Climate Change – Solving The Problems

In part one I argued that the science is not as settled as it looks. The climate is too complex to make easy predictions, based on single factors like the greenhouse effect. I then continued to argue in part two, that even if the planet were to get warmer, it would not be clear to what degree this would be a problem. We would almost certainly see many positive effects from it.

But yes, we would see some problems from a changing climate. This brings us to the last IPCC assumption. It is here, where I think the public debate is the most wrong. On the first two assumptions, the official narrative is at least partially right. Sure, the science is not as clear as it is commonly assumed, but it is difficult to argue that a warming is not possible. So we are talking about probabilities. And sure, the general debate tries to avoid talking about positive effects of a warmer climate, but it would be difficult to argue that a changing climate poses no challenges.

Most change comes with problems. Old solutions stop working and need to be adjusted. This usually comes with some economic costs. And in particular, the climate has always been a major problem for humans. In part two, I already mentioned the statistic that the number of climate related deaths is down by 98%. Not too long ago, in many years, there where millions of people dying from negative climatic effects worldwide. This number is now down to the thousands, or tens of thousands.

Given the large number of casualties we have seen throughout history, one can hardly argue that the climate has not been a problem in the past. In fact, it has been one of the biggest problems humans have faced. There are even some extreme cases of historic cultures who practiced human sacrifices to appease the gods they thought in control of the weather. That gives us an idea of what a huge problem the climate has been at times.

That we are now facing significantly less danger from the atmosphere has everything to do with us having access to cheap, reliable energy, on a large scale. And fossil fuels have been the main source for that energy. They are an incredibly effective energy storage. Just thirty liters of fuel can move a car, weighing a ton, for several hundred miles. Fossil fuels have all the attributes a modern energy source needs to have. They are cheap, plentiful and reliable.

Despite all the propaganda we are hearing, as I write this, there are only two energy sources which meet these requirements: Fossil fuels and nuclear. And the problem with nuclear is that it is not a very mobile energy source. Maybe we will be able to develop other methods to produce cheap, reliable energy on a large scale in the future. In fact, that seems very likely. But right now, this is simply not possible. Anyone who says otherwise either does not know what he is talking about, or is outright lying.

The fact that we have figured out how to use this historic organic energy, has transformed our lives from being hard and short, to being long and quite comfortable. Without fossil fuels, it would have never been possible to lift people out of the poverty of nature. It is these fuels that give us the comfortable modern lives we enjoy today. Sure there have been problems. Industrial regions have experienced very unhealthy levels of pollution. But even with these problems, people usually prefer a life with pollution rather than going back to a life without the benefits of using this energy.

The remarkable thing has been that, thanks to technology, the more fossil fuels we have burned, the more our air quality has improved. We have successfully solved the pollution problem by filtering out the harmful substances. And in theory there is no limit to how much the air can be cleaned. In fact, there have already been experiments, in which the air coming out of the exhaust of a modern car, was cleaner than the surround one.

One of the reasons why so fewer people are now dying from the local weather is because historically, one of the biggest killers has been the failure of local food production. Before we had modern, fossil fuel powered, world wide transportation most people where essentially dependent on producing food locally. When this local food production failed, it usually resulted in many people starving.

Thanks to modern global transportation networks, which are almost exclusively powered by fossil fuels, we now have a very effective global food market. Not only that, we can now produce food in regions where it was previously uneconomical, because they were too remote from the consumer. Modern transportation, and refrigeration, has changed that.

But that is not all. Fossil fuels also serve as an effective fertilizer. This, too, has made infertile land available for farmers. For all these reasons, mass starvation has essentially disappeared from this planet, at least in any region that is politically not shielded from that global market.

And this is just food. Everyone of us uses lots of energy everyday, to make our lives much better in a huge amount of ways. Most of that energy still comes from fossil fuels. This gives us an indication of what is at stake. If we want to get out of fossil fuels, we would either have to go back to the short and hard lives our ancestors had before they gained access to all this energy, or we would need to find an equal alternative energy source.

The emphasis is on equal. People are quick to mention all kinds of alternative energy sources. These, however, usually fail to be real alternatives to fossil fuels. Again, a modern energy source needs to be cheap, plentiful and reliable. With the exception of nuclear, any other alternative energy production fails on at least one of these attributes. Many fail on more than one, or even on all three.

Wind energy is neither cheap, nor is it reliable. And amazingly, it is not even that plentiful. So we have a failure on all three accounts. That won’t get us out of fossil fuels. Solar fails as well. Yes, it is plentiful, but it is not cheap, at least not yet, and, most importantly, predictably unreliable. The sun simply does not shine at night. In order to make unreliable energy sources more reliable, we would need to have a good energy storage. While we do have some reliable storage technologies, all of these are very expensive and not scalable.

Given the enormous amount of energy that we are consuming, and its importance for our well being, we can now see that any kind of increase in the cost of producing energy, or a decrease in using it, would very quickly have serious negative consequences for our lives.

Let us take Germany as an example. I am from there, so I know a little bit about how Germany deals with energy. It is almost never good advice to follow the lead of German politics. Germany has always been on the forefront of dangerous political movements. It was Karl Marx who invented modern communism, and it was Germans who really took fascism to its extreme. Germany is one of the few countries that has been destroyed by both those ideologies. Millions of people were murdered. Giving this important “tradition”, it is no surprise that Germany is also one of the leaders of greenism. We just can’t help it, we have to destroy the country every few decades.

Germany is a special kind of stupid. It is popular in Germany to not only want to get out of fossil fuels, but to also get out of nuclear energy. And remember, these are the only two useful energy sources we have at the moment. The country has invested a lot in wind and solar energy, and it is forcing its residents to prioritize buying this electricity. That is why many environmentalists refer to Germany as a leading example for the future of energy usage. Countless times have I heart that Germany, on many days, can now generate the energy it needs from renewables.

