Tag Archives: causal networks

LInks – late May

US and Global Economic Prospects

Goldman’s Hatzius: Rationale for Economic Acceleration Is Intact

We currently estimate that real GDP fell -0.7% (annualized) in the first quarter, versus a December consensus estimate of +2½%. On the face of it, this is a large disappointment. It raises the question whether 2014 will be yet another year when initially high hopes for growth are ultimately dashed.

 Today we therefore ask whether our forecast that 2014-2015 will show a meaningful pickup in growth relative to the first four years of the recovery is still on track. Our answer, broadly, is yes. Although the weak first quarter is likely to hold down real GDP for 2014 as a whole, the underlying trends in economic activity are still pointing to significant improvement….

 The basic rationale for our acceleration forecast of late 2013 was twofold—(1) an end to the fiscal drag that had weighed on growth so heavily in 2013 and (2) a positive impulse from the private sector following the completion of the balance sheet adjustments specifically among US households. Both of these points remain intact.

Economy and Housing Market Projected to Grow in 2015

Despite many beginning-of-the-year predictions about spring growth in the housing market falling flat, and despite a still chugging economy that changes its mind quarter-to-quarter, economists at the National Association of Realtors and other industry groups expect an uptick in the economy and housing market through next year.

The key to the NAR’s optimism, as expressed by the organization’s chief economist, Lawrence Yun, earlier this week, is a hefty pent-up demand for houses coupled with expectations of job growth—which itself has been more feeble than anticipated. “When you look at the jobs-to-population ratio, the current period is weaker than it was from the late 1990s through 2007,” Yun said. “This explains why Main Street America does not fully feel the recovery.”

Yun’s comments echo those in a report released Thursday by Fitch Ratings and Oxford Analytica that looks at the unusual pattern of recovery the U.S. is facing in the wake of its latest major recession. However, although the U.S. GDP and overall economy have occasionally fluctuated quarter-to-quarter these past few years, Yun said that there are no fresh signs of recession for Q2, which could grow about 3 percent.

Report: San Francisco has worse income inequality than Rwanda

If San Francisco was a country, it would rank as the 20th most unequal nation on Earth, according to the World Bank’s measurements.

Googlebus

Climate Change

When Will Coastal Property Values Crash And Will Climate Science Deniers Be The Only Buyers?

sea

How Much Will It Cost to Solve Climate Change?

Switching from fossil fuels to low-carbon sources of energy will cost $44 trillion between now and 2050, according to a report released this week by the International Energy Agency.

Natural Gas and Fracking

How The Russia-China Gas Deal Hurts U.S. Liquid Natural Gas Industry

This could dampen the demand – and ultimately the price for – LNG from the United States. East Asia represents the most prized market for producers of LNG. That’s because it is home to the top three importers of LNG in the world: Japan, South Korea and China. Together, the three countries account for more than half of LNG demand worldwide. As a result, prices for LNG are as much as four to five times higher in Asia compared to what natural gas is sold for in the United States.

The Russia-China deal may change that.

If LNG prices in Asia come down from their recent highs, the most expensive LNG projects may no longer be profitable. That could force out several of the U.S. LNG projects waiting for U.S. Department of Energy approval. As of April, DOE had approved seven LNG terminals, but many more are waiting for permits.

LNG terminals in the United States will also not be the least expensive producers. The construction of several liquefaction facilities in Australia is way ahead of competitors in the U.S., and the country plans on nearly quadrupling its LNG capacity by 2017. More supplies and lower-than-expected demand from China could bring down prices over the next several years.

Write-down of two-thirds of US shale oil explodes fracking mythThis is big!

Next month, the US Energy Information Administration (EIA) will publish a new estimate of US shale deposits set to deal a death-blow to industry hype about a new golden era of US energy independence by fracking unconventional oil and gas.

EIA officials told the Los Angeles Times that previous estimates of recoverable oil in the Monterey shale reserves in California of about 15.4 billion barrels were vastly overstated. The revised estimate, they said, will slash this amount by 96% to a puny 600 million barrels of oil.

