Category Archives: Ideas

Regime Shifts

Computer trading producing new financial dynamics?

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In October 1987,  stock markets around the world crashed, with the Dow Jones droping 22%.  The causes of this crash are still unclear, but one of the suspected causes was computer automated trading.  This concern lead attempts to design mechanisms to break potential viscous cycles by creating ‘circuit breakers‘, rules that halt trading if the Dow rapidly .  However, as financial engineers innovate, new risks are emerging.   The Financial Times writes Computer-driven trading raises meltdown fears:

An explosion in trading propelled by computers is raising fears that trading platforms could be knocked out by rogue trades triggered by systems running out of control.

Trading in equities and derivatives is being driven increasingly by mathematical algorithms used in computer programs. They allow trading to take place automatically in response to market data and news, deciding when and how much to trade similar to the autopilot function in aircraft.

Analysts estimate that up to 60 per cent of trading in equity markets is driven in this way.

… Frederic Ponzo, managing partner at GreySpark Partners, a consultancy, said: “It is absolutely possible to bring an exchange to breaking point by having an ‘algo’ entering into a loop so that by sending them at such a rate the exchange can’t cope.”

Regulators say it is unclear who is monitoring traders to ensure they do not take undue risks with their algorithms.

The Securities and Exchange Commission has proposed new rules that would require brokers to establish procedures to prevent erroneous orders.

Mark van Vugt, global head of sales at RTS Realtime Systems, a trading technology company, said: “If a position is blowing up so fast without the exchange or clearing firm able to react or reverse positions, the firm itself could be in danger as well.”

For more details on current problems see the Financial Times article Credit Suisse fined over algo failures

NYSE Euronext revealed on Wednesday it had for the first time fined a trading firm for failing to control its trading algorithms in a case that highlights the pitfalls of the rapid-fire electronic trading that has come to dominate many markets.

The group, which operates the New York Stock Exchange, said it had fined Credit Suisse $150,000 after a case in 2007 when hundreds of thousands of “erroneous messages” bombarded the exchange’s trading system.

The messages, generated by the Credit Suisse proprietary trading algorithm, caused the trading system to slow down, affecting 900 share issues, according to Ray Pellechia, a NYSE Euronext spokesman.

Asked if the exchange’s systems could have been knocked out, he said: “If you had multiplied this many times you’d have had a problem on your hands.”

Ecological Management, Reorganization

Ecological Imperialism during the Cold War

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During the Cold War there was a a faint reprise of the Columbian Exchange.  Science Now reports on a study by François Chiron and others in Biological Conservation (doi:10.1016/j.biocon.2009.10.021) in Cold War Split Birds, Too in ScienceNOW:

The Cold War divided the people of Europe for nearly half a century, and it turns out humans weren’t the only ones stuck behind the Iron Curtain. Trade blockades led to vastly different numbers and types of invasive birds in Western and Eastern Europe, new research reveals. The findings, say experts, highlight the dramatic impact human activity can have on the success of alien species.

… Western Europe saw the introduction of 96 species of birds during the Cold War, while Eastern Europe only saw 24. The relative freedom of movement and high levels of global trade in the West account for the difference, says co-author Susan Shirley, a wildlife ecologist at Oregon State University, Corvallis. “Trade is an important factor in the movement and establishment of alien species across the world.”

The way the Cold War carved up the globe also impacted the type of birds that were introduced. There was a rise in North American bird species, such as the ruddy duck, intentionally introduced to Western Europe many times between 1945 and 1989, but not much of a rise in the East. At the same time, people from former French and British colonies immigrated to Western Europe, toting along 23 African bird species. “They brought their caged pet birds with them–if not physically, then they brought the demand,” Shirley says.

While connections between Western Europe, the Americas, and Africa boomed, trade across the Iron Curtain withered: Exports from Western Europe to the East represented less than 5% of Western European’s total trade volume. The few invasive species that established themselves in Eastern Europe during the Cold War tended to come from other parts of Eastern Europe, or from Asia.

