The butterfly effect

Satellite images posted on a NASA Web site show evidence of fresh clear-cutting by illegal loggers in the Monarch Butterfly Biosphere Reserve in central Mexico, inside the reserve's "core zone" where logging is prohibited according to the Presidential decree that established the preserve in 2000. I saw this in a New York Times article by Andrew Revkin, who also writes about it (and why we should plant milkweed in our gardens) in this post on his Dot Earth blog.
A 2004 article gives more background, and lays out the familiar dialectic:

The illegal logging, peasant leaders say, is driven by a surging demand for wood; by the crushing poverty of the Indians who live in communal cooperatives, called ''ejidos''; and by the lingering resentment over the government's decision 18 years ago to turn the precious forests into a reserve for insects that their people refer to as ''worms.''

Indeed, the mud-smeared men of San Luis spoke with contempt for a society they say cares more about the butterflies than about their families. This land belongs to them, they said, and they would not surrender their rights to a presidential decree, much less forsake the needs of their children for bugs.

''Everyone worries about the butterflies,'' said one illegal logger, the brim of his baseball cap pulled to his nose to hide his face. ''What about us?''
...
From the day the government established the Monarch Butterfly Biosphere Reserve, peasants here have lived at odds with the government, and the deforestation turned fast and turbulent.

Mexico had given this land to peasants from the spoils of the revolution. With the creation of the reserve in 1986, the peasants accused the government of taking their land away.

The people of San Cristóbal, at the southern edge of the butterfly reserve, burned down their trees, rather than cede control to the government. Fourteen years later, the Mexican government expanded the reserve to more than 132,000 acres from 45,000 acres, offering peasants who live in extreme poverty few economic incentives to save their trees. The tensions, and deforestation, spread.

Now, as the demand for wood grows in factories, construction companies and fruit packing plants, middlemen have moved into the forests offering good money for timber -- about five times the average daily wage for a 60-year-old pine -- and peasants have decided to do business.

''What was once a problem of poverty and a necessity to survive has turned into a crime of greed,'' Mr. Lichtinger said, speaking of the logging in the butterfly reserve. ''There is no way to get the mafias to submit to the law.''

Governor Lázaro Cárdenas Batel said, ''If we tell people they cannot exploit their forests, and walk away, then we condemn them to dying of hunger, or we force them to become involved in illegal logging.''

The governor said the growing tensions in the butterfly reserve were one result of a three-year-old crackdown against industries around the area that buy illegal wood. Some 100 sawmills had been closed or fined, he said, and 159 people had been arrested, most of them poor workers.

Cost of a gallon of gas, $4; cost of a war...priceless

In a 28 Feb. news conference, President Bush learned that gas prices were pushing $4/gallon.

Peter Maer of CBS News Radio asked: "What's your advice to the average American who is hurting now, facing the prospect of $4-a-gallon gasoline, a lot of people facing ... "

"Wait, what did you just say?" the president interrupted. "You're predicting $4-a-gallon gasoline?"

Maer responded: "A number of analysts are predicting $4-a-gallon gasoline."

Bush's rejoinder: "Oh, yeah? That's interesting. I hadn't heard that."

The president, once known for his common-guy skills, sounded eerily like his father, who in 1992 seemed amazed to discover that supermarkets had bar-code scanners.

The $4-a-gallon forecasts were reported widely in newspapers and on TV in the past week. The White House press secretary took a question about $4 gas at her Wednesday media briefing. A poll last month found that nearly three-quarters of Americans expect $4-a-gallon gas.

The president, however, had difficulty grasping the possibility, even after Maer told him.

"You just said the price of gasoline may be up to $4 a gallon — or some expert told you that," Bush repeated. "That creates a lot of uncertainty."
...
At a Shell service station in San Mateo, Calif., the price of a gallon of regular had already reached $4.29, well above the California average of $3.42, as measured by AAA.

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In other reality-based cost news, Nobel economics laureate Joseph Stiglitz has co-authored (with Linda Bilmes) a new book in which they estimate the wars in Iraq and Afghanistan will cost the U.S. more than $3 trillion -- with the final tally likely to exceed that.

