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  • The End of Growth part 2: growth didn’t begin with oil and coal

    I’m continuing to read The End of Growth by Richard Heinberg. His book claims that, from his vantage point in 2011, economic growth is no longer possible and that any future growth is a myth propped up by financial trickery. Part of his thesis rests on the idea that economic growth as we know it only came about through continued advancements in hydrocarbon extraction. Oil, coal, and natural gas, these are all commodities of incredibly high energy density but incredibly low transportation costs: burning them is easy and liberates energy. This energy then powers economic growth. He blithely asserts that prior to the discovery and utilization of these hydrocarbons economic growth basically didn’t exist, and when we have used up the last of these hydrocarbons it will cease once again. It’s that first bit I’d like to take issue with today.

    Economic growth didn’t start with coal. Mr Heinberg seems to have a very Eurocentric and modern-centric view of history, ascribing 100% of all economic growth to the time after the industrial revolution. It’s true that in millennia past, a nation’s power lay mostly in its raw population total. That’s because 90%+ of all people were usually subsistence farmers, and mobilizing their labor for war or public buildings was how most nations used their power. But growth still occurred before the industrial revolution, and we see evidence of it through history.

    For example: technology is growth. If every single year an average person can do more and more using less and less, isn’t that a case of economic growth? Wouldn’t we measure that as an increase in GDP? And technology has been progressing for every millennium of human history, not just the last few centuries. Take Italy in the 16th century and compare it to Roman Latium from the 1st century, a middle class urban Italian could enjoy luxuries the likes of which a senator or emperor could only dream of. Take books for example, in Latium it would have taken a team of scribes several weeks or months to copy by hand all of Julius Caesar’s Bello Gallico, meaning that copies were limited and had to be fiercely protected. Meanwhile an Italian with a printing press could print off a few hundred copies all by himself, selling them and other books out to middle class folk and letting middle class libraries expand to point that people could spend their entire lives just reading (and some folks did just that). In a very real sense we would say that the printing press led to a growth in the Italian economy, because more books could be made with less labor. This freed up labor to do other things, those former scribes could now go on to be writers themselves, or inventors or even go back to the field as farmhands.

    If you took the GDP per capita of Roman Latium and compared it to the GDP per capita of 16th Century Florence, you’d find a hell of a lot more stuff being produced per person per year. The printing press and technological innovations like it had allowed the Italian economy to grow in ways that didn’t require extracting more resources out of the ground, and the same holds true in our economy today.

    So even if the very last drop of oil or nugget of coal is extracted from our earth, why would we ever believe that growth would stop right there? Oil, coal and gas are just useful stores of energy, there are other ways to store and transport energy that we could use, and further technology that we can develop to grow our economy. A cheap, fast, and accurate 3D printer using solar power and bioplastic would lead to considerable economic growth, and there’s no reason to think its invention would be impossible in a world without oil. So while it may be true that oil is a finite resource, that truth bears no relation to truths about economic growth. Growth has never required oil, even today solar and wind power are becoming greater and greater proportions of our national electric grid, and when we finally transition away from oil growth will not stop, just as the Italians didn’t need oil to start their growth in the 16th century.

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  • The end of growth?

    I’m doing that thing again where I read old books just to dunk on the authors. This time it’s “The End of Growth” by Richard Heinberg. Written in 2011, here’s how it starts:

    The central assertion of this book is both simple and startling: Economic growth as we know it is over and done with

    Heinberg goes on to say that although countries may still experience a few quarters or even a whole year of growth,

    the general trend-line of the economy (measured in terms of production and consuption of real goods) will be level or downward rather than upward from now on

    Not only that, but Heinberg goes further in decreeing that this is true for the entire world, not just any one nation. Any national growth in one nation (which will necessarily be very small, as stated above) will be balanced out by a reduction in the size of the other economies of the world. Heinberg confidently asserts:

    the global economy is playing a zero-sum game, with an ever-shrinking pot to be divided among the winners

    This is, to put it bluntly, laughable. It was crockery in 2011 and it’s only been proven more ridiculous as time has gone on. It goes back to my post from before about how everyone is always fighting the last war, in 2011 with growth still anemic this seemed like a defensible conclusion but today, not so much. And more broadly, history has proven this thesis to be wrong startlingly quickly: the Federal Reserve has a handy-dandy chart of US GDP in constant dollars (ie dollars accounting for inflation) and we can use it to see that in 2011 the GDP was about 17 trillion dollars, and by 2019 (the most recent year on the chart) it had climbed to 20.5 trillion; a growth of 20% over just 8 years. And it’s not like this is fake growth either, you can see it in the cars we drive and the gadgets we use: lane assist, rear-facing cameras for backing up, electric vehicles, hell even smartphones and tablets. These are all new and useful things that we didn’t have as much of in 2011. Just 31% of Americans owned a smart phone in 2011, today that number is nearly 90%. Just a quick look around us should dispense with this idea that growth has ended, even the consumption of oil, electricity, and natural gas have gone up. Real growth in our economy has occurred.