The Monterey formation, previously believed to contain more than double the amount of oil estimated at the Bakken shale in North Dakota, and five times larger than the Eagle Ford shale in South Texas, was slated to add up to 2.8 million jobs by 2020 and boost government tax revenues by $24.6 billion a year.

China

The Annotated History Of The World’s Next Reserve Currency

yuanhistory

Goldman: Prepare for Chinese property bust

…With demand poised to slow given a tepid economic backdrop, weaker household affordability, rising mortgage rates and developer cash flow weakness, we believe current construction capacity of the domestic property industry may be excessive. We estimate an inventory adjustment cycle of two years for developers, driving 10%-15% price cuts in most cities with 15% volume contraction from 2013 levels in 2014E-15E. We also expect M&A activities to take place actively, favoring developers with strong balance sheet and cash flow discipline.

China’s Shadow Banking Sector Valued At 80% of GDP

The China Banking Regulatory Commission has shed light on the country’s opaque shadow banking sector. It was as large as 33 trillion yuan ($5.29 trillion) in mid-2013 and equivalent to 80% of last year’s GDP, according to Yan Qingmin, a vice chairman of the commission.

In a Tuesday WeChat blog sent by the Chong Yang Institute for Financial Studies, Renmin University, Yan wrote that his calculation is based on shadow lending activities from asset management businesses to trust companies, a definition he said was very broad.  Yan said the rapid expansion of the sector, which was equivalent to 53% of GDP in 2012, entailed risks of some parts of the shadow banking business, but not necessarily the Chinese economy.

Yan’s estimation is notably higher than that of the Chinese Academy of Social Sciences. The government think tank said on May 9 that the sector has reached 27 trillion yuan ($4.4 trillion in 2013) and is equivalent to nearly one fifth of the domestic banking sector’s total assets.

Massive, Curvaceous Buildings Designed to Imitate a Mountain Forest

Chinamassive

Information Technology (IT)

I am an IT generalist. Am I doomed to low pay forever? Interesting comments and suggestions to this question on a Forum maintained by The Register.

I’m an IT generalist. I know a bit of everything – I can behave appropriately up to Cxx level both internally and with clients, and I’m happy to crawl under a desk to plug in network cables. I know a little bit about how nearly everything works – enough to fill in the gaps quickly: I didn’t know any C# a year ago, but 2 days into a project using it I could see the offshore guys were writing absolute rubbish. I can talk to DB folks about their DBs; network guys about their switches and wireless networks; programmers about their code and architects about their designs. Don’t get me wrong, I can do as well as talk, programming, design, architecture – but I would never claim to be the equal of a specialist (although some of the work I have seen from the soi-disant specialists makes me wonder whether I’m missing a trick).

My principle skill, if there is one – is problem resolution, from nitty gritty tech details (performance and functionality) to handling tricky internal politics to detoxify projects and get them moving again.

How on earth do I sell this to an employer as a full-timer or contractor? Am I doomed to a low income role whilst the specialists command the big day rates? Or should I give up on IT altogether

Crowdfunding is brutal… even when it works

China bans Windows 8

China has banned government use of Windows 8, Microsoft Corp’s latest operating system, a blow to a US technology company that has long struggled with sales in the country.

The Central Government Procurement Center issued the ban on installing Windows 8 on Chinese government computers as part of a notice on the use of energy-saving products, posted on its website last week.

Data Analytics

Statistics of election irregularities – good forensic data analytics.

Possibilities for Abrupt Climate Change

The National Research Council (NRC) published ABRUPT IMPACTS OF CLIMATE CHANGE recently, downloadable from the National Academies Press website.

It’s the third NRC report to focus on abrupt climate change, the first being published in 2002. NRC members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine.

The climate change issue is a profound problem in causal discovery and forecasting, to say the very least.