Since the Cold War ended in 1991, the pace of bird introduction events has picked up. Looking at records from 1989 to 2000, the study’s authors found more than 600 instances of alien species released into the wild in Eastern and Western Europe, versus almost 900 for the roughly 40 years of the Cold War. Trade and movement across the former Iron Curtain and rising prosperity in Eastern Europe has made the problem of invasive species worse, they say. “It’s speeding up exponentially, not just for birds but for many other groups, like plants, mammals, insects and fish,” says team leader Francois Chiron, a researcher at the Hebrew University of Jerusalem when this research was conducted.

Regime Shifts, Reorganization

Fire, climate change, and the reorganization of Arctic ecosystems

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Alaskan nature writer Bill Sherwonit reports on Yale Environment 360 about the complex response of Arctic ecosystems to climate change in how Arctic Tundra is Being Lost As Far North Quickly Warms:

Researchers have known for years that the Arctic landscape is being transformed by rising temperatures. Now, scientists are amassing growing evidence that major events precipitated by warming — such as fires and the collapse of slopes caused by melting permafrost — are leading to the loss of tundra in the Arctic. The cold, dry, and treeless ecosystem — characterized by an extremely short growing season; underlying layers of frozen soil, or permafrost; and grasses, sedges, mosses, lichens, and berry plants — will eventually be replaced by shrub lands and even boreal forest, scientists forecast.

Much of the Arctic has experienced temperature increases of 3 to 5 degrees F in the past half-century and could see temperatures soar 10 degrees F above pre-industrial levels by 2100. University of Vermont professor Breck Bowden, a watershed specialist participating in a long-term study of the Alaskan tundra, said that such rapidly rising temperatures will mean that the “tundra as we imagine it today will largely be gone throughout the Arctic. It may take longer than 50 or even 100 years, but the inevitable direction is toward boreal forest or something like it.”

… In the course of studying caribou, Joly has also learned a great deal about the role of fire in “low,” or sub-Arctic, tundra, where for several decades at least it has been a much more significant factor than on the North Slope’s “high Arctic” landscape. About 9 percent of Alaska’s lower latitude tundra burned between 1950 and 2007, whereas only 7 percent of the North Slope caught fire during that period. That could change as the region warms and fires become more frequent farther north.

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Cities, Greenlash

Climate change refugees and urbanization

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bangladeshJoanna Kakissis writes about Banglasdeshi environmental refugees in Environmental Refugees Unable to Return Home:

Natural calamities have plagued humanity for generations. But with the prospect of worsening climate conditions over the next few decades, experts on migration say tens of millions more people in the developing world could be on the move because of disasters.

Rather than seeking a new life elsewhere in a mass international “climate migration,” as some analysts had once predicted, many of these migrants are now expected to move to nearby megacities in their own countries.

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Ecological Economics, Regime Shifts

Modelling a social-ecological poverty trap due to infectious disease

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In an interesting article Poverty trap formed by the ecology of infectious diseases (Proc Royal Soc B 2009) Mathew Bonds and others, describes how they couple a simple infectious disease model with an simple economic development model to produce model of a infectious disease induced poverty trap.  They write:

The combined causal effects of health on poverty and poverty on health implies a positive feedback system. Despite the importance of understanding such critical and systematic ecological interactions between humans and their most important natural enemies, and the anecdotal evidence that such poverty traps may indeed exist, we lack mechanistic frameworks of poverty traps that are rooted in the dynamics of disease. Here, we propose such a model. We find that a prototypical host–pathogen system, coupled with simple economic models, induces a poverty trap. More broadly, this model serves to illustrate how feedbacks between people and their environment can potentially give rise to major differences in human survival and economic welfare (Diamond 1997).

… we illustrate our underlying concept using a general one-disease SIS (susceptible–infected–susceptible) model, where individuals can be serially reinfected over the course of their lifetime. This model is meant to serve as the simplest general way of representing the kind of repeated threats of infection faced by poor tropical communities. More specifically, the general model also resembles a typical malaria system (Gandon et al. 2001), which has high prevalence rates among the poor and has been especially implicated in hindering economic growth (Gallup & Sachs 2001).

Their model produces two alternative regimes, a high productivity/low disease regime and a low productivity/high disease regime.

