Image Source: http://en.wikipedia.org/wiki/File:Shunsuke1_20080622.jpg

Given that the football world cup is over, I may have missed the window on this one, but it still is interesting!

The relevant current rules in football (that’s ‘soccer’ in Yankeeism  ) as as follows: teams play during 90 minutes. If, at the end of regular time, teams are tied (an event which, contrary to other sports, occurs with high probability), then they play an extra time. If the draw persists after the extra time, the winner is selected by penalty shoot-outs (a resolution judged “unfair” by many people).

Here, the incentive to perform efficiently is affected strongly by the ordering of the tasks (regular time, followed by extra time, followed by penalty shoot-out). This is illustrated in the following proposal: In the interest of making game more exciting, instead of shooting penalties after extra time (as it is currently the case), could it be preferable to shoot them before extra time and let them count only if the extra time is unsuccessful in breaking the tie?

The intuitive basis for such a proposal is the following: if penalties are shot before extra time, the team that wins (or loses, resp.) the penalty shoot-outs has the greatest incentives to preserve (or break, resp.) the tie and therefore plays more defensively (or offensively, resp.) than if penalties are shot after extra time. The analysis of this proposal comes down to determining whether the total level of offensive play is greater when both teams have average incentives to attack (penalties after extra time) or when one has high and one has low incentives to attack (penalties before extra time).

This proposal was investigated by Dr. Juan D. Carrillo from the Dept. of economics at University of Southern California. His theoretical analysis of the proposal was published in the paper “Penalty Shoot-outs: Before or After Extra Time?” in the Journal of Sports Economics in 2007.

His analysis suggests that moving penalty shoot-out to before extra-time could potentially make for a more exciting game. However, this doesn’t really mean it will work in practice. Theoretical analysis fails to take various psychological factors into account, including but not limited to: players have a tendency to overestimate their chances of winning at penalty shoot-outs, teams might feel less psychological pressure if they lose at penalty shoot-outs (it is just a matter of bad luck), public has a taste for close games.

So in order to put this hypothesis to test, Liam Lenten, Jan Libich (La Trode University, Australia), and Petr Stehlik (University of West Bohemia, Czech Republic) conducted an empirical assessment [link]. They found that bringing the shoot-out before extra-time substantially alter the players’ incentive in extra-time to produce more overall attacking play. In fact, the odds of extra-time scoring went up about three-fold.

So there might be a case for such a rule change after all!

There are several arguments for why we are not just monkeys. We have the ability to transform our environment; we have an unprecedented level of cognition that has forced us to ask questions like “Why?” and “How?”; we have become the most dominant species on this planet and have established a unique signature on our world (global warming, anyone?); we are capable of generating and propagating information across space and time beyond the confines of an individual, group, or even temporal identity. The list is practically endless. But perhaps the most charming among them is our unique flaws.

Much like any other species, we are indeed flawed in many respects. Yet our intellect, while compensation for many of our flaws, introduces many more. Specifically, consider our cognitive biases which have propelled us into a seemingly unstoppable downward spiral both as individuals and as a species. Everything from the present economic crisis to the quagmire in Iraq and Afghanistan can be tied back to these biases. This is often viewed as the burden of intellect, of intelligence. We are too smart for our own good. A plausible argument is that these flaws are symptomatic of the complexity of our environment. Thanks to our intelligence, we have succeeding in creating an environment (being it the stock market, or security backed mortgages, or the concept of nation states, or frameworks for morality and the accompanying dilemmas, or many more) so complex, that we fail to understand it, we fail to comprehend its complexity, and inevitably stretches the limits of cerebral tractability.

Or does it?

Are our cognitive biases really an artefact of the complexity of our environment? This recent TED talk reveals that it might actually not be so! Experiments with monkeys have revealed that monkeys make surprisingly the same rational and (more importantly) irrational decisions as humans when it comes to certain cognitive tasks that involve economic transactions. So may be we really are just monkeys that figured out how to get down from trees, grow an opposable thumb, and speak. A humbling notion indeed!

www.youtube.com/watch?v=DUd8XA-5HEk

The answer is actually “No”! The US has a noteworthy history of socialistic policies:

