Economic systems

Scarcity; Why Having Too Little Means So Much

It’s been awhile since I’ve done a book review. Probably because I have a 3 1/2 year old and a 6-month old, which doesn’t leave a lot of time for reading (for pleasure, anyway). And writing open letters has kept my blogging brain busy.

Luckily we managed to sneak away for a week in Mexico recently, and as usual a vacation offered up the chance to catch up on the reading list. First up, Scarcity; Why Having Too Little Means So Much by Sendhil Mullainathan and Eldar Shafir.

If you’re only interested in the “read or don’t read” commentary, this one is a must read. Part behavioural economics, part cognitive psychology and all useful, I found it to be a compelling read filled with insightful commentary on the human condition and the pervasiveness (and consequences!) of a scarcity mindset.

From time management to finances, depression to poverty, this book takes a wide ranging look at why having too little means so much, for organizations and for individuals. The authors don’t only point out the impacts of scarcity (particularly on our cognitive bandwidth), but offer up useful and practical tips to work within it. Why are we so much more productive as a deadline is looming? Why does poverty persist? Why are sugar cane farmers in India smarter after the harvest than before? The emerging science of scarcity explains all of these phenomena (and more), and the authors, through a combination of stories and experiments, do an excellent job of conveying this to the reader.

So grab a copy and find some time in your scarcity-filled day to read it!
Scarcity: Why Having Too Little Means So Much

Why we needed a carbon tax yesterday.

For starters, I’m not a big fan of taxes. I don’t know anyone who is. But I am a rather big fan of logical approaches to solving problems, so I find myself supporting the notion of a carbon tax rather enthusiastically (which, in a province like Alberta certainly puts me in a minority). This post explains why a carbon tax (and other consumption taxes) are a great idea, from a couple of different angles. First, I’m going to make the assumption that you don’t belong to the small percentage of the population that still denies that climate change is a reality and that it’s human-caused. Still though, if you are a climate change skeptic, you probably would agree that using less fossil fuels would result in a net-benefit for humanity and the environment. If neither of those is true, feel free to go read this piece of journalistic drivel by a British columnist.

Let’s consider something commonly known as “free market economics”. You know, supply and demand type stuff. Let’s start with a look at cigarettes, which for some time have been subjected to heavier and heavier taxation as society recognizes the high “externalized costs” (more on those in a minute) of tobacco smoking. In 2002, Alberta increased taxes on 25-packs of cigarettes by 2.25$, and smoking rates dropped 24%. Youth smoking rates dropped from 24% to 19% the following year. Pretty effective, no?

Externalized costs: No proper discussion on taxes and free markets is complete without recognizing that businesses that cause problems, be they cigarette manufacturers or oil producers, benefit immensely by externalizing many of the costs of production, consumption and the clean-up that ensues from their operations. If cigarette manufacturers were on the hook for every case of lung cancer, they would quickly go out of business. Oil companies pay nothing for the air pollution caused by the consumption of their product…society at large is on the hook for that. A related idea to externalized costs is the “tragedy of the commons”.

Let’s get back to the economics for a second, and look at something called the “marginal cost of abatement”. Basically what this means is that there is a certain level of pollution (for all pollution) that is most cost effective, for both society and polluters. Once you move beyond that most efficient point, each additional “unit” of pollution that you’ve prevented costs more to the producer than the damage that it causes. For example, if it was going to cost a company more to eliminate the pollution (through technological upgrades) then it was going to cost them to pay the fine for emitting the pollution, chances are they’d go the fine route. Wouldn’t you?

How do we decrease (abate) pollution? We can either increase efficiency (buy a prius) or, alternately, use less of the pollution-causing substance (ride our bike). Both of those scenarios (efficiency increases and usage reduction) are influenced most heavily by price. An increase to the price of carbon incentivizes manufacturers to make more efficient products, and would encourage a decrease in consumption among consumers. Won’t a carbon tax drive up the costs of everything else? Yes. Which will have an adverse effect most notably on people who can’t afford it, people who spend a high proportion of their income on non-discretionary things like heating their house and buying groceries. Which is why, for a carbon tax to be socially acceptable, it should be accompanied by changes to the tax structure as a whole to ensure that it’s not implemented in a regressive manner (good definition of regressive taxes here).

