Friday, October 28, 2011

A Change in the Supreme Court Environment

When the U.S. Constitution was crafted one of the key components was to ensure that no branch of the government garnered too much power. A neutral judiciary was an essential element to this power balance. The original intended purpose of the judiciary was to have control over whether or not the passage and/or enforcement of a specific law violated the Constitution, a role officially ascribed in Marbury v. Madison. In the vein of judicial view, the personal viewpoints of the judiciary were to remain as muted as possible instead only ruling on how the law and the Constitution interact. While rooting out personal opinion entirely is unrealistic because perception and interpretation is influenced by personal opinion, personal opinion should not be the principle driver in determining how a justice rules in a given court case.

Unfortunately the 21st century has given way to neutral and objective interpretation inviting personal beliefs and abstraction into the judiciary, especially in the U.S. Supreme Court. Too often does the selection of a U.S. Supreme Court justice revolve around political affiliation over legal record and qualification. Also members of Congress affiliated with a political party different to that of the President almost automatically oppose any candidate that is offered for confirmation to the U.S. Supreme Court; this opposition is frequently derived not because they believe that the nominated individual is unqualified, but because they disagree with the way the nominee will rule when on the court as those rulings will be contrary to their own personal and/or political beliefs.

That viewpoint highlights the problem. If the nominated justice would rule properly, then the member of Congress should have no problem with the ruling even if it conflicts with his/her personal beliefs because the Constitution is bigger than any one individual. If the nominated justice would rule improperly, believing his/her viewpoint to be bigger than the Constitution then the individual should never have been nominated in the first place and the President should be condemned for it. Thus the question is why does it appear that U.S. Supreme Court justices are following their personal opinions over the law?

The law is fairly similar to math in its application, heck almost everything is similar to math, but especially the law in that there are very few correct solutions/interpretations, with one usually being superior in accuracy over the others. For example a typical court case can be equated to math by breaking it down into an equation. In one case: X + Y = 7 where X and Y are not negative and are integers. Clearly in this situation X and Y only have a limited number of solutions, but there are multiple solutions. However, rarely do given court cases exist in a vacuum, there is precedent and other legal realities that need to be considered. When properly interpreted these other elements apply other required conditions to the equations such as X > 3.

With the additional condition(s) most other solutions become incorrect and typically only a few of the possible solutions to the equation remain valid, solutions that typically do not differ significantly from one another. With such a deterministic-type flow it is difficult to rationalize why justices would come to an incorrect solution. Of course one or two may decide differently by interpreting the precedent as X = 3 instead of X > 3. However, 5-4 decisions, especially when the same groups of individuals find themselves on the same side of the issue almost all of the time, challenge this differing interpretation condition. How is it that with all of the possibilities and the different ways to coming to a given solution the same two groups almost always end up on the same side of a given issue when 5-4 decisions are rendered?

That uniformity of frequency is the problem with the modern 5-4 decision. Suppose you have nine justices A, B, C, D, E, F, G, H and I. 5-4 decisions would not be viewed as a significant problem if the variance of determination routinely differed between cases. For example in case 1 justices A, B, C, F and H form the majority decision, in case 2 justices A, E, C, G and I form the majority decision and in case 3 justices B, F, G, H and I form the majority decision. In this scenario the majority decision is formed by a variety of justices, there are no ‘groups’.

However, a problem arises if instead in case 1 justices A, B, C, D and E make the majority decision, in case 2 justices E, F, G, H and I make the majority decision and in case 3 justices A, B, C, D and E make the majority decision and so on and so forth. This ‘group-think’ mentality creates a dangerous precedence where the same individuals view the law in the same way, which significantly limits the perception that these individuals are actually looking at the law and not relying on other elements of their personalities and belief structures to lead them to conclusions about how to rule on a given case.