1. Agricultural subsidy: Since 1933, the US government has been subsidizing its agriculture. Even though it marginalizes small farmers and mostly serves the agri-business gaints [source], has adverse impact on developing nations economy [source], and many economists see it as a waste of resources [source]. The subsidy still remains, and is still antithetical to free-market capitalism.
2. Social security: Social security was introduced in the US in the 1930s to help recover from the great depression (yet another spectacular collapse of free-market economy). On a side note, it is interesting to see how every time free-market economy falters, the government steps in with a socialist solution and yet feels insulted when called out on it. Its a program that is still in practice, and is arguably one of the largest socialist program in existence in the world. Despite several criticisms of the program, the White House is steadfast in its commitment to this socialistic program, and will not have anyone saying anything otherwise.
3. S&L Crisis: The Savings and Loans Crisis of the 80s and 90s demonstrated the socialist tendencies of the US yet again. The of the chief causes for this crisis, among others, was the rampant deregulation of the economy (allowing greater influence of free-market forces). When the fit hit the shan, guess what the US government did? Yup, it bailed the parties out, much like Freddie mac and Fanny May. In fact of the total loss of about $160 Billion, the US government, and hence the tax payers, paid for over $124 Billion! They just couldn’t let the market heal itself, a socialist relief simply had to be provided. On a side note, its ironic that the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 which was enacted in response to the S&L crisis put Freddie Mac and Fanny May in charge of supporting mortgages for low- and moderate-income families. Guess who needs saving in the new free-market precipitated crisis now? That’s right! Freddie Mac and Fanny May!
4. Public Education: Yet another (expensive) example of socialism in the US is that public education system. This includes federal (soft) loans, education grants, the public school system, etc. With the US spending over $11,000 per student per year, the public school system in the US is one of the most expensive in the world, and with a 100% of it being provided for free to the students out of the tax payers pocket, this is yet another example of America’s socialist policies.
5. Unemployment benefits: Uncle Sam pays any unemployed citizen a fixed amount as.. well… a hand out, a give-away. Its called unemployment benefit. There are similar welfare programs for other disadvantaged demographic in the society to equalize the opportunities available to them. Now if that isn’t socialist, I don’t know what is.
6. The Arts: The US government support for the arts through the National Endowment for Arts is yet another use of the tax payers money to fund a ‘greater social good’. And not everyone is happy about it. be anything other than a socialist program. Why? Because if free-market were to drive arts, then you’d have private buyers/parties funding the arts, and not the government, as simple as that.

There probably are many more such examples, but I cant think of any more off the top of my head. But I guess six are sufficient to make my point. Despite all the rhetoric of the glories of capitalism, free-market, and the spiteful opposition to socialism, there are many US policies that are strictly socialist, and yeah, Freddie Mac and Fanny may bailout is not in the least bit unprecedented (remember the S&L crisis bailouts), or a marked jump towards socialism. Its simply business as usual in the US of A. So the next time someone says US was always capitalistic and socialism is an evil that needs to be uprooted, you’ll know better than to waste your time arguing with them.

Image Source: http://www.clas.ufl.edu/users/wbeal/images/socialism.gif

Last week, the US government took control over Freddie Mac and Fanny May, the financial gaints of the US martage industry (and the crisis). Now this puts the US government in control of nearly half of the $12tn mortgage debt in the US (The two companies have lent or underwritten about $5.3 trillion mortgage debt in the United States). There have been several justifications for why such a bail out was necessary, and how it will keep the US economy from collapse, blah, blah, blah…This is not what this post is about. This post is about personal and ideological consequences of this action.

Just to put things in perspective, the $5.3tn bailout has effectively doubled the US national debt over a weekend! Worse, the actual cost of the bailout is yet to be ascertained, simply because nobody knows how much of the $5.3tn debt will be defaulted and/or foreclosed, and not to mention that ensuing expense for when the companies dispose off the foreclosed property. If the actions of the Republican VP pick — Sarah Palin — with respect to selling off state property is any indication of government attitude towards it, then looks like the US government will be losing a lot of money in the near future.

Now the question is, where is all this money going to come from? Answer: the tax payers. So suddenly some third party’s unwise decision to give a sub-prime loan to thousands of unqualified individuals, a decision that I had no control over, is now going to cost ME money?!?! And again, I have no control over that decision! Am I the only one who thinks its a wee bit backwards?

Personal gripe aside, this decision does have other implications which may seem too ‘theoretical’, but should be of significant concern. The decision has implications on social and personal responsibility, ideological fidelity, and designed failure of free market economics.