    So the trend-line for America has most decidedly not been flat, but what about the rest of the world? Have we merely stolen growth from everyone else? Hardly. Look at China and India, two countries accounting for around 1/3 of the world’s population, their economic growth has continued to outpace America since even before 2011. They’re growing faster than us, using even more oil, electricity, and natural gas, and buying even more smartphones and electric cars than we are. They are definitely growing in a very real economic sense. And what about the rest of the world? Europe hasn’t grown quickly, but they are by now means trending downward, and neither are Africa, South America, or the rest of Asia and North America. Every part of the world’s economy has seen real growth in the past decade, with real increasing in living standards being the norm not the exception.

    And this isn’t an illusion. Mr Heinberg seems strongly intent on portraying any semblance of “growth” as nothing more than an illusion created by debt, yet the fact that I’m typing this out on a laptop that’s computationally stronger than my 2011 desktop seems to put paid to that idea. Heck, I’m in science, 10 years ago Cryo-EM was barely able to do any of the stuff we take for granted today, now we can image and define the structure of thousands of proteins relatively easily. Is this just an illusion? Is our ever-expanding catalogue of verified antibodies for scientific experiments an illusion? What about the fact that just 2 years ago we invented and deployed an entirely new type of vaccine for a disease no one had ever heard of before? That literally happened, and it isn’t an illusion. Technology has continued to rapidly progress since 2011 and shows no signs of stopping, Mr Heinberg’s thesis on growth seems utterly ridiculous. And even our base inputs continue to go up, the amount of oil pumped and burned continues to go up year after year, alongside the amount of electricity the world is using. I’d love to hear Heinberg’s explanation for how world energy consumption keeps increasing year after year despite our growth having ended.

    So why did Mr Heinberg think that growth was ending? Well I’ll have to keep reading, but I think that like I said he was simply fighting the last war. The Financial Crisis was a real shock to a lot of people, and the lethargic pace at which the world’s economy recovered from it made people think that it was a new normal. But it wasn’t. Secretly I also wonder if Mr Heinberg is of the heterodox economic school which believes that steady-state or even de-growth is preferable to economic growth. When one looks at all the resources humanity is using one instinctively feels they must eventually all run out. But Malthus predicted we’d outstrip our food supply centuries ago and despite him and many others believing this to be true, year after year people are eating more and living longer than they ever did, along with enjoying more and more of the amenities of modern life. I don’t know what Mr Heinberg was thinking when he wrote this book, but on the first page I can already say lol, lmao even.

    Let’s see how he defends his thesis.

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  • I’m amazed how little some of my friends can cook

    Let me be clear, I barely cook. I can cook eggs, quesadillas, frittatas, burgers and some recipes out of a cookbook. I’m not some maestro of the kitchen and I rarely cook because I usually have faster options. But if necessary I can cook things that are edible and tasty enough to satisfy.

    That’s why it’s in some ways baffling that I have so many friends who have cook even less than I do. I texted a picture of a baked-from-the-box brownie to one of my friends who replied “wow! you can cook really well!” You add water and bake, does it really count as cooking?

    Eh, I guess this is how it is sometimes. Not everyone owns an oven, not everyone even has a full set of cookware in their apartments, especially people around my age. But still, brownies, they’re easy and delicious so you might as well learn to “cook” them.

  • Don’t put all your money into bonds

    In fact, don’t put all your money into any single investment. I’m not anti-bonds, I’m pro-diversification.

    As the Fed has continued to hike interest rates, I’ve been encountering a lot of chatter about buying bonds, and while I agree with some of it I’ve also seen talk saying that anyone with money in stocks is a moron and that everyone should sell everything they own and put it all into long-term government bonds. The benefits of government bonds are clear: they are a risk-free way to protect and sometimes grow your money. A bond is just a loan to the government and the government (whether the Federal government of America or the AA+ rated governments of Europe and the rest of the world) is not going to go bankrupt. Governments like Germany, America, and Japan will always pay their debts so purchasing a government bond is guaranteed to return your money to you at the end of the day. But just because they don’t have risk doesn’t mean they don’t have cost.