The sad state of affairs is that the 5-4 decision in the modern U.S. Supreme Court, due to this group-think mentality, appear to be have political beliefs as the driving force over actual legal principle. Unfortunately the vitriol of the partisan political climate has torn away the necessary impartiality of the court tainting their decisions. To neutralize this improper behavior a simple majority is no longer a proper means to determine a legal precedent. Instead 6 votes not only 5 must be in favor of a writ in order to validate it. Under this new proposal if the court rules 5-4 on a given case it would be akin to if the Supreme Court never heard the case in the first place, no opinions (majority or minority) would be issued and the ruling of the lower appellate court would stand.

Such a step may seem too extreme, for although the final decision made by a justice can only fall into one of two categories there can be multiple reasons behind the final decision expressed in multiple opinions. In this situation the opinion can be properly viewed as the methodology and the decision as the result where logical and thorough methodology will lead to the correct result and improper and illogical methodology will commonly lead to the incorrect result.

The concern for methodology is limited to the rare case where the incorrect methodology leads to the correct result. An incorrect methodology should always be a concern because even if a correct result is attained once, there is the distinct possibility that an incorrect result will be attained for a future case using the same flawed reasoning. Therefore, it really does not matter that x justices may have y differing opinions/interpretations that lead to the same result beyond the fact that they are wrong and understanding the reason may result in its correction. It is like one person saying 2 + 2 = 7, another saying 2 + 2 = 9 and a third saying 2 + 2 = 19. It does not matter how close someone is to the right answer or really the logic behind how they got the answer, the only thing that matters is that all three answers are wrong.

There are two possible major lingering problems from making this 5-4 decision nullification change. First, a 5-4 nullifier could give too much power to the Appellate courts, especially if the Supreme Court continues to judge based on politics and not the law, but in the end that would be the Supreme Court's fault. Second, should such a decision nullify previous 5-4 decisions when applicable? Clearly it would be impossible to impose any retroactive enforcement on time sensitive rulings like Bush v. Gore from 2000, but what about a case like Kelo v. New London from 2006? One problem stemming from retroactive enforcement is when does one initiate the reversal? One option would be starting in 2000 the time when a number of people believe hyperpartisan began to significantly influence the court.

Another lesser concern may be that the precedent that is being used to decide a present day case was unduly influenced by a personal and political opinion of a past justice, thus contaminating that piece of precedence. Thus if present-day justices need to work from previously tainted rulings without the ability to use their own interpretations to correct those rulings the system will forever be flawed and wrong. The above statement is true, but has no merit against the 5-4 policy proposed because then all of the justices should be able to recognize the error in that precedence during the deliberation of the case where that precedence is relevant.

Overall it appears that regardless of tradition it is now appropriate to begin to think about changing the dynamic of the Supreme Court with respect to narrow 5-4 majority decisions and their justification.

Monday, October 17, 2011

The Correct Contextual Economic Argument for Direct Air Capture

Since the last time DAC was discussed on this blog it has received more attention including a report issued by American Physical Society. Unfortunately, yet not surprisingly, most of these discussions have focused on the economics of developing and deploying such a system over technical/feasibility discussions. Most would argue that the economic element is critically important in the modern capitalistic world as almost all decisions revolve around economics and affordability. Also efforts to reduce costs should aid in the technical development of the overall process. While both these statements are true, the problem is that most of the economic analysis is not being conducted from the proper perspective.

For example most estimates place the cost of removing 1 ton of CO2 from the atmosphere, regardless of specific design, between $450-600. Relate this cost back to the fact that CO2 has traded in the European Trading Scheme rather consistently at $20-30 per ton (meaning that it costs $20-30 dollars for a participant to emit 1 ton of CO2) and clearly application of current DAC models is too expensive.
Compounding the problem is that it is reasonable to conclude that these estimates only calculate the costs associated with capturing 1 gross ton of CO2 because they do not include the CO2 emitted to provide the energy required to capture the CO2 from the atmosphere, thus the costs now are even higher than those stated above. Overall most DAC proponents agree that this cost is too high and believe that through the additions of carbon taxes and trade programs and reductions in technical and development costs due to scale up costs will drop significantly. Also proponents believe that finding a marketplace for the captured carbon will also narrow the cost gap.