Regardless of your stance on the environment, it’s tough to make the argument that we don’t need to reduce the amount of carbon that we’re currently burning.

Because it turns out that the air we breathe might be the largest “commons” left in the world. And unless smog induced “nuclear winters” are part of your desired future, we should probably figure out a way to manage it.

Expertitis

I recently had the pleasure of being invited up to a gathering of 8 communities in the Dehcho region of the NWT to talk about “on the land” youth addictions treatment. I actually listened more than I talked, and came away with a new-found appreciation for both the challenges and blessings of life in the north.

Something that struck me as I prepared my presentation was the difference between being an expert and having expertise.

I believe the rise of the “expert” is something that’s actually crippling our society from making better decisions and adapting to changing circumstances. There are many, many examples available about the failure of experts to not only predict, but react appropriately, to changing circumstances. Lehman brothers, anyone? Donald Rumsfeld and the Iraq war? The collapse of the Soviet Union? All of these examples have something in common, supposed experts making decisions based on their narrow view and limited understanding of an issue, usually in a position greatly removed from the “front lines” of the situation.

Yet, despite the frequent failings of experts, society turns to them repeatedly for their sage advice. From economics to politics, war to disease…we routinely outsource decision making to people who are “specialists” in their fields. The problem with specialization is that we’re facing systemic and complex problems. These aren’t problems that are easily solved, and they don’t live within narrow fields of study.

“Expertitis” is the syndrome of assuming that you know the answer to something, because you’ve been right (or not horribly wrong) in the past. You might even have a master’s or doctorate on the subject. Regardless, you’ve stopped getting feedback, that essential piece of information in the system that tells you whether what you’re doing is working. Without feedback, you stop learning. And if you stop learning, you can’t adapt. And in evolutionary terms, if you can’t adapt….you die.

Thankfully, it’s not that adaptation is impossible. In fact, it’s how we got to where we are, and there are many great examples of adaptation to be found in the pages of history (recent and a bit further back). Apple was a computer company until it sold mp3 players. The Iraq war was all but lost in 2006 until a small group of soldiers started experimenting with a counter-insurgency campaign that went against their direct orders.

Adaptation starts with being curious about what’s really going on in the system. If you’re truly curious, you remain open to feedback. By accepting feedback you learn, and by learning you can adapt.

And adaptation has been, and will continue to be, the key to survival…whether you’re a society, government, business or person.

Cochrane’s Sacred Cows

Warning: This post is longer than most and contains a lot of words.

Well, we’re heading into the homestretch of the “silly season” in municipal politics, that time when the papers and facebook feeds are full of familiar promises. More amenities! Lower taxes! Small town feel! Transit! To name just a few.

So here’s my 2 cents on some of the “sacred cows” of the current municipal election, in no particular order of importance.

Aquatic Center and Curling Rink: Possibly one of the largest municipal projects ever attempted in this town, the 54 million dollar curling rink, aquatic center and associated upgrades is dominating the discussion. There seems to be general consensus that we NEED a pool, except for a few voices suggesting we show some restraint in times of economic uncertainty. Having just gone to the current pool this afternoon with my 2-year old I’m even more uncertain of this pressing need. 2$ Friday and the pool was WELL BELOW capacity. Like, we were the only ones in the hot tub for awhile.

Taxes: What would a municipal election be without promises to keep your taxes low? And would anyone be voted in on a “I’m going to raise your taxes” platform? Even though that’s pretty much an inevitable outcome? For once it’d be nice to see some honesty in a potential politician, something along the lines of “You say you want a bunch of shiny new amenities (aka a pool), but you don’t want your taxes to go up? Well, here’s your cake…feel free to eat it.”