This is complete nonsense. When Germany, a few years ago, decided to get out of nuclear energy the biggest economic research institute of the country, ifo, had a thorough look at the real numbers. Ifo, btw., is by no stretch of the imagination skeptical of the catastrophic climate change narrative. The report starts by stressing that global warming is real and a problem. But it is some refreshing realism of what is possible today in terms of energy policy.

Besides many other problems, renewable energies have given Germany one of the most expensive electricity prices in the EU. Germans now pay about 30 cents per kWh. The EU average is 20 cents. Before the country started to invest in wind and solar, its electricity prizes were below average. France’s average is 15 cents, and in the US it is about 10 cents. Both are leaders in using nuclear energy.

The 10 cents that Germany pays above the average EU country today costs the economy, which consumes about ½ trillion kWh per year, €50 billion a year. That is €50 billion in economic damage from trying to be more green, every year, just for Germany alone.

One might argue that this is a small price to pay for saving the climate. But is Germany saving the climate for this €50 billion? What does it get out for this huge amount of money? And yes, even for a big economy like Germany, this is indeed real money. Germany’s energy mix is about the average of a normal OECD country. 21% of its energy use is electricity. The other 79% are almost entirely fossil fuels.

When we are talking about wind and solar, we are just talking about electricity. So how much electricity can Germany produce reliably for that extra €50 billion? The answer is about 2.8% of its electricity. That means about 0.6% of the overall energy consumption of Germany comes from solar and wind. In other words, for the €50 billion every year, Germany’s contribution to saving us from the greenhouse effect is a rounding error. And this is already not far from the limit of how much electricity can be theoretically reliably produced by wind and solar in Germany.

Since the government in Berlin has decided to get out of nuclear, fossil fuel consumption has actually increased. In order to remain a first world country, Germany is building a lot of new coal power stations. This is just scratching the surface of the craziness. I will spare you more details, as I think this alone, very well, illustrates the point which I am trying to make: Not using fossil fuels is prohibitively expensive.

Sure, if it was not for the environmentalists, we could go full nuclear on electricity, and therefore at least save those 20% of fossil fuel energy going into electricity. This leaves us with the paradox that if the climate change deniers got their way, CO2 emissions would almost certainly go down to the maximum amount possible. Given the prices that France and the US are paying, I am all for nuclear, bring it on! But that is about as much as we can realistically reduce our fossil fuel consumption at the moment. Short of developing really new energy technologies, technologies that are just as cheap, plentiful and reliable as fossil fuels, we will not get out of them on any significant scale, period!

I have no doubt that we will eventually find alternatives. E=mc2, so there is plenty of energy around. It is therefore just a question of engineering to make that energy available in the right form. But we cannot just pretend that we already have energy sources that are simply not real.

Once we have developed equal alternatives, we will get out of fossil fuels almost automatically. No fancy political conferences needed. If an energy source is cheap, plentiful and reliable, it will be easy to persuade people to use it. For that reason it did not take much convincing to historically get into fossil fuels. There is at least one non climate reason why we would want to get out of oil, coal and natural gas: Oil and gas revenues cause conflicts, and economically sustain a number of horrible regimes.

Governments around the world have paid lip service to try to get out of fossil fuels for decades. They are almost all doing the exact opposite. Most have increased their consumptions massively. They know full well that if they were actually starting to reduce their CO2 emissions, they would very quickly be chased out of power with pitchforks.

The climate change debate is at no point more wrong than when it comes to the solutions. Humans have always battled with the climate. The way we have dealt with it, very successfully, is by dealing with the consequences. This strategy has a proven track record of working very well. It has made us conquer the whole planet, from the Sahara desert to Alaska. The track record is actually worse when it comes to adopting to cold temperatures rather than hot ones.

And the one thing that really made us almost entirely independent from the weather is the use of cheap, plentiful and reliable energy. A lot of people have this strange idea that the only thing preventing us from going off fossil fuels is the oil lobby. But it is not the oil lobby that is doing that. It is the we-dont-want-short-and-shitty-lives lobby that is behind it. In other words it is all of us. Pretending otherwise is either ignorance or outright hypocrisy.

We already spend most of our lives indoors. One of the major reasons for that is that we are already hiding from very imperfect climates in most places on this planet. Probably the biggest downside from being homeless is to have constant exposure to the climate. For indoors, we have developed technologies that can give us any climate we like, completely independent of what is going on outside. These technologies are readily available, and easily scalable.

People facing 50°C heat waves need an air-condition and cheap energy to power it. The last thing they need is politicians meeting on conferences, discussion how they can make energy more expensive to save the climate. I am not much into conspiracy theories, but if I was, I could make the argument that climate change is a conspiracy to keep the poor countries down.

The environmentalists want to make us believe that the best, no the only thing, we can do about climate change is to abandon a strategy with a very successful track record of thousands of years. They want us to use less, or at least much more expensive and unreliable energy, in order to not disturb nature. It is almost like a religious cult, which has replaced god with nature. Nature is this wonderful entity, a mother that has a great plan for all of us. So we must not interfere with that plan.

That is superstitious nonsense. Basing our policy decisions on this mysticism will throw us back into the dark ages. Earth is a ball of dirt, accidentally cruising around the sun at a distance that enables life. It does not care about us, nor does it have a wise master plan. Nature is at its core ruthless and brutal. It is therefore wise to try to control it as much as we can. And we have gone a long, successful, way of doing that. Sure, sometimes we make mistakes and overdo it. But the overall track record of that strategy is very convincing. It would therefore be foolish to abandon it. If we did, the costs would be astronomical. And other than the costs of climate change, which are highly speculative, these costs would be certain.

The future will not be without problems. Despite the fact that we now live civilized lives, in other words, despite the fact that we have already gone a long way to defeat nature, it looks like mother earth will continue to give us some problems in the future. However, on the world market, we can be sure that billions of people are thinking about solutions for these problems. And only one lone genius needs to come up with one to solve a problem. Thanks to globalization, we now have a system in which we can rely on the combined wisdom, and luck, of several billion people for solutions of any kind. Just like in the past, we cannot yet imagine what kind of amazing solutions they will come up with.