This desire for a marketplace is where the economic argument begins to breakdown relative to the environmental strategy that DAC should be following. The principle rationality behind pursuing DAC is to reduce the amount of CO2 in the atmosphere as fast as possible in order to lessen the detrimental influence of global warming, not make money or close the cost gap. Unfortunately the two most cited methods for making money from a DAC system are in contradiction to this principle rationality. The first means of ‘funding’ DAC is to use the captured CO2 in enhanced oil recovery (EOR). The problem with this strategy is obvious. The point of recovering more oil is to burn it in some industrial process or use it for transportation. Thus there is no significant decrease in atmospheric CO2. With the most optimistic scenario such a system could be viewed as very slightly CO2 negative with somewhat unjustifiable costs for that reduction. Unfortunately such a system then realistically wastes energy (energy that is used to extract the CO2 and the oil) and further pollutes the environment (recall that refining and burning oil releases other pollutants in addition to CO2).

The second means of ‘funding’ DAC is to use the captured CO2 as a basis for a ‘carbon neutral’ hydrocarbon or biologically-based fuel. Earlier in the thought process the idea was to create a hydrocarbon-based fuel, but that idea was complicated because such a process typically required high purity streams of CO2 and hydrogen (most sources of hydrogen are currently drawn from fossil fuel combustion). Now this idea has evolved into using CO2 as a highly concentrated feedstock for algae and extracting bio-fuel from the algae. However, the problem with this strategy is the same as using the CO2 for EOR, as long as the fuel produced by the algae is being consumed and the end-products released into the atmosphere, it is another closed CO2 neutral system over a legitimate CO2 negative system.

Again like with EOR due to the other externalities (infrastructure and transportation of inputs and outputs) involved the overall system should add CO2 and other greenhouse gases to the atmosphere. Also the fuel issue may be somewhat irrelevant as well because of the advent of electrical vehicles which could be powered in the future by electricity from trace emission sources (nuclear, solar, geothermal, etc.). If society did not have the technology required to transition away from fossil fuels to electrical vehicles for another couple of decades such a carbon neutral fuel idea may make more sense, but that is not the case. Thus, such a closed loop carbon neutral system seems to have no real benefit and only results in wasted energy and resources.

The waste is especially pertinent to trace emission energy generation if that generation comes from either wind or solar due to limited economically available amounts of various rare earths. Basically if only a certain number of solar panels could be created then there is no reason to waste any by attaching them to a closed-loop system which provides no significant net benefit. The same argument can be made for water as current DAC designs demand significant water consumption. Other ideas surrounding funding are generally small potatoes like selling the captured CO2 to beverage companies. Clearly there is a market for pure CO2 to beverage companies, but not a 7-gigatons of CO2 per year market.

So if there is no viable market for captured CO2 that is also in accordance to the principle reason for establishing a DAC network, then what is economic argument? The response is adjusting how one looks at the economic issue. The economics of DAC is not profitability, but prevention. For example does Person A eat broccoli on a regular basis because Person B pays them a sum of money to do so? No, Person A either consumes broccoli because they like it or because it is a healthy food. For the latter rationality there is reason to believe that the consistent consumption of broccoli will result in a reduced probability of various diseases and ailments in the future relative to a person who does not consume broccoli (all other elements being accounted for). Thus, the economic benefit for consuming broccoli is derived from lower future costs associated with healthcare and perhaps a reduction in lost wages due to less work missed versus immediate short-term incentive/reward.

No reasonable person disputes the fact that global warming will increase the probability and severity of future extreme weather events and will also change general weather patterns which will result in environments receiving much more or much less rainfall leading to an increased probability of flooding or drought (among other damage more notably from increases in temperature). After simply looking at the overall economic damage associated with extreme weather events along with floods/droughts in 2010 and 2011 alone a reasonable person would come to the conclusion that it is important to lessen the probability impacts of global warming as much as possible.

Also such a reduction would result in the savings of billions of dollars in the short-term (10-20 years from now) and trillions of dollars in the long-term (20-50 years from now). Therefore, similar to the broccoli example, the above prevention model is how proponents of the DAC should sell their technology instead of trying to make it short-term profitable. The profitability comes from the money saved in the future by reducing the probability of detrimental outcomes associated with global warming.

