Friday, November 13, 2009

Technology and your future

Andrew D Atkin

There are 2 world-changing technologies that we can bet on for future predictions, because we can know that they are inevitable and will be deployed within our society soon.

1. High-powered network computing.

2. Fully automated transportation infrastructure.

High-powered network computing will give everyone access to powerful computer simulators for the virtual-prototyping of products. This can and will accelerate product-development, especially for high-tech products. With product-development being online-based, it facilitates extremely efficient collaboration amongst various technicians and enthusiasts.

We will also see an acceleration of the development and implementation of robotics, for where robots do much more than rigid production-line type functions. With the development of the high-speed internet we can design robots that are part-automated/part-remote controlled, so that humans can cut-in and over-ride automated operation when and as required. This, critically, allows robots of many different types to do just about anything that humans can do. Because humans only cut-in where required, one human may be all that is required to assist many productive robots. Internet-integrated part remote-controlled robotics can support a new wave in the development of automation. With high-speed internet, humans can now efficiently bridge the gap between what full-automation can and cannot do.

Fully automated transport will give us the physical internet and ultra-efficient transportation in general. A physical internet will mainly be provided by "micro cars" no bigger than a rubbish bin. [see my Automated Transportation Network in the June index].

The truth is that with automation, robotics, remote control, automated transport networks and the developing internet, there will be little functional need for most people to leave their homes for our society to function; not even for jobs that would otherwise require flexible mechanistic actuation. The fact that we will not need to physically attend a workplace (or other) will in itself radically reduce even the original need to produce. (Not to suggest that people would not leave their homes for recreation, of course).

The social trend that we should see in response to all this is a radical decentralisation of living/working location. Basically, we should see an amplification of the trend already created by the automobile and now telecommuting. We should see a society better and more efficiently connected, yet more private and spread-out than ever before. This will lead to the creation of true 'eco' or garden cities [basically, very large and well developed 'lifestyle' developments], of which support abundant replantation as opposed to our somewhat tedious "concrete jungles" of today.

We can be confident with this prediction, simply because with our developing technologies we can know that we can achieve the best of both worlds: efficient access to people, work and products, yet with 'lifestyle' privacy and tranquility combined. And, most critically of all, we can have it for cheap.

Tip: Don't listen to futurists who do not think first in terms of costs. With today's technology base just about anything is possible, so it's the economic factors that control what technological movements will and will not [foreseeably] eventuate, and to what degree.

Note: We have all been brainwashed into the belief that "sprawl" is bad, so I will clarify a key fact for the reader: Covering significant distances does not need to require much energy at all. If you travel at half the speed you consume only a quarter of the energy for a given distance travelled. So, if you create an aerodynamic car, get rid of the stop-and-go operation, keep the top speeds down to, say, a conservative 80km/h, then you can run your transport system on solar power if you wanted to and you would still laugh at the transport energy bill! This fact (along with many others: Please see my Smart Growth in my June index) render the environmental argument for forced-intensification over "Garden Sprawl" a proven nonsense, and indeed Smart Growth policies are failing today because of this. My point is that without gross and irrational political distortion, there should be nothing stopping the progress of this trend towards geographical decentralisation, a trend of which should soon be radically amplified.

We should soon see a world where people work much less overall, work more from home, consume less (for a given material living standard achieved), migrate to the beauty-bound 'hot spots' of the world, import nearly everything they need via a 'physical internet' (providing a new age of convenience), live in a climate and atmosphere of far greater security and ease (rather than the noisy "rat race" atmosphere of today), and also achieve notably superior health as nearly every aspect of their lives is lowered in both stress and toxicity. Again, the only thing that should stop this great progression is irrational governmental distortion (so please beware of it!).

A thought: Maybe this is where the heart of much of the "Smart growth" policies have come from? An aggressive attempt by the administrative status quo to fight the developing [technological and infrastructural] forces of decentralisation? I really don't know, but I must say that the type of decentralisation I am envisioning is a big-government control freaks worst nightmare.


Other 'big' (wild card) technologies:

There are other possible and maybe-possible technologies that we can contemplate, that could fundamentally change the direction (or intensity) of human progress, namely:

-(virtual) Free energy.


Of these, only Nanotechnology can be considered in a serious light because anti-gravity and free energy cannot yet be confirmed as possible.

Nanotechnology can give us the power to fabricate anything we wish, from whatever is possible with the elements, and with the far-reaching potential of creating a whole new level of 'high-tech' society. One if its most profound [first] effects will be to give us atomic computing which in itself would have remarkable far-reaching effects on our technological development. (though I would not go as far as suggesting that atomic computers could produce Artificial Intelligence, at least not the kind of intelligence we associate with human-type thinking).