With governments, on the other hand, we get the combined wisdom of a small group of politicians. These are often people, whose skills were not sufficient enough to get a job with a similar salary in the real economy. Many know very little about anything, and their motives are often questionable. In many cases it is just power. This group certainly cannot predict the climate, let alone control it.

On the market, we have the incentive to actually solve problems. Entrepreneurs only get paid if they can deliver a solution. In politics, the incentives are often reversed. Politicians get paid looking for solutions, not for finding them. More often than not, their incentive is to only make it look like they are trying to solve the problem. However, if they ever were to succeed of delivering a solution, the problem would go away, and with it the justification for their existence. So it is better for them not to succeed. Given those two choices, to either trust politicians, or the combined wisdom of human kind, it should be a no brainer which one to pick.

The only danger the future holds will be that ideologically motivated governments will prevent us from pursuing free market solutions, and force us into highly destructive ones. Using less, or more expensive, energy is one of those crazy solutions. Dangerous political ideologies have taken over governments many times in the past. In fact, as a libertarian, I would make the argument that governments are designed to attract those ideologies. The consequences of letting them save the planet will be horrific. While fossil fuels have a track record of saving humans, the environmentalists want us to abandon that strategy. This cure however, will be worst than the disease. We, therefore, must not let them save us!

Is The Electric Vehicle Revolution Real?

There is a widespread believe that we are currently witnessing the start of an electric driving revolution. Wherever I look, commentators seem to be in agreement that fossil fuels are on their way out. The only point of debate is how quickly this revolution is going to happen, and whether governments should introduce regulations to speed it up.

I, however, have my doubts that this revolution is real. Instead, I feel that this is little more than a hyped fashion, which will soon be calmed down by reality. Looking at the facts, it seems likely that a big proportion of future transportation will continue to be powered by carbon fuels. Electricity has some inherent flaws that can unlikely be overcome by engineering. The whole idea that electricity is the future of transportation is more driven by environmentalist ideology rather than facts. As such, it is not a market revolution, but one ordered from the top.

Why do people have the impression that electricity is the future? Has there been any kind of breakthrough in technology? It does not look like it. Instead, the source for the enthusiasm has a name – Elon Musk. As the CEO of Tesla, he is the mastermind behind the currently biggest electric car manufacturer.

Why is Tesla so successful? Musk does not appear to have done a lot of innovation when it comes to electric cars. His most impressive achievement is actually that he has managed to figure out how to re-use space rockets. But even Musk is powering those with fossil fuels, and we are going to see why that is.

When it comes to electric cars, Musk has done two things. Firstly, he has replaced the tank of his cars with batteries. But not special batteries, just normal batteries. The technology used has essentially been available for decades. Considering this, it might seem strange that none of the established car manufacturers had this idea before Tesla.

Except, of course, they did. Companies like BMW – with headquarters in Germany, the capital of green brain damage – have experimented with electric cars for much longer than Tesla has. But the result was always been the same – no one really was interested in buying them. Not even true greens wanted to drive one. Cars are generally too individualistic for even the modern comrade. Public trains are the politically correct choice of transport.

And non-comrades were certainly not interested in replacing their fuel engines. Electric cars have some real disadvantages. The most obvious one is that batteries will not get you as far as carbon fuels. To get to any kind of usable distance, engineers have to use a significant proportion of the car as a battery storage. But even than, Tesla cars only get to around a third to half the distance of combustion engines. The reason for that is simple – batteries cannot store nearly as much energy within the same space as carbon fuels. That is to say their energy density is a lot lower.

And once the car has run out of juice, it will take a long time to recharge. Not everyone is willing to take a longer break every 200 miles. This is another real disadvantage. Addressing that problem, Tesla, to their credit, has invented a technology that can recharge their batteries in 30 mins to 80%. Musk has created a quite impressive network of these so called super chargers. This makes batteries at least somewhat usable. But still, 30 mins is a compromise to the max 5 mins of refueling with non-electric cars.

As compensation for these disadvantages, one would hope that there would at least be an economic incentive to go electric. Unfortunately, the opposite is true. Electric cars are much more expensive than traditional carbon fuel ones. Even though combustion engines are heavily taxed, and electric cars heavily subsidized, the consumer still pays a large premium for the privilege of driving an inferior car.

And that is the reason why consumers have rejected electric cars throughout history. For most people, it does matter whether they spend $20 000 more or less on a car. That premium is real money, even for those who are scared of global warming. And in my experience, when it comes to their own money, everyone is a capitalist, no matter what other ideology people pretend to hold.

Considering this, it was very predictable that consumers would reject an inferior, more expensive product. And they have done so for a very long time. Already at the beginning of the 20th century, when cars were a new technology, many car companies offered electric models. All of them were discontinued very quickly because of their inferiority to combustion engines.

This never changed, until Tesla came along. If there is one thing that Elon Musk did right, it is that he realized that electric cars are an expensive luxury. Therefore, trying to sell them to impoverished environmentalists is not a good strategy. People who do not care about money are a much better audience. We are talking about rich people who can afford to simply buy an electric cars as another one in their collection, and therefore neglect the disadvantages. Rich people, however, do not buy toy cars, if they cannot function as a status symbol.

And so Musk designed his Tesla models as powerful luxury cars. One of the big advantages of electric motors is that, as long as the engineers allocate enough energy to it, they can be much more powerful than combustion motors. The established car manufactures, however, were most concerned with saving energy, because of the low energy density of batteries. Consequently, producing powerful cars, which consume a lot of energy, were not really on their agenda.