Based on this mindset proponents and designers of DAC systems should not be looking towards venture capitalists to fund the development and deployment of DAC systems as acquiring the necessary funds (billions of dollars) will be nearly impossible, unless said venture capitalists are young and have large stock holdings in insurance companies. In a just world every major company in the world would have to pay into a ‘carbon remediation and mitigation’ fund as a consequence to their past actions resulting in a significant percentage of the total amount of human-derived CO2 emitted in the atmosphere. Money from this fund could then be used to reduce human-derived emissions as well as fund DAC.

Unfortunately it is quite obvious that the world is not just; therefore, the argument of self-preservation must be applied and governments must bear the burden of development, a difficult reality due to the general financial crisis that currently exists. From a self-preservation standpoint China and India probably should be first in line with funding because both countries are high on the list of ‘going to have their environments significantly and detrimentally changed due to global warming’, costing them trillions in future economic damages.

Overall the whole point of pursuing DAC is to reduce the probability of detrimental effects from global warming by reducing the amount of CO2 in the atmosphere as fast as possible. The speed requirement limits the argument for planting new trees (although this still should be done). The sheer amount of CO2 that needs to be removed from the atmosphere is tremendous, so much that no CO2 market could be created to absorb anywhere near the amount that needs to be removed. So those looking to try to justify developing DAC under a ‘money in the pocket now’ economic model should fail unless one abandons the point of pursuing DAC in the first place, which then calls into question why one pursues DAC at all. Therefore, proponents must argue not from a viewpoint of how the captured CO2 will be utilized, but from the viewpoint of how much money will be saved when embarking on the program vs. failing to do so.

Wednesday, October 12, 2011

Discussion of the Inherent Nature of the Sugar/Fat Tax

In recent years the question of whether or not society has a duty to the health of her citizens has arisen taking the form of the implementation of a ‘sin’ tax against unhealthy food and drink. The tax can typically take two forms: first, a flat fee assigned to a group of products (all sodas for example regardless of overall sugar content) or a progressive fee assigned to a given product based on sugar or fat content over a certain baseline amount. Most of these types of taxes fall into the former category. Not surprisingly regardless of category manufacturers and suppliers of products which would fall under this tax do not want it and incessantly lobby against implementation of such policy.

The principle argument made by these suppliers is that the populace should reject government implementing policy which creates favoritism among existing choices. Of course the suppliers use more buzz and emotional language like ‘keep the government from restricting your food freedom’ or ‘the government thinks you are too stupid to make sound nutritional decisions’.

The interesting thing about this mindset is that it is wrong. Government already constantly, through the use of various subsidies and taxes in a number of industries, create this ‘distortion of choice’ that food suppliers are so concerned about when talking about a fat tax, but could care less about when talking about oil subsidies. With regards to the ‘too stupid’ attack angle, with over 33% of the U.S. population obese and another 33% classified as overweight and the basic biochemical understanding that a significant portion of weight is determined by one’s energy balance, it can easily be argued that yes most people appear to be lacking in the ability to effectively manage their own nutrition.

Despite these realities food suppliers would counter-argue that unlike smoking and alcohol government still should not be involved with food consumption favoritism because it is an individual’s decision; whether or not an individual is obese does not affect society as second-hand smoke or drunk driving do, instead only the individual in question is affected. This argument is foolish because obesity rates certainly influence society largely via the economy through work productivity rates and healthcare costs. With Medicare and Medicaid participation in a percentage of these healthcare costs clearly it is in the prerogative of the government to act. While one obese individual may not provide any significant influence, numerous obese individuals do and numerous is the scenario that society is currently facing.

The final strategy that suppliers use to combat the fat/sugar tax is to use a form of divide and conquer. These suppliers cite that the supporters of these types of taxes come from one of two camps. The first camp encompasses individuals who genuinely want to make society healthier and have determined that one way to accomplish that goal is to increase the cost of less nutritious options. The second camp encompasses individuals, typically lawmakers (according to the suppliers), who are looking for additional revenue streams. Suppliers seek to create division between these two groups by citing that if people reduce consumption of their products due to the higher costs due to extra taxes, then the revenue stream anticipated by the second group will shrink. Basically suppliers try to make the argument that if one group gets what it wants the other group will not get want it wants.

