Pirates and Global Warming

I know very little about Indian Ocean piracy, but I have always wondered about a couple of points.  First, why don’t ships take a wider berth around Somalia?  Are all these ships going through the Suez Canal?  And after ships are captured, why don’t war planes move over the spot, and sink the pirates’ boat when they leave?  Do the pirates always have hostages, which they later exchange for money somewhere in Somalia?  It seems their boats would be very exposed out in the open ocean.  I’m sure there are simple answers to these questions, but I have been thinking about the issue because of the recent capture of a ship captain who lives in the same metro area as I do.  Here is the Boston Globe story.  The father of the second in command teaches a course on anti-piracy techniques here in Massachusetts—what are the odds of something like that?  It sounds like the crew members were quite courageous.  Hopefully the captain will be released soon, I could even see a Hollywood movie if things turn out well.

So what is the link with global warming?  The connection is time inconsistency.  In principle, it might be wise for all shipping companies to have a policy of not paying ransom.  If they adhered to this policy, then acts of piracy might gradually peter out.  But once a ship is captured, it is too late for the “no negotiation” policy to have its intended deterrent effect.  And thus ship owners might well pay up anyway (just as many governments do, despite their official policies of not ransoming hostages.)  Of course the pirates know about the time inconsistency problem, so the piracy continues.

Now let’s turn to global warming.  This is obviously a highly-charged issue, as the stakes are very high for both the environment and the economy.  I’m not a scientist, but based on what I have read the hypothesis seems well-supported.  But I don’t think policy should be based on my hunch, or even the views of scientists.  We need a subsidized prediction market in futures contracts based on global average temperatures and atmospheric CO2-equivalent levels—with contracts having 10, 20, 30, 40 and 50 year maturities.  (Aaron Jackson and I did a paper on this.)

Now the Obama administration is discussing the option of geo-engineering, a highly controversial policy that would attempt to limit global warming by blocking sunlight.  There are many possible techniques, but the most straightforward is injecting sulfate particles into the stratosphere to block sunlight.  This would be fairly expensive, but might be cheaper than reducing CO2 emissions–at least in the short run.  Most experts regard this as, at best, a stopgap solution.  Indeed it might be more accurate to say most experts oppose this idea, for a variety of reasons.  Playing around with the Earth’s thermostat might have unintentional consequences.  I’m not overly concerned by this risk, as Mt. Pinatubo did essentially the same thing in 1991, when it cooled the Earth by about one degree for a year or so.  Sure there is some added risk from doing this for a longer period of time, but if problems develop you can always cut back.  Even so, I would prefer we deal with the problem of CO2 itself.   Even if we block sunlight, the increased CO2 in the air will gradually acidify the oceans, destroying coral reefs.  And the sky wouldn’t be as blue.  (Anyone who has been to China recently knows what I am talking about.)

Ideally we’d find a way to remove CO2 after it has been emitted, but right now there are no cost-effective options on the horizon.  We could go with a massive carbon tax, but I don’t see that happening either.  The problem is that global warming is the mother of all externalities.  It is by far the largest externality problem we have ever faced.  And there is currently little evidence that the world will address it effectively.

I expect the Obama adminstration to squelch this story soon.   It plays right into the hands of the Republicans.  And it is also a perfect example of the time inconsistency problem.  Suppose the benefit to the world from stopping global warming would be so great that the major nations would normally be able to overcome the free-rider problem, and reach an effective Kyoto-style agreement.  Now assume we add the geo-engineering option to the mix.  Let’s assume that for the reasons I already mentioned, the world would still be better off with effective emissions abatement, than with a policy of blocking sunlight.  But let’s also suppose that the geo-engineering option makes the “worst case” look much less bad.  In that case isn’t it far less likely that the world would be able to overcome the free-rider problem and agree on an effective international treaty?

Now think about this from the Republican point of view.  You have just told the Republicans that even if we don’t abate emissions, the worst case isn’t that bad.  And you’ve suggested a big “star wars-type” solution; sending thousands of planes into the stratosphere to sprinkle tiny particles.  Yes there are still some bad effects from more CO2, but consider the following two vacations:

a.  Snorkling off a sailboat in the Maldive Islands

b.  Taking a motorboat and a six pack out to go fishing

Which vacation appeals more to Nancy Pelosi’s constituents?  How about a Republican voter in Middle American?