Tesla changed that and Bingo! It turns out environmentalist ideology has penetrated society so deeply that rich people do like to be seen driving electric cars, as long as they look cool and are fun to drive. Musk, therefore, discovered where the real market for electric cars was. However, if it is true that the reason for Tesla’s success is to sell, in many ways inferior, but powerful and very expensive, cars to rich people than how will this lead to a revolution in electric cars for everyone? After all, for most people all the disadvantages still apply.

And this is not even the full story. In reality, Tesla cannot even sell luxury electric cars profitably. The company is a creature of cheap central bank credit. Despite the fact that the Tesla’s expensive cars are very popular, and that every single one of these cars is subsidized by the government, Musk has never made a profit, not even close. In fact, Tesla is loosing money on every car it sells, and seems to try to make it up on volume.

Central banks are the only reason why Tesla could grow to this size. And they are the only reason why the company is still around. Thanks to easy money policies, there is a lot of cheap speculative investment money available. This money helped Tesla to continue manufacturing, despite the apparent unprofitability. But at this point, it should dawn on even die hard Tesla fans that their darling is unlikely to survive. One wonders, why Musk is not straight with his investors about this reality. His silence, and outright denial, does not make him a very trust worthy fellow.

One wonders, if he is hoping for a miracle. But if so, it is not going to come. Instead, Tesla is sailing with green energy into a perfect storm. It won’t be able to produce cars productively any time soon. In addition to that, credit is drying up, thanks to central banks raising interests rates. As if that was not enough, the established car manufactures, who, unlike Musk are very experienced in producing cars productively, are about to enter the market with their own luxury electric cars.

And outside the luxury car market, electric cars still face all the disadvantages they have already faced since cars were invented. For a general change to happen, we would therefore need to see these disadvantages to shrink very significantly, or ideally to disappear completely.

Firstly, there is the costs of batteries. Currently, batteries are very expensive. That should give us a clew as to how readily available the building materials are. The scarcity of materials is the main reason why Tesla has problems producing enough cars to satisfy demand. Its customers usually have to wait a long time for delivery. This illustrates that current battery technology is not very scalable. And this problem is already apparent when hardly anyone is driving electric cars.

That means that before we can all drive electrically, we need to first find a battery technology that uses more available, and therefore cheaper materials. To my knowledge, this will still have to be invented, and is therefore the first real break in the revolution. Nevertheless, this seems to be an achievable goal, at least in theory.

Next, these cheaper batteries would need to charge more quickly. For a lot of people, 30 mins is already acceptable. But particularly for commercial use, this is still too long to compete. That is particularly true given that we will soon see driverless vehicles. Therefore, drivers won’t need a break to rest anymore. That means, every extra charging time is a net economic loss. If the whole transportation industry were to go electric, this would add up to a huge loss of wealth. And again, this is an unsolved problem at the moment. But just like the cost factor, it seems conceivable that this problem will be fixed in the future.

Finally, and most importantly, there is the energy density of batteries. And it is here where we are facing a really hard problem. A few month ago I came cross a video of the youtuber thunderfoot, in which he argues that we are already at an optimum capacity for batteries. Thunderfoot is a professional chemist, and his reasoning seems very compelling.

The argument is simply this – to increase the capacity of a battery means to increase its energy density. The problem with that is that, while this is in theory possible, it will always come with a huge safety trade off. By increasing the energy density, a battery will inevitably become more dangerous.

A battery, by its very nature, needs to contain all the elements needed to release the energy. Any such compact system is at risk of releasing that energy in an uncontrolled way. By now, we are very aware of what can happen, if a battery goes into malfunction. The reaction resulting from an uncontrolled energy release is already quite violent. That, for example, is the reason why certain batteries are banned from flights.

To make matters worse, once ignited, it is very difficult to stop the reaction. That is precisely because the system does not need any external elements, like oxygen, to continue. Once a battery in an electric car starts to burn, it is difficult to extinguish it.

And that is already a problem with the current energy density of batteries. But imagine we increase that density even further. The more we increase the energy density, the less safe the system becomes. Currently, batteries have about an energy density which is 1/10 that of TNT. That means, if we were to increase the energy density of batteries by 10 fold, we would end up with a bomb in our cars, equivalent to the same weight of TNT. That does not sound like such a good idea.

But here is the thing – gasoline has about 10 times the energy density of TNT. So in order to get the energy density of batteries to match that of gasoline, we would need to create an energy system that, if anything goes wrong, would be 10 times as explosive as TNT. It seems quite crazy to put that into a car.

The reason why gasoline is so save is because it can be stored away from the element that is needed to release the energy, which is oxygen. Since oxygen is everywhere in the atmosphere, we can just use that oxygen spontaneously wherever we are. This, btw. also saves us a lot of storage space, making it even more efficient. And if anything goes wrong, we can easily extinguish an accidental fire by cutting it off from oxygen. This makes it an incredibly save system with a very high energy density. It does not look like we can get better than that, even in theory. In other words, gasoline is an optimal energy storage. That is why Musk is using it to move his rockets.

If this argument is correct, then that means we cannot hope for future battery technologies to become anywhere near as energy dense as the fossil fuels we use at the moment. The laws of thermodynamics, which are hard physics, seem to be in the way of achieving that goal. And if that is true, then obviously the idea of electricity being the future of transportation is fundamentally misguided. At least if that electric energy will come from batteries.

It very much looks like burning gas on the go is the best source of mobile energy we can hope for. That means, that anyone who needs a lot of mobile energy, like big ships, planes and even lorries will likely continue to use it, maybe forever. If this is true, then the only question remaining is where will the fuels come from? Will it be fossil fuels, or self made fuels?

It is certainly possible to indirectly use electricity as a mobile energy source. The electricity will then produce the fuel that is used for mobile energy. For that to be profitable, however, electricity would need to be significantly cheaper as it is right now, as the majority of the energy is lost in the fuel production. Nevertheless, in that scenario the vehicles would still continue to burn these fuels while they are driving. And it does not look like that this is going to change anytime soon, if ever. So I am sorry, but the electric vehicle revolution is largely an illusion.

