Why Economic Models Are Always Wrong

But climate models are right? Both types of model are of the same ilk. What the guy below says is what my son tells me: He builds mathematical models of flows in liquids so he can always test his models against reality. And what he tells me is that the tiniest inaccuracy in the parameter input can send the model output completely away from reality. And climate models are full of guesswork and unproven assumptions so are just as certainly wrong as are stockmarket models

When it comes to assigning blame for the current economic doldrums, the quants who build the complicated mathematic financial risk models, and the traders who rely on them, deserve their share of the blame. [See “A Formula For Economic Calamity” in the November 2011 issue]. But what if there were a way to come up with simpler models that perfectly reflected reality? And what if we had perfect financial data to plug into them?

Incredibly, even under those utterly unrealizable conditions, we'd still get bad predictions from models.

The reason is that current methods used to “calibrate” models often render them inaccurate.

That's what Jonathan Carter​ stumbled on in his study of geophysical models. Carter wanted to observe what happens to models when they're slightly flawed--that is, when they don't get the physics just right. But doing so required having a perfect model to establish a baseline. So Carter set up a model that described the conditions of a hypothetical oil field, and simply declared the model to perfectly represent what would happen in that field--since the field was hypothetical, he could take the physics to be whatever the model said it was. Then he had his perfect model generate three years of data of what would happen. This data then represented perfect data. So far so good.

The next step was "calibrating" the model. Almost all models have parameters that have to be adjusted to make a model applicable to the specific conditions to which it's being applied--the spring constant in Hooke's law, for example, or the resistance in an electrical circuit. Calibrating a complex model for which parameters can't be directly measured usually involves taking historical data, and, enlisting various computational techniques, adjusting the parameters so that the model would have "predicted" that historical data. At that point the model is considered calibrated, and should predict in theory what will happen going forward.

Carter had initially used arbitrary parameters in his perfect model to generate perfect data, but now, in order to assess his model in a realistic way, he threw those parameters out and used standard calibration techniques to match his perfect model to his perfect data. It was supposed to be a formality--he assumed, reasonably, that the process would simply produce the same parameters that had been used to produce the data in the first place. But it didn't. It turned out that there were many different sets of parameters that seemed to fit the historical data. And that made sense, he realized--given a mathematical expression with many terms and parameters in it, and thus many different ways to add up to the same single result, you'd expect there to be different ways to tweak the parameters so that they can produce similar sets of data over some limited time period.

The problem, of course, is that while these different versions of the model might all match the historical data, they would in general generate different predictions going forward--and sure enough, his calibrated model produced terrible predictions compared to the "reality" originally generated by the perfect model. Calibration--a standard procedure used by all modelers in all fields, including finance--had rendered a perfect model seriously flawed. Though taken aback, he continued his study, and found that having even tiny flaws in the model or the historical data made the situation far worse. "As far as I can tell, you'd have exactly the same situation with any model that has to be calibrated," says Carter.

That financial models are plagued by calibration problems is no surprise to Wilmott--he notes that it has become routine for modelers in finance to simply keep recalibrating their models over and over again as the models continue to turn out bad predictions. "When you have to keep recalibrating a model, something is wrong with it," he says. "If you had to readjust the constant in Newton's law of gravity every time you got out of bed in the morning in order for it to agree with your scale, it wouldn't be much of a law But in finance they just keep on recalibrating and pretending that the models work."

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The Real Luddites

Have you noticed that any person who exhibits any skepticism about global warming alarmism will, sooner or later, be called a Luddite?

“Are you a Luddite, a troglodyte? Are you a part of ‘The Planet of the Apes’ that doesn’t want science? Where would you place yourself in this argument?” newscaster and anti-simian Chris Matthews “asked” a congressman a few years back. “Rick Perry, Herman Cain, Michele Bachmann and the rest of the neo-Luddites who are turning the GOP into the anti-science party should pay attention,” warned columnist Eugene Robinson in The Washington Post this week.

And so on and so forth.

The Luddites, as you all know, were a 19th-century social movement that protested, often by violent means, the encroachment of the Industrial Revolution on their lives, fearing that it would leave them without their jobs and destroy their communities.