Before I highlight graphic and pictoral resources of the recent NRC report, let me note that Menzie Chin at Econbrowser posted recently on Economic Implications of Anthropogenic Climate Change and Extreme Weather. Chin focuses on the scientific consensus, presenting graphics illustrating the more or less relentless upward march of global average temperatures and estimates (by James Stock no less) of the man-made (anthropogenic) component.

The Econbrowser Comments section is usually interesting and revealing, and this time is no exception. Comments range from “climate change is a left-wing conspiracy” and arguments that “warmer would be better” to the more defensible thought that coming to grips with global climate change would probably mean restructuring our economic setup, its incentives, and so forth.

But I do think the main aspects of the climate change problem – is it real, what are its impacts, what can be done – are amenable to causal analysis at fairly deep levels.

To dispel ideological nonsense, current trends in energy use – growing globally at about 2 percent per annum over a long period – lead to the Earth becoming a small star within two thousand years, or less – generating the amount of energy radiated by the Sun. Of course, changes in energy use trends can be expected before then, when for example the average ambient temperature reaches the boiling point of water, and so forth. These types of calculations also can be made realistically about the proliferation of the automobile culture globally with respect to air pollution and, again, contributions to average temperature. Or one might simply consider the increase in the use of materials and energy for a global population of ten billion, up from today’s number of about 7 billion.

Highlights of the Recent NRC Report

It’s worth quoting the opening paragraph of the report summary –

Levels of carbon dioxide and other greenhouse gases in Earth’s atmosphere are exceeding levels recorded in the past millions of years, and thus climate is being forced beyond the range of the recent geological era. Lacking concerted action by the world’s nations, it is clear that the future climate will be warmer, sea levels will rise, global rainfall patterns will change, and ecosystems will be altered.

So because of growing CO2 (and other greenhouse gases), climate change is underway.

The question considered in ABRUPT IMPACTS OF CLIMATE CHANGE (AICH), however, is whether various thresholds will be crossed, whereby rapid, relatively discontinuous climate change occurs. Such abrupt changes – with radical shifts occurring over decades, rather than centuries – before. AICH thus cites,

..the end of the Younger Dryas, a period of cold climatic conditions and drought in the north that occurred about 12,000 years ago. Following a millennium-long cold period, the Younger Dryas abruptly terminated in a few decades or less and is associated with the extinction of 72 percent of the large-bodied mammals in North America.

The main abrupt climate change noted in AICH is rapid decline of the Artic sea ice. AICH puts up a chart which is one of the clearest examples of a trend you can pull from environmental science, I would think.

ArticSeaIce

AICH also puts species extinction front and center as a near-term and certain discontinuous effect of current trends.

Apart from melting of the Artic sea ice and species extinction, AICH lists destabilization of the Antarctic ice sheet as a nearer term possibility with dramatic consequences. Because a lot of this ice in the Antarctic is underwater, apparently, it is more at risk than, say, the Greenland ice sheet. Melting of either one (or both) of these ice sheets would raise sea levels tens of meters – an estimated 60 meters with melting of both.

Two other possibilities mentioned in previous NRC reports on abrupt climate change are discussed and evaluated as low probability developments until after 2100. These are stopping of the ocean currents that circulate water in the Atlantic, warming northern Europe, and release of methane from permafrost or deep ocean deposits.

The AMOC is the ocean circulation pattern that involves the northward flow of warm near-surface waters into the northern North Atlantic and Nordic Seas, and the south- ward flow at depth of the cold dense waters formed in those high latitude regions. This circulation pattern plays a critical role in the global transport of oceanic heat, salt, and carbon. Paleoclimate evidence of temperature and other changes recorded in North Atlantic Ocean sediments, Greenland ice cores and other archives suggest that the AMOC abruptly shut down and restarted in the past—possibly triggered by large pulses of glacial meltwater or gradual meltwater supplies crossing a threshold—raising questions about the potential for abrupt change in the future.

Despite these concerns, recent climate and Earth system model simulations indicate that the AMOC is currently stable in the face of likely perturbations, and that an abrupt change will not occur in this century. This is a robust result across many different models, and one that eases some of the concerns about future climate change.