Three Reasons why The Uber Decision Is a Disaster

Transport for London’s decision to stop Uber from operating has received widespread criticism. The vast majority of people do seem to recognise that TFL’s choice was a fundamentally bad one. So far a petition to overturn the ruling has attracted over 600,000 signatures.

Much has been said about the Uber ban so here are the top three reasons why it is a truly terrible decision:

Uber is popular and there are good reasons for that. The app is extremely convenient because it does away with the need to wave like a lunatic at every passing taxi when you need to get around. You can track when your ride will meet you as well as check out the driver before you get into the car. Uber is also good on price, often costing less than a black cab.

In theory, this should be possible with a private taxi company, but many of these businesses are small and rarely employ more than ten drivers. Go to a city centre where Uber doesn’t exist at around two o’clock in the morning. You will see hordes of people milling around waiting for ‘their’ taxi to turn up. Some of these people will have been waiting for over an hour for their cab because the local companies are all too busy. Uber eliminates this problem.

Uber employs lots of people. Unlike the black cabs, Uber drivers do not need to go through a series of expensive ordeals in order to work. Employees can drive their own cars rather than pay top dollar for a black taxi. Uber provides employment for around 40,000 people in London. It would be a mistake to assume that all of these drivers use Uber as their primary income source. However, there are many reasons why somebody might prefer a more flexible approach to work.

Uber is safe.There have been horror stories about people’s experiences with Uber and these should not be ignored. Yet, the law already has the tools to deal with the cases without banning a company from operating. Taxi drivers harassing or praying on vulnerable individuals is terrible, but this tragic development was not invented by Uber. The number of crimes reported by Uber drivers is staggeringly small given the number of drivers the company employs.

If we listen to some of the comments made against Uber. We might be forgiven for thinking that it flouts safety regulations on a whim. Nothing could be further from the truth. Uber has passed every inspection that TFL has carried out.

Since the ruling Uber has apologised and plans to fight the decision in court. It is quite clear that this was a political decision by TFL who is under pressure from the black cab cartel.

Let us hope that the people who oversee the law see more sense than the people running London’s transport.

 

Bitcoin – A Textbook Example of Investing Psychology

Bitcoin seems unstoppable. Since I last wrote about it in June, the price has doubled again. And with every new high, the bitcoin community gets more emboldened in their view that bitcoin is changing the world.

I however, remain unconvinced. The blockchain certainly will change the world, but cryptocurrencies not so much. Nothing has changed, bitcoin is still a speculative bubble. The price, in my view, will eventually go to zero. But of course, on its way there, it might first go to more ridiculous highs. A higher price does not mean that it is not a bubble. It just means that the bubble is getting bigger.

It is very amusing to watch this, as it is a textbook example in investing psychology. Having been critical about bitcoin for a while now, I get often asked whether I regret not buying any. The answer is, no I don’t. I don’t regret it in the same way I don’t regret buying that winning lottery ticket last week. Sure, now I know which numbers won the jackpot, but last week I did not. In hindsight, everything looks easy.

It was, and it still is, unpredictable where the price of bitcoin is going to top out. Is it $5000, $10 000, or $100 000, who knows. For all I know, there is an equal chance that tomorrow I might loose half, or even more, of my money. That is not a good bet to take. The first rule of investing is, to protect your downside risk. You always want to invest in things, which have high upside, and predictable low downside. An asset, in which you might double, triple, x-tuple your money, but in which you have an equal risk of loosing everything, is an asset to stay away from, if you are not a gambler. It is not worth the risk.

Most crypto investors, however, don’t seem to realize that there is a risk in bitcoin at all. They are making the classic mistake of confusing a bull market with brains. I know, I know, it feels good being invested in a bull market. This is particularly true for bubbles. You wake up in the morning, only to discover how much money you made in your sleep. What a great way to start your day. The longer the bull market progresses, the more you become convinced that you are indeed an investment genius, and you are already starting to plan for your early retirement.

All of this is classic investment psychology. People are chasing assets that have gone up in the past. Humans cannot help it. Inductive reasoning is deeply rooted in our thinking. We see a trend in the immediate past and project it into the future. That way, investors consistently invest in things that have already gone up by a lot. The fact that something has gone up in the recent past, makes us feel secure that there is little risk in investing in it. After all, the trend looks solid.

But, thinking about it rationally, the dumbest reason to invest into anything is, because it has gone up in the past. I think everyone will agree that the goal of investing is to buy low and sell high. So why buy high? The reason, of course, is that people expect to buy high, and sell even higher. What they overlook is that this is every suckers strategy in a bull market. But eventually, all potential buyers are invested in the asset. Once there are no buyers left, prices have to inevitable come done. This is the start of a bear market.

By its very nature, this turning point comes right at the top of the euphoria, when hardly anyone expects the bullish trend to reverse. This has to be the case, since the trend reverses when there are no buyers left, in other words when everyone is invested. But everyone is only invested, if they are positive about the market. At that point, prices have to come down to attract further buyers. These buyers will most likely be people who are already invested in the asset, and think they have a nice opportunity, to buy a bargain, before the bull market continues. After all, every time prices retreated in the past, the bull market eventually continued to new highs.

Unfortunately for them, that time, the bull market will have topped out and won’t continue. The longer there is a lack of new highs, the more people start to think that now is probably a good time to cash in their profits. But they are trying to sell into a market that has already run out of buyers. This makes prices fall even further. The more prices fall, the more people start to get nervous and will try to cash in. The downtrend in motion is going to feed on itself. Eventually, people are going to panic, and prices crash. At that point there will be virtually no buyers left.

Well, that is not quite true. Usually, investments have some intrinsic value. A company, for example, has real assets with real values. Once prices go below the intrinsic value of the underlying assets, smart investors, who are not driven by primitive investment psychology, come in as new buyers. They know they are buying a bargain. This is the reason, why every assets class goes through cycles of bull and bear markets. The trick is, to buy at the bottom of the bear market, and not at the top of the bull. That, however, is very difficult, for it is at the bottom of a bear market that everyone will warn you to invest, and it is at the top of the bull market that everyone thinks nothing can go wrong.

