Harvard Library’s Faculty Advisers Push for Open Access

The movement toward providing open access to scholarly research seems to be continuing.  I’ve noted before the decisions by a number of different organization, including Princeton University, the Royal Society, the JStor research archive, and, most recently, the World Bank, to provide open access to some or all of their research publications.   According to an article at Ars Technica, a faculty advisory council to the Harvard University Library has just issued a memorandum urging all faculty members to move to open access publication as much as possible, because of what it terms “untenable” and “unsustainable” trends in the pricing of traditional academic journals.

… the Faculty Advisory Council is fed up with rising costs, forced bundling of low- and high-profile journals, and subscriptions that run into the tens of thousands of dollars. So, it’s suggesting that the rest of the Harvard faculty focus on open access publishing.

The library’s current budget for journal subscriptions runs to about $3.75 million.  Admittedly, this is not a large sum compared to the size of Harvard’s endowment, roughly $32 billion; but it is clear from the language of the memorandum that the members of the council have had enough of continually increasing prices that, in their view, have little economic justification.  Some of their complaints, such as the “bundling” of journal subscriptions, will sound familiar to readers familiar with the boycott of Reed Elsevier journals, organized via the Web site, thecostofknowledge.com.  (Incidentally, when I first wrote about the boycott back in January, there were 1,335 researchers who had signed up to participate; the current total is 10,200.)  They feel that the increasing consumption of library resources for these expensive journals will compromise other parts of their mission.

The Faculty Advisory Council to the Library, representing university faculty in all schools and in consultation with the Harvard Library leadership,  reached this conclusion: major periodical subscriptions, especially to electronic journals published by historically key providers, cannot be sustained: continuing these subscriptions on their current footing is financially untenable.

They urge faculty members to submit research to open access journals, or at least those with reasonable access policies; to try to raise the prestige of open access publication; and to consider resigning from the editorial boards of journals with unreasonable subscription policies.

The recommendations are not binding on the faculty, but I hope that they will realize, along with academics elsewhere, that they do have the power to effect considerable change.  After all, they supply the “raw material”, in the form of their papers, that the journals need to exist, and they also supply most of the editorial work, usually for no compensation.  For too long, some of these journal publishers have not only bitten the hand that feeds them, but charged the rest of the body for the privilege.

World Bank Research to be Open Access

I’ve written here before about the encouraging trend to make more scholarly research available online at no charge, including efforts by JStor, The Royal Society, and the National Academies Press.  Now, according to an article at Ars Technica, the World Bank has decided to make its research and knowledge products, as well as the data underlying them,  available free of  charge under a new Open Access Policy.

…  the Bank says it will apply to “manuscripts and all accompanying data sets… that result from research, analysis, economic and sector work, or development practice… that have undergone peer review or have been otherwise vetted and approved for release to the public.

Most of the material will be made available under a liberal Creative Commons license [CC-BY].  The Bank has set up a new Web site, the Open Knowledge Repository, to make its work available for browsing and download.  (At the time I am writing this, there appears to be a problem with the site’s SSL certificate for secure [https:] access; you may get a security warning from your browser.)  There are currently more than 2,100 papers and books available in the Repository, and more will be added over the coming months.  Data sets will be available, too, and will probably be of considerable value to researchers, given the World Bank’s special insight into the process of economic development.

“Making our knowledge widely and readily available will empower others to come up with solutions to the world’s toughest problems,” World Bank Group President Robert B. Zoellick said in the Bank’s announcement.

It is great to see another significant institution move toward making information more widely and easily available.

Toxic Environments

I have finally had a chance to read Greg Smith’s letter, “Why I Am Leaving Goldman Sachs”, published as an Op-Ed this past week in the New York Times.  In it, Mr. Smith, an executive director of the US equity derivatives business at one of the world’s  leading merchant banks, says that he is resigning because, in his view, the culture of the firm has changed significant;ly for the worse since he joined it twelve years ago.

… I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

Mr. Smith says that the culture of the firm has changed, from one which put the customer’s interest first , to one where making the maximum profit for the firm, at the customer’s expense if necessary, has become paramount.

I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.

Much of the Wall Street reaction to Mr. Smith’s letter has been fairly predictable.  He has been pictured as a naive hypocrite, who never understood what the business was about, but was happy enough to deposit his bonus checks.  My own reaction, having worked for about thirty years in the financial services industry, is that no one there should be at all surprised by what Greg Smith said.  I have no specific knowledge of Goldman Sachs, but the scene he describes sounds all too familiar.