Nanotechnology will, amongst other things, realistically give us the power to colonise other planets in our solar system and beyond. However, Nanotechnology advanced enough to allow us to explicitly fabricate materials and high-tech structures so as to realise its ultimate capacity for man must still very much be considered a "futuristic" state of affairs, because nanotechnology cannot yet be determined in terms of time-lines: we don't know when it will or could develop so as to give us super machines, and at a reasonable cost. At this stage in time, it is not worth taking seriously. But although Nanotechnology should be considered futuristic, it is still a realistic futuristic. We know that it is possible. Nanotechnology is still only an issue of time.


Anti-gravity would obviously be an extraordinary technology if it exists or could exist.

It is true that during WW2 the Nazi's were working on some kind of device associated with anti-gravity. This is interesting, because they surely would not have been investigating the possibility (at great cost) if they did not first have anything concrete to go on? So who knows what might exist. If any of those flying saucers we hear about are real, then my best bet would be that they are our own products developed from the/a military. I consider this to be a substantial possibility.

Regardless, anti-gravity must still be considered a science-fiction type possibility. It can only be considered spurious because it may or may not eventuate. Like with Nanotechnology, you cannot base any future prediction on it relative to any reasonable time-line, or at all: Anti-gravity could be now, soon or never.

(Virtual) Free energy:

My intuitive bet is that we will end up with "free energy" [free = virtually costless to extract + no substantial environmental fallout] probably this century. It has always seemed a bit strange to me that, with all our modern technology and science and all the abundant energy around us, that we should still have so much of a challenge extracting it.

Free energy would be incredibly disruptive to so much of industry. It would redefine to optimum form/system for just about everything. This means that incumbent property holders would become in possession of properties that are basically obsolete. They will not be able to compete with start-ups who have fabricated their products and services on the basis of costless energy. But this is a happy problem because it would, of course, only enhance universal prosperity and amplify the speed of progress overall, even though there would be a dramatic economic turbulence of winners and losers for a considerable period of time.

One of the distinct features of free-energy would be with the tunnelling for underground buildings and transport infrastructure; the latter of which will support super-sonic vacuum-tube trains (5x the speed of sound?). It would achieve this because tunnelling technologies based on free-energy should be radically cheaper (and provide faster production times) than current tunnelling methods. Amongst other things, they will use water-jets to cut through rock and then melt the rock walls so as to largely (if not entirely?) substitute traditional tunnel linings - an extremely energy-intensive but otherwise highly economic method of tunneling.

But again, free energy is uncertain. It is another "wild card" that may or may not come to be. You can't base a reliable future prediction on it.

The included video is about the possibility of "cold fusion"; or, a supposed nuclear process providing free energy. It is quite interesting, and relevant to the topic. I also write along this area in my article Developing a theory of matter, in the June index.

"Technology rules the world"

A final note. Looking at the broad trends of history and human development, I get the impression that the real 'definer' of our societies is science and technology. Though politics can and does produce drastic ups and downs, it is technology that defines the ages. And in turn it defines our lifestyles, the essence of our cultures, and even the general human mentality of the time.

So, I think technology is the first thing to pay attention to if you want to (try to) predict the future. Culture follows technology - not the other way around.

Monday, November 9, 2009

Where are the real vested interests?

Andrew D Atkin

Some people think that the oil and car companies are the primary lobbyists trying to "deny" the supposed fact of carbon-induced global warming, because it will apparently hurt their industry. Well, I thought about this from an oil-owners position and asked myself: "What would I do?"

If I was invested in oil, I would not care less if the demand for (and therefore sale price) of oil was destined to go down as a consequence of new carbon taxes. Why should I care? I would simply sell out of oil and re-invest in other stuff, laughing at all the guys who bought my soon-to-be depreciated stocks.

Maybe the most powerful players (vested interests) are not into oil, cars, land, McDonald's or whatever...they may only be into stocks. Traders don't care for the status of any given company; they are only into trading, and trading based on whatever way the stock market is foreseeably going to go. And indeed, the more volatility in the stock markets the better, because that provides for more opportunity to sell out of whatever low performing (or more specifically soon to be low performing) stocks that you have, and to likewise buy-up other real assets that are destined to inflate at the time. As a trader, you can't get super rich without volatility. If stocks always sold at real [medium/long-term yield-based] values, and the supply-to-demand game was essentially stable, then you would have to wait for your wealth to appreciate at only about 3-4% a year, and that is much too long for $$billions. Putting it simply: You can't buy low and sell high if the markets aren't going up and down in the first place.

The most influential vested interests may not be the Corporations as such, but the super rich traders (whoever they are, exactly?). We should consider this before we assume that "climate change deniers", of example, are just paid-off oil interests. As I have already stressed, an intelligent trader who only cares about money will also only care for volatility in the market place. Indeed, the only thing a trader should be afraid of is a fundamental long-term reduction in demand: that is, a world evolving away from a dependency on the products provided by the industrialised economy (and stock market) altogether. (My Club Economies system could be an example of that. Regulations for the removal of planned obsolescence is another).

