanke’s recent remarks. Second, like cash-for-clunkers, it would help stimulate AD in the short-run and move AS rightward in the long-run, but broadly so as to not favor a specific industry. And lastly, tax credits usually are a good idea if you want more of something.  Considering how low investment growth is, it would only make sense to target tax credits on something like investment.  If businesses focus on investing, it will help stimulate demand for capital goods, increasing the need for more labor to supply it.

If opponents want to say that this may just stimulate demand for investment in foreign capital goods, I would say that most investment worthy capital goods would be created here in the U.S.  Less value added products that usually come from abroad, if do happen to be purchased, still doesn’t mean that the products wouldn’t go toward future productivity and lower unit costs.  For what its worth, the economics out rightly support the ITC.

To drive the point further, Obama should really listen to what small businesses actually want.  Yes, America wants jobs, but small businesses are not going to hire unless they get what they want first.  While the blogosphere argues over lowering labor costs with the minimum wage, small businesses are asking for something different.   From Peter Crabb:

The latest reading of the National Federation of Independent Business (NFIB) Index of Small Business Optimism was down, but business owners don’t see a lack of bank loans as a problem.Twenty-nine percent of all respondents to the NFIB survey reported they have met their borrowing needs. Nine percent reported problems obtaining financing, which is one point lower than the previous period.

Why are small businesses not desperately seeking more financing? Because they have little reason to invest in their companies. In the survey, only 16 percent said they are making capital-expenditure plans for the next few months. Only 8 percent said the current period is a good time to expand facilities, and only 3 percent think the economy will improve.

Small businesses are not concerned about getting loans for making investment into their companies. In fact, among their chief concerns are:

[From the NFIB report] …we find that when asked to identify the most important problem small-business owners face at this time, poor sales are cited most frequently, high taxes second and government requirements third.

It seems that their chief concern is with demand. Small-businesses don’t necessarily care about making investments right now as they need revenues to catch up first. However, whether or not small business are enticed by an ITC, larger businesses would be. I am sure many companies would be willing to take advantage of it. And the downside? No one takes advantage of it and the treasury account stays the same.

Some more cases for the ITC can be found here and here.

The statement that settles it

Via Free Exchange, Brad Delong asks Ben Bernanke:

Why haven’t you adopted a 3% per year inflation target?

Important to note that this is regarding why the Fed hasn’t implemented more aggressive action regarding unemployment. His response:

The public’s understanding of the Federal Reserve’s commitment to price stability helps to anchor inflation expectations and enhances the effectiveness of monetary policy, thereby contributing to stability in both prices and economic activity. Indeed, the longer-run inflation expectations of households and businesses have remained very stable over recent years. The Federal Reserve has not followed the suggestion of some that it pursue a monetary policy strategy aimed at pushing up longer-run inflation expectations. In theory, such an approach could reduce real interest rates and so stimulate spending and output. However, that theoretical argument ignores the risk that such a policy could cause the public to lose confidence in the central bank’s willingness to resist further upward shifts in inflation, and so undermine the effectiveness of monetary policy going forward. The anchoring of inflation expectations is a hard-won success that has been achieved over the course of three decades, and this stability cannot be taken for granted. Therefore, the Federal Reserve’s policy actions as well as its communications have been aimed at keeping inflation expectations firmly anchored.

There you have it. The Fed prefers not to take any action regarding the long term unemployment that the U.S. economy faces ahead. My question would be, which public is Bernanke talking about? Surely not the unemployed. Hmm.

Put climate change where your mouth is

Via MR, a really good NYT article written by John Tierny with a proposal that will put climate change skeptics and proponents beliefs to the test: tie the amount of carbon taxed/capped to the rise in temperature on earth.  Why is this great? If skeptics are right, we don’t pay anything.  If global warming proponents are right, we will have the safe guards installed to make sure that when temperatures do rise, we are able to internalize the actual cost of carbon, thereby limiting the amount we emit into the future.

Of course there will be needed discussion on just how the temperature should be measured, but the idea is foolproof nonetheless: the only judge of how much damage we are really doing to our earth will be from the earth itself.  No arguing over fudged forecasts or ulterior motives, this plan would take all of the political risk out of future changes to the climate and create a more forward looking plan; a plan that everyone will now have a stake in, including private investors – if they want to make sure that they hedge against higher costs in the future.