With respect to the methane deposits in Siberia and elsewhere,

Large amounts of carbon are stored at high latitudes in potentially labile reservoirs such as permafrost soils and methane-containing ices called methane hydrate or clathrate, especially offshore in ocean marginal sediments. Owing to their sheer size, these carbon stocks have the potential to massively affect Earth’s climate should they somehow be released to the atmosphere. An abrupt release of methane is particularly worrisome because methane is many times more potent than carbon dioxide as a greenhouse gas over short time scales. Furthermore, methane is oxidized to carbon dioxide in the atmosphere, representing another carbon dioxide pathway from the biosphere to the atmosphere.

According to current scientific understanding, Arctic carbon stores are poised to play a significant amplifying role in the century-scale buildup of carbon dioxide and methane in the atmosphere, but are unlikely to do so abruptly, i.e., on a timescale of one or a few decades. Although comforting, this conclusion is based on immature science and sparse monitoring capabilities. Basic research is required to assess the long-term stability of currently frozen Arctic and sub-Arctic soil stocks, and of the possibility of increasing the release of methane gas bubbles from currently frozen marine and terrestrial sediments, as temperatures rise.

So some bad news and, I suppose, good news – more time to address what would certainly be completely catastrophic to the global economy and world population.

AICH has some neat graphics and pictoral exhibits.

For example, Miami Florida will be largely underwater within a few decades, according to many standard forecasts of increases in sea level (click to enlarge).

Florida

But perhaps most chilling of all (actually not a good metaphor here but you know what I mean) is a graphic I have not seen before, but which dovetails with my initial comments and observations of physicists.

This chart toward the end of the AICH report projects increase in global temperature beyond any past historic level (or prehistoric, for that matter) by the end of the century.

TempRise

So, for sure, there will be species extinction in the near term, hopefully not including the human species just yet.

Economic Impacts

In closing, I do think the primary obstacle to a sober evaluation of climate change involves social and economic implications. The climate change deniers may be right – acknowledging and adequately planning for responses to climate change would involve significant changes in social control and probably economic organization.

Of course, the AICH adopts a more moderate perspective – let’s be sure and set up monitoring of all this, so we can be prepared.

Hopefully, that will happen to some degree.

But adopting a more pro-active stance seems unlikely, at least in the near term. There is a wholesale rush to bringing one to several trillion persons who are basically living in huts with dirt floors into “the modern world.” Their children are traveling to cities, where they will earn much higher incomes, probably, and send money back home. The urge to have a family is almost universal, almost a concomitant of healthy love of a man and a woman. Tradeoffs between economic growth and environmental quality are a tough sell, when there are millions of new consumers and workers to be incorporated into the global supply chain. The developed nations – where energy and pollution output ratios are much better – are not persuasive when they suggest a developing giant like India or China should tow the line, limit energy consumption, throttle back economic growth in order to have a cooler future for the planet. You already got yours Jack, and now you want to cut back? What about mine? As standards of living degrade in the developed world with slower growth there, and as the wealthy grab more power in the situation, garnering even more relative wealth, the political dialogue gets stuck, when it comes to making changes for the good of all.

I could continue, and probably will sometime, but it seems to me that from a longer term forecasting perspective darker scenarios could well be considered. I’m sure we will see quite a few of these. One of the primary ones would be a kind of devolution of the global economy – the sort of thing one might expect if air travel were less possible because of, say, a major uptick in volcanism, or huge droughts took hold in parts of Asia.

Again and again, I come back to the personal thought of local self-reliance. There has been a growth with global supply chains and various centralizations, mergers, and so forth toward de-skilling populations, pushing them into meaningless service sector jobs (fast food), and losing old knowledge about, say, canning fruits and vegetables, or simply growing your own food. This sort of thing has always been a sort of quirky alternative to life in the fast lane. But inasmuch as life in the fast lane involves too much energy use for too many people to pursue, I think decentralized alternatives for lifestyle deserve a serious second look.