So if the world is driven by unscrupulous vested interests, and it happens to be that the most powerful interests are stock owners/traders, then we should see this primarily through the event of [designed?] economic volatility. That should be the game; not picking industry favourites as such.

Example: Al Gore provides a good example of what I am talking about. He has been central to the movement to reduce global demand for oil, and has also invested in alternatives to oil. I cannot prove or disprove the integrity of his motives, but the fact is he is set to make an enormous amount of money from playing the game that he has personally manipulated. You cannot dismiss the possibility that personal financial gain may have been a core part of his motive to produce the "Inconvenient Truth" movement.

Note: I have previously expressed in this blog that there is the concern about competitive forces driving society into a hyper profit-focused mode where the bottom-line becomes everything, and with the danger of this dynamic becoming very serious for when governmental manipulation becomes part of the competitive game.

Though I believe the competitive dynamic is logical and real, I can appreciate that the trader dynamic could, over time at least, render the competitive dynamic subordinate to its impact. This is because a powerful trader/s who has a greater than 50% share over a given major company could, potentially, deliberately destroy industry-A so as to inflate the demand and value of industry-B, while trading with inside knowledge so as to stay on top and make a greater final profit. Again, it's the feeding-volatility effect. If you're a trader then all you have to do is ride with the monetary waves, especially if you can know in advance about where those prices are going because you are economically powerful enough to control the dynamics behind them.

Tuesday, October 20, 2009

Where are the electric compliments?

Andrew D Atkin

-The best form of hybrid is two separate cars.

What I have crudely drawn is a schematic of what I believe would be a good car to compliment the standard petrol 4-seat car that most people own.

It has these characteristics:

-Cheap to buy, safe (due to the 'roll cage' style design), excellent handling, very convenient to use, extremely cheap to run around town and dead easy to operate.

However, my hypothetical car is not completely weather proof, only takes one person, cannot go faster than 80km/h and only has a range of 60km before the batteries have to be recharged. This is why it would be bought as a compliment and not a replacement to your traditional 4-seat petrol driven car.

So is it worth it? Is it worth buying this completely stripped-back electric car (for probably less than NZ$8,000 new, if mass-produced) for the advantages? For a very large portion of the market a vehicle like this would rapidly pay for itself, because if it is used for the times when you don't need to use your traditional car (and this car could substitute about 80% of most people's trips) then your traditional car could last a literal lifetime, with 80% less repair and fuel bills.

What I am suggesting is that people adopt a "tool kit" relationship to their cars. Rather than having an expensive and inefficient one-car-to-do-it-all car, why not just have an ultra cheap car to compliment your traditional car, so that you can only use the "big tool" when you actually need it?

It makes sense to me that we should be marketing electric compliments if we are serious about improving transport efficiency, and reducing carbon emissions. This is where we can get by far the biggest bang for our buck from vehicle design. However, we instead only ever seem to hear about gimmicks such as the Toyota Prius, which most people cannot afford and are no way near capable of the transport efficiencies that can be achieved with an appropriately designed electric compliment.

I believe there is one good reason why practical electric compliments don't seem to exist, and are not mass-produced. If they did exist and they were highly popular (and they surely could be popular if people found them to be fun and easy to use), then they could devastate much of the auto industry as it stands today.

Sure, an electric compliment cannot replace the need for a traditional car for most people, but it can certainly reduce the demand for traditional cars. Likewise, a major reduction in demand would, on its own, create a chronic glut of traditional cars and in turn cripple the existing auto industry until it contracts to the new (reduced) demand levels for traditional cars.

The giant counterparts of the auto industry have good reason to suppress or delay the development of highly effective complimentary cars. So, I would not be surprised if the highlighted concern is the real reason why we aren't all getting around in simple, cheap electric compliments today; and why the auto industry keeps on going on about the range problem of batteries, as though any car that we buy has to be able to do everything we would ever need on its own (nonsense!).


Update: 28-7-13:

This is the TWIZY. It's basically exactly what I have suggested, as an ideal electric compliment. It weights about a quarter of a standard car, and for normal urban operation would be about 5-8x more efficient. The application of the doors would make it considerably more efficient for 80_km/h driving. No windows means it will be very stable in response to side wind gusts.

The TWIZY has been on sale for a little over a year, and is already the top selling plug-in electric car in Europe.

If the price of fuel goes through the roof - so will the sale of cars like the TWIZY. Obviously we do not need to reinvent our cities, and force everyone onto public transport (which is 5 to 10x more energy intensive than a TWIZY) in the name of "peak oil" or reducing carbon emissions.

Thursday, October 8, 2009

Over-population Versus under-organisation

Andrew D Atkin

The modern image of humanity is that of a creature existing in plague numbers, over-populating the earth and taking from it everything that it has to offer. Unlike other animals that are perceived as part of the natural environment, and who only facilitate it, we are instead interpreted as mostly parasitic consumers of it.

Though this picture can be true in areas, it is not always true and nor does it have to to be. Humans can be critical generators of the/a natural environment, functioning as an essential link in the environmental cycle no less important than plants and other life forms.