But Luddites weren’t challenging the veracity of some scientific theory; they just weren’t crazy about the options progress offered them.

So global warming skeptics — call them anti-science if you like — are not Luddites. Luddites have an irrational fear of development in a seemingly chaotic world. This is capitalism. Today’s Luddite fears that we have too much energy, too many people, too many choices, too much bad food, too many cheap knickknacks. Today’s Luddite believes that the free movement of money and economic productivity are immoral and that if your slice is too big, someone else’s slice has to be too small.

For example, Democratic Rep. Jesse Jackson Jr. recently claimed that the iPad was “responsible for eliminating thousands of jobs,” you know, just like the modern-day automated loom. What, he wonders, will happen to “all the jobs associated with paper?” Surely, a remark as deeply juvenile as that one matches anything offered by those wild-eyed skeptics.

Or take President Barack Obama, who earlier this year — and not for the first time — claimed that “structural issues with our economy” have nothing to do with politicians. The problem, in his opinion, is that “a lot of businesses have learned to become much more efficient,” making the workforce smaller. “You see it when you go to a bank and you use an ATM. You don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

Those aren’t structural issues; they are productivity issues. And rather than kill jobs, efficiency drives output and growth and improves performance and the quality of goods and services — along with our lives. Perhaps if this administration weren’t busy trying to create morally pleasing but temporary and unsustainable jobs through bailouts, subsidies and “stimulus,” we could all hit that ATM more often.

Today’s Luddite also adamantly opposes a mythical institution called Wall Street, a place where a few players act illegally, some act recklessly and some team with government to undermine healthy competition. But the vast majority of companies create new technologies, services and products that make modern life possible. If they don’t, they fail.

Or at least they used to.

Luddites on the streets of Manhattan can demonize big oil, big food and big pharma all day long. They can decry profit as if Satan himself invented the notion. Yet when the multinational firm GlaxoSmithKline announces, as it did last week, that it has come up with the first effective vaccine for malaria, you can bet that it would never have happened in the system they propose. And if the vaccine is successful, the company will have done more good for the world than a million marches about the evils of capitalism could ever hope to produce.

What irks Robinson, Matthews and others like them is not that people do not accept “science,” but that they won’t accept the statist solutions tied to that science. Moreover, a Luddite opposes capitalism. A skeptic only asks questions.

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It’s libel — except when a Warmist does it

Lewis Carroll died too soon. Just imagine the fun he’d have with the cliquish clan of climate catastrophe researchers who seek to control science, debate and public policy on global warming and energy – and then get outraged when someone challenges their findings, methodologies or integrity.

On Oct. 1, Dr. Michael Mann of Pennsylvania State University and “hockey stick” fame published an angry riposte in Colorado’s obscure Vail Daily Voices (circulation 15,000), expressing his umbrage over an article that had appeared in the free coffee shop newspaper a day earlier.

“An individual named Martin Hertzberg did a grave disservice to your readers by making false and defamatory statements about me and my climate scientist colleagues in his recent commentary in your paper,” Mann began. (Hertzberg is a research scientist and former US Navy meteorologist.)

The thin-skinned Penn State scientist then ranted: “These are just lies, regurgitation of dishonest smears that have been manufactured by fossil fuel industry-funded climate change deniers, and those who do their bidding by lying to the public about the science.” [emphasis added]

Meanwhile, NASA scientist Dr. James Hansen, recipient of huge monetary awards for strident climate disaster claims, wants oil and coal company CEOs prosecuted for “crimes against humanity.”

So Mann and Hansen are honest scientists, trying to do their jobs. But Hertzberg and anyone else who questions the “imminent manmade climate change catastrophe” thesis are dishonest crooks, liars, Holocaust deniers, hired guns for fossil fuel interests, criminals threatening all humanity.

Hertzberg’s views were defamatory, but Mann’s and Hansen’s accusations are mild, rational and truthful. Uh-huh.

(Readers can find Mann’s letters and lively discussions about them and Hansen on Dr. Anthony Watts’ WattsUpWithThat.com climate change website. Hertzberg’s letter appeared, mysteriously disappeared, then reappeared in the Vail Voices online archives as the controversy raged and ebbed.)