Density: Not quite as prevalent in the conversation as the first two topics, but density is certainly flaring up in Airdrie, along with the connection to the Calgary Regional Partnership and the Calgary Metro Plan. It’s another sacred cow that needs to be examined closely. I would be highly questioning of anyone who suggests we can continue to build a bunch of single family homes with big lots and keep our taxes low. There are so many issues tied up in density targets that it’s tough to draw all the connecting dots for folks, but here’s a few;

  1. Density is more efficient. Less road, less sidewalk, less utility, less driving for the garbage truck. Theoretically less money required to service less infrastructure.
  2. Increasing density drives up the value of single family homes with big lots. Not a bad thing if you happen to be among the lucky folks who enjoy that luxury. Why pay a premium for a house with a big lot in Glenbow, when you can pay significantly less for a big house in Sunset, Fireside, Riversong, Heritage Hills, Heartland…etc.
  3. Dense developments are more affordable for young people. You know, the kinds of people that we might want to work in this town and have a family, and the ones who can’t afford those big houses right now.  They’re also the kinds of people that are going to work in those businesses that lease the 30,000sq ft in the new aquatic center…unlike the folks living in those big houses that have to drive to their job in the city to afford their mortgage in the small town!

Traffic: Ahhh…if only there was a system for moving large amounts of people quickly and efficiently on a network of roads and railways…wait….

Traffic is certainly an issue, and no, transit won’t fix it (but it certainly won’t hurt it). I’m sure there are people much smarter than I currently scratching their heads on what the hell to do about traffic in this town. Between terrible highway intersections, a railway that cuts through town, and a bunch of in/out access to large subdivisions…we’re pretty much screwed on the traffic front for the foreseeable future. Which is why I live in Glenbow, so that I can walk places. A good start would be some traffic circles…seriously. I spent a few months in New Zealand a few years ago and there were traffic circles everywhere. Way better for traffic flow than 4 way stops and signals.

Small town feel: That elusive, yet essential, quality that attracted so many of us to move to Cochrane in the first place. This might come as shocking news, but a small town feel is just that. A feeling. Whether you’re riding a bus, living in a new subdivision, swimming at a new pool or shopping for cheap plastic at Walmart, the only way to keep that “small town feel” alive and well is to act it out. Shop locally. Get to know your neighbors. Join (or start) a community association. Come out to the farmer’s market. Volunteer with a nonprofit. No town council or mayor has the power to turn you into a small town person, or to help a community keep that feeling. Sorry, this one’s up to you. Which, given how often politicians are able to keep their promises, is probably a good thing…

Local Economy: Again, this one’s being looked at by people much smarter and more in tune with economic development than I am. Certainly an 87% residential tax base isn’t very good, and we need to diversify our revenue streams. Here’s something to chew on… a lot of business owners were in favor of transit to and from Calgary. Why? Because there’s no labor market in Cochrane (or a very small one). Why? Because people who serve coffee and stock shelves can’t afford to live in this town. Why not? Because there’s a shortage of denser, affordable housing. Funny how all this is connected. And no, I don’t have any answers, other than people taking that small town feeling to heart and putting their money where their mouth is…shop local, preferably at small shops and at places that give back to the community.

There it is, the sacred cows as I see them. I have a feeling a few of them will be slaughtered shortly…it’ll be interesting to see which ones!

And stay tuned for some more in-depth analysis of various platforms, including my top picks for mayor and council, for whatever that’s worth to you.

The status quo

Status Quo

I’ve been thinking a lot lately about how to actually move systems in the direction that we want them to go. I’ve written previously about things like transit in Cochrane, so I’ll use that as an example.

First off, the diagram above shows my thinking around the “status quo”. Too often we think of it as a point in time, instead of the path through time that it really is. What we’ll have tomorrow is more of today, unless we do something different. Pretty straightforward.

I think what often stops those game-changing paradigm shifts in society is the sheer magnitude of the change, the large gap between the “status quo” and the “?” in the above diagram. But what if we didn’t have to make that huge leap tomorrow? What if instead we shifted in a smaller, more manageable way?