"It's much more like five trillion," Stiglitz said yesterday in an interview with Bloomberg Radio. "We were trying to make Americans understand how expensive this war was so we didn't want to quibble about a dime here or a dime there."
...
"This war is the first war ever that's been totally financed by borrowing, by deficits,'' said Stiglitz, a professor at Columbia University in New York. "Because we haven't raised taxes, because we've tried to pretend this war is for free, we've been skimping on our treatment of veterans."

The estimate drew criticism: Senator Sam Brownback (R, TX) said the number ignores the price the U.S. would pay if Iraq became a terrorist state. [I would argue that, in fact, this is the price the U.S. has paid to create a terrorist state in Iraq.] And a White House spokesman criticized Stiglitz, saying the war on terrorism is, well, priceless:

"People like Joe Stiglitz lack the courage to consider the cost of doing nothing and the cost of failure. One can't even begin to put a price tag on the cost to this nation of the attacks of 9-11," said White House spokesman Tony Fratto, conceding that the costs of the war on terrorism are high while questioning the premise of Stiglitz's research.

"It is also an investment in the future safety and security of Americans and our vital national interests. $3 trillion? What price does Joe Stiglitz put on attacks on the homeland that have already been prevented? Or doesn't his slide rule work that way?"

Now, maybe the book makes the political/moral judgment that $3 trillion spent on Iraq is wrong, but so far, the criticisms seem to be that there has been a cost accounting done at all -- and for saying that this is the first time we've waged a war without any effort at financing it. Again, I would argue that the U.S. invasion and occupation of Iraq -- which had no WMDs and no link to Al Qaeda -- has had little, if anything, to do with preventing "attacks on the homeland."

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And (I am not making this up) Karl Rove claims that

If we were to give up Iraq with the third largest oil reserves in the world to the control of an Al Qaida regime or to the control of Iran, don’t you think $200 a barrel oil would have a cost to the American economy.

Er, isn't the fact that we've effectively turned Iraq over to the control of Iran one of the few uncontested facts of the American-sponsored "regime change" in Iraq?

It depends on what your "capable" PC is capable of?

In the case of "Windows Vista Capable" it's apparently a little murky...and, according to a U.S. District Judge, open to a class-action suit. It's unclear whether the Microsoft executives who criticized Vista will be joining the suit.

Boys seek girls for...companionship(!?)

Apparently, loneliness can drive boys to seek companionship with girls, as well as with the robotic reptiles mentioned in my earlier post. An article reporting on work of psychology researchers at SUNY Oswego asks if the stereotype of teenage boys, driven by testosterone to the single-minded pursuit of sex, may be "telling us less about teenage males and more about a culture that seems to have consistently low expectations of its boys?" The researchers collected data from 105 10th-grade boys (average age 16). When asked to note their reasons for pursuing a relationship (with girls -- most of the boys self-identified as heterosexual) the top answer (marked by 80%) was "I really liked the person." The next-most-popular answers (tied) were physical attraction and getting to know someone better.
Perhaps needless to say, some people are dubious, particularly "former teenage boys."

Such skepticism about boys in their teens isn’t surprising, say researchers, but it reveals more about what’s going on in the minds of adults, than of teenagers.

“Grown men often deny how dependent they are on women,” said Michael G. Thompson, a psychologist specializing in children and families and co-author of the book “Raising Cain: Protecting the Emotional Life of Boys.” “The idea that you could pine for a girl, and be devastated by a girl makes an adult man uncomfortable. It reminds them of how profoundly attached they get to women.”

None of this is to say that teen boys aren’t interested in sex. Of course they are. But adolescence can often be a lonely time, and for many boys, girls represent needed companionship, Dr. Thompson said.

“Many boys are yearning to talk to somebody, but they can’t talk to their boy friends because it’s all teasing and a lot of competitiveness,” he said. “For many boys who have been a little bit lonely in the boy group, finally meeting a girl and talking to her is a huge relief.”