The bizarre saga gets even stranger when viewed alongside Dr. Mann’s kneejerk lawsuit against Dr. Tim Ball, a Canadian scientist, historical climatologist and retired professor who has frequently voiced his skepticism about claims that hydrocarbon use and carbon dioxide emissions are the primary cause of climate change and present an imminent risk of widespread planetary cataclysms. Dr. Ball has analyzed Canadian and global climate history, and does not regard computer models as much more than virtual reality scenarios that should never be the basis for real-world public policy.

Dr. Ball had poked fun at Dr. Mann, playing word games that suggest the computer guy should not be at Penn State, but in a similarly named state institution. Unfortunately, Mann is not easily amused, as Dr. Ball should have known from the PSU professor’s testy reaction to the “Hide the decline” animation and other spoofs that various AGW “deniers” posted online.

Mann insisted that Dr. Ball’s little joke was libelous and took him to court. Mann’s legal principal seems to be that libel is fine only when he and Hansen practice the craft, albeit with far less good humor than others display. More importantly, Dr. Ball does not live or work in the United States.

U.S. libel cases are governed by the First Amendment, “public figure” rules and other safeguards that ensure open, robust debate, and make it difficult and expensive to sue people over slights, affronts, insults, disagreements and jokes.

Canada, unfortunately, has more limited free speech protections. So Dr. Mike sued Dr. Tim in Canada, assuming victory would be rapid and sweet. Surprise! Dr. Ball decided to slug it out.

In Canada, the principal defenses against libel claims are that the alleged defamation constitutes “fair comment” or was in fact “the truth.” Ball chose the latter defense.

Doing so means the penalty for losing could be higher than under “fair comment” rules. But arguing that his statement was based on truth allows Dr. Ball to seek “discovery” of evidence that Dr. Mann’s actions reflect a use of public funds to alter or falsify scientific data, present highly speculative results as solid facts, or otherwise engage in something that a reasonable person would conclude constitutes dishonest activity or criminal culpability, undertaken moreover through the use of taxpayer funds.

Proving that will not be easy, especially since Mann has steadfastly refused to provide such potential evidence to anyone, including Virginia Attorney General Ken Cuccinelli. That evidence might include Climategate emails; computer codes and data used, misused or used selectively to generate global warming spikes in historical graphs; and questionable research or proposals used to secure additional government grants, misinform citizens or lawmakers, or promote costly or harmful public policies.

The US government alone spent an estimated $79 billion on climate, renewable energy and related research between 1989 and 2009 — and many billions more since then. Obviously, there is a lot at stake for scientists, universities, government agencies and other institutions engaged in trying to demonstrate a link between human greenhouse gas emissions and climate, weather, agricultural, sea level and other “disasters.” The reputations and credibility of researchers and their institutions are likewise at stake.

Keeping people alarmed, insisting that numerous disasters will soon result from carbon dioxide emissions and a few degrees of planetary warming — and silencing anyone who questions climate chaos claims — are essential if this money train is to be kept on the tracks.

Dr. Mann is likely aided by Penn State lawyers, largely paid for with climate research taxpayer dollars the university wants to safeguard, by preventing criticism or scientific disclosure and transparency.

A judge and jury will decide the Mann vs. Ball case, after carefully weighing all the evidence on whether Dr. Ball’s allegations and insinuations were factual, accurate and truthful.

Dr. Mann’s research was conducted primarily with public money. It is being presented as valid, peer-reviewed science. It is also being used to champion and justify major policy recommendations at state, national and international levels. And those recommendations call for carbon taxes and other penalties for using hydrocarbon energy; the replacement of affordable, dependable fossil fuel energy with expensive, unreliable wind and solar facilities; a roll-back of living standards in rich developed nations; and limited or minimal energy and economic development in poor countries.

Therefore, as I have argued previously, the public has a right to demand that Mann & Comrades show their work, not merely their answers and policy demands. Thus far, serious questions about Mann’s research remain unanswered. The public also has a right to require that Mann, Penn State & Company provide their source material, not just their results — along with anything else that may be relevant to gauging the validity, accuracy and honesty of the work and its conclusions and policy recommendations.