As William Cohan points out in an article in the Washington Post, the idea of Goldman Sachs, or any other investment bank, duping its clients is not exactly new.  He cites the example of Goldman’s role in and around the bankruptcy of Penn Central in 1970.  Goldman was the underwriter for Penn Central’s commercial paper.  Because of its relationship with the firm, Goldman was privy to information about Penn Central’s deteriorating liquidity position, information it did not share with its customers even as it continued to flog the commercial paper.  The SEC investigated following Penn Central’s bankruptcy.

According to the SEC, Goldman “gained possession of material adverse information, some from public sources and some from nonpublic sources indicating a continuing deterioration of the financial condition of the [railroad]. Goldman, Sachs did not communicate this information to its commercial paper customers, nor did it undertake a thorough investigation of the company. If Goldman, Sachs had heeded these warnings and undertaken a reevaluation of the company, it would have learned that its condition was substantially worse than had been publicly reported.”

The SEC sued Goldman, and the suit was settled within a short time.  Goldman was also sued by some of its customers.  Many of these suits were also settled, but some, for whatever reason, were allowed to proceed to a trial, which Goldman lost.

Incredibly, Goldman thought it could win the lawsuits and allowed them to go to trial, where much of the firm’s dirty laundry was aired. In the end, it lost the suit brought by the three companies and paid the plaintiffs 100 cents on the dollar, plus interest.

Cohan argues that, if Greg Smith had been paying attention, he could have figured out that Goldman’s actions did not always match its lofty principles.  At one level, it is hard to argue with this.  Certainly since I started work in the industry in the mid-1970s, there has never been any shortage of skunks and weasels on Wall Street.

On another level, though, I think Smith is right: the culture of Wall Street has gotten worse, and there are at least some identifiable reasons for this.  Once upon a time, firms like Goldman Sachs were partnerships, meaning that the money they were risking belonged to the partners that owned and managed the firm.  Now, most of these firms are public companies, whose (very highly paid) managers are risking the stockholders’ money; they have also been permitted to become bank holding companies, with access to lending from the Federal Reserve, meaning they can risk taxpayers’ money, too.   The rise of proprietary trading in ever more exotic and opaque financial instruments has made effective oversight more difficult.  The bonus system rewards those who produce short-term profits, even when those profits are based on theoretical valuations of long-term transactions.  (I’ve written about this before.  These are sometimes called “IBG” trades on the floor: “I’ll Be Gone” by the time the deal craters.)  It is hard, offhand, to think of a more complete collection of perverse incentives, to say nothing of agency problems and moral hazards.

Really, the only thing surprising about this is that anyone is surprised.

That Elusive Fuel Economy

Back in the 1950s and 1960s, when I was growing up, people didn’t worry very much about their cars’ gas mileage, or the price of gasoline.  I can remember, in the years right after I got my driver’s license, often buying gas for less — sometimes considerably less — than $1 per gallon.   (Even then, this was considerably cheaper than gasoline in other locations, such as Europe.)  The formation of OPEC, and the Arab oil embargo of 1973-74, which almost doubled the effective price of crude oil, put an end to this carefree attitude.

Since then, we have seen various steps taken by the US government, attempting to encourage the production of vehicles with better gas mileage.  One of these is the CAFE [Corporate Average Fuel Economy] standard, first enacted by Congress in 1975, which sets minimum gas mileage requirements for vehicle manufacturers, based on a sales-weighted average of fuel economy figures for a manufacturer’s current model year offerings.  This has been raised from time to time, most recently during the current Obama administration.  The car companies have certainly made technical changes, such as the use of fuel injectors in place of carburetors, that do improve efficiency;  yet, the perception is that actual gas mileage has not gotten very much better.

The MIT News Service has a report on some new research, by Professor Christopher Knittel, an energy economist in the Sloan School of Management, that sheds some light on this puzzle.  (Prof. Knittel’s paper, “Automobiles on Steroids”, has just been published by the American Economic Review.  A copy of the paper, in PDF form, is available at Prof. Knittel’s web page.)  He finds that, over the period 1980 to 2006, average fuel economy of cars sold in the US increased by a bit more than 15%.   However, fuel efficiency was not the only thing that was changing.  As has been noted many times, and is clear to anyone who has been paying attention, car buyers’ vehicle choices have also changed: we now see, and the manufacturers sell, many more minivans, SUVs, and other large vehicles.

In 1980, light trucks represented about 20 percent of passenger vehicles sold in the United States. By 2004, light trucks — including SUVs — accounted for 51 percent of passenger-vehicle sales.