But the widespread skepticism about teenage boys is worrisome, some psychologists say, because it may mean that boys ultimately will fulfill our low expectations of them.

You only learn who has been swimming naked when the tide goes out

Warren Buffet's annual Shareholder Letter (PDF format) was issued last Monday. This year's letter begins with a two-paragraph summary of Berkshire Hathaway's performance, and then Buffet immediately remarks on the housing bubble:

Some major financial institutions have, however, experienced staggering problems because they engaged in the “weakened lending practices” I described in last year’s letter. John Stumpf, CEO of Wells Fargo, aptly dissected the recent behavior of many lenders: “It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine.”

You may recall a 2003 Silicon Valley bumper sticker that implored, “Please, God, Just One More Bubble.” Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA – house price appreciation – would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.

The following are other topics Buffet addresses in this year's letter:

On the weakening dollar

When the dollar falls, it both makes our products cheaper for foreigners to buy and their products more expensive for U.S. citizens. That’s why a falling currency is supposed to cure a trade deficit. Indeed, the U.S. deficit has undoubtedly been tempered by the large drop in the dollar. But ponder this: In 2002 when the Euro averaged 94.6¢, our trade deficit with Germany (the fifth largest of our trading partners) was $36 billion, whereas in 2007, with the Euro averaging $1.37, our deficit with Germany was up to $45 billion. Similarly, the Canadian dollar averaged 64¢ in 2002 and 93¢ in 2007. Yet our trade deficit with Canada rose as well, from $50 billion in 2002 to $64 billion in 2007. So far, at least, a plunging dollar has not done much to bring our trade activity into balance.

There’s been much talk recently of sovereign wealth funds and how they are buying large pieces of American businesses. This is our doing, not some nefarious plot by foreign governments. Our trade equation guarantees massive foreign investment in the U.S. When we force-feed $2 billion daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds?

Our country’s weakening currency is not the fault of OPEC, China, etc. Other developed countries rely on imported oil and compete against Chinese imports just as we do. In developing a sensible trade policy, the U.S. should not single out countries to punish or industries to protect. Nor should we take actions likely to evoke retaliatory behavior that will reduce America’s exports, true trade that benefits both our country and the rest of the world.

Our legislators should recognize, however, that the current imbalances are unsustainable and should therefore adopt policies that will materially reduce them sooner rather than later. Otherwise our $2 billion daily of force-fed dollars to the rest of the world may produce global indigestion of an unpleasant sort. (For other comments about the unsustainability of our trade deficits, see Alan Greenspan’s comments on November 19, 2004, the Federal Open Market Committee’s minutes of June 29, 2004, and Ben Bernanke’s statement on September 11, 2007.)

On corporate accounting ethics (Or, the lack thereof)
Buffet doesn't believe America's CEOs have offered much evidence that they're willing and able to resist on their own the temptation to "juice earnings":

Former Senator Alan Simpson famously said: “Those who travel the high road in Washington need not fear heavy traffic.” If he had sought truly deserted streets, however, the Senator should have looked to Corporate America’s accounting.

An important referendum on which road businesses prefer occurred in 1994. America’s CEOs had just strong-armed the U.S. Senate into ordering the Financial Accounting Standards Board to shut up, by a vote that was 88-9. Before that rebuke the FASB had shown the audacity – by unanimous agreement, no less – to tell corporate chieftains that the stock options they were being awarded represented a form of compensation and that their value should be recorded as an expense.

After the senators voted, the FASB – now educated on accounting principles by the Senate’s 88 closet CPAs – decreed that companies could choose between two methods of reporting on options. The preferred treatment would be to expense their value, but it would also be allowable for companies to ignore the expense as long as their options were issued at market value.

A moment of truth had now arrived for America’s CEOs, and their reaction was not a pretty sight. During the next six years, exactly two of the 500 companies in the S&P chose the preferred route. CEOs of the rest opted for the low road, thereby ignoring a large and obvious expense in order to report higher “earnings.” I’m sure some of them also felt that if they opted for expensing, their directors might in future years think twice before approving the mega-grants the managers longed for.