We the People have a further right, duty and obligation to protect free speech, robust debate, the integrity of the scientific method, our personal freedoms, and our access to the reliable, affordable energy that makes our jobs and living standards possible. One way you can do this is by supporting Dr. Tim Ball’s legal defense fund. Just click here

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Global Warming -- RIP

By historian Victor Davis Hanson

Not long ago, candidate Obama promised to cool the planet and lower the rising seas. Indeed, he campaigned on passing "cap-and-trade" legislation, a radical, costly effort to reduce America's traditional carbon energy use.

The theory was that new taxes and greater regulations would make Americans pay more for fossil-fuel energy -- a good thing if it reduced our burning of coal, oil and gas. Obama was not shy in admitting that under his green plans, electricity prices would "necessarily skyrocket." His energy secretary, Steven Chu, at one point had even said, "Somehow we have to figure out how to boost the price of gasoline to the levels in Europe" -- that is, about $8-$10 per gallon. Fairly or not, the warming movement seemed to cast a tiny elite imposing costs on a poorer and supposedly less informed middle class.

But despite a Democrat-controlled House and Senate in 2009-2010, President Obama never passed into law any global warming legislation. Now the issue is deader than a doornail -- despite the efforts of the Environmental Protection Agency to enact new regulations that would never pass Congress.

So what happened to the global warming craze?

Corruption within the climate-change industry explains some of the sudden turnoff. "Climategate" -- the unauthorized 2009 release of private emails from the Climatic Research Unit in the United Kingdom -- revealed that many of the world's top climate scientists were knee-deep in manipulating scientific evidence to support preconceived conclusions and personal agendas. Shrill warnings about everything from melting Himalayan glaciers to shrinking polar bear populations turned out not always to be supported by scientific facts.

Unfortunately, "green" during the last three years has also become synonymous with Solyndra-style crony capitalism. Common-sense ideas like more windmills, solar panels, retrofitted houses and electric cars have all been in the news lately. But the common themes were depressingly similar: few jobs created and little competitively priced energy produced, but plenty of political donors who landed hundreds of millions of dollars in low-interest loans from the government.

Of course, it didn't help that the world's most prominent green spokesman, Nobel laureate Al Gore, made tens of millions of dollars from his own advocacy. And he adopted a lifestyle of jet travel and energy-hungry homes at odds with his pleas for everyone else to cut back.

But even without the corruption and hypocrisy, sincere advocates of man-made global warming themselves overreached. At news that the planet had not heated up at all during the last 10 years, "global warming" gave way to "climate change" -- as if to warn the public that unseasonable cold or wet weather was just as man-caused as were the old specters of drought and scorching temperatures.

Then, when "climate change" was not still enough to frighten the public into action, yet a third term followed: "climate chaos." Suddenly some "green experts" claimed that even more terrifying disasters -- from periodic hurricanes and tornadoes to volcanoes and earthquakes -- could for the first time be attributed to the burning of fossil fuels. At that point, serially changing the name of the problem suggested to many that there might not be such a problem after all.

Current hard times also explain the demise of global warming advocacy. With high unemployment and near nonexistent economic growth, Americans do not want to shut down generating plants or pay new surcharges on their power bills. Most people worry first about having any car that runs -- not whether it's a more expensive green hybrid model.

Over the last half-century, Americans have agreed that smoky plants and polluting industries needed to be cleaned up. But when the green movement began to classify clean-burning heat as a pollutant, it began to lose the cash-strapped public.

While the Obama administration was subsidizing failed or inefficient green industries, radical breakthroughs in domestic fossil-fuel exploration and recovery -- especially horizontal drilling and fracking -- have vastly increased the known American reserves of gas and oil. Modern efficient engines have meant that both can be consumed with little, if any, pollution -- at a time when a struggling U.S. economy is paying nearly half a trillion dollars for imported fossil fuels. The public apparently would prefer developing more of our own gas, oil, shale, tar sands and coal as an alternative to going broke by either importing more fuels from abroad or subsidizing more inefficient windmills and solar panels at home.