What does any of this have to do with monetary policy?  (After all, this isn’t Sunday.)  In the previous post I discussed Krugman’s “expectations trap.”  The argument was that the BOJ might not be able to credibly create inflation expectations.  Why not?  Because they are a very conservative institution.  So as soon as the inflation expectations got Japan out of its liquidity trap, the BOJ would return to their preferred policy—tight money.  But if the markets understood this, they might find any promise of inflation non-credible.  Of course there is a simple solution to this time inconsistency problem—start targeting inflation at 2% instead of negative one percent.  And stop tightening monetary policy when Japan is still experiencing deflation.  Stop being so conservative.



14 Responses to “Pirates and Global Warming”

  1. Gravatar of Sean DeCoursey Sean DeCoursey
    9. April 2009 at 13:55

    To answer your questions about the pirates. 1) Ships can’t really go any wider around the Horn than they already do. Its one of the busiest shipping lanes in the world as the shortest sea route from China to Europe. 2) War planes have to be stationed somewhere, they can’t fly 24-7 over random patches of ocean. The pirates don’t “leave”, they take the ships to one of their known ports, where it sits with about 10 or 15 other tankers under the watchful eyes of several first world destroyers until a ransom is paid and the ship is released. 3) Pirates always take the crew hostage. It increases their negotiating leverage and makes attempts to take a ship back by force too risky for 1st world navies. 4) The exchanges happen in the water next to the ships when small planes drop the money in floatie bags with parachutes on them. The pirates count the money, then turn over the ship. 5) The unarmed crew that fought back against the pirates are a bunch of morons. What are they fighting for? The shipping companies insurance carriers money? The pirates’ hostage kill rate is currently hovering around zero.Stuff like this has a strong possibility of changing that. But I’m sure their captain and his family are pretty happy he got left all alone with a bunch of ticked off pirates who just lost a lot of money, and I’m sure the shipping company and their insurance carrier are really eager to pay a big ransom for one guy who is replaceable and doesn’t represent a multi-million dollar investment. The pirates can also scuttle or sink cargo ships that fight back too much, potentially creating MASSIVE, MASSIVE eco-disasters in international waters.

    On the rest of your post, which deals with the time inconsistency issue, I don’t understand what your point is. Yes, there is a time inconsistency involved here, but you don’t seem to offer a solution for it, instead going off on a tangent about externalities. I also really don’t understand your vacation comparison analogy, most people that would enjoy a. would also enjoy b. and vice versa, the main difference between them is a cost issue, not a type of activity issue.

    And wow, this has turned out really negative when I didn’t mean for it to be. Sorry.

    I do like the BoJ bit at the end. A good explanation for why efforts have yielded worse than expected results so far.

  2. Gravatar of ssumner ssumner
    9. April 2009 at 15:53

    Sean, Thanks for the quick course on piracy. Only one point I didn’t understand. Do the ships from Europe to the Far East go through the Suez Canal or around the Cape? If it’s the latter, they certainly don’t have to go anywhere near the Horn–the Indian Ocean is very big. As with my other question I am sure there is a simple answer, and I must be missing something. The rest of your points made sense to me (although I’ll still call the crew members courageous, foolish or not.)

    I don’t have any solutions for time inconsistency, except in the case of monetary policy, where I don’t see it as a big issue. Not all my readers are familiar with time inconsistency, so I thought it might be interesting to connect seemingly different issues. I’m not a Democrat or a Republican, so the vacation thing was meant half-jokingly, I was playing on stereotypes of the two parties–I’m not sure if they are all that accurate. But I bet if we polled my readers, most would guess correctly where I put each political party in the vacation example.

  3. Gravatar of Sean DeCoursey Sean DeCoursey
    9. April 2009 at 20:57

    The Suez Canal. Taking the Cape route adds time and fuel costs to the trip, both of which impact profit margins pretty negatively.

  4. Gravatar of Alex Golubev Alex Golubev
    10. April 2009 at 06:09

    is time inconsistency same as moral hazard? ships hostage now, so might as well pay now even if it encourages bad behavior in the future? and can someone please explain why pirates say ARGH? On planes bombing pirates – if there was oil in the region, i’m sure we would clense the earth of the “evildoers” there.