The inherent logic of this proposal is flawed because there is no significant ‘investment’ cost in creating the tax. For example suppose person A invested in project A for 5 dollars after an analysis concludes that person A should receive 100 dollars from the project. Would person A regret investing if the return was only 35 dollars? Of course not; person A may be disappointed that the return was not what was originally anticipated, but to regret making an investment which results in a 30 dollar profit with little associated opportunity cost is foolish.

This situation is akin to a fat tax, there is little investment cost thus regardless of how much is acquired due to the probability of reduced consumption lowing actual revenues whatever revenue is acquired will still be meaningful. However, this analysis does demand that lawmakers look at this issue through a logical mindset, which may be asking too much based on the behavior of lawmakers in the past.

The supplier analysis conveniently excludes the savings that will develop on Medicare and Medicaid from healthier individuals having to take less medication due to chronic health problems. Also the concern that individuals will simply move from one unhealthy food item to another is only applicable under narrow product specific taxes. For example such behavior could be expected if a soda tax is implemented with students drinking more fruit juice (which is mostly sugar), energy drinks, coffee and water. However, if the tax is applied (either progressively or flatly) in a broad way in the way a sugar/fat tax should be this concern is mitigated.

There are two immediate moral concerns with a sugar/fat tax. One concern is that these types of taxes are inherently unfair to healthy individuals. Individuals who properly manage their weight and health are punished by such a policy if they ever wish to ‘reward’ themselves for completing a workout or some other accomplishment. It is the not the fault of these individuals that other individuals cannot maintain a healthy weight and yet they face the same penalty when purchasing certain foods.

Another concern is how ‘food deserts’ would respond to such policy. Regrettably there are still a number of areas in the United States where food choice is scarce. In most of these regions the majority of available food is of lower quality and nutritional value, foods that would be more likely to fall under these types of fat/sugar taxes. Thus in these areas such a tax would put undue burden on these individuals who do not have a viable choice to select a healthier dining option.

Another real problem with the sugar/fax tax is a lack of public support. The campaign of taxation demonization in general has heavily crippled any public support for taxes which may influence those respondents. In general support for taxes boils down to whether or not that tax will affect the particular individual usually regardless of what benefits are derived from it. Additional taxes on millionaires have drawn large public support because they do not affect most of the public; however, most polling data on sugar/fat taxes have revealed significant resistance to implementation.

Recall that relying on polling data to make any decision is stupid because polls almost never have large enough sample sizes to properly represent the public. Although polling data should not be trusted, it seems reasonable to suggest that general attitudes will demonstrate resistance to sugar/fat taxes generally based on consumption patterns and most people consume the targeted type(s) of products. Therefore, the large-scale application of these taxes is unlikely outside of strong government actors willing to go against ‘popular’ opinion and certain elements in the business community.

The ironic aspect of the sugar/fax tax debate is that unhealthy foods already have an inherent tax associated with their consumption, that being poorer health. However, most individuals do not have the foresight to associate numerous choices characterized with little consequence in the present has having a significant influence on the future until too late. Thus the shortening of lifespan due to obesity typically ‘sneaks’ up on a person more than anything and it is frequently eliminated through cognitive dissidence. While the psychological element of health is muted individually, the inherent near-term financial tax of these foods is masked by the lack of transparency and price separation in the healthcare insurance industry. Basically how insurance companies ‘score’ their customers through the underwriting process creates an environment where it is difficult to understand the significance of compounding food decisions.

For example when one applies for health insurance as an individual, they agree in principle to a given rate which can be changed after an ‘independent’ underwriting of the applying individual. This underwriting is undertaken to determine the financial ‘risks’ associated with insuring that particular individual. After the process, if the applicant is still acceptable for coverage, the applicant is quoted a final price for the policy which he/she can either accept or decline. However, over the course of this process the applicant is not given information to why any change was made (if one was made) in the premium payment rate. Not providing this information leaves the applicant wondering about the rationality of the change, due to weight, cholesterol, smoking, family history, etc.