(A simple picture for this would be to imagine a man in a desert operating his own self-sustaining eco-system. He processes his own waste to support a food plantation that sustains him, and he catches, conserves and utilises water to irrigate the system. In this scenario the man would be central and critical to the existence of the eco-system.)

This is a reality that every individual who believes that the world is over-populated needs to appreciate. Humans do not have to be parasites. We can be valued as much as any other animal on the earth as a critical link in the eco-system, if we better design our life-systems this way. Intelligent human expansion can support and advance natural eco-systems: within the deserts, out into the oceans, and in time even under ground.

Likewise, it makes sense that any consideration for population-control measures should be balanced with--and measured up against--human-related environmental planning. With innovation on both the micro and macro scale, we will see that a great deal of our over-population can be better described as simply under-organisation.

Examples of modern concepts that directly address the organisational problem are: The Venus Project, The Masdar Initiative, my own Club Economies, and any small-scale self-sustainability initiative.


Addition: 20-6-11:

Reader, it's incredibly easy for people to assume we are over-populated today if they can't get a grip on how easy it is to reduce the human footprint, while still achieving very high real living standards (lots of play and little work) with modern organisation.

The most powerful tool at hand is an automated transport system. We can live in communities that use local farms supplying food of the highest quality, and without the herbicides, pesticides and frog genes etc. It's easy, cheap and efficient. We can employ systems that convert human waste to fertiliser - closing the circuit between harvest and re-fertilisation, removing unnecessary soil depletion. The farms can be an object of colourful biodiversity in themselves. And we certainly don't need to eat so much meat (this is one thing we must resign ourselves to).

Packaging can be removed because food is processed and transported immediately via micro-cars. We can use glass, stainless steel and titanium for containments that are constantly re-used like milk bottles. Glass and titanium can be easily melted down and reformed without waste, as required.

We can dramatically remove energy-dependency with intelligent design. Well insulated homes, wind-turbine driven heat pumps, decentralised domestic work for more efficiency and less waste. We can eliminate planned obsolescence so there's only the most discrete levels of waste.

I could go on, and on!

The fact is that even with 10 billion people on this humble earth, the toxic waste coming from humanity can be trivial compared to what volcanoes put out today. It's not hard - you just have to move into some larger scale planning, based on modern technologies.

So please don't get too excited about killing people off. Look at other models of living systems.
There are other solutions. Don't pretend these options do not exist.

Global warming nightmare? I doubt it.

Andrew D Atkin

There is a lot of controversy associated with whether or not global warming is notably carbon-induced or not. I cannot comment on this. What I can comment on is the methods in which governments have chosen to suppress carbon emissions (cap and trade, and making certain carbon-reducing methods compulsory) and also the idea that a slightly warmer earth and rising sea levels will somehow be a disaster.

Methods to reduce carbon emissions:

If you want to reduce the carbon emission then what is the best way to do it? What will give you the most substantial reduction for the least economic/social pain? Easy. The best way to reduce carbon emissions is simply to tax carbon-consumption directly. You do this by employing a taxing system that incrementally but predictably increases the cost of carbon-consumption over time. This will lead to a direct market response. It will automatically induce the private productive sector to invest in non-carbon energy generation, and energy-efficient devices, and induce the consumer to take similar actions in response to higher-priced fuel and electricity. Consumers will buy smaller cars or invest in diesel or electric, or drive less often for example; whichever method happens to be best for them personally, to get their fuel bill under control. That is the great advantage of the market response. It leaves people alone to find their own best methods to reduce fuel consumption, and only the individual consumer themselves can know what the best method is for them.

By having a tax on carbon where the primary purpose of the tax is only to control demand there does not need to be a major net loss to the consumer. The tax collected though carbon control will directly subsidise the tax that would have otherwise been collected through other means.

So, if you say doubled the price of carbon through tax over 5 years, and then quadrupled the price over 10 years, you would then allow a smooth natural transition for any economy to migrate away from carbon dependency. This does not have to be too painful at all, because there are indeed many substantial and affordable alternatives to carbon dependency*. It will only cause real pain to people if it happens too quickly, and to the point where people can't function. There must be a reasonable adaption time. There is no point in asking people to do what is impossible.

What about the carbon consumed through the manufacture of imported goods? This also can be taxed at the national level. An import-tax can be employed on any item based on the approximate amount of carbon used in its manufacture. It will all have the same effect.

There is no need to tell people how to live (directly) where the government prescribes how we must reduce our emissions. This is wasteful, poorly effective and completely unnecessary. It is also not necessary to form an international taxation system that forces high-carbon consuming countries to pay low-carbon consuming countries for the privilege of reducing their own emissions.

So why don't we use the obvious, simple and effective direct-tax market-response system to control emissions? One conspiracy is that the carbon trading system is really about creating an international tax to fund the development of an international political body, to provide for and advance world government. I cannot dismiss this theory because the currently embraced solutions to carbon emissions are not rational if the real objective is only to reduce carbon emissions. Suspicion is justified.

