Externalities isn’t external

An externality is deemed as a cost or benefit caused by a producer that is not incurred (financially) by the producer. The view is that because the producer is not paying for the portion of costs, or receiving the portion of gains from that economic activity, it is under or over-produced.

Of course, there are further variations of consumption externalities where it is happening on the consumer side of things.

The manner economists perceive these effects are based on analysis in a single snapshot of time, considering only a very narrow dimension of financially accountable cost and benefits. The typical solution prescribed on paper is to provide a tax or subsidy to close the gap: or to internalise the externality.

What if an externality actually isn’t external to begin with? That through time and the interconnectedness of people, organisations, nature and environment, would bring the costs or benefits back to the producer? After all, won’t reputation or enployer branding matter? Would it matter if an all-knowing government discloses the truth about how much pollution a company is causing? If the government in the economic analysis can close the gap, then there isn’t actually a genuine externality because somehow, within the system, the level and details of the externality is known.

And how are compensatory funds to be used by the government? For example, should carbon tax revenues be used to innovate in further development of low-carbon technologies to make it easier for companies to emit less carbon? Or should they be directed towards mitigating the impact of climate change? Eg. Building levees to buffer sea level rises? Should the role and impact of the externality have any say in that?

Moving solar around

You might have seen solar panels ground-mounting on vacant land in Singapore. Today I was on a cab when the driver told me about this and thought it is such a waste of land in Singapore.

So I explained the idea that our government agencies had and the tender they designed. The projects are actually to maximise the use of land rather than waste them. In Singapore, there are plots which are left vacant for future development – they may not be empty for the full period of a solar farm, but at any one time in the island of Singapore, there should be enough space to hold a certain amount of ground-mounted solar. So the plan is to move the panels around to a vacant lot once an existing solar farm land is needed for development.

Such a model seems common sensical but requires a great deal of coordination and detailed thinking. But in the grand scheme of trying to produce more green electricity for our island state, this is not exactly a great solution. And this is an example of the challenge that Singapore faces when it comes to being innovative and scaling solutions. We have requirement for unique solutions that serves us well but probably no one else – nor are we able to easily adapt our solutions to other places.

Not sure who else would want to be moving their solar panels around.

When you disagree

I once argued that education should be reimagined and redesigned. It is no wonder why Einstein was attributed to say he doesn’t allow schooling to interfere with education. The content of our education is at its best when it is not prescriptive but more about the process that students get to go through.

And along that process, we want them to learn things about themselves, about the world and how to interact with others. One of the key topic amongst this, is around disagreement. How to disagree is a useful skill and one that a human being, since being a kid would have to face.

My colleague has a 1.5 year old girl who struggles when her parents say no to her. She just finds it difficult when her will is impeded and she is helpless. To a certain extent, her way to take back that agency is to break down and cry. To a large extent, the type of tantrum is a kind of power-grab. And we intuitively know that. Except like all power-grab, this sort of emotional violence is not exactly the healthiest way of interacting.

So kids will and should learn how to disagree, and to feel a sense of agency over the situation even when things are not according to their will. Are parents capable of teaching that? How about schools? Why are we leaving that only to the domain of experts or psychologist? Shouldn’t that be a universally taught skill?

Again, we don’t like to teach or train people along metrics we cannot measure. How to disagree isn’t exactly something that can be easily quantified. So no one wants to teach that. It’s a shame because it is probably way more important than the nucleophilic substitution reactions we learnt in Chemistry.

Inconsistent stories

Storytelling is a wonderful skill when it comes to communication and helping others retain information. It is also capable of influencing behaviours to a large extent. And so it has to be used and received carefully.

Stories that are attractive can be inconsistent. Just the other day, I came across this person who decided to be a career coach because he realised he had put so much time and energy into his work he neglected other important things in life. Having been a top performer at work, he now wants to work with individuals to help them perform well at work. Coaching allows his life to be more flexible and to “help” others.

Somehow, it was hard for me to receive that story. Not that I suspect it isn’t true but the difficulty is the fact that he is now teaching others strategies to progress and do well at work which had landed him outside the corporate ladder in the first place. It would seem like there is some paradox here. Surely, one would not want to lead more of others into the regret of neglecting family and life due to work having experienced the full force of that oneself?

I think it’s great more people are becoming entrepreneurs and creating value as freelancers or solopreneurs. A lot of the work to attract and market involves storytelling and positioning yourself well. At the same time, the story you tell serves as a way to align yourself and the work. An inconsistent story breaks that.

When you know something

When do you choose action when you’ve the knowledge? For example, when you know that your boss is saying something that is wrong to the client, when do you choose to correct him (or her)? What would you say?

What about when you know that you’re generating more trash by using the disposable takeaway container, or the cutlery? How about when you actually have a reusable container to use but wonder if it’s worth the effort to wash it? How do you balance your knowledge with your actions?

For far too long, we recognise that awareness and knowledge is the first step. But then getting from this first step to the point of action where it really makes an impact seem like a mystery. Psychologist probably had less luck figuring this out than marketers and social media platforms. The world’s most intractable problems are not to be solved through knowledge but action – how much would knowledge spur action, and how the mechanism works remains much of a mystery. But whatever we discover that we can do, why don’t we direct it towards helping to drive positive action towards the most challenging problems that mankind faces?