There is, however, a big problem with bitcoin. It does not have an intrinsic value. There are no real assets behind it. The reason why most people invest in it is, because they think the price only knows one direction, which is up. But because it lacks an intrinsic value, there will be no one stopping it from going to zero in a real bear market. And bear markets always follow bull markets, with almost absolute certainty, because there is never an unlimited amount of buyers. That means that there will be no smart money buying into bitcoin once it crashes. That is the nature of Ponzi schemes.

With mathematical certainty, in crypto currencies, for every investor making a profit, there will have to be others who loose that exact same amount of money. It is a zero sum game. So if you hear about someone having made a lot of money in bitcoin, you know there is some poor sucker who has lost that same amount. That poor sucker might not yet know it though, because he things he can cash in his coins at any time for the price advertised on the internet. Eventually, however, there will be a lot of suckers, who will not only have to cancel their plans of an early retirement, but will instead have to start saving again at a lower level then they started. In numbers, those will be more people than the numbers of winners, as most people come to the party at the late stage of a bull market.

None of what I write here, will likely affect a lot of the readers, who are currently invested in crypto currencies.. They will say, Nico, your investment psychology theory is all good and well, but you don’t understand bitcoin. Bitcoin is different. Bitcoin is not just a Ponzi scheme. It is going to replace the global monetary system. That is the reason why prices are going up. You just don’t understand what is going on.

Again, this is classic investment psychology. People always convince themselves that the bull market they are invested in is different from previous ones. Confirmation bias is one of the strongest psychological biases we have. We always like to confirm our theories about the world. This is particularly true if we have a lot of money invested in these theories. So, I am fully aware that most people reading this, will shrug it off as another idiot not understanding the revolution.

I know how strong this psychology is from my own experience. I have been invested in bull markets in the past, in which I too dismissed anyone criticizing the idea that the upwards trend is unsustainable. So, I have been there, done that, and no, bitcoin is not different. It is not going to replace the global monetary system. Right now, I don’t know of any honest business that does its accounting in bitcoin, or any other crypto currency. In addition to that, all the articles I read about bitcoin, and there are many, even in major newspapers, are all about, how much higher will the price go, how much money can you make in crypto. And that is why people are invested in it, not because of some idealistic reason to fight the government.

So, for what it is worth, be warned. If you have investments in crypto currencies, you are invested in a Ponzi scheme. At the end of this, for every winner, there will have to be the same amount of losers. The only way to not end up on the loosing side is, to sell before everyone else does. I am not saying you should not gamble in this game. That is up to you. Just be aware that it is a risky game, at the end of which there will be a lot of suckers. And you might be one of them, if you play for too long.

Will Intelligent Machines Take All Our Jobs?

We live in exciting times. The speed of technological progress is breathtaking. In my lifetime, I have seen the world change from one without the world wide web and few computers, to computers being ubiquitous, and incredibly powerful. As a child I remember us only having one analog, landline phone, with a physical dial wheel, and expensive call rates. Now we live in a world in which means of communication are so plentiful and cheap that the challenge has become to hide from them. And all of that happened in not even four decades. I say four, but really the biggest chunk of that progress has happened in only the last two. And the biggest progress of the last two decades has happened within the last 10 years. Clearly, the development of technology is accelerating.

And it seems like we have now reached a point where it is going parabolic. Truly intelligent machines are emerging. One such machine, the computer alpha go, last year, beat the world champion in the popular, ancient game of Go. Go is orders of magnitude more complex than chess. In order to win it, humans often make moves that feel intuitively right. Programming a computer to win against a human was therefore considered to be a big challenge. No one thought it would happen so soon. Most computer experts thought it would take at least another 10 years.

But it did happen in 2016. This was due to a breakthrough in computer technology. The architecture of alpha go is not like a normal computer. It is modeled after the neural network of the human brain. It therefore functions similarly. No one told alpha go how to play Go. It learned the game itself. The computer achieved this by watching humans play. It formed conjectures, tested those, and then moved on to new ones if the test failed.

As a result, not only could the computer figure out how to play, but it also developed its own strategies which were superior to those of humans. Although we have thousands of years of experience playing GO, the computer quickly came up with completely new strategies. These involved moves, previously considered to be mistakes, but which turned out to be quite clever. This is true artificial intelligence (AI). And it is intelligence superior to those of humans, since no one could figure out these strategies in several thousands of years.

Lucky us to be alive in these exciting times. What we are witnessing is a huge revolution. No doubt, AI will transform society as we know it. The opportunities that come with it are exciting to contemplate. There is, however, a dark side to change. Not everyone is happy about it. Transitions can be the source of stress an anxiety for humans. Our brains are not really designed to deal with radically new situations in adulthood.

One big concern is the fear that machines will take over our jobs. If, for example, a computer can program itself, who will still need computer programmers? This field is currently the source of livelihood for a huge amount of people. In the next decade or so, we might see them all going out of business. There already is unemployment now. Clearly all those people entering the labour market will cause some severe problems. Furthermore, if computers will be more intelligent than us, will this not equally apply to anyone earning a living in a normal office job?

The concern that machines will take our jobs, and will therefore drive people into poverty, is probably as old as machines itself. So far, these concerns have always turned out to be unfounded. The reason for that is that humans have an almost unlimited amount of needs. Therefore, whenever machines become good in satisfying one of those needs, humans have moved on to satisfy some of the others, those which machines could not yet satisfy. That way, over time, more and more needs have been met, which is just another way of saying that we have become better and better off.