The question is simple: Why do I have to pay other counties to reduce my carbon emissions? The practical truth is you don't.

*To say, geothermal has vast potential as a primary energy resource. There is a lot of exciting progress happening with this technology. Geothermal energy is virtually inexhaustible.

Note: What I am suggesting is consumer-end carbon demand control. This is the right end for demand control because it leads to the most efficient results, and does not destructively interfere with the "natural" free market economy, as I have already expressed. However, with this approach you will not suppress carbon emissions that are generated by exporters, because external consumers are not controlled by a local taxation regime. Also, suppressing carbon emissions coming from exporting industries will only make them internationally uncompetitive, and likewise those industries will be outsourced to nations that do not have carbon restrictions, because it will likewise be cheaper to produce there.

In turn, the only way you can avoid the outsourcing of carbon emissions from the outsourced [once] export industries--while still operating a consumer-end taxation regime--is to achieve international agreement from all relevant nations to employ consumer-end carbon charges on all products (local and imported). This is still far better than collaborating with the comparatively inefficient cap-and-trade system.

Responding to a warming world:

Some scientists (or economists?) have predicted that global warming will cost the global economy incredible amounts of money, in the order of many trillions of dollars. They have even provided concrete figures on the cost. I can't recall what those figures are exactly, but that is irrelevant to my following point.

So how do you calculate the real cost of a warming earth? It is impossible. You have to be able to quantify and account for all the adaptive responses that we would employ in response to a warming world. And there are many, many tangible responses that we can adopt. You also have to calculate all the adaptive responses that we haven't yet thought of.

When scientists (or other) claim to be able to measure the unmeasurable you can know that you are looking at propaganda, at least from somewhere down the line.

When it comes to the cost of a warming climate I believe strongly that there is little reason for the majority people, world over, to be greatly concerned. We are more than capable of modifying our crops--or simply using different crops--more suited to a slightly warmer climate. There is no reason for anyone to starve. Indeed, warmer climates can be great for growth (take a look at the tropics!). We can easily retrofit our houses to withstand a hurricane with little or no damage, or build new houses so that weather extremes are just not a concern. None of this is hard. We can plant trees without much difficulty to protect against soil erosion as well. These are only some examples.

What about rising sea levels? If sea levels rise by about 1 or 2 meters then we can simply build sea walls where required. 1 or 2 meters is not an expensive wall. 10 meters is. The cost of a sea wall increases exponentially with height. No one is predicting massive increases in the height of the ocean. At worst, cities prone to hurricanes that lie below the rising normal sea level will have to be retrofitted to withstand flooding. Over 50 or so years that will be relatively easy.

If global warming happens and the seas rise and the weather gets a little more erratic then that is ok. We will have plenty of time and capability to adapt, as required. I am not saying that global warming is good, but I am saying that the idea that it will lead to some kind of an apocalypse is nonsense. We really do have far better things--and bigger problems--to worry about.

A challenge for the Intergovernmental Panel on Climate Change (IPCC):

As I have previously expressed, I have reason to question the premises and motives behind today's climate change scaremongering, due to the irrational responses to the proclaimed problems.

The included video provides an interesting and very serious challenge to both the [supposed] findings and integrity of the IPCC. When you can spot something rotten, you have to ask yourself: "How deep does it go?"

I agree with the development of world government, eventually [refer to my Optimum Sustainability in the June index]. But I do not agree with a world government being developed in a corrupt manner nor developing into a seriously unaccountable form, and being led by people who are either stupid and/or insane. And at worst, this is where our global warming saga may be taking us.

But then maybe the world government movement believes that this is the only way that we can develop a world government in a timely-enough manner? Who knows what the minds behind the minds are thinking. All I can hope for is that the childish people who appear to be running so much of modern politics today are primarily only instrumental to better brains from above. Again, if that is what's really going on.


Addition: 7-12-09

Here is another very interesting and informative video. The narrator is excellent - very easy to understand and absorb:

And this is a video from the 1990's, also quite well done. It shows us how far back this whole warming (or cooling?) thing has gone:

And of course my update would not be complete without an informative link to the remarkable "Climategate" [61mb of leaked emails pointing in the direction of scientific corruption, associated with high levels of the IPCC personnel] that has rocketed across the internet:

So why has 'Climategate' not been covered by the mainstream media, either significantly or at all?

I think that we have to remember that the entire political world has now put a huge stake in the ground over AGW alarmism. Imagine if they had to admit that it was/is a massive scam now, if it is. So much has been invested into this--from so many individuals and organisations alike--that it would be an apocalypse for reputations at least, and also a tremendous blow to the public's faith in "officialdom", which in itself could have far-reaching and uncertain consequences.