  5. Gravatar of Joe Calhoun Joe Calhoun
    10. April 2009 at 09:07

    Isn’t it true that global warming is only a time inconsistency issue if the hypothesis turns out to be correct? If the global warming hypothesis is incorrect, then any decision made today to limit carbon emissions will likely result in a sub-optimal result in the future. It seems unlikely that we could formulate an optimal long term plan even if we know today that the hypothesis is correct. How could we possibly anticipate future events that might have a more profound impact on global climate? If we adopt a plan today to cool the planet and a future event cools it further, we may get a result that is catastrophic (and a planet that is too cool is probably a more difficult problem to solve). If we do nothing and the global warming hypothesis is correct, we may get a catastrophic result. It seems that a catastrophic outcome is a potential no matter what we do. If that is the case, isn’t doing nothing the more rational approach? Taking action implies an ability to preduct the future which strikes me as hubris in the extreme.

    As for the BOJ, they will only take action to raise inflation when there is a political advantage in doing so. It seems to me that up until now, the less politically damaging course in a nation of savers was deflation and that is the course they’ve pursued. If it now becomes politically advantageous to pursue inflation, that is what they will do, but I’m not sure they’ve reached that point.

  6. Gravatar of Chase Morrison Chase Morrison
    10. April 2009 at 09:51

    Pirate boats are often extremely fast and capable of outrunning even a first world navy. The crews of the vessels are unarmed as per international agreements. Some countries (such as in Malaysia) allow mercenaries to come in to protect ships, but it is expensive and you have foreign private armies coasting around in your national waters.

    War planes are not stationed near the Suez besides those of Egypt and Israel, who have no real interest in protecting shipping off Somalia. They also would require constant surveillance and have very little loiter time over an area (they’re Mach 1 or faster fighters which burn lots of gas).

    In my opinion the best option if you really wanted to stop piracy by way of air, would be constant unmanned surveillance (predator drones, etc) and support from minigun armed helicopters or even better a low flying AC-130 turboprop (105mm cannon can turn a boat into confetti).

    Of course only the United States possesses the tactical doctrine and equipment capable of stopping this issue from the air. And we’re kinda busy in Iraq.

  7. Gravatar of Gabriel Durazo Gabriel Durazo
    10. April 2009 at 10:08

    The WSJ had a good graphic on the front page yesterday about this ship’s route, the area, and where pirate attacks have occurred.

    I can’t find the exact one, but this picture ( http://online.wsj.com/article/SB123918590857500753.html#project%3DPIRATES09%26articleTabs%3Dinteractive ) has the area and other attacks. This particular ship left from Oman, made a stop in Djibouti, and was on its way to Kenya when it was attacked.

  8. Gravatar of ssumner ssumner
    10. April 2009 at 11:34

    Sean and Gabriel, Thanks. If it is the Suez route, I see why the ships have no good options.

    Alex, Time inconsistency is where your incentive today differs from your incentive in the future, even if you would be better off pre-comitting to a course of action. There’s a scene in the Odyssey where Ulysses puts wax in his sailors ears and has them tie him to the mast (to hear the beautiful Siren’s songs.) That’s a classic solution to the TI problem. Moral hazard is where insurance makes your self interest differ from society’s best interests.

    Joe, Your suggestion to do nothing now may well be the best solution, but I don’t think it’s quite so simple as you suggest. It is true the world may eventually have another ice age, but if the global warming science is solid, then warming is far more likely over the next few centuries. All policy decisions must be based on probabilities. That’s why I’d like futures markets, to get a less biased estimate of likely warming. A lot of this depends on how sure the scientists are, many seem to suggest its something like 99% sure, not just 60-40, and that makes a huge difference. It seems to me that the best argument for your position is not that we will be wrong about the problem, but rather uncertainty about possible solutions. Suppose we spent trillions of dollars trying to reshape our economies, and then in 10 years a cost effective scheme for removing CO2 was developed. The trillions would have been wasted. In my view the science is fairly strong, what is much less strong is the conclusion that we must attack the problem in exactly the way that people like Al Gore suggest. That’s a much tougher call.