On Dow 2,000,000 (Not!)
Another accounting choice Buffet highlights is the investment-return assumption a company uses in calculating pension expense.

It will come as no surprise that many companies continue to choose an assumption that allows them to report less-than-solid “earnings.” For the 363 companies in the S&P that have pension plans, this assumption in 2006 averaged 8%. Let’s look at the chances of that being achieved.

The average holdings of bonds and cash for all pension funds is about 28%, and on these assets returns can be expected to be no more than 5%. Higher yields, of course, are obtainable but they carry with them a risk of commensurate (or greater) loss.

This means that the remaining 72% of assets – which are mostly in equities, either held directly or through vehicles such as hedge funds or private-equity investments – must earn 9.2% in order for the fund overall to achieve the postulated 8%. And that return must be delivered after all fees, which are now far higher than they have ever been.

How realistic is this expectation? Let’s revisit some data I mentioned two years ago: During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually. An investor who owned the Dow throughout the century would also have received generous dividends for much of the period, but only about 2% or so in the final years. It was a wonderful century.

Think now about this century. For investors to merely match that 5.3% market-value gain, the Dow – recently below 13,000 – would need to close at about 2,000,000 on December 31, 2099. We are now eight years into this century, and we have racked up less than 2,000 of the 1,988,000 Dow points the market needed to travel in this hundred years to equal the 5.3% of the last.

It’s amusing that commentators regularly hyperventilate at the prospect of the Dow crossing an even number of thousands, such as 14,000 or 15,000. If they keep reacting that way, a 5.3% annual gain for the century will mean they experience at least 1,986 seizures during the next 92 years. While anything is possible, does anyone really believe this is the most likely outcome?

Dividends continue to run about 2%. Even if stocks were to average the 5.3% annual appreciation of the 1900s, the equity portion of plan assets – allowing for expenses of .5% – would produce no more
than 7% or so. And .5% may well understate costs, given the presence of layers of consultants and high- priced managers (“helpers”).

And this leads to Buffet's comments concerning what has been called the Lake Wobegon Effect as it applies to investors, or...

On why investors overall must be average (minus costs); passive (index) investors must be average (minus low costs); and active investors must be average (minus high costs).

Naturally, everyone expects to be above average. And those helpers – bless their hearts – will certainly encourage their clients in this belief. But, as a class, the helper-aided group must be below average. The reason is simple: 1) Investors, overall, will necessarily earn an average return, minus costs they incur; 2) Passive and index investors, through their very inactivity, will earn that average minus costs that are very low; 3) With that group earning average returns, so must the remaining group – the active investors. But this group will incur high transaction, management, and advisory costs. Therefore, the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group – the “know-nothings” – must win.

On Dow 24,000,000 (Not!) Or, Financial Advisers in Wonderland

I should mention that people who expect to earn 10% annually from equities during this century – envisioning that 2% of that will come from dividends and 8% from price appreciation – are implicitly forecasting a level of about 24,000,000 on the Dow by 2100. If your adviser talks to you about double- digit returns from equities, explain this math to him – not that it will faze him. Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.

Some companies have pension plans in Europe as well as in the U.S. and, in their accounting, almost all assume that the U.S. plans will earn more than the non-U.S. plans. This discrepancy is puzzling: Why should these companies not put their U.S. managers in charge of the non-U.S. pension assets and let them work their magic on these assets as well? I’ve never seen this puzzle explained. But the auditors and actuaries who are charged with vetting the return assumptions seem to have no problem with it.

Note: All of Buffet's shareholder letters (PDF format) may be found here.

eReptile can cure loneliness

And speaking of reptiles, there's Pleo, the robotic pet that won't soil your carpet as described in this San Francisco Chronicle article.

Carnegie Mellon University robotics Professor Illah Nourbakhsh has thought about why humans form attachments to what they clearly understand to be artificial constructs. It happens all the time, not just to people who buy Pleos, he said. It's the same impulse that drives some children to choose a favorite blanket or makes grown-ups unwilling to get rid of objects that hold special memories - like the dune buggy that may be sitting up on blocks in the backyard today but which once kicked up its share of sand.