We simply don't know positively whether recent human activity has caused the planet to warm up to dangerous levels. But we do know that those who insist it does are sometimes disingenuous, often profit-minded, and nearly always impractical.

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Be prudent with climate claims

Cardinal George Pell is the Roman Catholic Archbishop of Sydney. His Eminence approaches Warmism by looking to the scientific facts, not religion -- and notes religious fanaticism in Warmism:

SCIENCE and technology have already achieved considerable mastery over nature, and massive local achievements. But where is the borderline separating us from what is beyond human power?

Where does scientific striving become uneconomic, immoral or ineffectual and so lapse into hubris? Have scientists been co-opted on to a bigger, better-advertised and more expensive bandwagon than the millennium bug fiasco?

We can only attempt to identify the causes of climate change through science and these causes need to be clearly established after full debates, validated comprehensively, before expensive remedies are imposed on industries and communities.

I first became interested in the question in the 1990s when studying the anti-human claims of the "deep greens". Mine is not an appeal to the authority of any religious truth in the face of contrary scientific evidence. Neither is it even remotely tinged by a postmodernist hostility to rationality.

My appeal is to reason and evidence, and in my view the evidence is insufficient to achieve practical certainty on many of these scientific issues.

Recently Robert Manne, following fashionable opinion, wrote that "the science is truly settled" on the fundamental theory of climate change: global warming is happening; it is primarily caused by the emission of greenhouse gases, especially carbon dioxide; and it is certain to have profound effects in the future.

His appeal is to the "consensual view among qualified scientists". This is a category error, scientifically and philosophically. In fact, it is also a cop-out, a way of avoiding the basic issues.

The basic issue is not whether the science is settled but whether the evidence and explanations are adequate in that paradigm.

I fear, too, that many politicians have never investigated the primary evidence.

Much is opaque to non-specialists, but persistent inquiry and study can produce useful clarifications, similar to the nine errors identified by the British High Court in Al Gore's propaganda film, An Inconvenient Truth.

The complacent appeal to scientific consensus is simply one more appeal to authority, quite inappropriate in science or philosophy.

It is not generally realised that in 2001 at least, one of the Intergovernmental Panel on Climate Change Third Assessment Report's workinggroups agreed: "In climate research and modelling, we are dealing with a coupled, non-linear, chaotic system, and therefore that the long-term prediction of future climate states is not possible."

Claims of atmospheric warming often appear to conflict and depend upon the period of time under consideration.

* The earth has cooled during the past 10,000 years since the Holocene climate optimum.

* The earth has cooled since 1000 years ago, not yet achieving the temperatures of the Medieval Warm Period.

* The earth has warmed since 400 years ago after the Little Ice Age three centuries ago.

* The earth warmed between 1979 and 1998 and has cooled slightly since 2001.

The following facts are additional reasons for scepticism.

* In many places, most of the 11,700 years since the end of the last ice age were warmer than the present by up to 2C.

* Between 1695 and 1730, the temperature in England rose by 2.2C. That rapid warming, unparalleled since, occurred long before the Industrial Revolution.

* From 1976 to 2001, "the global warming rate was 0.16C per decade", as it was from 1860 to 1880 and again from 1910 to 1940.

My suspicions have been deepened through the years by the climate movement's totalitarian approach to opposing views. Those secure in their explanations do not need to be abusive.

The term "climate change denier", however expedient as an insult or propaganda weapon, with its deliberate overtones of comparison with Holocaust denial, is not a useful description of any significant participant in the discussion. I was not surprised to learn that the IPCC used some of the world's best advertising agencies to generate maximum effect among the public .

The rewards for proper environmental behaviour are uncertain, unlike the grim scenarios for the future as a result of human irresponsibility which have a dash of the apocalyptic about them.

The immense financial costs true believers would impose on economies can be compared with the sacrifices offered traditionally in religion, and the sale of carbon credits with the pre-Reformation practice of selling indulgences.

Some of those campaigning to save the planet are not merely zealous but zealots. To the religionless and spiritually rootless, mythology - whether comforting or discomforting - can be magnetically, even pathologically, attractive.

