Risk, reward as more complexity leads to new, more problems

In discussing the recent fine levied about BP for the 2010 oil issue in the Gulf of Mexico, an interesting question can be raised: are events and problems like this simply inevitable given the growing complexity of society?

In 1984, a Yale University sociologist named Charles Perrow published a book called “Normal Accidents: Living with High-Risk Technologies.” He argued that as technologies become more complex, accidents become inevitable.

The more complex safety features that are built in, the more likely it is that something will go wrong. You not only add technical complexity more things to go wrong but you add a human element of complacency. The more often things don’t go wrong, the more likely it is that people think they won’t. The phrase for this is “normalization of deviance,” coined by Boston University sociologist Diane Vaughan, part of the team that examined the 1986 explosion of space shuttle Challenger.

“Normal accident” and “normalization of deviance” come to mind because 10 days ago, the oil company BP agreed to plead guilty to 12 felony and two misdemeanor criminal charges in connection with the 2010 explosion of the Deepwater Horizon drilling rig in the Gulf of Mexico. Eleven workers were killed and nearly 5 million barrels of oil (210 million gallons) poured into the Gulf over 87 days…

But it requires complex systems that will, at some point, fail. Politically, the government can only seek to explain those risks, try to minimize them with tough regulation and make sure those who take big risks have the means to redress inevitable failure.

If these sorts of events are inevitable given more complexity and activity (particularly in the field of drilling and extraction), how do we balance the risks and rewards of such activity? How much money and effort should be spent trying to minimize risky outcomes? This is a complex social question that involves a number of factors. Unfortunately, such discussions often happen after the fact rather than ahead of possible occurrences. This is what Nassim Taleb discusses in The Black Swan; we can do certain things to prepare for or at least think about known and unknown events. We shouldn’t be surprised that oil accidents happen and should have some idea of how to tackle the problem or make things better after the fact. A fine against the company is punitive but will it necessarily provide the solution to the consequences of the event or guarantee that no such event will happen in the future? Probably not.

At the same time, I wonder if such events are more difficult for us to understand today because we do have strong narratives of progress. Although it is not often stated this explicitly, we tend to think such problems can be eliminated through technology, science, and reason. Yet, complex systems have points of frailty. Perhaps technology hasn’t been tested in all circumstances. Perhaps unforeseen or unpredictable environmental or social forces arise. And, perhaps most of all, these systems tend to involve humans who make mistakes (unintentionally or intentionally). This doesn’t necessarily mean that we can’t strive for improvements but it also means we should keep in mind our limitations and the possible problems that might arise.

Should oil reserves be used to build developments in “glittering cities”?

A commentator looking at Venezuela and the use of the money from its oil reserves suggests oil money should be spent on development in “glittering cities”:

While oil has ushered in spectacular construction projects for glittering Middle Eastern cities, including the world’s tallest building in Dubai and plans for branches of the Louvre and Guggenheim museums in Abu Dhabi, it’s brought relatively meager changes to Venezuela, which holds the world’s largest proven oil reserves.

Nearly 14 years after President Hugo Chavez took office, and despite the biggest oil bonanza in Venezuela’s history, there’s little outward sign of the nearly one trillion petrodollars that have flowed into the country.

It would be interesting to hear experts talk about whether the urban development projects in the Middle East are really the best use of money from natural resources. On one hand, the cities look impressive. Dubai is now on the map partly because of the Burj Kalifa. American universities and European museums want to locate in such new cities. The buildings are all so new and exciting. At least in appearance, these cities can now compete with the best big cities in the world. Going further, some would argue cities are the engines of innovation and growth so spending money there on infrastructure and facilities could go a long way. Similarly, glittering cities might the result of financial and economic power.

On the other hand, money spent on buildings and cities is money that could be spent on education, health care, the development of human capital, and sustainable projects that will outlive the oil reserves. Cities may only be as good as its workers and residents who can contribute to social, economic, and political life. Could glittering cities simply be facades that mask a host of underlying social ills papered over by mineral wealth? Money may be spent in urban centers and yet residents in slums and in more rural areas may be essentially forgotten. More broadly, does a city necessarily have to be “glittering” to be successful? Indeed, are there cities in the world that are clearly successful and offer a high standard of living but are not glittering such as the Scandinavian capitals?

Making Iranian oil as unpopular as the McMansion

Here is an argument that compares McMansions to Iranian oil:

The United States would like to perform a magic trick, and our economy might depend on its success. The illusion? We want the world to think Iran’s oil is practically a Las Vegas McMansion.

Now, nobody is going to confuse a barrel of crude with a four story desert abode. Las Vegas houses have been widely shunned and practically unsellable. As a result, their prices have plummeted for the few remaining buyers. We want the same thing to happen to Iran’s oil: We want it to become so unpopular that Iran is forced to sell it only at a significant discount.

Perhaps it seems odd that the United State should hope Iran sells any of its oil. After all, we’re using sanctions to turn Tehran into a pariah within the global financial system, making it next to impossible for them to actually export crude, with the hope that it will force the country’s leaders to drop their nuclear program. But you can’t cut the world’s fifth largest oil producer entirely out of the global petroleum market and not expect prices to surge even more than they already have.

Instead, our government wants Iran to keep shipping oil to some of its major customers — but for cheap. “Policymakers need to ensure that they are not creating an embargo of Iranian oil but, instead, implementing these sanctions so that Iranian oil becomes a distressed asset,” Foundation for the Defense of Democracies Executive Director Mark Dubowitz, who advised Congress while it drafted the sanctions legislation, told Bloomberg today.