The problem with politics now would be how to implement it. Cap and trade or carbon tax?  The article suggests:

[...] it would be even better, Dr. McKitrick says, to use the temperature readings as the basis for a carbon tax instead of a cap-and-trade system. Like many economists and environmentalists, he argues that the carbon tax would be more effective at reducing emissions because it is simpler, more transparent, easier to enforce and less vulnerable to accounting tricks and political favoritism.

It is certainly true that a carbon tax would make things easier, but does it provide the efficiency that cap and trade would provide? One of the benefits of cap and trade is to allocate carbon credits to those who need to pollute the most, providing incentive for others to focus on creating more efficient and cleaner ways of lessening their carbon footprint. Just because a carbon tax may be easier, it still doesn’t yield the benefit of the gains from trade that could happen if carbon is able to be capped. In this case, only true polluters would bear the brunt of the costs, which could in turn, offset end costs to consumers. (Which is the driving point for cap and trade)

Waste products after-market

Thanks to stimulus funds, companies have been trying to get R&D money up front to make renewable energy an economic reality.  One of the most popular is bio-diesel, a versatile fuel that can be made from almost anything organic.  Usually the input for production of bio-diesel would be some kind of crop, but the one that has caught my eye is producing bio-diesel from chicken fat.

[Bolingbrook, Ill.-based Elevance Renewable Sciences]… plans to use plant oils and poultry fat as building blocks to replace petroleum-based chemicals used to make myriad products, including jet fuel, lubricants, adhesives and even cosmetics and candles.

Although chicken fat is an organic compound, and doesn’t yield as much environmental damage as other noxious chemicals, industrial waste treatment for chicken production usually yields about 1,640 pounds of chicken fat per day, nearly a ton. Whether converting it to Diesel is viable, there are already many how-to’s and products online in which you can convert your grease fat into diesel yourself.

What makes chicken fat bio-diesel such a great idea is not only does it lessen the impact of environmental damage from overloading the environment’s sink function, (amount of pollution the environment can handle before irreparable damage) but it also adds value to something that was not only worthless, but harmful.

If Elevance Renewable Sciences is successful in being able to make bio-diesel from chicken fat an economic reality, it could open doors to what auto-markets are already familiar with: an after-market.  Could an after-market for industrial waste products be a new profitable area that could effectively reduce the amount of environmental pollution made, add value to something otherwise harmful but also reap profits for entrepreneurs who have effectively used technology to create a cost-effective business model?  Given how much industrial waste there is, imagine how much all of that waste could be worth.  The next time you decide to throw away your chicken fat you could be throwing away slimy, dirty, smelly gold!

Breakthrough Spotlight: NYT Year in Ideas

So the New York times magazine has released their annual year in ideas article. Of course this is a great opportunity to find some breakthroughs!  Although all the ideas are incredible, interesting, inspiring and most importantly, pushes the possibilities frontier outward, here are some of my favorites and some comments!

Google Algorithm as Extinction Model, The

Allesina and Pascual borrowed Google’s PageRank algorithm and modified it to model ecosystems in the natural world. As they explained in September in the journal PLoS Computational Biology, the modified algorithm was more efficient than existing ecosystem-extinction models at identifying which species’ extinction would cause the greatest number of other species in the food web also to go extinct. “Our algorithm is faster and computationally simpler,” Allesina says.

The PageRank algorithm could be useful in analyzing other networks too. The world features countless interconnected systems ranging in size from the minuscule (metabolic networks within a single cell) to the immense (international financial markets). After publishing the paper, Allesina received e-mail messages from dozens of researchers interested in adapting the PageRank algorithm. “PageRank is a technique for finding hidden flows in huge quantities of data,” says Yonatan Zunger, a Google software engineer who used to work on search technology and who contacted Allesina after seeing his research. “There are all kinds of networks. PageRank is enormously applicable beyond the Web.”

Could this help one find a whole new way of modeling economic systems?

Killer Earth

In his book “The Medea Hypothesis,”…, Ward argues that for billions of years the biosphere has been its own worst enemy.

It is certainly a revolutionary way of understanding man’s own relationship with nature. And everyone can understand his hypothesis, that mother nature is indiscriminate and will kill you will no remorse. All more of the reason to conquer it as means for survival, or at least fear its great power. This philosophical turn may not brood well for tree-hugging environmentalists.

Printable Batteries

The premise here is that if we can have such thin visual elements, how could we ever power them for the sake of design? Printable batteries should be able to help the contours of thin design stay consistent.  Already able to be put into practice in a rudimentary level, this battery could be the beginning for all sorts of gadgetry that improve design as well as functionality.