    Chase, Thanks for the info. Between you and Sean I learned a lot about piracy. All your points seem reasonable to me.

  9. Gravatar of Kailer Kailer
    10. April 2009 at 15:55

    Since global warming is caused by the stock of CO2 in the atmosphere any action taken now wouldn’t have effects for fifty to one hundred years. Now I think the best way to see how much the world would have changed in one hundred years is to look back one hundred years. One hundred years ago the Ottoman empire still existed. Planes were 5 years old and the first model T had just came off the line. The czars were still in power and the emporor of China was a three year old boy. Now let us say they knew about global warming then, would you want the child emperor, Czar Nicholas, Franz Ferdinand and the leaders of the time to hold a world conference on climate change? Would you want them to start implementing massive carbon taxes that could put the democratization of the automobile off for years? I wouldn’t, I would rather have these people address the problems that existed with imperialism poverty and nascent communism. I’m way wealthier than even most of the richest people then. If this sulpher plan is feasible now imagine what will be possible in 50 to 100 years. I get the suspicion that the relative millionaires of 100 years from now would find it quite strange that we spent billions of dollars on Climate Change not knowing what effect it might have, while if instead we had directed that size of funding to malaria we could have eradicated it in a few years saving thousands.

  10. Gravatar of Pennini & Mamacos Pennini & Mamacos
    10. April 2009 at 17:30

    I’m currently taking a course in Chaos, Fractals, and Dynamics which examines small changes in initial conditions and the impact of these small changes on long term assumptions. Weathermen use complex models to make predictions on the weather. Logically, if the inputs to their equations are slightly off base, their long-term predictions will also be inaccurate. This is why I fail to see how “global warming” is predictable. There are a number of studies showing scientists who both oppose and agree that the “global warming phenomenon”. Much like the alarmists a few decades ago who proclaimed that we were headed towards the next Ice Age, today’s global warming advocates have used selective information to prove a highly fallible claim. The earth has cooled over the past 7 years, yet the Obama Administration and followers alike are pushing multi-billion dollar projects and draconian mandates in order to tame a controversial and unsound trend. Why should we buy into this idea when there is so much dissension among scientists about global warming?

  11. Gravatar of Joe Calhoun Joe Calhoun
    10. April 2009 at 19:00


    I agree that a futures market would provide additional information, but even futures markets cannot predict the future. Like any market, the price today reflects the information today. That being said, I suspect such a futures market would produce a much lower probability of warming over the next, say, ten years than you might think. Markets trend and the trend of temperatures over the last ten years or so is flat. The market would incorporate that information as well as the current research.

    For me, there are way too many unknowns to justify any expansive program to reduce carbon emissions. We’re talking about taking action to affect a chaotic system based on a hypothesis that is only now entering the serious debate phase. I don’t know about you but the idea of geoengineering scares the bejeebus out of me. Unintended consequences, anyone? Frankly, it seems to me that trying to affect the climate is a much more dangerous proposition than reacting to whatever changes may come. I am much more worried about the outcome of any action we take than I am the consequences of doing nothing.

    It seems to me there are three potential outcomes from doing nothing.

    1. The temperature rises or falls slightly and we’re all wealthier for having done nothing.
    2. The temperature rises rapidly (as some models predict) and I have to move to higher ground (I live in Miami).
    3. The temperature falls rapidly and I have to use my heat in the wintertime.

    I can live with two out of those three outcomes and I’ve been thinking of moving anyway. Of course, I’m only speaking for myself. I’m sure all those politicians, activists and scientists are only trying to do what’s best for us. Their altruism is surely unquestionable. And if they screw it up and make the climate worse, well at least they can say they tried.

    If we can’t predict the economic outcome of global warming legislation (and I don’t think we can), what makes anyone think we can predict the climate outcome of our actions? Two chaotic systems and we know we can’t predict the outcome in one but we’re sure we can in the other? Sounds dubious to me.

    Enough about global warming though. I’m more interested in your take on my other comment about the political consequences of monetary policy in Japan (and here now that Bernanke seems to be surrendering a certain amount of fed independence). The BOJ has traditionally been less independent than our Fed and I believe they conciously chose to deflate since the majority of its citizens were heavy savers. It didn’t make sense to impoverish (relatively) the majority through inflation. I also believe that with most Americans in debt, the Fed will choose to inflate. What do you think?