Whatever our political masters might decide at this high tide of Western indebtedness, they are increasingly unlikely, because of popular pressure, to impose new financial burdens on their populations in the hope of curbing the rise of global temperatures, except perhaps in Australia, which has 2 per cent of the world's industrial capacity and only 1.2 per cent of its CO2 emissions, while continuing to sell coal and iron worth billions of dollars to Asia.

Extreme weather events are to be expected. This is why I support the views of Bjorn Lomborg and Bob Carter that money should be used to raise living standards and reduce vulnerability to catastrophes.

The cost of attempts to make global warming go away will be very heavy. They may be levied initially on "the big polluters" but they will eventually trickle down to the end-users. Efforts to offset the effects on the vulnerable are well intentioned but history tells us they can only be partially successful.

Sometimes the very learned and clever can be brilliantly foolish, especially when seized by an apparently good cause. My request is for common sense and what the medievals, following Aristotle, called prudence.

The appeal must be to the evidence. First of all we need adequate scientific explanations as a basis for our economic estimates. We also need history, philosophy, even theology and many will use, perhaps create, mythologies. But most importantly we need to distinguish which is which.

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Australia's "Solyndra"

SAYONARA, Premier. Anna Bligh's claims her bungled clean-coal dream would live on have collapsed, with the company at the centre put into liquidation at a loss to taxpayers of almost $160 million.

The Courier-Mail can reveal the controversial ZeroGen operation was shut down a fortnight ago, despite the Premier promising the ailing firm would be given to - and run by - the coal industry to ensure its work did not go to waste.

Documents filed with the Australian Securities and Investments Commission this month show the company is under external administration after a liquidator was appointed on October 11.

ZeroGen was set up to be owned by the Government to develop carbon capture technology. Its key project was to be a $4.3 billion clean coal power plant in central Queensland, running by 2015, with the power to capture 90 per cent of coal emissions.

The confirmation of the financial losses come as photos have emerged showing former ZeroGen chiefs living it up in Japan and Singapore as they tried to secure backing of business giant Mitsubishi Corp.

Former ZeroGen chief Tony Tarr and the company's corporate affairs manager Heather Brodie were snapped partying in kimonos and horseplaying in Singapore.

After scrapping the key "world-first" $4 billion central Queensland plant, the Bligh Government claimed ZeroGen would be given to the Australian Coal Association to ensure the knowledge it gained lived on.

Ms Bligh, who had insisted the money was not wasted, had said it would become "an independent entity, owned and run by industry and dedicated to the accelerated development and deployment of carbon capture storage".

But ACA chairman John Pegler yesterday said the group knew nothing of its supposed involvement. "We have never, ever, ever been in negotiations to take over ZeroGen," he said.

Contradiction also emerged in the office of Treasurer Andrew Fraser yesterday, who insisted the intellectual property still belonged to the state and would be used in future.

"The Federal Government was an equity partner in the venture and has been actively involved in the wind-up process," he said. The wind-up began in June.

But federal Resources Minister Martin Ferguson said the Commonwealth became aware only "in early October that the board may voluntarily liquidate the company".

Queensland has pumped $116 million into the project, the Commonwealth about $43 million and the coal industry about $50 million.

Federal Opposition climate change spokesman Greg Hunt yesterday called for an inquiry, saying the loss of so much money was scandalous.

"There should be an immediate, independent inquiry as to how this money has been lost and where it has gone," he said.

ZeroGen garnered attention across Asia and the US and was touted by Ms Bligh and former premier Peter Beattie as a ground-breaking world-first as far back as 2006.

But now the ZeroGen website has been closed. "The ZeroGen Project has concluded," the site states. "Arrangements are ongoing for final knowledge capture and dissemination with the assistance of the Global CCS Institute."

State Opposition Leader Jeff Seeney said ZeroGen epitomised the waste and mismanagement of a tired Labor Government. "Anna Bligh has still never fully explained why the warnings about ZeroGen were ignored for so long and why they were so gung ho to roll the dice with taxpayers' money," he said.

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