If the AGW game is a proven fraud (and I can not and do not dismiss that possibility), then it is certainly not a fraud that we should expect to lie down quickly. Simply too much from too many quarters has been invested in the affirmative AGW position.

Note: As of yet it is unconfirmed as to whether or not these hacked emails are completely authentic and untampered with. We will wait and see.


More interesting material: 17-12-09

The senator in the following video (there are 4 parts on Google, I only provide the first) makes some interesting points about CO2, such as the fact that less than 0.04% [less than 1 part in 2,000] of our atmosphere is made up of CO2, and that at least 70% of CO2 emissions come from natural sources such as volcanoes. He also brings attention to the political connections within the AGW movement. His statement is courageous and intense.

The following is another [first part] video of Lord Monckton, discussing the science and politics of Global warming. He makes some very interesting political insights, especially respecting that he has long been a prominent insider to the political world.


Addition 8-01-10:

The following was posted on John Key's [the New Zealand prime minister] public blog:

Hello My Key and National: Sorry for beating this drum so hard, but the included point (and link) reinforces a point that, to me, is a "cruncher"; a simple, common sense reality that makes the runaway greenhouse effect so hard to believe.

It is understood by both sides of the debate that if we double atmospheric CO2 then that, alone, would give us about a 1-degree Celsius increase in global temperatures. The IPCC have done everything that they can to try and "prove" that this will be reinforced by positive-feedback so as to produce a runaway greenhouse effect. What nonsense, I say! Because if the feedback was positive (rather than negative) then the Sun, with its great output-variability, would have provoked runaway greenhouse effects probably 10 million times over since the dawn of life on Earth, as it does exactly what CO2 does - increases temperature. And obviously it has not.

Friday, October 2, 2009

Explaining New Zealand's Property Disaster

Andrew D Atkin:

If you have 10 families but only 9 available homes, then those families must compete against each other, with all that they have, to not be the family that misses out. The result being that house prices are bidded-up to the maximum of what people can afford, and over-crowding and the creation of a poverty-class becomes unavoidable. And the landlord's get rich.



New Zealand's property bubble has been dependant on 3 fundamental variables:

1. The inflation of demand.
2. The restriction of property supply development.
3. The facilitation of credit.

Over the last several years, under the Clark government, there has been a major restriction in the development of land supply [see "Smart Growth?"], which has in turn seen the price of land in New Zealand dramatically increase, in response to increased immigration rates (increased immigration = inflation of demand). The result has been that the cost of sections for houses has gone from around the $50k mark to nearly $200k on average. A massive price inflation.

The cost of building houses has also been inflated by 'parasitic' regulations that have been imposed on the process of housing construction. However, land price inflation has been the dominant (if not exclusive) inflationary factor affecting final home prices, because in the context of a major under-supply of developable land we would also see that any reduction in housing construction costs will only subsidise further inflation of land prices i.e. swapping one cost for another. (explained later, this occurs via the dynamic of house prices increasing to the maximum of what the average home-buyer can afford, in the context of a major under-supply)

Property price inflation has also been dependant on the home-buyers access to credit. This is because you can only sell a house for what people can pay for it in the first place. Hence the third variable supporting house price inflation (access to credit) has been controlled by the banks. New Zealand banks, in recent times, have facilitated 'easy credit' by providing relatively low interest rates (compared to what we had in the eighties), and by providing very low and even no deposit-down loans.

Because houses are considered a fundamentally important asset to so many New Zealanders, house prices, as a consequence of the under-supply, have been able to rise to the maximum of what people can afford....because when it comes to houses in New Zealand people are generally prepared to pay whatever they can afford. And as the banks have increased people's access to credit, they have functionally increased the amount of money that people can afford to borrow for a house; and this, finally, has allowed New Zealand property prices to inflate dramatically in response to the under-supply of houses.

In short: New Zealand's national government pumped in too many people too soon through immigration to fuel excessive demand, and local councils choked off supply development in response to this demand by employing restrictive land zoning policies. This, in turn, has driven property prices up to the maximum of what people can afford, as the home buyers are forced to compete aggressively amongst themselves for a now inadequate supply of houses (the property market -like all markets- is basically like a large-scale auction i.e. the buyers compete for what's on offer.). The banks have hugely driven up the 'maximum affordability limit' by increasing home buyers access to credit. As you can see, the New Zealand property bubble is a "three headed monster"; each factor, as I originally outlined, has been necessary to create this hugely destructive bubble.

Note: The fact that the property bubble has been dependant on 3 highly specific co-functioning variables is curious in itself. It suggests that the formation of the bubble may have been deliberate, as it is highly coincidental that each dynamic has been introduced at essentially the same time*. It is also curious that the dynamics driving the property bubble have been repeated in so many other areas of the world as well, and also at the same time. I am not being a "conspiracy theorist" in saying this. I am simply making a rational assertion in response to the facts. Suspicion in this case is rational.