Polar bear on ice flow at top from http://metro.co.uk/2010/03/03/polar-bears-cling-to-iceberg-as-climate-change-ruins-their-day-141656/

Causal and Bayesian Networks

In his Nobel Acceptance Lecture, Sir C.J.W. Granger mentions that he did not realize people had so many conceptions of causality, nor that his proposed test would be so controversial – resulting in its being confined to a special category “Granger Causality.’

That’s an astute observation – people harbor many conceptions and shades of meaning for the idea of causality. It’s in this regard that renewed efforts recently – motivated by machine learning – to operationalize the idea of causality, linking it with both directed graphs and equation systems, is nothing less than heroic.

However, despite the confusion engendered by quantum theory and perhaps other “new science,” the identification of “cause” can be materially important in the real world. For example, if you are diagnosed with metastatic cancer, it is important for doctors to discover where in the body the cancer originated – in the lungs, in the breast, and so forth. This can be challenging, because cancer mutates, but making this identification can be crucial for selecting chemotherapy agents. In general, medicine is full of problems of identifying causal nexus, cause and effect.

In economics, Herbert Simon, also a Nobel Prize recipient, actively promoted causal analysis and its representation in graphs and equations. In Causal Ordering and Identifiability, Simon writes,

Simon1

For example, we cannot reverse the causal chain poor growing weather → small wheat crops → increase in price of wheat by an attribution increase in price of wheat → poor growing weather.

Simon then proposes that the weather to price causal system might be represented by a series of linear, simultaneous equations, as follows:

Simon2

This example can be solved recursively, first by solving for x1, then by using this value of x1 to solve for x2, and then using the so-obtained values of x1 and x2 to solve for x3. So the system is self-contained, and Simon discusses other conditions. Probably the most important is assymmetry and the direct relationship between variables.

Readers interested in the milestones in this discourse, leading to the present, need to be aware of Pearl’s seminal 1998 article, which begins,

It is an embarrassing but inescapable fact that probability theory, the official mathematical language of many empirical sciences, does not permit us to express sentences such as “”Mud does not cause rain”; all we can say is that the two events are mutually correlated, or dependent – meaning that if we find one, we can expect to encounter the other.”

Positive Impacts of Machine Learning

So far as I can tell, the efforts of Simon and even perhaps Pearl would have been lost in endless and confusing controversy, were it not for the emergence of machine learning as a distinct specialization

A nice, more recent discussion of causality, graphs, and equations is Denver Dash’s A Note on the Correctness of the Causal Ordering Algorithm. Dash links equations with directed graphs, as in the following example.

DAGandEQS Dash shows that Simon’s causal ordering algorithm (COA) to match equations to a cluster graph is consistent with more recent methods of constructing directed causal graphs from the same equation set.

My reading suggests a direct line of development, involving attention to the vertices and nodes of directed acyclic graphs (DAG’s) – or graphs without any backward connections or loops – and evolution to Bayesian networks – which are directed graphs with associated probabilities.

Here is are two examples of Bayesian networks.

First, another contribution from Dash and others

BayesNet

So clearly Bayesian networks are closely akin to expert systems, combining elements of causal reasoning, directed graphs, and conditional probabilities.

The scale of Bayesian networks can be much larger, or societal-wide, as this example from Using Influence Nets in Financial Informatics: A Case Study of Pakistan.

BnetPaki

The development of machine systems capable of responding to their environment – robots, for example – are a driver of this work currently. This leads to the distinction between identifying causal relations by observation or from existing data, and from intervention, action, or manipulation. Uncovering mechanisms by actively energizing nodes in a directed graph, one-by-one, is, in some sense, an ideal approach. However, there are clearly circumstances – again medical research provides excellent examples – where full-scale experimentation is simply not possible or allowable.

At some point, combinatorial analysis is almost always involved in developing accurate causal networks, and certainly in developing Bayesian networks. But this means that full implementation of these methods must stay confined to smaller systems, cut corners in various ways, or wait for development (one hopes) of quantum computers.

Note: header cartoon from http://xkcd.com/552/