Prof. Knittel estimates that, over the same 1980-2006 period, the average curb weight of new vehicles has increased by 26%, and average horsepower has increased by 107%.  He calculates that, if vehicle characteristics had remained constant over the period, fuel economy would have increased by 60%.  In other words, car buyers have taken part of the efficiency gain in the form of larger, more powerful vehicles.

Thus if Americans today were driving cars of the same size and power that were typical in 1980, the country’s fleet of autos would have jumped from an average of about 23 miles per gallon (mpg) to roughly 37 mpg, well above the current average of around 27 mpg. Instead, Knittel says, “Most of that technological progress has gone into [compensating for] weight and horsepower.”

Prof. Knittel says that, if our policy objective is to reduce gasoline consumption, in order to reduce dependence on foreign oil supplies, and to reduce the production of greenhouse gases, using a gasoline tax is a better approach than trying to manipulate consumers’ preferences.

For his part, Knittel thinks it is understandable that consumers would opt for large, powerful vehicles, and that the most logical way to reduce emissions is through an increased gas tax that leads consumers to value fuel efficiency more highly.

“When it comes to climate change, leaving the market alone isn’t going to lead to the efficient outcome,” Knittel says. “The right starting point is a gas tax.”

I think this would be consistent with the recommendations from most economists.  It is often argued that regulation is a bad thing, because it is too costly.  This is, in a certain way, nonsensical.  The good reason to impose regulation is that externalities, either costs or benefits, prevent the market from reaching an efficient solution — pollution is (literally) a textbook example.  The reason for imposing regulation is to ensure that the person making the decision to pollute also bears the cost.  A fairer criticism of regulation is that it often, in practice, tends to prescribe how an objective should be achieved, rather than focusing solely on the objective.  Increasing the gasoline tax would provide consumers with a direct economic incentive to buy more efficient vehicles.  (I have written about this before, in the context of proposals for a mileage tax.)

Using a tax, rather than further regulation, should also appeal to proponents of personal freedom.  If you wish to, and can afford it, you can drive a 1990 Lamborghini Countach, which gets less than 9 mpg, but can pass anything on the road (except a filling station).  You’ll  just have to pay a bit more for your fun.

Happy New Year! (or Years ?)

Since this is my first post of 2012, let me start by wishing all of you a very happy, healthy, and successful year.   Although this is the year, according to fans of the Mayan calendar doomsday prediction, that we will all disappear, let’s at least make it good while it lasts.

Also, by coincidence, a story at the PhysOrg site reports on a proposal by two professors at Johns Hopkins University for an overhaul of the calendar.  (Wired also has an article on this.)  The basic idea is to arrange the calendar so that a given date, such as December 25, falls on the same day of the week every year.

Using computer programs and mathematical formulas, Richard Conn Henry, an astrophysicist in the Krieger School of Arts and Sciences, and Steve H. Hanke, an applied economist in the Whiting School of Engineering, have created a new calendar in which each new 12-month period is identical to the one which came before, and remains that way from one year to the next in perpetuity.

This is accomplished by dividing the year into four identical 91-day quarters, with each quarter having two 30-day months followed by one 31-day month.   (The existing month names would presumably be retained.)  This would produce a 364-day, 52-week year.  Of course, the complication for all calendar schemes stems from the fact that the year is not an integral number of days long; a year lasts 365.2422 days.  That is why, in the existing Gregorian calendar, we have leap years.  The developers of the new calendar would handle this by inserting an extra seven-day week, after December, every five or six years, whenever the corresponding Gregorian calendar for that year would begin or end on a Thursday.  (The first few years with the extra week would be 2015, 2020, 2026, 2032, 2037, 2043, and 2048.)   Messrs. Henry and Hanke have a web site, which includes the proposed calendar and a FAQ list.  The Cato Institute has also republished a copy of an article on the calendar, originally written for Globe Asia.

The authors claim that a switch to the new calendar would produce many benefits.  For example, since there would be fixed correspondence between dates and days of the week, schedules (for academics, say) could be put together once and for all.  (It is of course true that this could be done with the existing calendar, at the cost of having ordinary and leap year versions for each of the seven possible days for January 1.)   They also claim that a significant economic benefit would accrue, because artificial day count conventions could be eliminated.  (For example, US corporate bonds traditionally have accrued interest calculated based on the “30/360″ rule: that is, all months are assumed to have 30 days, making the year 360 days long.)