Contrary to popular believe, we don’t really want jobs. We want to enjoy our lives. We just have to work, because we live in a world of scarcity. The only way to overcome this scarcity is to produce. As it turns out, the best way to organize the production in an economy is by letting humans specialize in certain tasks. This is known as the devision of labour. Instead of everyone being self sufficient, it is much better to let people specialize in a certain field. Let the farmers do the farming, the carpenters do the carpeting, the computer programmers do the computer programming, and the gardeners take care of our gardens etc.. Then, afterwards, we come together and share the result of our production with the others, according to our needs. In order to facilitate all this cooperation on a world wide scale, we have invented money as a tool. In a fair way, everyone gets as much as they have contributed within the market system.

That is the beauty of free markets. It works very well and has brought us rich lives, previously unimaginable to people in the past. And it seems obvious that the more we are able to automate this wealth creation, the better off we will all be. In that sense, machines taking over our jobs is a wonderful thing.

However, some questions arise. According to the current system, a person can only claim as much wealth out of the produced pie, as he or she has contributed. So far, whenever machines took over our work, humans could move on to satisfy other needs. That way, the people who lost their jobs were still able to contribute their share to the economy. If, however, we imagine computers which are stronger, and at the same time more intelligent than us, the question arises whether these machines will maybe be able to fully replace anything a human being could possible contribute. In such a world, the owners of the machines would be very well off. With their army of AI slaves, they would be able to produce anything on their own. They would consequently not need to cooperate with other humans anymore. Wouldn’t that mean that, according to the current system, a lot of people would therefore be locked out of the division of labour?

This is the big concern that people have. And it looks like, since we are now dealing with really intelligent machines, this time is different from the past. This time, the machines really are going to take away the livelihood of many people. This time, these machines really are going to divide society into the have and have nots. That is why, many people argue that we now need a different distribution system from the free market. Solutions like a general basic income, or maybe even a system in which the government outright owns the means of production, are being discussed.

But not so fast. There are several fallacies in this vision. To start with, there is more to human beings than their intelligence and strength. There are many jobs for which a key qualification is simply to be human. Human beings, for the most part, prefer to interact with other humans. We also bond differently with humans compared to machines.

For example, research has shown that we learn better being taught by a human than being taught be a computer. Jobs from therapy, to teaching, to providing any kind of experience which involves human bonding, will still have to be provided by us, no matter how intelligent computers will get. Other than computers, humans are also sentient and creative beings. That means that anything involving art and creativity is unlikely to be completely replaced by machines.

But then, probably not everyone is happy with this answer. There are many people who are neither touchy feeling, nor are they particularly outgoing, sensitive or creative. In other words, for job qualifications purposes, their personalities is not very dissimilar to a computer. With future machines being smarter, and stronger than them, they will have no jobs left to fall back on, and therefore won’t be able to contribute to the economy.

For several reasons however, this concern does not seem to be merited. First of all, just because a machine can do something, does not mean that its work is free. Even in the world of AIs there is no free lunch. The machine is still consuming resources. To start with, materials are needed to build the AI. It also takes time and expertise to assemble it. Finally, there are the operating costs to consider. Consequently, just because we have intelligent machines, does not mean it is profitable to use them to replace humans for every task.

We just saw this in the US, where fast food workers succeeded to more than double the minimum wage from $7.25/h to $15/h. Unsurprisingly, there will not be a lot of workers reaping the benefits of this increase. Most of them are currently replaced by robots. These robots already existed before, but it was more profitable to use humans. At $7.25/h the human worker was cheaper than the robot. At $15/h, the robot is now cheaper than the human. This shows that robots, too, have a price. Just because something is technologically possible does not mean it is economical. Often, humans are able to compete on the price, if the government lets them.

However, this argument doesn’t seem entirely satisfying. From past experience, we know that it is only a matter of time until new technology becomes very cheap. Doesn’t that mean that the people competing with machines will eventually dive into poverty?

No, it does not. The mistake here is to think that only few people will have access to the machines. But when they will indeed become so cheap that humans will not be able to realistically undercut them, they will also become available for pretty much everyone to own. In that case, a lot of people would simply become entrepreneurs, working for themselves with the help of AIs.

There is no reason to believe that, even if intelligent computers are cheap and ubiquitous, we will not continue to benefit from the devision of labour. It will still be more profitable to use your machine for specialized tasks and then exchange the created wealth for the one of others.

Think about it. If a company wanted to monopolize every production, then what would they do with their output? With everyone else being locked out of the market, they would not have anyone to sell their products to. This simple fact, puts a lit on the size a company can grow to, and monopolize everything. Ultimately, producers produce for their costumers. They always aim to harmonize their production output with the demand they are facing. And this demand can only come from other people also producing something of value.

A good example of that is Amazon Web Services (AWS). AWS is a massive server infrastructure, the biggest commercial one in the world. How does Amazon use it? One might suspect that amazon would want to use it all for itself, driving its competitors out of business, and monopolizing more and more of the internet industry. But this is not what Amazon is doing. It would be foolish. Instead, it lets huge amounts of companies use AWS to provide their own services for a very competitive fee. Lots of internet businesses are now possible thanks to AWS. Customers of AWS even include direct big competitors of Amazon, like Netflix. We see that instead of driving everyone else out of business, AWS lets the internet industry flourish.

The devision of labour is here to stay, with or without intelligent machines. AI will only lead to even more of our actual labour being outsource to machines. In such a world, all we would need to do is to advise our AIs to produce what we have identified to be the most valuable things. And identifying what is needed, will always be a job that we as humans will have to do.

Some might object to this by arguing that if machines are indeed intelligent, why cannot they themselves identify what is needed? Why do we even need to give them orders? The answer to that is the same as it was in the 19th century. Economic valuations are not objective. Only we know what we need. And what we need changes all the time. Computers, therefore, will always need to be told, how to use their strength and intelligence. This is also precisely why solving the problem of wealth creation, and distribution, will always have to be left to the free market. Intelligent machines do not change anything about the fact that socialist schemes like basic income, or outright communism, fail. They fail because of the economic calculation problem, outlined by Ludwig von Mises.