One step forward from this concern would be if health insurance companies could provide a detailed ‘invoice’ of sorts analyzing what aspects of an individual’s health profile were influential in producing a given premium price. In addition a benchmark range list could be provided showing price addition/subtraction relative to other values for given health indicators.

For example suppose an applicant’s blood pressure is 150/110, a higher than recommended value. The invoice would state that such a blood pressure cost the applicant 45 dollars a month towards the overall premium. However, supplemental material in the invoice would indicate that if blood pressure were 120/80 instead the associated cost towards the premium from blood pressure would only be 29 dollars a month. Providing information in such a format would allow applicants to see in full detail how aspects of their health influenced the direct financial cost of purchasing health insurance. Note how this issue of transparency is different from the more popularly known push for transparency in the insurance industry where insurance companies need to reveal the rationality behind sudden changes in premiums for large groups of customers.

This system would also need to have significant divergence between different health indicators to be truly effective. For example if a healthy individual paid 1,000 dollars a year in health insurance costs and an obese individual paid 1,200 dollars a year it can be reasoned that the transparency of such a system will do little to drive the obese individual to change his/her eating habits, especially when that 200 dollars is spread over 12 months. Therefore, it is important that health insurance premiums, which have risen significantly in the last few decades, are lowered for healthier individuals.

It can be argued that creating this significant gap between non-obese and obese individuals is appropriate because it represents a risk-associated interest in the insurance industry as obese individuals have a higher probability of needing medical attention. Note that with the high costs associated with health insurance premiums, it is not advisable that health insurance companies raise premium prices for the obese, instead the decrease for non-obese individuals is appropriate to create a sufficient separation and incentive.

The transparency in underwriting method outlined above may draw criticism from the health insurance industry. Some may argue there is too much additional work required to create such ‘personalized’ invoices. Without associated genetic screening, which is not included in this invoice because individuals can do little to positively change their existing genetics, this argument is reaching. The bulk of the invoice is either based in a flat ranged price based on existing parameters that are created by the insurance companies which exist in almost a form letter format or information provided by the applicant that is scored anyways, thus any concern of ‘more work’ is unfounded (in theory). Basically the insurance company simply needs to make a master list and then apply it to all individuals.

Some may argue that the transparency opens up how different prices are offered to different races, ethnicities or sexes. This should not be a concern at all because either a company has scientific evidence to back treating a male with 140/100 blood pressure different from a woman with the same blood pressure or they are being bias and that bias should be brought to light. Finally some may argue that the transparency is unfair because it could expose the company to competition. Such a concern is insulting as an industry which cites capitalism as the reason it should be allowed to make millions of dollars in profit a year would deny one of the principle tenets of capitalism when it does not suit them.

A genuine concern about this method is the reaction of employers. What type of legal ramifications will exist, if any, when employers who still provide health insurance elect to fire certain individuals because of the additional costs those employees are adding to the company? Could people sue for discrimination or would that reason be countered by the fact that weight is a controllable element which is affecting the profit potential of the company in question?

The final element is a continuation in nutrition education must be undertaken so individuals realize what foods can be consumed frequently, what foods consumed on occasion and what foods should be eliminated from the diet. Obviously without the proper education linking certain unhealthy food options to an increased probability of gaining weight and perspective additional health problems such a transparency program in the health insurance industry would be less effective.

Overall while a sugar/fat tax looks to establish a direct means to reduce unhealthy food consumption, such policy has met with resistance from the general public and industry. One alternative option is to create more transparency in providing health insurance. Health insurance is a large financial investment and to see a direct comparison of how premium costs affect individuals of poor health vs. healthy individuals could provide significant incentive for an individual to become healthier. It stands to reason that this strategy may be superior to a sugar/fat tax (for those who have health insurance at least) because of the magnitude of the premium difference in a single setting vs. the ‘nickel and dime’ nature of the tax. A sugar/fat tax could be a useful element in the fight against obesity, but society needs to investigate other means as well because at this moment there is still no ‘silver’ bullet.