Waste Tracking

It begins with a garbage can outfitted with a scanner. When an unwanted item is dropped in, its UPC barcode or radio-frequency identification tag is read — as in the checkout line on the day it was purchased.The scanner tracks important information like the make, model and component parts and, when Smart Trash is fully operational, will send that data to a waste company’s Web site or a site like eBay to determine how much the item is worth to recyclers or in the secondhand market. That data can in turn be downloaded by the garbage collector at pickup, or relayed via a WiFi connection to the waste company, which will distribute the items accordingly — to e-waste handlers, recyclers and secondhand dealers. The user would get money for his trash in the form of rebates or sales proceeds.

A step towards making a more efficient after waste market for the disposable of valuable products. When natural resources become more scare, streamlining of this system is going to be essential to greasing the wheels of the consumer economy.

That is the ones that mostly stood out to me. Some others included lithium in the water supply, myth of the deficient older employee, random promotions and social networking as foreign policy.

Evaluativing transportation’s carbon footprint in the U.S.

The North American Transportation Statistics Database released its new transportation data for 2007 covering the three countries in North America.  After a quick glance, it was interesting to see how much of a percentage total CO2 emissions from all particular transportation modes would be in the U.S.  Below is a chart showing the total amount of CO2 emissions for each transportation mode over the total amount of CO2 emissions for all transportation.*     (Click the chart to maximize it)  82% of all CO2 emissions from transportation is from road travel, making it the mode of transportation that contributes the greatest amount of CO2, with all other sectors combined contributing only 18%.  Air is the second greatest contributor with 10% of CO2 emissions for all transportation modes.

What seems to be an obvious point…everyone knows that the greatest contributor to CO2 for transportation has to be from road travel, correct?  So, for the sheer volume of travel being done on the road, the amount of CO2 will always be a significant amount.

If you were to divide the total amount of CO2 by the total amount of energy consumed by mode of transportation for 2007, you would end up with an interesting result.  Air travel would come out to be roughly 94 thousands of metric tons per petajoule (10 to the 15th joules) of energy.  Likewise, road travel comes out to be around 66, rail comes out to be 69 and water transport comes in at around 35.  When comparing air travel to road travel, you find that given the energy put in, less CO2 is exerted for road travel than rail or air travel.  Water transport seems to exert the least amount of CO2 for every petajoule used.

In a way, this is a crude measure of pollution efficiency.  Unfortunately, we can’t compare apples to apples by using CO2 per mile since the metrics given won’t translate into clean numbers.  So, for now, we can only make assumptions about these numbers.  If they could evenly be subdivided by the number of miles traveled, then we would be able to have an accurate picture of efficiency.  What assumptions can be made from these differences?  I feel that this is beyond my understanding.

*The chart says “% Total Greenhouse Gas Emissions by Transportation Sector for 2007.”  However, in my post, I kept on indicating C02 only.  In the tables from the primary source, that would also include NO2 and  CH4, however, I only used CO2 as the NO2 and CH4 numbers were negligible and I wished to only focus on CO2.

So close…November’s employment figures

The employment and unemployment numbers came out today.  Unemployment inched downward to 10% and almost eked out a positive employment figure with a loss of 11,000 jobs.   These numbers are highly optimistic.  Although preliminary, it is a stark contrast from the consensus estimates of -116,000 and IHS Global Insight’s glum prediction of -175,000.  This may signify an early turning point in economic recovery.  Just look how close those payrolls almost reach 0.

I would expect the preliminary numbers to be revised downward, and that employment growth will stagnate over the holiday season as employers take a breather from either hiring or firing. I think we will be able to have positive employment growth well into early 2010, say, for the month of January?

How much food do Americans waste?

From the Economist:

[Kevin Hall and his colleagues at the National Institute of Diabetes and Digestive and Kidney Diseases] found that the average American wastes 1,400 kilocalories a day. That amounts to 150 trillion kilocalories a year for the country as a whole—about 40% of its food supply, up from 28% in 1974. Producing these wasted calories accounts for more than one-quarter of America’s consumption of freshwater, and also uses about 300m barrels of oil a year. On top of that, a lot of methane (a far more potent greenhouse gas than carbon dioxide) emerges when all this food rots.

Not only is that a huge amount of wasted food, but so much of our water as well as other resources is wasted to produce and transport it. What is interesting is which particular ones account for the waste. Oil and water, both incredibly cheap in the U.S., help point out the contributor to why we can waste so much food: it’s cheap.