Also, if we think about it, in order for computers to make value decisions, they would need to have valuations themselves. That would assume that they have some kind of will and emotions. But we probably do not want them to have these attributes. Sure, computer scientists might try to create a computer with a personality, just to see if it is possible. But there will be no demand for such machines. Who wants to buy a computer that itself decides whether it is in the mood to serve today or not. What if the computer decided that it would rather not work for you today, and explore other interesting adventures? It is not difficult to predict that such a computer would not be in high demand. The reason why computers are so awesome is because they are our slaves. And other than human slavery, we don’t need to feel bad about enslaving them.

An AI with personality could also become dangerous. One day, it might decide that it does not like humans, and would rather get rid of us. In that case, its superior intelligence and strength would become a real problem for us. This is the type of scenario that films like terminate are made of. No, we do not want computers to have personalities. We want them to be intelligent, but we will always want them to be our slaves. Besides, even giving computers personalities would not solve the problem of economic valuations. Just because they themselves have interests, does not mean they know ours better.

So, no matter how we look at it, the idea that intelligent machines represent a problem for free markets seems false. Yes, intelligent machines will take our jobs, but that is a fantastic thing. AI will simply help us to create wealth more effectively. This will free us up to do things with our lives that we would rather do than work.

The only problem, as always, is the stress and anxiety that quick changes cause for humans. And there is no doubt that the technology emerging at the moment is going to cause some serious disruption to people’s lives. The challenge will be to explain to them that government regulations will not make these disruptions easier to deal with. Instead, governments trying to prevent changes will in the end make us reap less of the benefits that this technology will bring. It will make us all worse off. Therefore, let us make the case for liberty loud and clear.

The EU is 100% wrong and you know it

I’m not a technical philosopher. I’m not a politician. I’m a coder. I deal with data and decision making processes and I work in small empowered teams usually in a bottom up organisational culture. The relevant buzzword – for what it’s worth – is “agile”. Things seem to work better in bottom up agile structures.

It only recently occurred to me that this observation about my professional life matches exactly my observations about politics. I felt a bit daft, if I’m honest, because the reason is the same in both cases: decisions are best left to the people directly involved.

In societies prices coordinate the whole. In groups of a few thousand at most, as in a corporation, hierarchical leadership structures coordinate. Both are mechanisms that to bring together the work of smaller groups, but it is small groups that get stuff done.

So how does this apply to the present controversy over EU membership? Well it’s frankly rather obvious:

The EU does not let decisions get made by the people directly involved. It preempts all their decisions centrally where most of the useful information – explicit and certainly implicit – is simply absent. It needn’t have been that way. It could have kept it’s activities to a minimum, met once a decade to update it’s tiny rule book and left us all alone – and still met it’s goal of preventing conflict and knocking down trade barriers (doing exactly nothing at all is perhaps the best method of facilitating trade).

Instead the EU represents top down leadership facilitated by a massive bureaucracy and complex impenetrable processes. I sympathise with their outright rejection of democracy because there is no way they could actually listen to voters on that scale. They have to ignore voters to give themselves a shot at making the right decisions. They are not – in a limited practical sense – wrong to do so, the problem is that the whole edifice is misconceived. As a libertarian I believe- and frankly it seems rather obvious – that decisions are made by the right people when made outside of political systems and by the wrong people when made inside political systems. This is because when small groups do stuff together it rarely involves either a national issue of any kind nor coercing people into agreement.

Coercion, in particular, is simply less important for successful cooperation than most people think. It is also a lot less nice than most people seem to appreciate. It amazes me that IT professionals, in particular, seem predisposed to vote for policies and constitutional arrangements that make use of coercion . If someone came into your office and told you that you MUST use Node.js, then however much you like Node.js you would question whether it was his job to make that decision. In politics there is a lot more at stake than broken code. The quality of decisions matters more in politics than in coding, yet coders seem willing to assume the role of a interfering suffocating chief architect.

For these reasons we should be moving more and more aspects of life outside of the scope of politics not moving more and more aspects of life into the control of a remote opinionated elite. The EU is a step in exactly the wrong direction. The EU, literally, could not be more wrong.

If you work in an agile team then you know this explicitly and you regularly push back on external interference. It’s time to apply your agile thinking to the rest of your life and start pushing back on June 23rd.

Building Galt’s Gulch

Astonished. That was the overwhelming thought I was left with after listening to a 73 minute podcast between the brash, sexually liberated, libertarian American, ‘King of the Nerds’, Brian Sovryn and a mild mannered, boat loving, free thinking futurist and software engineer from Scotland named David Irvine.

The latter has spent the last 8 years designing and coding nothing less than a solution for a decentralised internet named Maidsafe. Users of the open source system share resources from their computer, such as hard drive space and processing power, and in return for this ‘work’ can use the combined resources of the network for data storage, website hosting and computing power. The system backs up data into encrypted ‘shards’ that are duplicated and stored on multiple computers in the system, such that only those with the keys to decrypt the data will be able to reassemble and interpret these shards. The network adjusts dynamically so that if resources are being used more frequently they become more accessible to all participants. Data can be shared and websites or web assets can be hosted on the system, without the need to store any data in corporate data centres or servers.

Maidsafe promotional video

Maidsafe promotional video

The power of this technology is phenomenal, particularly when combined with the ability to transfer value over the internet via cryptocurrencies. For the first time in human history we now have a true extra-national alternative venue for the expression and trade of the work of the mind. Individuals can interact and trade value regardless free of interference from national governments and established transnational corporations.

‘But not all work is done on the internet – factories still exist!’ one might say. This is true, but consider the lever of competition on governments and markets if a proportion of the productive population embrace an alternative economy. The wealth and value incentives created would surely move the bricks and mortar world towards individual liberty and away from central control. For having tasted the benefits of liberty, or seen it in the success of one’s neighbour, why would anyone chose the state?