• Social and personal responsibility:The bailout decision is essentially sending the following message: “If you screw up, no worries, we will try to fix it at no cost to you!”. So essentially we are divorcing people from the responsibility of their actions. The bigger the screw up, the better are chances of the the government fixing it for you. So if you are going to screw up, make sure your screw up big, really big. Once people start hurting from it, then you will be taken care of. In the end, there is nothing to dissuade you from doing it all over again. This is effectively rewarding bad behavior! And this will come back to bite you in the back eventually.
• Ideological Fidelity: The environment for such reckless lending as set up by the continual deregulation of the economy since the 1980s. Such deregulation was in the ‘spirit’ of capitalism and free market economics. If the over arching idea is that a free market will correct itself, then why is the government messing with it by bailing Freddie and Fanny out? If such an intervention is necessary, then what does that say of the capitalistic and/or free market ideology? So is free-market capitalism a flawed concept, which when allowed to run its course will only serve to destabilize the economy? If that’s the case, then would the US come out and say it? Of course not! Its the free market and the pursuit of the ‘American dream’ that makes US so special, so different, so un-Russian, so un-commie. Yet, when it comes down to it, this bailout is largest nationalization in the history of mankind! Now people want to have the cake and eat it too. They want a deregulated economy because free market is where progress is at, and every time it fails (which it inevitably does), either no one wants to suffer through the market’s natural correction process (which is painful at the least), or the system itself is too flawed to correct itself and hence requires an socialistic style intervention. Despite that its still free market. What kind of the ticking time bomb is this? Eventually, US’s debt with catch up with the economy, and then what? There wont be any more money for bailouts. So are we looking at a spectacular collapse in the future? Mostly because all the stake holders are opportunistic hypocritical prostitutes of their ideology?
• Failure of the free market: Is this bailout a slam-dunk argument against free market economy? That’s a tough question to answer. It is quite possible that a free-market system is sufficiently robust and self-stabilizing to a point where it can recover from any jolt it might receive. However, the stakeholders in the economy are not willing to labor through the painful transitional period when the economy is healing itself. In fact, such acute volatility may be a part of growth, maturation, and robustness of the economy (much like a human body learning from experience, diseases, and vaccinations). Such intervention, however, has effectively thwarted the healing that the economy must naturally go through in order to be more robust in the future. So effectively, this bailout is building a near-fatal design flaw into the free market operations to where such bailouts are going to be an infinitely often deal, or there will be more economic crashes and collapses to look forward to in the future.

So either way you look at it, the bailout is at best a short term relief which addresses the symptoms but exacerbates that root cause making the economy even more vulnerable that before to such volatility.

Image source: allposters.com

The most salient argument is that: since biofuel is ‘brewed’ from organic sources like corn, and its easy to grow corn, the source serves to reduce our dependence on fossil fuels, and since we are not burning fossil fuels, we are reducing global warming.

While its true that the source of biofuel is organic, not all sources are equally viable. For instance, consider corn. Corn gives you a 3:1 energy yield, i.e. you spend 1 unit of energy to get 3 units of energy from corn. Not the most efficient. Also, this one unit of energy often comes from fossil fuels. Secondly, ‘brewing’ ethanol from corn requires extremely sterile and specialized equipment. They require, for instance, large stainless steel containers. Now this 3:1 ratio does not take into account the kind of energy needed to manufacture such high grade stainless steel (this cost is assumed to be amortized across multiple crops of corn that can use it to produce energy). But the fact of the matter is, if everyone switches to corn-based fuel, then the manufacturing of such huge numbers of high-grade steel will only serve to make the CO2 emissions a more acute problem. Thirdly, corn is a tropical crop which needs large amounts of water, and is susceptible to diseases. This makes growing corn a resource intensive enterprise, not my idea of a solution to reducing our (non-renewable) energy consumption.

An unfortunate side effect of using corn for biofuel is the following: large amounts of corn is being diverted from food supple chain to the industry. This is raising the food prices world wide. This has made growing corn very profitable, and so countries like Brazil are deforesting the amazon at an alarming rate to plant corn. Such logging, deforestation, and burning is accelerating global warming even more! (for more details visit the Time Magazine article on Clean Energy Scam).

The problem, if fact, is not with biofuel itself, but with corn. Corn is not the most energy efficient choice, its traditional use is as food, and the procedure to brew fuel is too complex, sensitive, and sophisticated. So if we can have a source which is (a) energy efficient, (b) not a food source, and (c) easy to manufacture fuel from, we might be able to have a viable ‘green’ source after all.

We do have such a source: Biomass. That’s right, biomass, the dead and/or decaying compost of plant and animal remains. Think about it. Biomass has been used in rural India as a source of fuel for cooking (Gobar Gas). So can we use biomass as the source for biofuel like ethanol? Yes, we can! Mark Holtzapple from Texas A&M University is working on this. As he says it “I have been working on biofuels since before it was cool”.

In an interview (on Biofuel, in the radio show Biased Transmission) , Mark Holtzapple said that biomass can be used as a viable source for biofuel with tremendous success. The energy yield is as high as 18:1. The brewery is easy to build and maintain. The experimental setups he has is made of plastic buckets! It uses natural bacteria and enzymes to break the biomass down into ethanol. Its easy to use, easy to maintain, and can provide energy without taking away valuable food from the market, without incentivizing developing nations to destroy their forests and plant something profitable. Its all great and wonderful, but no one is paying attention.

Why, you ask? Its because the US government, and the oil lobby, has too much invested in corn that it doesn’t want to go back on it, not matter what the costs. So the next time someone talks of corn based biofuel, please cringe a little because that’s the right thing to do.