Nourbakhsh said such objects, by their mere existence, evoke feelings of comfort or memories of fun. The human-Pleo connection is different, he said. The Pleo can perform certain actions - it rolls its eyes and makes cooing sounds - which allows it to trigger associations in the mind of sympathetic observers. Pet or baby lovers may link the Pleo to memories or emotions important to them, he said, creating a new bond in the heart of the beholder.

Funny thing is, the person may know exactly what sort of mind trick they're playing on themselves and yet still feel satisfied with the quid pro quo between human and machine. That is certainly the case with Robert Oschler, a self-employed computer programmer from Florida who said he spends too much time alone, would love the companionship of a woman, pet or plant but admits being too absent-minded to care for real living things.

"I killed a cactus," said Oschler, who believes that Pleo's simple behaviors - it squirms and moans if he ignores it for too long - trick his subconscious into thinking that he isn't really alone.

The birds and the bees, but not always the lizards and fish

Playing off ideas from two previous posts (genomics and rat courtship), this offering is a recent New York Times Op-Ed piece discussing how Kimodo dragons at the Wichita Zoo have recently hatched eggs, despite the absence of a male of the species for more than 10 years. Parthenogenesis (actual virgin birth, producing genetic clones) has been observed in other species of lizards, and fish. And the point of the piece is that reproductive strategies in nature run along a wide continuum -- there is no single "natural" way to do it. Indeed, "almost anything goes."

Cloning is one of many mechanisms species use to survive in a dangerous world. Indeed, the diversity of reproductive strategies seen in animals staggers the imagination. Some reptiles do not determine sexes genetically, but rely on different incubation temperatures to determine the development of males and females. Other creatures can actually switch sexes during their lifetimes, being born male and developing as females. Still others can switch sexes based on behavioral cues in the social group. There is no one way that creatures start development, grow and form sexes — there are many varied ways.

Unfortunately, humans seem to forget this fact when we find ourselves turning to nature to guide us through difficult choices, such as arguments about whether life begins at conception, or over the proper structure of the family. Or, more recently, regarding the morality of cloning. Whether we’re talking about raising bigger cattle or growing life-saving organs or trying to “live forever,” both sides like to stress their abilities to judge what is “natural.” Judging from Komodo dragons, lizards and sharks, the answer seems to be that for reproduction, almost anything goes.

And that is the point. Biology is about variation. Without variation, the world would be static and unchangeable, and species would gradually disappear as they failed to meet challenges like changing climates and environments. So as we continue our very necessary debates over ethical issues, let’s bear in mind that morality is a concept limited to our species. The natural world is a fuzzy place that doesn’t always accommodate our decidedly human need to find cut-and-dried categories.

Neil Shubin, an associate dean at the University of Chicago and the provost of the Field Museum, is the author of “Your Inner Fish: A Journey Into the 3.5-Billion-Year History of the Human Body.”

Oil prices, incarcerations at all-time high; Dollar at all-time low

Oil futures set an all-time record of $103.95/bbl this morning on the New York Mercantile Exchange, topping the inflation-adjusted price of $103.76/bbl set in April 1980 (at what was then $39.50/bbl).

Meanwhile, the dollar fell to a record low of $1.5274 against the Euro.

But on another high, the U.S. now has more than 1 in 100 adults behind bars. Kentucky (+12%), New Hampshire (+6.6%), and Iowa (+6.1%) led the nation in growing prison populations during 2007.

Year of the Rat

While in San Francisco, I had the chance to watch the Chinese New Year parade as it passed along Geary St. (From my hotel window, since it was raining, and a bit chilly.)

Read more in this San Francisco Chronicle story, along with a photo gallery.

Another Chronicle story contained several little-known rat facts. For example, male rats make better lap pets, since they're content to just sit and have their ears scratched. (Females are more curious, and like to play and explore.) And, be wary of letting your male and female rats play together, since "rats can complete the courting ritual and the whole romantic relationship in about two seconds."

The Chinese Year of the Rat actually began on 7 February.