Feedback between economics and the ecology of infectious diseases forms a poverty trap. The prevalence of infectious diseases, I*(M) (black line), falls as per capita income rises, while per capita income, M*(I) (grey line), falls as disease prevalence, I, rises. The disease and income functions are in equilibrium where these two curves intersect at (I*(M*), M*(I*)). Two of these equilibria (I*(M*1), M*(I*1) and I*(M*3), M*(I*3)) are stable, and one (I*(M*2), M*(I*2)) is unstable. The poverty trap is the basin of attraction around (I*(M*3), M*(I*3)). α = 0.06; β̄ = 40; μ̄ = 0.01; ν = 0.02; h̄ = 90; δ = 5; ϱ = 0.003; τ = 0.15; ϕ = 15; κ = 30.

Feedback between economics and the ecology of infectious diseases forms a poverty trap. The prevalence of infectious diseases, I*(M) (black line), falls as per capita income rises, while per capita income, M*(I) (grey line), falls as disease prevalence, I, rises. The disease and income functions are in equilibrium where these two curves intersect at (I*(M*), M*(I*)). Two of these equilibria (I*(M*1), M*(I*1) and I*(M*3), M*(I*3)) are stable, and one (I*(M*2), M*(I*2)) is unstable. The poverty trap is the basin of attraction around (I*(M*3), M*(I*3)). α = 0.06; β̄ = 40; μ̄ = 0.01; ν = 0.02; h̄ = 90; δ = 5; ϱ = 0.003; τ = 0.15; ϕ = 15; κ = 30.

In this model, a social-ecological system can be pushed into or out of the poverty trap by changes that effect labour productivity, such as changes in the level of education or infrastructure, or changes in disease prevalence due to the expansion or contraction of public health.

In the paper the authors show that empirical patterns of disease burden and income suggest the existence of disease poverty traps.

They conclude:

While we hope that our model framework can serve as a useful point of departure for exploring more complex relationships, the theoretical analysis we present here has significant implications: simply coupling economics with a well-established model of the ecology of infectious diseases can imply radically different levels of health and economic welfare (i.e. poverty traps) depending on initial conditions. The practical implications are also significant. Because the world’s leading killers of the poor—malaria, HIV/AIDS, tuberculosis, diarrhoea and respiratory infections—are highly preventable and treatable, current global efforts to improve public health in areas of extreme poverty could theoretically pay long-term economic dividends. Furthermore, this analysis underscores that there are dramatic implications if economic activity is coupled with ecological processes that are well-known to behave in nonlinear ways.

Ecological Economics, Networks, Visualization

Mapping global flows of virtual green and blue water

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Green and blue virtual-water ‘flows’ related to wheat trade by major exporting and importing nations (km3/year). The size of each pie is determined by the amount of virtual water ‘traded’. Countries with virtual-water ‘exports’ are depicted in green and countries with virtual-water ‘import’ in red;<br /> the colour shade depends on the quantity of virtual water ‘traded’. Period 2000–2004.
Green and blue virtual-water ‘flows’ related to wheat trade by major exporting and importing nations (km3/year).
The size of each pie is determined by the amount of virtual water ‘traded’.
Countries with virtual-water ‘exports’ are depicted in green and countries with virtual-water ‘import’ in red; the colour shade depends on the quantity of virtual water ‘traded’. Period 2000–2004.

M.M. Aldaya, J.A. Allan and A.Y. Hoekstra in their paper Strategic importance of green water in international crop trade (Ecological Economics 2009) doi:10.1016/j.ecolecon.2009.11.001 map global flows of virtual water in the wheat trade.

In their paper they explain their figure:

The map presented in Fig. 6 shows the virtual-water ‘flows’ to the five major importing countries for wheat for the period 2000–2004.

By ‘importing’ virtual water embodied in agricultural commodities, a nation “saves” the amount of water it would have required to produce those commodities domestically.

Though from an importing country perspective it is not relevant whether products have been produced using green or blue water in the country of origin, from a global point of view it has important implications (Chapagain et al., 2006a). For instance, Egypt is the largest importer of wheat, with the USA providing about 45% of the country’s imports. Wheat from Egypt has an average virtual-water content of 930 m3/ton of which 100% is blue water (Chapagain et al., 2006a), while the USA has a virtual-water content for wheat of 1707 m3/ton of which 39.8% is blue water (Table 3).