    Everything in economics has an opportunity cost and this applies especially to bonds. There’s no guarantee that the investment you made was the best way you could have invested your money, even if you made a bit of money through it in the long run. Let me explain some of the opportunity costs you are facing when you buy bonds.

    If you buy bonds today, you lock in a fixed interest rate for the length of the bond (let’s ignore I-bonds for now). That means you will receive a fixed amount of money for the length of the bond, plus you will be given back the initial amount you paid at the bond’s maturity. So if you buy a 10,000$ bond, and hold it to maturity, you will have made 10,000$ + 4% interest, it sounds like a great deal. But what other opportunities did you have with your money? Well in December the Fed will have another meeting, and it’s possible that they will once again raise interest rates. If that happens, you could buy a bond with around 4.75% interest instead of around 4%, so one of the opportunity costs you have is that if you just waited another month you could have bought a higher yield 10,000$ bond and made more money.

    That’s not the only opportunity cost though, what if you suddenly have to make a big purchase? You could sell that 10,000$ 4% bond you purchased, it’s still worth somewhere close to 10,000$ if you bought it recently, but if you sell it after the Fed has raised interest rates you will find the price you can get for it is much lower than what you may have expected. That’s because your bond is paying a lower interest rate than what people can get buying new bonds, why spend 10,000$ to buy a 4% bond when you can spend 10,000$ to buy a 4.75% bond. So if you buy a lot of bonds then have to sell them after an interest rate hike, you’ll have lost out compared to if you had bought after the interest rate hike or if you had not bought at all.

    Another scenario is that the Fed doesn’t hike interest rates but the markets recover. Say the inflation report comes out and shows inflation slowing substantially, in that case the Fed would have less reason to raise rates and the markets would have more reason to rally as people expect better times ahead. You’ve still got your 4% bond but markets on average rise 7% each year, so in an average year the stock market can be expected to give greater returns than buying a bond. In this case you haven’t lost any money but you’ve incurred an opportunity cost by buying bonds instead of stocks, you could have had greater returns buying stocks.

    I’m not saying don’t buy bonds, bonds can be a good way to mitigate risk and ensure consistent returns. But I am seeing some people act like current trends will last forever, that the market will stay down forever and thus bonds are the only way to get any kind of return. I’m just saying that every action has an opportunity cost, and while buying bonds are low risk they are still a bet that interest rates won’t go much higher and the market won’t gain too much. Otherwise, you might have been better off putting your money elsewhere.

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  • Every episode of Raw from 1999 is the same

    I’m still on-again-off-again watching WWE Raw from 1999, here are my musing on it.

    Every episode is the same and it’s killing me. Austin or the Rock shows up at the start with some promo/brawl, midcard stuff happens in the middle, a shot of Austin before each commercial break to let people know “DON’T TOUCH THAT DIAL” but then he doesn’t come out until the very end and he doesn’t always even do anything. Throw in a little of Big Show and Undertaker to the mix and sprinkle with HHH and DX to taste. It’s not great. This was supposed to be the time when Raw was absolutely destroying Nitro in the rating, well either Nitro was just unwatchable (I’ll find out eventually) or Raw was coasting off of 1998 because this just isn’t captivating.

    Where’s the creativity with Austin? With Foley? They’re great in creative segments but it feels like there’s none to be had. Austin and Foley showing up in Vince’s hospital room, that was to me absolute PEAK Attitude Era from the comedy to the drama to the catharsis of Vince chasing away the only man who could save him before getting a beating from Austin. Raw episodes from 1999 just aren’t creative in the slightest.

    There is an element of this setup that I understand. Austin is THE star, he’s the absolute peak of the WWE, so they want to use him to draw in the viewers and keep them tuned in. That means constantly teasing him throughout the show but not actually showing him until the very end. Every single commercial in some of these episodes will be immediately preceded by a shot of Austin to trick the viewers into thinking he’ll be on for the next segment, but as someone watching these episodes without ads in 2022, this just gets tiring.