Take, for example, the proposed expansion of the Spray Lakes Family Leisure Centre here in Cochrane. Recently Town Council was presented with some initial reports that suggested a 54 million dollar price tag for a new pool and curling rink. I’ll save the obvious thoughts around “why we need more sheets of ice where people can chase rocks around and drink beer instead of just about any other project I can think of” for some other blog post.

Proposed rec center expansion

What caught my attention was the need to potentially construct up to one thousand more parking stalls to accomodate these new facilities. 1000 parking stalls.

Here’s a thought. Build a parkade on the Quarry (the old domtar site). Make it free parking. Charge a couple of bucks for parking at the leisure center. Run a free shuttle bus every 20 minutes back and forth from the Quarry to the leisure center.

What would that accomplish? First of all, we’d save some serious space down at the leisure center for things like grass (always nice to have) and further expansion of the facility. Second, all the merchants on the Quarry site would see a significant boost in traffic. Who wouldn’t grab a quart of milk and eggs at Sobey’s after running at the track? Or a coffee before they head down to watch the game? Third, it would be a great dip of the toe into the transit market. Try it for a year or two. Not working? Go ahead and build another thousand parking stalls.

Who knows, it might be the sort of small shift that leads to something altogether different than the “pave paradise, put up a parking lot” path we seem to be on.

ConnectED: Hope for Education

I had the distinct pleasure recently of joining many passionate and dedicated teachers from across the country at the annual ConnectED conference, hosted at the Calgary Science School.

The ConnectED event takes an unconventional approach to connecting educators and engaging them in leading conversations about the future of the industry. In lieu of expensive keynotes and stand n’ deliver lectures from “experts”, the ConnectED event embraces the wisdom of practitioners, encouraging great dialogue and connection through hands-on conversations and practical applications of theory.

I ran an “unworkshop” on Systems, and instead of standing in front and talking at the participants, I introduced some theory on systems change, then we sat down in small groups and mapped out some relevant systems. It was truly inspiring to listen in on the conversations, which ranged from reporting student success via outcomes to changing teacher training programs to better match the realities of the profession. There were no shortages of great ideas, deep insight and passion for changing the system.

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Because I love the work of Dr. Alex Bruton (my partner in Givyup) and his Sketchpads, I created the Systems Sketchpad 1.0, which we used to map out some systems and identify levers for change.

Feel free to use this!

Feel free to use this!

I walked away from the ConnectED event with a new-found appreciation for the passion and insight that many of our educators bring to their work, and hope that our educational system can shift to better meet the needs of teachers, learners and communities.

I’m looking forward to ConnectED 2014…assuming I’ll be invited back! And I’m going to have to work on the “deer in the headlights” terror that my session invoked…

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The End of Growth

It’s been awhile since I’ve reviewed a book on here. Probably because I don’t have a helluva lot of time for reading these days.

I’m about half way through “The End of Growth” by Jeff Rubin, former chief economist at CIBC and author of “Why your world is about to get a whole lot smaller”, and interested enough to blog about it prior to finishing it. He’s painting a pretty dire picture of the state of the world’s economy, with very compelling arguments. The combinations of triple digit prices on oil, the quadrupling of coal prices in recent years, combined with a general anti-nuclear stance around the world (particularly after the Fukushima incident), are flatlining growth in Europe and North America. Add to this mix a voracious appetite from China and India for fossil fuels, and it’s pretty apparent that the era of cheap energy is over.

And without cheap energy, our current system of globalization falls apart. It no longer makes sense to build cheap widgets in China, if the fuel for the boat costs more than the cargo is worth.

Why are we drilling in the arctic? Levelling the boreal forest in northern Alberta and boiling sand to extract bitumen? Because “conventional oil” (the kind that erupts out of a hole in the ground in Texas) is basically tapped out. As oil companies run out of cheap oil, we have to turn to oil that’s harder and harder to find, extract, refine and ship. Which means it’s never going to be cheaper. The price will fluctuate of course, but the days of using cheap energy to shock our economies out of recession are over.

So if growth is dependant on cheap energy (which Jeff makes a pretty clear argument for), and we no longer have access to cheap energy (also pretty evident)….it’s pretty safe to assume that no-growth or very slow growth is our new reality.