By importing wheat, Egypt saves 930 m3 of water per ton of wheat. Globally, when imported from the USA, there is not a total water saving because wheat production in the USA requires more water than in Egypt. Exports to Egypt from this country result in a considerable net global water loss of 777 m3 per ton. However, if we just look at blue water only, importing wheat from the USA to Egypt saves 251 m3/ton (since USA production requires 679 m3/ton of blue water and wheat production in Egypt 930 m3/ton).

Along these lines, Egypt, as some other water-scarce importing countries, has formulated policies to import low value but high water consuming food like cereals (Van Hofwegen, 2005). Nevertheless, even if the potential of trade to “save” water at national level is substantial, most international food trade occurs for reasons not related to water resources (CAWMA, 2007).

Regime Shifts

Richard Alley explains how CO2 is the climate’s “biggest control knob”

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alley_co2talk Richard Alley gave a well reviewed Bjerknes Lecture at the December AGU meetings in San Francisco, in which clearly and interestingly explains the paleo-climatic evidence of how CO2 is a key part of the Earth’s climate regulatory system.  Lots of interesting research, some of it quite recent, is synthesized clearly.

His talk The Biggest Control Knob: Carbon Dioxide in Earth’s Climate History is available on the AGU meeting website.

Richard Alley, is a professor of geosciences, at Penn State University and author of the popular science paeleo-climatology book The Two-Mile Time Machine: Ice Cores, Abrupt Climate Change, and Our Future.

Ecological Economics, Ecological Management

Economics of ecosystems and biodiversity study available

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Climate Issues UpdateThe Economics of Ecosystems and Biodiversity study (TEEB) is synthesizing information on the economics  of conservation of ecosystems and biodiversity, attempting to do for Biodiversity what the Stern report has done for climate change.

The study is drawing on expertise from around the world to evaluate the costs of the loss of biodiversity and the associated decline in ecosystem services worldwide, and to compare them with the costs of effective conservation and sustainable use.  The intent of the study is to sharpen awareness of the value of biodiversity and ecosystem services and facilitate the development of effective policy, as well as engaged business and citizen responses.

Their report for policy maker was released in Nov 2009, they write that it:

underlines the urgency of action, as well as the benefits and opportunities that will arise as a result of taking such action. The report shows that the cost of sustaining biodiversity and ecosystem services is lower than the cost of allowing biodiversity and ecosystem services to dwindle. It demonstrates how we can take into account the value of ecosystems and biodiversity in policy decisions and identify and support solutions, new instruments, and wider use of existing tool in order to pioneer a way forward. In so doing, the report addresses the needs of policy-makers and those in the policy-making process.

TEEB for Policy Makers Summary document

  1. The global biodiversity crisis and related policy challenge
  2. Framework and guiding principles for the policy response
  3. Strengthening indicators and accounting systems for natural capital
  4. Integrating ecosystem and biodiversity values into policy assessment
  5. Rewarding benefits through payments and markets
  6. Reforming subsidies
  7. Addressing losses through regulation and pricing
  8. Recognising the value of protected areas
  9. Investing in ecological infrastructure
  10. Responding to the value of nature
Ecological Economics, Ecological Management, Inequality, Millennium Ecosystem Assessment

Agro-colonialism and/or Agricultural development?

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The New York Times Magazine has an article by Andrew Rice Is There Such a Thing as Agro-Imperialism? on new mega-investments in agricultural land in Africa.