The bubble effect:

In principle, the real value of an asset can be determined by its yield, and the risk associated with the sustainability of its yield. A low-risk investment might provide a return of, say, 7%, whereas a more risky investment might provide a return of 12% (a yield which could somewhat easily collapse in the future, for whatever given reason). In a bubble the market price of an asset becomes detached from its 'rational' yield-based value. We often call this kind of inflation 'capital gains', but really it is just the effect of speculation. As I will soon show, when it comes to bubbles.. what goes up, must eventually come down.

What has happened in New Zealand is that people have seen property prices rise dramatically due to the factors previously shown, and they have decided to buy houses (and second 'investment' homes) on the presumption that their sale-prices will just keep on going up i.e. "capital gains", and likewise they have become speculators. As this has happened, people have been enthusiastically buying up houses based on those 'paper money' capital gains, and not the yield. Indeed, people have been buying up investment properties that have rental yields which, in themselves, can only justify about half the amount of money that they originally paid for their house.

And this is how you know that you are looking at a bubble. When the "madness" of valuing a product on the basis of its projected speculation-based value starts to kick in (detached from its "real" yield-based value), then its market price can rise to ridiculous levels of which have no grounding in real natural values. And again this is when we can know that we have a bubble; and likewise, we can know that the bubble must eventually collapse...because the sale-price cannot go on rising forever, because home-buyers cannot get access to an ever larger amount of credit, forever.

So! What happens when the capital gains run out? What happens when the price stops rising, as it eventually must? From that point you are left with a huge number of people holding onto an asset which must be (because it only can be) valued on the basis of its real yield-based value: because yield-value is in turn the only profit-making value remaining. Likewise, those people owning property at the peak of the bubble will see that their $500k house is giving them a yield akin to what they would expect from a $250k house, and so the rational response then becomes to sell their house and put their money elsewhere - that is, where they can get a 'proper' yield for their $500k. But the problem is, as you would expect, that people don't want to buy an over-valued house (that they know is not appreciating) for the same reason why the property owner now wants to sell it. In turn, the bubble bursts. The price collapses as the over-valued asset must finally answer to its real yield-based value.

So who wins from the bubble? All the people who sold out at the peak of bubble (they are the careful speculators who know what they doing, and already clearly understand what I am talking about...You can make a killing from speculation if you do your homework and know how to play the bubble). And the losers are, of course, the people who bought in at the peak of the bubble. They're the guys who received all that poor or even corrupt advice from people who wanted to make money out of property trade, and also all those people who substitute "common knowledge" for understanding.


New Zealand's property prices have not properly retreated to historic values today because we have, in part, no longer got a bubble. This is because rental yields have increased as a consequence of the under-supply of houses.

Also, property owners wanting to sell have recently been in denial about real property values, and have been refusing to sell their houses for a reduced amount. They are hoping that the price will just inflate again in time, because they still believe the erroneous mantra "property prices can't fall", at least not in the medium or long term. The result of the latter has been a major decline in property sales, which is an expression of sale prices set unrealistically too high. This is a very risky game for these sellers to play: because the longer they wait for a buyer (and likely not get one) the worse the price will be that they can finally get for their home in the future.

The macro-economic effects:

The economic effects of New Zealand's property bubble have been terrible for the New Zealand economy.

As people have felt richer from their house price inflation (On the macro-scale level, or national level, bubble wealth = fake 'paper money' wealth), they have in turn been confidently going into debt, borrowing off the backs of their houses to boost their consumption. This has created an artificial (debt-based) input into the economy, which has seen debt-financing replacing and substituting real national earnings from [otherwise] tradable productivity (Bad!).

New Zealand's productivity growth over the last several years has been lame or even negative, and the nation as a whole has been going deeper into debt. We have been describing our debt-fuelled spending binge as "economic growth" but really it is just spending growth, NOT earnings growth.

Alas, those debts have to eventually be paid down. This almost certainly requires a recession; that is, a recession of the false debt-funded section of the economy, which in turn liberates resources for the enhanced development of the productive sector of the economy. Essentially, this is what a recession is: a corrective adjustment. It hurts employment for a time as people have to lose their jobs, as jobs must be relocated throughout the adjustment.

The Clark government has done serious damage to the New Zealand economy for political convenience due to the property bubble's "economic growth" effect (and it cannot be overstressed that this is really just consumption growth). Even today people celebrate Helen Clark as one of New Zealand's greatest political leaders because they believe she presided over a highly successful economy. She did not. She presided over debt, not true (productivity-based) economic growth. And this is not just my opinion, it is a monetary fact. We have the trade balance, poor productivity growth, appalling national debt levels, and now the threat of a serious recession -or even depression- to prove it.

The Clark government failed to outlaw local restrictive land zoning laws, inflated demand with exaggerated immigration, and failed to take emergency action to directly restrict the amount of money that New Zealanders could borrow from the banks. The Clark governments actions have been totally irresponsible. The have sold the long-term health of the economy out for the sake of allowing themselves to install socialist-leaning policies into New Zealand, during their tenure. This government has been either seriously corrupt or grossly incompetent.
I know this is a harsh appraisal, but should our governments not be accountable for their actions/inactions?