An unusual comparison. I can see the general point: we want Iranian oil to stay in the market but we don’t want Iran to benefit from being able to sell it for high prices. So we need Iranian oil to carry a stigma so that the price has to be dropped.

But the comparison breaks down if you think this through to the end. Most critics would argue that McMansions shouldn’t be built in the first place. At this point, we can’t stop Iran from producing oil but we can effect how it is sold, similar to the ways in which McMansions have publicly been denigrated. However, we have more control over McMansions: if we really wanted to as a country, we could ban the construction of McMansions (though this would most likely have to happen at the local level).This makes me wonder if McMansions could ever be considered okay or even popular. If I remember correctly, the New Urbanist authors of Suburban Nation suggested McMansions might be acceptable if they were modified slightly to fit into traditional looking neighborhoods that encouraged civic participation. This particular comparison ties the popularity of the McMansions to their price; so they would be acceptable as long as they are cheap? Perhaps then the housing could be considered affordable housing, not just the province of the wealthy or nouveau riche, even if critics are correct in suggesting that such houses are poorly built, poorly designed, and are often in sterile neighborhoods.

Modern-day boom towns in the American West

While we might consider boom towns to be part of American history, the discovery of oil and gas in the American West is leading to rapid population increases with some negative effects:

Stepped-up oil and gas development in northwestern North Dakota and northeastern Montana is punctuating the landscape with drilling rigs, trucks and hastily erected barracks, known as “man camps,” to house thousands of mostly male workers crowding into small communities where residents once greeted each other by name and left their homes and cars unlocked…

In Sidney, Montana, about 45 miles (72 km) southwest of Williston, officials have been scrambling to keep pace with oil and gas activity that is expected to double the population – from 5,000 to 10,000 – in five years and add an estimated 774 new students to the public school system…

Utah State University sociologist Richard Krannich said years-long studies of boomtowns in the West show a sharp rise in negative consequences such as crime and the fear of crime in the earliest phases of a boom.

“But we also saw the recovery once the initial phase ended and the workforce stabilized, the pressure on local services eased and infrastructure caught up with demand,” he said.

I’m not sure how you prepare for this. I can’t imagine local politicians could say no to needed jobs and future revenues and yet the quick changes in a community are difficult to handle until revenue streams are established.

What I think is particularly interesting here is that communities across the country are subject to outside social forces that can quickly change their trajectories. I assume most of these Western towns were small and hadn’t changed much in recent years but as soon as valuable resources are discovered, things can change very rapidly. Each community can make different choices about how to respond. Of course, these rapid changes can’t or won’t last forever and the town will return to some equilibrium and once the resources wind down or are depleted, a downward cycle can begin again. Boom towns and ghost towns are notable because most communities don’t experience this kind of rapid change – we expect some kind of gentle growth or at least a stable plateau. Just the idea of population loss can be troublesome because it suggests a community is on the road to dying or it is going to lose funding for services and tough cuts will have to be made to budgets.

I wonder if there are any consultants or academics to help communities adjust to these boom periods in order to take advantage of them (mainly, find tax dollars) as soon as possible. Additionally, I imagine there are some interesting interactions between long-time residents and newcomers and both sides try to adjust.

Claim: Obama wants higher gas prices. Is this necessarily bad?

Mississippi Governor Haley Barbour (a rumored Republican presidential candidate) suggested today that Obama wants higher gas prices:

Barbour…accused the Obama administration Wednesday of favoring a run-up in gas prices to prod consumers to buy more fuel-efficient cars…

Barbour cited 2008 comments from Steven Chu, now President Barack Obama’s energy secretary, that a gradual increase in gasoline taxes could coax consumers into dumping their gas-guzzlers and finding homes closer to where they work. Chu, then a Nobel Prize-winning professor, argued that higher costs per gallon could force investments in alternative fuels and spur cleaner energy sources.

Barbour said Obama’s energy team wouldn’t be happy until gas prices reached $9 a gallon.

Barbour goes on to say that there are two primary negative consequences of higher gas prices: it hurts workers and it hurts the larger economy. In a troubled economic period, Barbour is suggesting that Obama is willing to risk a prolonged economic crisis in order to promote things like electric cars and clean energy.

But this is really a larger issue and affects multiple dimensions of American life. Let’s assume that raising gas prices cuts down on driving and gas consumption overall – and there is evidence to back this up. There could be some benefits to this:

1. This would limit our dependence on foreign nations for  oil. What has happened in the Middle East in recent weeks can have an impact on our economy because we import so much oil. Some have gone so far as to say that this is a “national security issue.”

2. Using less gasoline would lead to lower levels of pollution.

3. Having more expensive gasoline may reign in sprawl, or at least make living in denser areas (cities or denser suburbs) more attractive. (See an example of this argument here.) In the long run, higher gas prices could be viewed by some as a threat (or by some as a welcome deterrent) to the sprawling suburban lifestyle that many Americans have adopted  since the end of World War II. Higher fuel prices would likely impact driving trips, fast-food restaurants, and trucking costs, all key pieces to the typical suburban lifestyle. One could argue that the American lifestyle of the last 65 years has been made possible by relatively cheap gasoline – and life would change if it was consistently at European price levels.

There could be other impacts as well including more walking and bicycling (cheaper, less pollution, better for health) and less time wasted due to traffic and congestion.

It bears watching how this rhetoric over gas prices continues. Is it simply a matter of a short-term (lower prices to help the economy) vs. a long-term perspective (higher prices help limit some negative consequences of driving) or could this turn into a debate about how driving (and cheap gasoline) is closely linked to the essence of American life?