This type of activity featured in the Millennium Ecosystem Assessment‘s TechnoGarden scenario as something that can have complicated ecological and social consequences. These investments often displace small scale farmers, but can greatly increase yields.  Indirectly they can benefit local people enhancing local agricultural infrastructure, skills, and economic opportunities – or they can just degrade local ecosystems for external benefit.  The article sets the stage and provides some examples from Ethiopia:

Investors who are taking part in the land rush say they are confronting a primal fear, a situation in which food is unavailable at any price. Over the 30 years between the mid-1970s and the middle of this decade, grain supplies soared and prices fell by about half, a steady trend that led many experts to believe that there was no limit to humanity’s capacity to feed itself. But in 2006, the situation reversed, in concert with a wider commodities boom. Food prices increased slightly that year, rose by a quarter in 2007 and skyrocketed in 2008. Surplus-producing countries like Argentina and Vietnam, worried about feeding their own populations, placed restrictions on exports. American consumers, if they noticed the food crisis at all, saw it in modestly inflated supermarket bills, especially for meat and dairy products. But to many countries — not just in the Middle East but also import-dependent nations like South Korea and Japan — the specter of hyperinflation and hoarding presented an existential threat.

“When some governments stop exporting rice or wheat, it becomes a real, serious problem for people that don’t have full self-sufficiency,” said Al Arabi Mohammed Hamdi, an economic adviser to the Arab Authority for Agricultural Investment and Development. Sitting in his office in Dubai, overlooking the cargo-laden wooden boats moored along the city’s creek, Hamdi told me his view, that the only way to assure food security is to control the means of production.

Hamdi’s agency, which coordinates investments on behalf of 20 member states, has recently announced several projects, including a tentative $250 million joint venture with two private companies, which is slated to receive heavy subsidies from a Saudi program called the King Abdullah Initiative for Saudi Agricultural Investment Abroad. He said the main fields of investment for the project would most likely be Sudan and Ethiopia, countries with favorable climates that are situated just across the Red Sea. Hamdi waved a sheaf of memos that had just arrived on his desk, which he said were from another partner, Sheik Mansour Bin Zayed Al Nahyan, a billionaire member of the royal family of the emirate of Abu Dhabi, who has shown interest in acquiring land in Sudan and Eritrea. “There is no problem about money,” Hamdi said. “It’s about where and how.”

…

All through the Rift Valley region, my travel companion, an Ethiopian economist, had taken to pointing out all the new fence posts, standing naked and knobby like freshly cut saplings — mundane signifiers, he said, of the recent rush for Ethiopian land. … Behind it, we could glimpse a vast expanse of dark volcanic soil, recently turned over by tractors. “So,” said my guide, “this belongs to the sheik.”

He meant Sheik Mohammed Al Amoudi, a Saudi Arabia-based oil-and-construction billionaire who was born in Ethiopia and maintains a close relationship with the Ethiopian Prime Minister Meles Zenawi’s autocratic regime. (Fear of both men led my guide to say he didn’t want to be identified by name.) Over time, Al Amoudi, one of the world’s 50 richest people, according to Forbes, has used his fortune and political ties to amass control over large portions of Ethiopia’s private sector, including mines, hotels and plantations on which he grows tea, coffee, rubber and japtropha, a plant that has enormous promise as a biofuel. Since the global price spike, he has been getting into the newly lucrative world food trade.

Ethiopia might seem an unlikely hotbed of agricultural investment. To most of the world, the country is defined by images of famine: about a million people died there during the drought of the mid-1980s, and today about four times that many depend on emergency food aid. But according to the World Bank, as much as three-quarters of Ethiopia’s arable land is not under cultivation, and agronomists say that with substantial capital expenditure, much of it could become bountiful. Since the world food crisis, Zenawi, a former Marxist rebel who has turned into a champion of private capital, has publicly said he is “very eager” to attract foreign farm investors by offering them what the government describes as “virgin land.” …

By far the most powerful opposition, however, surrounds the issue of land rights — a problem of historic proportions in Ethiopia. Just down the road from the farm on Lake Ziway, I caught sight of a gray-bearded man wearing a weathered pinstripe blazer, who was crouched over a ditch, washing his shoes. I stopped to ask him about the fence, and before long, a large group of villagers gathered around to tell me a resentful story. Decades ago, they said, during the rule of a Communist dictatorship in Ethiopia, the land was confiscated from them. After that dictatorship was overthrown, Al Amoudi took over the farm in a government privatization deal, over the futile objections of the displaced locals. The billionaire might consider the land his, but the villagers had long memories, and they angrily maintained that they were its rightful owners.

For more see Food Crisis and the Global Land Gra which is a website run by GRAIN an NGO supporting small-scale farmers.