There are some pretty big consequences for society, if that’s indeed the new reality. From sovereign debt loads to youth unemployment, to the performance of my RRSP…a world with no growth looks very different than the one we currently inhabit, the one that’s been propped up by cheap energy for the last 200 years. Of course, we know that GDP (Gross Domestic Product) doesn’t influence the happiness and satisfaction of society…so maybe a “no-growth” economy might actually do us some good? I’m pretty sure that’s where the book’s headed.

Either way, it’s looking like it might be time to lock down some more grease suppliers for the ol’ veggie truck

Good to the last drop.

I had the privilege of attending a “Water Conversation” last night here in Cochrane. It brought together a range of interested folks (from normal citizens to town employees and businessman) to chat about 4 key areas related to water, and was facilitated by folks from WaterSmart. There was also representation from Alberta Energy and the Energy Resources Conservation Board (ERCB)…not surprising given that one of the areas under discussion was hydraulic fracturing (fracking).

I’m not going to be able to encapsulate the whole discussion, but a few interesting things popped out for me.

Water usage: Did you know the average Canadian uses 329 liters of water a day? (The average Albertan uses 350L). Compare this to places like France (150L/day) and Sweden (200L). Same, or better, standard of living…half the water consumption.

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Water cost: How much do those 350L cost you? The answer…not nearly enough.

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So what does this look like for Cochrane? Well, if you’ve been reading the Cochrane Sustainability Plan Progress Reports (which I know you have), you would have noticed that the 2011 average for Cochrane was 203L/person/day! This is thanks in large part to an innovative pricing scheme, where residents and businesses pay a tiered rate for water consumption, along with good educational programs.

For the first 25 cubic meters (25000L!), you pay 1.13/meter ($0.00113/L). For 26-60 cubic meters, you pay $1.51/1000L. Anything over 60,000L/month and you pay $2.25 per 1000L.  This tiered rate is in and of itself pretty innovative, but I argue that it’s still too cheap.

If the goal is to continue to reduce TOTAL water consumption (not just per/capita), then we’re going to have to take things to the next level. The flow of the Bow River doesn’t change, and Cochrane’s population is growing rapidly. This scenario will result in water scarcity issues, regardless of how efficiently we’re currently using water.

A couple of ideas:

  1. Make the first 40L/person/day FREE. Totally free. Water should be a right, just like the air we breathe. 40L should provide for drinking, cooking and basic sanitation. After 40L….charge the hell out of it. Triple or quadruple the current pricing scheme. Make me think about how much water I’m using, and give me an economic incentive to use less. At 1/10th of a cent per liter…I don’t even blink when I flush the toilet. And I drive a truck on vegetable oil.
  2. Create bylaws around grey water recycling. All the water that goes down the sink or the bathtub could be reused to flush toilets, or recycled and used for watering the garden. Using expensive, treated water for EVERYTHING is unsustainable.
  3. Develop a full-cost accounting structure for water, from intake to discharge. Include that price in the consumption of the commodity. Change the tiered structure so that the thresholds are much lower.

There were some interesting conversations around “private management” of water resources here in the province. A lot of us at the table were pretty leery of that idea, although business certainly has a track record of improving efficiency and getting products to markets in the leanest way possible. What about a social business or non profit? Someone tasked with managing the resource, but not standing to make a killing from it?

I highly recommend you get acquainted with what’s going on with water resources in this province, because it’s changing quickly. Check out the water conversation here (you have until FRIDAY APRIL 12th to contribute to the online survey).

The Resilient System: Feedback

Last week I wrote about Diversity vs. Efficiency, and how often in our systems we’re sacrificing the former for the latter. This week I’m going to get into Feedback a little bit.

Not the dreaded “sit down with the boss every year and chat about your annual review” kind of feedback. The kind of feedback that drives systems, both little and huge.