    Even some of the catch-phrasing is boring this year. Between Royal Rumble and Wrestlemania of 1999 there was a stretch where no one updated their catch phrases, it was the exact same promo every week from people like Rock and Road Dogg. And to be fair it was great catch phrases and the audience would chant along, but that gets old eventually and at least after Wrestlemania they kind of started adding new bits again. Austin is a breath of fresh air because he never got completely fossilized, he would always give his Austin 3:16, he’d always talk about kicking a sombitch’s ass, but he didn’t just rattle off catch phrases and call it a day.

    So yeah, what happened in 1999? Why did the program feel like it was in a holding pattern for most of the year? The big stars coming in and even the big story changes just aren’t as entertaining as anything that happened in 1998, and I’m not entirely sure why. I hope 2000 is better.

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  • People are always fighting the last war

    We live in a time of high inflation and rock bottom unemployment, but I remember less than a decade ago reading the prognosticators of economics talk about how low inflation and high unemployment (or underemployment) were the inevitable future of our economy. It was said with as much certainty as could be mustered that the Financial Crisis had fundamentally changed the nature of our economic reality, no more could we expect governments to bail us out (they all had too much debt), instead we were going to keep suffering for a long while for the profligate lending of the banks. Of course that wasn’t true, and neither is it true that inflation and low employment are a certainty for the rest of time.

    What’s crazy to me is that both predictions were made with the same data. Our population is aging, globalization inevitably moves certain jobs overseas and forces American workers and companies to compete with those in foreign nations. Our government has high debt, real wage growth is anemic or negative, and the job of fixing all this has landed solely on the head of the Federal Reserve since the rest of the government can’t or won’t do so. This describes 2012 as much as 2022, and yet this evidence is used just as confidently by the takemongers of 2012 who predicted an eternal low-growth as the takemongers of 2022 predicting eternal inflation. It reminds me of all the sci-fi books and movies from the 70s and 80s predicting a far future of the 21st or 22nd century in which the Soviet Union still existed, people routinely project their current reality onto the future without any further thought. If pressed they’ll then use any evidence at all to defend their predictions, even if the same evidence could be used for an entirely different conclusion.

    The 2010s were a period of low growth, low inflation, and high unemployment/underemployment. The 2020s have so far been a period of higher growth, high inflation, and very low unemployment. Both decades have challenges, and many of the challenges are the same. But I see no reason to believe that the trends of today will last forever.

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  • How do bonds work

    Seriously. I don’t get it. People are telling me “buy bonds, the market will explode” but when I went onto my brokerage I couldn’t understand a damn thing about what I was looking at. If anyone understands bonds, feel free to tell me what I should be doing.

    Note: this post was made almost entirely in jest, I understand how bonds work but was miffed at how poor the front-end for buying them was at my brokerage. I’ll have a better post on bonds up later.

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  • The best way to learn something is to just use it

    Short post today, but as I’ve tried to teach things to people I’ve found the best way for them to learn is to just use the knowledge. We work with amino acids in our lab (the 20 building blocks of all proteins), and many new lab members have come up to me asking how I know so much about amino acids and how they can learn. What class did I take, what class should they take, is there a book I studied? The honest question is I learned by doing. When I studied the amino acids I was told to learn their shapes by drawing a protein which would spell out my name, but since half the letters in my name don’t have a corresponding amino acid I dropped that idea pretty quickly. For the rest of the semester I vaguely knew just enough to do well on the test but couldn’t exactly list the amino acids off with any fluency. Once I began working in a biochemistry lab though, it all fell into place. Suddenly, having to remember every day that Lysine and Arginine are positively charged helped me remember their structures, and eventually I could remember the side chains of most amino acids with little difficulty. This never would have happened if I had only studied them in a class, I had to learn by using.

  • Liquid-liquid phase separation

    I don’t have a deep topic to write about today because I’m busy at work, but I thought I’d write on a subject that I’ve been studying myself, partly in order to make sure I understand it.

    Phase separation is a common and easily understood way that matter segregates: when water boils the gaseous vapor and the liquid water are separated from each other due to differences in their density. A liquid-liquid phase separation is the same thing, only it’s two liquids separating and not two different states of matter. One example of this is oil and water, as everyone knows oil and water will separate from each other when placed in a glass. This is in part due to their preference to aggregate with each other, water is hydrophilic and so interacts strongly with water and not well with hydrophobic things, while oil is hydrophobic and interacts strongly with itself and not well with hydrophilic things. What’s less understood is how liquid-liquid phase separation is also important in cell biology.