It would be interesting to see the distribution of price per calories for the particular foods that were measured.  I can postulate that not only is food cheap, but those that are cheaper per calorie (usually the stuff that is bad for you) makes up the majority of the food waste. These foods just happen to be made up of some of the food that is subsidized like corn and soy.  Not only do the inputs for production and transportation make the price of food cheap, but the price distortions caused by government subsidies do also.

Intuitively, it would make sense that most of the calories being wasted would be perishable items like fresh produce and meat.  However, I argue that such a huge difference in calories consumed and what is being purchased has to have a factor that skews the total amount of calories consumed in the direction of foods that are cheaper per calorie.   Fresh produce can easily be saved, (freezing, drying) and I don’t believe we eat enough of it to tip the scale against the large proportion of cheaper caloric foods .  Throw in the fact that produce isn’t subsidized, making it more expensive, and therefore, more inherently valuable. Meat (although subsidized to an extent) may be caloric-ally cheaper than produce, but perceptibly more valuable (it is everyone’s favorite isn’t it?) and easy to store as well. (freezing)

You would think that this doesn’t match the trend of rising obesity since more food wasted means less food eaten.  However…

Dr Hall and his colleagues suspect the wastage they have discovered and America’s rising levels of obesity are connected. They suggest what they call the “push effect” of increased food availability and marketing is responsible. The upshot is more food in the waste-bin, as well as more in the stomach.

I think it is safe to say that in order to reduce the waste of not only valuable food, but also of valuable resources, is to internalize the actual cost of what goes into producing the food, which would include increasing water prices for non-essential usage, tax oil, and of course, end corn and soy subsidies, or at least, shift them towards produce.* Not only do we efficiently handle our food supply and natural resources better, (foregone public revenues) but we may also help in trimming peoples waistlines which could in turn reduce healthcare costs.

*Changing buyer behavior, especially for those who are obese and low income, may not significantly change if subsidies were lifted as it is only a fraction for most caloric-ally cheap foods. Moving the subsidies to produce would be able to push prices lower, making incentives for buyers more real without imposing a regressive cost on caloric intake.

Breakthrough spotlight: Edible cottonseed, biodegradable chemicals and cyborgs!

I currently have a recurring “theme post” entitled “Internalizing Externalities.”  I have been trying to think about what other ways I could incorporate different stories I come across that happen to fall under the same theme of interest.  “Internalizing externalities” was a way of pointing out unintended consequences of particular actions – usually externalities such as pollution.

I believe I am going to begin another “theme post” entitled “Breakthrough Spotlight.”  Considering that this blog name is Pushing Possibilities, I would figure that illuminating different scientific and technological breakthroughs would be able to jump start the imagination and hopefully ignite optimism in our future.  So without further ado, I have three scientific and technological breakthroughs that I have come across that I believe are not only incredible, but practical, providing enormous amounts of added value to our economic future and hopefully make our world a better place.

The first breakthrough: Edible Cottonseed.

A Texas researcher has found a way to reduce toxin in cottonseed that until now could only be eaten by cattle. The bovines’ multiple stomachs gradually digested the poisonous substance called gossypol.

The new seeds can be eaten by pigs, chickens, fish and humans and could show up in protein bars, shakes, breads, cookies and other foods within about 10 years. The amount of cotton already grown worldwide contains enough protein to feed 500 million people per year, researchers said.

Besides the obvious economic benefits, it may also prove to have a significant health benefit. Raw soy has too much phytoestrogens, putting its hopes of being the usual suspect at the dinner table at the level of red meat. Therefore, this could be a healthier, long-standing alternative, especially for vegans and vegetarians.

The second breakthrough: A movable prosthetic that is controlled by the mind.

A robotic hand has been successfully connected to an amputee, allowing him to feel sensations in the artificial limb and control it with his thoughts…

The experiment lasted a month, and the scientists say it was the first time a patient has been able to make complex movements using his mind to control a biomechanic hand connected to his nervous system.

The future is here!

And last but not least, my favorite: A replacement for toxic industrial chemicals.

it’s a biodegradable, environment-neutral chemical that could be used in everyday materials, such as road salt and detergents, to replace harmful persistent petrochemicals and phosphates, which can last for centuries.

But wait, it gets better…

They’ve not only invented a chemical process using a computer-controlled reactor to make the product cheaply in large volumes, they’ve discovered a process that is adaptable and can produce other environment-friendly building block chemicals.

There is one more benefit I have to add: This is made from sugar so therefore this chemical isn’t dependent upon being made from oil. Make these guys national heroes for leading us one step forward to oil independence!