First though, two kinds of Feedback:

Positive Feedback: Encourages the system to “do it again”. From rave reviews at the concert hall that sparks a 2nd run of the same play, to diner’s consistently ordering the same dish at the local restaurant, positive feedback is what propels systems forward (usually quite rapidly). Positive feedback often encourages the system to use up resources (think of shareholders getting high returns from companies that cut down rainforests… the positive feedback encourages more investment, which results in more logging, which results in higher profits, which results in more investment…).

Negative Feedback: Places limits on the system, and is essential for long term system stability. It’s the wolf or coyote that keeps the rabbit population in check. It’s the group of book publishers that only buys recycled paper, instead of virgin wood. It’s the ability of the planet to absorb the carbon we emit.

Typically, positive feedback loops are much faster than negative feedback loops. Often, these positive loops will lead to runaway growth within a system, until the negative feedback loops of the system catch up (or the system uses up all the resources and crashes…also a form of negative feedback. A recent financial crisis come to mind…lot’s of little positive feedback loops at work there, creating a runaway system.)

The most important thing about feedback is that it exists, and we need to listen to it. First we need to figure out what the heck we’re measuring, and whether that’s the right “thing” that measures the stability and sustainability of the system. Thinking back to the cod fishery example from the previous post, it becomes pretty apparent that the positive feedback that was being measured didn’t indicate the resiliency of the system.

How do you know what’s going on in your system (business, classroom, community, etc.)? What do you measure? Why do you measure it? Is it positive feedback or negative?

The Resilient System: Diversity

As part of my focus on helping create a more resilient world, I’m going to be writing a series of blog posts on what I think are components of resilient systems.

The first topic is Diversity. For a system to be resilient, it needs to have resources distributed in such a way that they can be re-allocated to solving new problems as they appear, or dealing with challenges in multiple ways.  One of the main opponents of system diversity is efficiency.  There might be a conflict of interest here.

Since perhaps the dawn of mankind (but certainly the industrial revolution), we’ve been on a shared quest to increase the efficiency of our systems. From food production to education, manufacturing and transportation, we’ve been on a mission to do “more with less”. And that’s been great, and it’s led to all kinds of innovation and savings in energy, time and money. Heck, the very fact that you’re reading this on the internet (and not in a book 6-months from now) is the result of increases in communication efficiency. But the dark side to all of this efficiency is rigidity.

Called the “Rigidity Trap”, systems that are highly efficient are also highly prone to failure when confronted with crisis. One look at the cod fishery collapse in Atlantic Canada shows a system that evolved from being very diverse (lot’s of little fishing boats and owner/operators pre 1950s, using traditional fishing methods) to being highly efficient (giant trawlers with enormous haul nets and onboard cleaning and freezing facilities). The annual catch went up from 250,000 tons in the 1950s to 800,000 tons in 1968. This increase in efficiency led the system into a rigidity trap, where fisherman HAD to keep pursuing larger and larger catches, to justify the mortgages on very expensive and efficient boats. The federal government didn’t step in until 1992, at which point 42,000 people were put out of work when the fishery was closed. For over 400 years the northern Atlantic cod fishery had been one of the richest in the world, and in a few short decades of ever-increasing efficiency, was decimated.

Of course, we can look at diversity at a broad range of scales. How diverse is your personal thinking? Do you visit the same websites, read the same newspaper columnists, listen to the same radio talk shows? Do you only read things at seetheconnection.com?

The next blog post will be on Feedback, as it’s the critical element that informs the system on what’s working and what’s not. From the examples above, if we only get feedback from sources that support our worldview, I think we’re in danger of developing our own “rigidity traps”.

A few things to ponder in your own systems (at whatever scale you have influence on).

  1. Are we sacrificing diversity for efficiency? And what are the consequences if our efficient system becomes so rigid that it can’t handle change, and collapses? Will 42,000 people be put out of work and an ecosystem destroyed?
  2. Do we have redundancy built into the system? Are we willing to sacrifice a bit of efficiency to ensure the system can survive crisis? (An example from my own life is heating my house. I have a traditional furnace and a wood stove. Redundant systems that perform the same task, a little less efficient, but more resilient. Same idea with the truck that runs on diesel and vegetable oil.)