What New Zealand needs to go through now is a recession to adjust, and pay down its debts. We have to hope that the current National government does not merely delay the recession in the name of an excessively "soft landing", because that will only allow us to move even deeper into debt, demanding an even more severe recession (or depression) in the future.

Already there are concerns that a corrective recession will not happen. There are indicators suggesting that New Zealand immigration rates will continue to be too high, that policy reform to facilitate more property development will take too long to have an appreciable effect, and that the banks are ready to make borrowing credit much easier again. Alas, the last thing New Zealand needs as another property bubble charging up. That would, in time, truly devastate the country.

The social cost:

Aside from the economic cost, the inflated property market also has a major social cost. It drives up the cost of living for renters, and leaves home-buyers with truly crippling mortgages. I have highlighted the far-reaching impact of all this in my "Smart Growth?" article [see "Smart Growth?" in the June index].

Note: Governments can talk about the importance economic growth and "rising living standards" until they are blue in the face, but the fact remains that when you install policies that have the direct effect of restricting supply of base-need items/services, so that there develops a real under-supply of what is essential, then you can only end up with a poverty class regardless of net national productivity.

Explaining: If you have an under-supply of houses, as my example, then it will not matter if everyone in your country is earning a million dollars a year: in these conditions you functionally must have over-crowding and/or homelessness because money cannot buy what does not exist. The result would in turn be incredibly high rents as people are forced to hand whatever money they have over to the landlord, to avoid living under a bridge or in over-crowded conditions etc. Again, the market is like an auction: you have to compete with other buyers for whatever is available.

Likewise, you can see that one of the most irresponsible and anti-egalitarian things that a national (or local) government can do is facilitate the development of an under-supply of base-need items; items such as food, water, electricity and housing etc. If the under-supply is substantial and serious then, in these conditions, it is virtually impossible to avoid creating a poverty class with respect to real living standards.


*If the property bubble is in fact a deliberate creation, then that would open up new questions as to how New Zealand's political structure ultimately works: because we are then looking at unusual co-ordination between central and local governments, and possibly the financial sector.


UPDATING: 13-11-09

The following was posted (by me) on John Key's (the New Zealand Prime Minister) public blog. So far, the National government has done nothing material that I can see to stave off another property bubble which is already beginning to charge up.

As follows:


#10 - Andrew Atkin said:
2009-06-15 15:57 - (Reply)

Hello Mr Key, I just read an interesting yet probably very important article in a New Zealand building magazine. It stated that with respect to the current outlook we could be looking at another property bubble charging up soon. The well written article made a lot of sense. They noted significant increases in population growth as international's looked to "escape" to New Zealand (directly inflating property demand), the fact that your governments reformed RMA will not help enough, in time, to achieve a polarising supply-development to that demand to stave off another bubble, and that falling interest rates and reduced deposits demanded from the banks (they currently demand about 20% according to the article) will all inevitably drive up property prices again.

And they are right. If those variables hold static, and banks provide easier access to credit again, then there is only one way those property prices can go. That is serious. The absolute last thing New Zealand needs is another property bubble. We'll end up more like America with an economy chronically based on debt as opposed to productivity, and in time we will have to look at a severe--or even profound--depression. Like America is today. I hope you will consider slamming the brakes on immigration, at least temporarily, to stave off demand until we sort out the supply in houses. Or even make it illegal for banks to lend more than, say, 40% on a buyers household income as another possible anti-bubble emergency policy. Again the last thing we need is another round of Clark-government style economic growth. It will drive us even deeper into debt while leaving productivity growth to rot. With concern, Andrew Atkin

#11 - Andrew Atkin said:
2009-06-15 16:48 - (Reply)

Correction: I apologise for not being clear. When I said "40% on a buyers household income" I meant that the banks should not be able to lend more than what would equate to the household yearly income equaling only 40% of the amount borrowed. So if you earned $40k a year, you could then only borrow $100k in this example.


The National party has thus far made clear statements showing that it understands the property problem, like I understand it and have so far explained it. I will wait to see if something substantial happens about it. If not, then I recommend to anyone to wait for their home (if they have one) to inflate to an approximate maximum, then sell out and put your money overseas or in secure exporting industries, because when the property market collapses--assuming we do get that second bubble--it will end up taking out the whole New Zealand economy with it.

I will not hold my breath with respect to what the National government will do. If it does the worst and simply allows the property market to seriously re-inflate, then it will be an interesting education for me on the New Zealand government and how it works (or does not work) on the whole.


Addition: 19-11-11:

David Willmott provides an excellent and well spoken talk relating to the dynamics that are destroying housing affordability in New Zealand, with his focus on Auckland. He was a candidate for the Auckland mayoralty and would have won if it were not for the fact that elections are won by money and propaganda rather than facts.