Bodies, Big Brains and Regulatory Reform

When I started this post, it was just a listing of two things I found interesting. Then I realized they were connected. So... what are the two articles?

1. A Body Fit for a Freaky-Big Brain, summarizing research on the anatomical adaptations necessary to accommodate our over sized brains -- which use 20 times as much energy per pound as muscle tissue. Among the factors identified: reduction in the amount of gut tissue (also very energy intensive); shifting of diet to a higher energy cuisine based on seeds, tubers and meats; and a genetic adaptation in glucose transporters that resulted in extra molecular pumps to funnel sugar into the brain, while starving muscles by giving them fewer transporters.
2. Individuals interested in takes on the financial collapse will want to check out Capital Inadequacies The Dismal Failure of the Basel Regime of Bank Capital Regulation. Put out by the libertarian Cato Institute, the paper provides 40 pages or so of analysis aimed at a) documenting that regulatory solutions to financial matters are misplaced because regulatory apparatus is subject to capture and b) advocating a solution based on financial laissez faire.

The solution is free banking or financial laissez faire. The state would withdraw entirely from the financial system and, in particular, abolish capital adequacy regulation, deposit insurance, financial regulation, and the central bank, as well as repudiate future bailouts (and especially the doctrine of Too Big to Fail). ... Such systems have worked well in the past, and reforms along these lines would take the United States a long way back to its banking system of a century ago, in which banks were tightly governed and moral hazards and risk taking were well controlled because those who took the risks bore their consequences.

Now we can debate the empirical validity of these claims -- the individuals who lost all their savings in the bank runs of the Great Depression probably wouldn't agree that "those who took the risks bore their consequences" -- but that isn't the point.

Compare the view of systems and adaptation in the two scenarios. In the first article the "system" is the human body. The basic argument is that modification of one major subsystem (the brain) necessitated modification to other parts of the system in order for the "big brained" version of humans to survive. Contrast this with the view of the economic system advanced in the Cato Institute analysis. Over the past century the economy has changed dramatically. The growth of financial services as the mainstay of many advanced economies is the equivalent of the emergence of big brains -- one particular part of the system is becoming unusually important. A century ago, advanced economies were based on manufacturing and agriculture. Today, these sectors play a comparatively minor role and financial services (conventionally rendered as Wall Street) rule. But, rather than recognizing that change in one part of the system requires an adjustment in other parts of the system, the Cato paper argues for stability in the other aspects of the system (as expressed in the desire for a banking system similar to what was in place in 1910).

There is also a confusion Cato Institute paper about the role of organization (regulation) as it characterizes complex systems, but getting into that would be another (lengthy and necessarily technical) post.

TEQs: UK Gov't Tradable Energy Quotas

The UK Parliament's All Parliamentary Group on Peak Oil, which began in 2007, is backing a TEQ scheme, or Tradable Energy Quotas. TEQ is a system of energy accounts for each adult that both sets a price on energy and quantifies the amount of carbon emissions per energy unit. It links the two major energy issues together: peak oil and carbon emissions. The price floats depending on scarcity/price, and the carbon units change, depending on the emissions level of the energy source. The scheme is designed to price fuel according to its scarcity and emissions, but also make sure that no one is "energy poor", that energy distribution is fair.

I can't vouch for the fairness of the scheme because I haven't read a critique on exactly how it would price and distribute energy in the real world. However, one has to begin with the presumption that the wealthy can buy as much fuel and carbon emissions as they would like, causing scarcity that both raises the price of fuel and reduces the amount of carbon emissions the less-than-wealthy can have. The scheme merely says that each adult is given an equal share of TEQs at the start of the year. If you use less than your share, you can sell your surplus; if you need more, you can buy more. Industry and Government bid for their units at a weekly Tender (auction). It appears that there are no limits on the amount of units that a wealthy person would be allowed to buy, although there is an annual "budget of units" that is projected until 2020. The story in the Energy Bulletin gives a bit more detail on the policy.

Even as a possibly flawed scheme, I would rather see one government move ahead and implement the policy as an experiment, to see how it actually plays out. We won't really know what the issues are until somebody tries it.

UPDATE: One question I had about the TEQ scheme was how energy and emissions would be counted in embodied forms: the purchase of consumer goods. TEQ has a scheme to count those energy and emissions units by requiring the producer to pay those TEQs. From The Oil Drum:

"The purchase of goods other than energy would not require the surrender of TEQs units, since the producers of those goods would have already surrendered units for the energy used in the production of the goods. Producers would then pass on the cost of buying these units to consumers, who would simply find that certain goods (those produced in a more energy-intensive manner) cost more."

However, this scheme hides the fact that a significant portion of goods in OECD countries (in some countries, the majority) are produced outside the country in places like China. The TEQ scheme, therefore, externalizes the energy and emissions costs associated with buying consumer goods to the country of production, where energy and emissions are not counted. This scheme gives consumers a free-pass to consume as much "cheap goods from China" as they can, since they will not have to surrender TEQs for those purchases. Furthermore, it gives a free ride to major retailers, like Walmart, who won't have to surrender TEQs for selling foreign-produced goods. It also penalizes the local production of goods, which may be producing such goods with lower energy and emissions and under stricter environmental laws. Consumer tendency would be to purchase foreign goods that don't reduce one's TEQs. This discourages the local production of consumer goods.

1.	TEQs (Tradable Energy Quotas) is an energy rationing system to enable nations to reduce their emissions of greenhouse gases along with their use of oil, gas and coal, and to ensure fair access to energy for all.
2.	There are two reasons why such a scheme may be needed: 1. Climate change: to reduce the greenhouse gases released into the air when oil, gas and coal are used. 2. Energy supply: to maintain a fair distribution of oil, gas and electric power during shortages.
3.	TEQs (pronounced "tex") are measured in units.
4.	Every adult is given an equal free Entitlement of TEQs units. Industry and Government bid for their units at a weekly Tender.
5.	At the start of the scheme, a full year's supply of units is placed on the market. Then, every week, the number of units in the market is topped up with a week's supply.
6.	If you use less than your Entitlement of units, you can sell your surplus. If you need more, you can buy them.
7.	All fuels (and electricity) carry a "rating" in units; one unit represents one kilogram of carbon dioxide, or the equivalent in other greenhouse gases, released when the fuel is used.
8.	When you buy energy, such as petrol for your car or electricity for your household, units corresponding to the amount of energy you have bought are deducted from your TEQs account, in addition to your money payment. TEQs transactions are automatic, using credit-card or (more usually) direct-debit technology.
9.	The number of units available on the market is set out in the TEQs Budget, which looks 20 years ahead. The size of the Budget goes down year-by-year - step-by-step, like a staircase.
10.	The Budget is set by the Energy Policy Committee, which is independent of the Government.
11.	The Government is itself bound by the scheme; its role is to find ways of living within it, and to help the rest of us to do so.
12.	TEQs are a national scheme, enabling nations to keep their promises, guaranteeing their carbon reduction commitments within whatever international framework applies at the time.