    If you remember what a cell looks like from a high school textbook, you can probably remember that it has things like a nucleus, a mitochondria (the powerhouse of the cell!), and some weirder things like an endoplasmic reticulum. These are all examples of membrane-bound organelles. Just like our organs all perform special duties within the body, so too do organelles perform special duties in the cell. The membranes that surround these organelles spatially separate their inside contents from the outside cell, and so allow them to more efficiently perform their functions. But there are also specialized parts of a cell that do not have a surrounding membrane. The nucleolus in particular is a specialized area of the nucleus that has its own special functions, but it is not separated from the nucleus by any membrane whatsoever. So how does the nucleolus prevent all its contents from diffusing into the nucleus and ruining whatever process it is performing? It does so through a liquid-liquid phase separation.

    It’s a bit too technical to explain here, but just as oil and water have chemical properties that separate them in a glass, so too does the nucleolus have chemical properties that separate it from the wider nucleus. And it turns out that a large number of cellular functional areas segregate from the cell through liquid-liquid phase separations, all segregated not by a membrane-defined boundary, but by the physical properties of the medium in which their reside. These phase separations allow many different areas of the cell to undergo their own specialized functions without needing to constantly make and remove cell membranes around them, and thus allow for more efficient activity inside the cell.

    So that’s an overview of liquid-liquid phase separation, I’m still learning it myself so I hope I got everything correct. But if I miswrote anything, cell biologists out their feel free to correct me.

  • Are passive ETFs creating market inefficiencies?

    Yesterday I wrote about how the YOLO memesters might be creating market inefficiencies, today I thought I’d look at the other side of the coin with the more mature, more upscale passive ETFs.

    For those who don’t know, a passive ETF is just a pile of money that you can buy into like a stock. When you hold a stock of $VTI for example, you own a tiny percentage of that big pile of money. The money in turn isn’t just a bunch of cash, it’s invested into the stock market according to the ETF’s prospectus, from which the ETF is not allowed to deviate from by law. $VTI’s prospectus says for example that it will seek to track the performance of the whole US stock market by investing in a representative sample of companies in that market. In this way, $VTI isn’t making a decision on the worth or value of any individual stock, it is merely buying every stock and assuming the market will do the hard work. Since the value of the total US stock market grows at an average rate of between 5% and 10% every year (with some down years like 2022), this means that $VTI is expected to grow at that pace as well and an investor in $VTI can make 5% to 10% returns without any of the stress or hassle of picking their own stocks. The only things $VTI asks for in return is a tiny amount of money in the form of it’s expense ratio, just 3¢ for every 100$ of investor’s money is taken for expenses, which seems to be a reasonable deal for everyone involved.

    $VTI and other ETFs like it are easy, low-risk investment vehicles, so it’s no wonder they have exploded in popularity. Not only that, but studies have demonstrated that passively managed ETFs almost always outperform their actively managed peers. But is this “$VTI and chill” mindset of investors creating market inefficiencies of its own? Remember that passive ETFs invest in the whole market, regardless of if an underlying stock is any good or not. Not all ETFs are as broad as $VTI of course, some seek to track a certain market segment or a certain type of stock, but all passive ETFs share a commitment to obeying their prospectus and investing in valid companies without precondition. This means that they cannot participate in price discovery which is seen by some as the primary purpose of markets, including stock markets. If company A is growing, profitable, and well run, then it should be rewarded with having a higher value than it’s competitor, company B which is shrinking, unprofitable, and poorly run. We would expect that the stock market would perform price discovery on these two companies, investors would buy stock in the A and sell the stock in company B, raising and lowering their stock prices in turn. This then rewards company A for its success, and lets it use its high stock price as a tool to further expand the company, hopefully rewarding investors in the process and creating a virtuous cycle of success breeding success.

    But passive ETFs don’t participate in price discovery, they don’t sell bad companies and buy good ones. Passive ETFs buy a representative sample of companies according to their prospectus, and they keep their expense ratios as low as possible in part by not doing the kind of deep dive on their investments that you would expect from an active investor. If company A and B are both worth 5% of the total stock in a passive ETF’s market, then it will hold 5% of its total value in both A and B. And if every investor in the market was a passive ETF, then there would be no way for the price of A and B to move relative to each other, because there would be no sell pressure on one relative to the other. Indeed some have claimed that the rise of passive ETFs is making the market less efficient, and tipping the scales towards large companies that will get bought up by the most popular ETFs simply because they are large and thus make up such a large portion of the market. If this is the case, then the erudite bogleheads are doing as much damage as the memesters.

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