The Origins of Money

Monday, April 26th, 2010

Our best information on the origins of money, David Graeber says, goes back to ancient Mesopotamia — but there seems no particular reason to believe matters were radically different in Pharaonic Egypt, Bronze Age China, or the Indus Valley:

The Mesopotamian economy was dominated by large public institutions (Temples and Palaces) whose bureaucratic administrators effectively created money of account by establishing a fixed equivalent between silver and the staple crop, barley. Debts were calculated in silver, but silver was rarely used in transactions. Instead, payments were made in barley or in anything else that happened to be handy and acceptable. Major debts were recorded on cuneiform tablets kept as sureties by both parties to the transaction.

Certainly, markets did exist. Prices of certain commodities that were not produced within Temple or Palace holdings, and thus not subject to administered price schedules, would tend to fluctuate according to the vagaries of supply and demand. But most actual acts of everyday buying and selling, particularly those that were not carried out between absolute strangers, appear to have been made on credit.

“Ale women”, or local innkeepers, served beer, for example, and often rented rooms; customers ran up a tab; normally, the full sum was dispatched at harvest time. Market vendors presumably acted as they do in small-scale markets in Africa, or Central Asia, today, building up lists of trustworthy clients to whom they could extend credit.

The habit of money at interest also originates in Sumer — it remained unknown, for example, in Egypt. Interest rates, fixed at 20 percent, remained stable for 2,000 years. (This was not a sign of government control of the market: at this stage, institutions like this were what made markets possible.)

This, however, led to some serious social problems. In years with bad harvests especially, peasants would start becoming hopelessly indebted to the rich, and would have to surrender their farms and, ultimately, family members, in debt bondage. Gradually, this condition seems to have come to a social crisis — not so much leading to popular uprisings, but to common people abandoning the cities and settled territory entirely and becoming semi-nomadic “bandits” and raiders.

It soon became traditional for each new ruler to wipe the slate clean, cancel all debts, and declare a general amnesty or “freedom”, so that all bonded labourers could return to their families. (It is significant here that the first word for “freedom” known in any human language, the Sumerian amarga, literally means “return to mother”.) Biblical prophets instituted a similar custom, the Jubilee, whereby after seven years all debts were similarly cancelled. This is the direct ancestor of the New Testament notion of “redemption”.

After science: Has the tradition been broken?

Monday, April 26th, 2010

A few months ago I finally got around to reading A Canticle for Liebowitz, in part because Bruce Charlton mentions it while discussing the scientific tradition:

The classic science fiction novel A Canticle for Liebowitz by Walter Miller portrays a post-nuclear-holocaust world in which the tradition of scientific practice — previously handed-down from one generation of scientists to the next — has been broken. Only a few scientific artefacts remain, such as fragments of electronic equipment. It turns out that after the tradition has been broken, the scientific artefacts make no sense and are wildly misinterpreted. For instance a blueprint is regarded as if it was a beautiful illuminated manuscript, and components such as diodes are regarded as magical talismans or pills.

Charlton also cites Alasdair MacIntyre’s After Virtue:

Imagine that the natural sciences were to suffer the effects of a catastrophe. A series of environmental disasters are blamed by the general public on the scientists. Widespread riots occur, laboratories are burnt down, physicists are lynched, books and instruments are destroyed. Finally a know-nothing political movement takes power and successfully abolishes science teaching in schools and universities, imprisoning and executing the remaining scientists.

Later still there is a reaction against this destructive movement and enlightened people seek to revive science, although they have largely forgotten what it was. But all that they possess are fragments: a knowledge of experiments detached from any knowledge of the theoretical context which gave them significance; parts of theories unrelated either to the other bits and pieces of theory which they possess or to experiment; instruments whose use has been forgotten; half-chapters from books, single pages from articles, not always fully legible because torn and charred.

Nonetheless all these fragments are re-embodied in a set of practices which go under the revived names of physics, chemistry and biology. Adults argue with each other about the respective merits of relativity theory, evolutionary theory and phlogiston theory, although they possess only a very partial knowledge of each. Children learn by heart the surviving portions of the periodic table and recite as incantations some of the theorems of Euclid.

Nobody, or almost nobody, realizes that what they are doing is not natural science in any proper sense at all. For everything that they do and say conforms to certain canons of consistency and coherence and those contexts which would be needed to make sense of what they are doing have been lost, perhaps irretrievably.

Charlton, as you might imagine, isn’t concerned about what might happen so much as what he believes has happened in the sciences:

A theme associated with philosophers such as Polanyi and Oakeshott is that explicit knowledge — such as is found in textbooks and scientific articles — is only a selective summary that misses that the most important capability derives from implicit, traditional or ‘tacit’ knowledge. It is this un-articulated knowledge that leads to genuine human understanding of the natural world, accurate prediction and the capacity to make effective interventions.

Tacit knowledge is handed on between and across generations by slow, assimilative processes which require extended, relatively unstructured and only semi-purposive human contact. What is being transmitted and inculcated is an over-arching purpose, a style of thought, a learned but then spontaneous framing of reality, a sense of how problems should be tackled, and a gut-feeling for evaluating the work or oneself, as well as others.

This kind of process was in the past achieved by such means as familial vocations, prolonged apprenticeship, co-residence and extended time spent in association with a Master — and by the fact that the Master and apprentice personally selected each other. The pattern was seen in all areas of life where independence, skill and depth of knowledge were expected: crafts, arts, music, scholarship — and science.
It is important to recognize that the discarding of traditions of apprenticeship and prolonged human contact in science was not due to any new discovery that apprenticeship was — after all — unnecessary, let alone that the new bureaucratic systems of free-standing explicit aims and objectives, summaries and lists of core knowledge and competencies etc. were superior to apprenticeship. Indeed there is nothing to suggest that they are remotely the equal of apprenticeship. Rather, the Master–apprentice system has been discarded despite the evidence of its superiority; and has been replaced by the growth of bureaucratic regulation.