When you don’t know something

When you don’t know something, what is your response? It depends very much on whether you expected yourself to know it. As it turns out, when you don’t expect yourself to know it, you’d happily confess not knowing. But when you expect yourself to know it, then you’d often times get angry. It is usually at yourself, but then you’ll soon direct that at the questioner. How dare he or she question you on that?

Or, even if you confess you don’t know, you’d question the intention of the question. Or express surprise, thinking that should be something the questioner don’t ask, or would have to figure out themselves.

So when you’re new at work and you don’t know a tonne of stuff, do you lash at people when you’re embarrassed about things you don’t know and feel so vulnerable? Do you confess you don’t know and encourage others to help you?

How you respond when you don’t know something critically affects your ability to grow. The more you cover up what you don’t know and try to learn on the side, the more you have to be defensive, impatient, angry and resentful. And the more you’re able to cover up and pick things up on your own, the more isolated, alienated and resentful. So you have to choose how you want to grow when you don’t know – to be alone and proud of yourself; or to be surrounded by helpful souls and lifelong friends?

Downward counterfactual thinking

Counterfactual thinking is a concept in psychology that involves the human tendency to create possible alternatives to life events that have already occurred. I’ve no doubt this is a sign of intelligence and it is a residue in our ability to project forward into the future. After all, if you can imagine the different possible futures, you could also imagine different possible pasts.

The question is whether the content of your counterfactual thinking is upward or downward. In other words, do you think the reality could have been better or do you think things could have been worse? People could be more positive when they consider that something worse could have happened rather than the actual outcome. In that sense, downward counterfactual thinking is actually a habit or strong mental re-frame that helps improve our well-being.

Nevertheless, the mind tends towards negativity because it sticks more than the positive. What I think is interesting is that different positions we are in can cause us to have inclination towards upwards or downwards counterfactual. It is interesting how being in second place encourages upward counterfactual thinking more than being in third place – just because you only have one person in front of you. So there are some kind of defaults that our counterfactual thinking drifts towards.

That’s not to say you can’t change your defaults. Part of my coaching practice especially around mindset shifts is exactly about that.

What are prices for? II

Can prices make the world better? Perhaps one could argue that it already did! Yet for the first in history, putting a price on something free could very well allow us to step into a future that’s remarkably better than the status quo. And that’s the price on carbon.

For the longest time; perhaps for far too long, emitting carbon dioxide is free. To be fair, when we breath out, we emit carbon dioxide. But that is through the food, grown during our lifetimes. One may argue of course that cows belching and the dairy industry creates a lot more greenhouse gas emissions in the form of methane as well.

Brushing food industry aside, let’s ask ourselves how a carbon price makes the difference. By charging industries for burning fossil fuel and emitting carbon dioxide through whatever industrial processes, we are saying that the release of carbon dioxide into the atmosphere when it should rightly be stored in minerals and in the ground as oil, gas and coal is harmful to the world. We are saying that people ought to pay a price for releasing the carbon dioxide in the air and causing climate change.

The issue is that we all live in a single atmosphere but the carbon price is different everywhere and we allow people in their own countries to somehow set this price or a regime to manage this price. And then we call it a carbon tax. Or in other places, we put a trading system around it and the traded price becomes the carbon price. There are times when prices work better when they are different in different places. But perhaps not this time. The fact carbon is free or much less costly in one place but not another is just going to encourage more gaming of the system.

The world needs to set a price, and really align on it. There is nowhere in the world where it is cheaper to emit carbon in terms of the environmental and climate costs.

What are prices for?

The cynic knows the price of everything and the value of nothing

Oscar Wilde

I don’t think this is the first time I’m putting up this quote. But I’m just wondering today. What are prices for? Why are there prices for things? What does a price mean? If anything at all?

Prices are signals from the perspective of economics. The level that clears the market; where demand matches supply. A high price or low price doesn’t really mean much. It’s unclear if the prices reflects costs of production because there can be market power driving margins. Besides, when storage costs are expensive, a producer might be keen to sell excess supply at lower than production costs.

But prices drives behaviours; they create some kind of incentive to produce, to trade, to buy, and sell. It is some kind of benchmark against which we evaluate our preferences. Because we’d try to figure out if something was ‘worth the price’. And so the market moves; and people try to justify prices with attributes, features, emotional storytelling. And prices in turn drives those stories, emotional expression and comparisons.

Primitive technology

Had a chat with a friend who used to be in the oil & gas industry; well at least along the value chain. He was also a bit on the old school side of things and he calls solar PV technology primitive because compared to the gas turbines whose efficiency is 60% when using combined cycle, the efficiency of converting solar energy into electricity is only 15-20%.

I was a bit surprised at that idea given that inputs in terms of the energy from the sun is free whereas you might need to calculate the energy cost from the drilling, piping, even liquefaction and then gasification of gas. Nevertheless, the point is that turbine technology has been widely adopted and used for many more decades than the solar panels. So a lot more money, time, resources have been invested into that those technology compared to renewables. That is simply fact.

Yet if you consider which technology has more room for progress and can move us to a future that we want to live in, the answer is just as clear. The problem again, with the economic analysis undertaken is that they are all based on individuals considering Ceteris Paribus everywhere else. The energy transition, decarbonisation is more than just that an individual decision and it was never meant to be worthwhile done alone. It was something to be coordinated, actions taken together. Which is why we cannot allow all of these technologies like solar, wind, EVs, hydrogen to be as primitive as they are.