Dan Barber’s story (embedded above) is one of my favourite kinds of stories. He begins with something that seems unethical, tells the story of an unlikely maverick who challenges the status quo and wins (a contest). All the while, it turns out that our maverick’s approach involves some down home ingenuity and hands on sustainability. In the end, it turns out that we get to have our cake and eat it to. There is a method for producing foie gras ethically that’s also sustainable (AND DELICIOUS). (If only we didn’t have those evil unsustainable, unethical factory farms that gave us slightly inferior foie gras (and strawberries and mangoes and whatever) year-round.)

At about 8:15 in, Barber unwittingly raises the first issue that will cause massive problems for this kind of farming. He approvingly mentions that the farmer is taking a loss on feeding these geese figs and olives. “The doubly irony is that on the figs and olives, Eduardo could make more money selling those than he can on the foie gras.”

At which point the economist in me asks, “then why does he bother with the foie gras?”

Eduardo is an artisan farmer, he doesn’t need to be profit maximizing, just profitable. So if he wants to take some extra time and effort, he’s welcome to destroy value in the goods he produces as a kind of hobbyist craftsman. That’s fine for him, but does it work on a world-wide scale?

The reason that Eduardo could make more on the figs and olives than he does on the foie gras is that someone has figured out how to make the delicacy more cheaply. It’s far from ethical - it requires factory farming and force feeding - but when it comes to foie gras, people don’t seem to care.

The pricing of foie gras really doesn’t matter to most people, but the same story plays out over and over again in the world of farming. Factory farms produce food more cheaply, with less labour and at a higher density than most organic farms. They also produce the food people want year-round instead of seasonally. They do it at massive environmental and ethical cost, but until there is a price on these things, it is unlikely that entreating people to only eat what is in season will see a shift in the way food is produced.

There’s two ways this story can get better. Either factory food becomes more expensive or sustainable food becomes cheaper.

Eliminating the massive subsidies paid to factory farmers would be a big step in doing both at once. If oil continues to climb, factory farm prices will tend to rise (a lot of oil goes into the machinery and pesticides used on larger farms) making less oil-dependent farming more viable.

The labour issue is a bigger one, which must be solved either by automating organic farming practices, killing western subsidies which will make farming profitable for developing countries (they have a surplus of labour, but ultra cheap grain and dairy from subsidized OECD farmers often forces them out of business), or convincing more OECD citizens to go back to the land.

The last question, to which I don’t know the answer, is: Will organic farming produce enough food to feed everyone? The technologies that underlie the Green Revolution allowed the human population to triple in less than 70 years with very few major famines. Advocates of alternative farming need to account for whether their methods will sustain the human population (or who should die).

They do their lobbying from comfortable office suites in Washington or Brussels. If they lived just one month amid the misery of the developing world, as I have for fifty years, they’d be crying out for tractors and fertilizer and irrigation canals and be outraged that fashionable elitists back home were trying to deny them these things.

–Norman Borlaug

One of my favourite things about financial reporting has always been the way that any change is bad. The dollar would go up and that would be bad, then it would fall and that would be bad.

I took this on Nov 12th when the crisis was only just getting started. Since then, the price of oil has continued to slide. I have no idea if that is a good or a bad thing.

I was reading this article on Slate.com about a number of subprime mortgage holders who are weathering the financial storm just fine. They have delinquency rates of around 3% in an area of finance where the national average is closer to 19%.

How is this possible?

The explanation that stuck with me came from Mark Pinsky, president and CEO of of the Opportunity Finance Network. “We have to be profitable, just not profit-maximizing.”

What sets the “good” subprime lenders apart is that they never bought into all the perverse incentives and “innovations” of the bad subprime lending system—the fees paid to mortgage brokers, the fancy offices, and the reliance on securitization. Like a bunch of present-day George Baileys, ethical subprime lenders evaluate applications carefully, don’t pay brokers big fees to rope customers into high-interest loans, and mostly hold onto the loans they make rather than reselling them. They focus less on quantity than on quality.

And in a world where Neil Cavuto is saying that “loaning to minorities and risky folks is a disaster,” minorities with tiny savings accounts are being served and are paying back their debts. The profits for these companies weren’t as high as they were for the big lenders (one CEO earns a “mere” $190,000/yr), but on the other hand, they are still running.

Compare this to the story that Nassim Nicholas Taleb tells about the wider financial markets (skip to 4:20). “We don’t have slack, it’s over-optimized.”

I keep thinking about the impending extinction of the Cavendish Banana a worldwide mono-culture that was propelled to the #1 spot when the previous favourite, the Gros Michel Banana was wiped out, also by disease. And of the injuries (careful about clicking that link) sustained by Super-G skiers when their highly optimized gear turns against them during a crash. And of Koalas which have evolved to eat a tree no one else eats and who will die off when the trees do.

Then I think about apples which come in a variety of types, casual skiers who make it to the bottom of the hill eventually and raccoons who will eat just about anything. These are all generalists that manage to thrive in a variety of areas, and seem to be pretty good at adapting to massive changes to their environments.

We’re in the midst of the 6th mass extinction in earth’s history and it’s the specialists, with their highly optimized, fragile ecological niches that are going to go first. Cockroaches will still be here when it’s all over, I imagine.

The rule is clear. When things are stable, specialization and optimization is the recipe for success. When things are bumpy, allowing some of the inefficiency that comes from flexibility is probably the thing that will let you survive.

The mistake of the latest market crash seems to be that all the incentives and all the players were aligned to act as if the boom in housing prices was a stable situation that would last and last. You’d think that by now, the financial markets would have learned their lesson.

photo credit: a virtual unknown

Oh man, this is pretty much everything that this blog is about in one place.

This is a piece of brilliant design, for an excellent presentation about a critical problem, backed up by a raft of interesting statistics relating to the impact and efficacy of helping girls vs helping other groups.

(via Presentation Zen)

Overcoming Bias is a blog that is new to me but which I subscribed to right away. When I tell you that I have spent the last two weeks viciously slashing down my RSS subscription lists you will understand immediately how big an endorsement this is and what an idiot I have been when it comes to managing my time and attention.

Overcoming Bias: The Evil Pleasure.

We feel a deep pleasure from realizing that we believe something in common with our friends, and different from most people.  We feel an even deeper pleasure letting everyone know of this fact.  This feeling is EVIL.  Learn to see it in yourself, and then learn to be horrified by how thoroughly it can poison your mind.  Yes evidence may at times force you to disagree with a majority, and your friends may have correlated exposure to that evidence, but take no pleasure when you and your associates disagree with others; that is the road to rationality ruin.