  12. Gravatar of V V
    10. April 2009 at 23:22

    “Ideally we’d find a way to remove CO2 after it has been emitted, but right now there are no cost-effective options on the horizon”

    I think the solution we’re all looking for was invented by nature and are called trees. All this worldly discussion about modelling of climate, CO2 derivatives, taxes etc. has meant we are taking our eyes off the ball.

    Meanwhile deforestation continues unabated.

    I fear we are placing our ability to mathematically model the climate in the same basket as our (now misplaced) faith in the ability to mathematically model CDO’s, risk and other financial derivatives.

    The point I’m trying to make is that without a serious attempt to maintain and expand rainforests and forests of the world, what use are any other interventions? (including all the government power grabs under the illusion of climate protection)

  13. Gravatar of Bill Stepp Bill Stepp
    11. April 2009 at 08:12

    Pirate boats usually have five to ten pirates who are not heavily armed. It would seem that three sharpshooters could take them out fairly easily. The marginal cost of this defensive operation would be a lot less than the cost of lost international trade caused by the pirates.
    There is an article on the internet today about a ship’s crew fending off some pirates with water hoses. Guns would be even more affective.

  14. Gravatar of ssumner ssumner
    11. April 2009 at 16:59

    First let me say that although I obviously must have given the impression that I favored Al Gore-style polices, I never actually said I did. And in fact I don’t. I was more interested in showing the time inconsistency aspect of the problem than suggesting solutions. And I have no solutions.

    Kailor, That is a very important and under-appreciated point, I hope everyone reads your comment and thinks about what has happened in the last 100 years, and what’s likely to happen in the next 100. Everyone likes to talk about the burden we are putting on future generations. Has anyone stopped to think how rich those future people are likely to be, assuming no unexpected catastrophe? On fairness grounds, we should give much of our wealth to those who lived 100 years ago (to an average age of 47.)

    (Jason?) Pennini and Mamacos, In my view the chaos theory applies to local weather conditions more than global, but you’re probably right that it has at least some application to global conditions. I tend to think the science is pretty strong on three pro-global warming points:

    1. Everyone agrees that CO2 levels are rising significantly and are expected to keep rising.

    2. Almost everyone agrees that, ceteris paribus, more CO2 means warmer temps.

    3. Almost everyone agrees temps have trended warmer in recent decades (although last year was a bit cooler.)

    So I tend to agree with the majority of scientists on this issue. I agree that scientists have made a lot of very foolish predictions in the past–predicting everything from mass famine from overpopulation to another Ice Age. But they never had good scientific evidence for those predictions.
    If I was King of the World I’d probably favor eliminating the corporate income tax and replacing it with a carbon tax. There are probably at least 4 or 5 different arguments for a carbon tax, and at least one is likely to be right:

    1. Externalities from pollution
    2. Externalities from traffic congestion
    3. Global warming
    4. Monopsony power in buying oil
    5. Reduces revenues to disruptive political regimes.

    And even if all 5 points are wrong, the welfare cost of a carbon tax is still probably less than the corp. inc. tax.

    Some on the left would say that companies would pass a carbon tax on to consumers, but wouldn’t pass a corporate income tax on to consumers or workers, but I don’t buy that argument.

    Joe, We are probably closer than you think. I think the futures market would show modestly higher temperatures than today, but on the low side of scientific estimates. But that’s just a hunch, and I rather see what the market thinks, and not rely on my hunches. See also my reply to Kailor.

    A few years back the BOJ was made much more independent than in the past. You might be right about them favoring savers, although because of the Fisher effect most of the gains are lost via lower nominal rates. In any case, we both agree the policy is obviously deliberate, and not a “failure” that the BOJ wishes it could have avoided, as certain more naive economists seem to believe.

    V, I like trees a lot, and have nothing against your idea. But it wouldn’t be nearly enough.

    Bill, Yes, there are some external benefits from being tough with pirates. While I have no doubt that Sean’s original comment is much closer to the mark than my uninformed speculation, I think he may have slightly underestimated the value of these external benefits–the gains from deterrence.

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