I am very skeptical that this would amount to much.  I worked in the investment / banking industry for more than 30 years, and I don’t remember ever meeting anyone who saw this as a significant problem, even before the era of ubiquitous personal computers.  The interest calculation conventions are, of course, well known, and the securities are priced accordingly.  Getting rid of these conventions would simplify things somewhat, but I doubt that actual savings would be significant.  We would get rid of the requirement to handle leap years correctly, but would have to build in the logic to identify the years that have an extra week, which at first glance is of about the same complexity.

The authors also propose that the existing structure of local time zones be eliminated, and that everyone switch to using UTC time (a successor to Greenwich Mean Time).  As a practical matter, this strikes me as a bit silly.  The correspondence between UTC and local time is well-defined (I grant that Daylight Savings Time is a nuisance), and UTC is already used for many things, such as aviation, and the Internet’s Network Time Protocol.

The whole proposal, to me, is reminiscent of the periodic proposals for English spelling reform, or for replacing the standard QWERTY keyboard.  In each of these cases, there is in principle some benefit in efficiency and simplicity to be gained, but the effort involved in making the change is significant, and the switch is to some degree an “all or nothing” proposition.  I accept that English spelling is not phonetic (although not necessarily illogical), and I accept that another keyboard layout might allow faster typing.  However, I know how to spell with the current system, and I can touch type on any standard keyboard at a pretty rapid pace, so any potential benefit to me personally is small.

Probably the only way a calendar change like this could occur is with a significant push from governments, public authorities, and other large institutions.   (After all, the last calendar change, to the current Gregorian calendar, begun in 1582, had to be imposed by the Pope.)  Considering all the fuss that was made about the Y2K issue, it would probably not be easy.

That leads me to the final slightly puzzling aspect of this.  As I noted earlier, the Cato Institute has posted the article by Henry and Hanke on its Web site.  But Cato has at least a somewhat libertarian policy outlook, which it describes this way:

The Cato Institute is a public policy research organization — a think tank — dedicated to the principles of individual liberty, limited government, free markets and peace.

A wholesale change of this kind, which I think would have to be imposed “top down” in order to become anything more than an eccentricity and pet subject for cranks, seems an odd cause for Cato to take up.

Too Clever by Half ?

Earlier this summer, I posted a note here about the smart grid initiative announced by the White House Office of Science and Technology Policy.  In order to increase the proportion of our energy use supplied by renewable sources, such as wind and solar power, we need a power distribution system (the grid) that is more responsive to changes in the availability and relative cost of power, because these renewable sources are subject to natural fluctuations: some are predictable (the sun will set this evening), some (it may get really windy this afternoon) not so much.

The adoption of smart grid technology is not without its potential pitfalls.  In January of this year, the US Government Accountability Office [GAO] issued a report warning of the security risks involved.  I’ve written about some of the security concerns specific to smart electricity meters.  The MIT News site has posted a report of some new research, pointing out another potential problem with a grid that is “too smart for its own good”.

One of the potentially attractive consequences of having a smart grid is that consumers could be provided with information about the varying cost of energy throughout the day, in different seasons.  The idea is that the customer might choose to run certain energy-intensive appliances (like a clothes dryer) at off-peak times, when electricity would presumably be cheaper.  Time-varying rates (typically, cheaper at night) have been tried in some places, and have resulted in some smoothing of electricity demand.  But a really smart grid could, in principle, deliver varying price information in close to real time.

One envisioned application of these “smart meters” is to give customers real-time information about fluctuations in the price of electricity, which might encourage them to defer some energy-intensive tasks until supply is high or demand is low.

However, the MIT researchers found [paper PDF] that there is a risk of making the system too responsive.

Recent work by researchers in MIT’s Laboratory for Information and Decision Systems, however, shows that this policy could backfire. If too many people set appliances to turn on, or devices to recharge, when the price of electricity crosses the same threshold, it could cause a huge spike in demand; in the worst case, that could bring down the power grid

Although the pricing information can be delivered quickly, the utility cannot necessarily respond to changes in demand quickly.  It takes time to start up or shut down a coal- or gas-fired power plant (these restrictions are called “ramp constraints”).  Moreover, events in other markets that feature nearly real-time information show that instability is not just a theoretical concern.  The “flash crash” in the equity market in May, 2010 is one example.

The authors do find that there are some relatively simple changes to reporting mechanisms that could reduce this risk.  Their paper is highly technical, but a first step might be to present a “smoothed” price value to consumers, so that short-term fluctuations would not lead to instability.  The authors suggest that, down the road, a market with more complete information, including information on customers’ preferences, could lead to even better results.

There is still a good deal of work to be done on resolving these issues; I hope it is done before, rather than after, the smart grid is fully implemented.