The main reason is probably that scientific manpower, personnel or ‘human resources’ (as they are now termed) have expanded vastly over the past 60 years — probably about tenfold. So there was no possibility of such rapid and sustained quantitative expansion (accompanied, almost-inevitably, by massive decline in average quality) being achieved using the labour-intensive apprenticeship methods of the past. The tradition was discarded because it stood in the path of the expansion of scientific manpower.
It has now become implicitly accepted among the mass of professional ‘scientists’ that the decisions which matter most in science are those imposed upon science by outside forces: by employers (who gets the jobs, who gets promotion), funders (who gets the big money), publishers (who gets their work in the big journals), bureaucratic regulators (who gets allowed to do work), and the law courts (whose ideas get backed-up, or criminalized, by the courts). It is these bureaucratic mechanisms that constitute ‘real life’ and the ‘bottom line’ for scientific practice. The tradition has been broken.

A Nudge Gone Wrong

Sunday, April 25th, 2010

Sometimes a nudge goes wrong:

The notion of illusory superiority — the misguided belief that we’re better than others — is a basic tenet of social psychology. In one early study, 93 percent of Americans rated themselves as better than average drivers (as compared with 69 percent among the more modestly deluded Swedes in the sample). It’s also one of the quirks of human behavior that best-selling author Robert Cialdini is exploiting to get us to behave better. In one academic study, Cialdini and his co-authors found that simply telling hotel guests that a majority of other guests reused their towels boosted reuse rates by 34 percent more than telling them to do it for the sake of the environment. Cialdini is now retired from his academic position at the Arizona State University and is working as chief scientist at Opower, a company that aims to make money by helping utility companies design social nudges to get their customers to conserve.

In early 2008, Opower collaborated with a California utility to send a Home Energy Report to 35,000 randomly selected customers. (It came bundled with the household’s regular energy bill.) Each report contained a bar depicting the household’s energy use alongside bars showing consumption for average neighbors and also “efficient” ones. The principle behind highlighting the household’s own use relative to its neighbors is the same as in Cialdini’s towel study — no one wants to be worse than average. In addition, Opower reinforced the household’s performance by awarding one or two smiley faces for good households and adding the words “ROOM TO IMPROVE” to the charts of energy gluttons. (The reports also included a few energy-saving tips and suggested what customers might save if they followed them.)

In a study evaluating the program’s effectiveness, Opower researchers compared power use before and after the HER reports began arriving, and further compared this change with a group of control households that never received the reports. On average, the HER households reduced their consumption in the months that followed by a little less than 2 percent. Not bad, but probably not enough to save the planet.

Working with the same utility as Opower, Costa and Kahn matched up information on the households in the pilot study to data on political affiliations and a database of past charitable giving to environmental organizations. The economists found that the 2 percent average decline in energy use obscured significant differences in the responsiveness of different types of households to the conservation message. Registered Democrats who give to environmental organizations and live near other liberals reduced their consumption by 3 percent. For liberals who started out as heavier-than-average consumers, the reduction was almost 6 percent. Republicans who live in conservative neighborhoods (and hence had no neighborly pressure to conserve) and had no record of giving to environmental organizations actually increased their consumption by 1 percent.

Why would some energy-conscious Republicans all of a sudden become power hogs? One explanation is that many conservatives don’t believe that burning energy harms the planet, so when they learn that they’re better than average, they become less vigilant about turning the lights off. That is, they’re simply moving closer to what they now know is the norm (what psychologists call the boomerang effect). Costa and Kahn also look for guidance from the patron saint of right-wing fundamentalists, Rush Limbaugh, who encouraged his listeners to turn on all their lights during Earth Hour. Costa and Kahn suggest that ardently right-wing electricity customers might respond to paternalistic nudges by burning more energy, just to thumb their noses at Big Brother.

DIY Plane Repair

Sunday, April 25th, 2010

A chartered pilot and a fisherman left a cooler and bait in the plane. A bear smelled the food and destroyed the plane getting to it.  So the pilot radioed for three cases of duct tape and some sheet plastic, and they went to work on some DIY plane repair:

They were able to fly the plane home. A few commenters don’t seem surprised. Elambend says that his dad once used duct tape to patch a (much smaller) gash on the tip of his wing:

He referred to it as “500 mile per hour” tape. Supposedly, this was the maximum speed to which duct tape would adhere. He may have been pulling my leg on that bit.

M. Brueschke links to an article about how duct tape is used on commercial aircraft all the time:

Heck, it’s been used on the moon. [...] That plane isn’t going to fly much faster or higher than canvas aircraft did in the First World War and I’ll trust aviation tape and plastic sheeting over 1915 era doped canvas.

Thomas adds that this is exactly what duct tape was created for:

It was invented by the US Army Air Corps in the WWII era as a way to field-patch damaged aircraft.

Personally, I’ll fly in virtually any aircraft, no matter how questionable. I’m a trained skydiver and I can get down on my own.

How to End America’s Addiction to Oil

Sunday, April 25th, 2010

Former CIA director R. James Woolsey shares some oil factoids:

At the end of March, oil posted its fifth consecutive quarterly price increase: It’s now solidly above $80 per barrel. If it reaches $125 a barrel again, as it did in 2008, then approximately half the wealth in the world — above and below ground — will be controlled by OPEC nations.

Oil dominates transportation: About 95% of transportation fuel in the U.S. is derived from petroleum. And over three-quarters of the world’s reserves of conventional oil are in OPEC nations. But OPEC is pumping less than it did in the 1970s, despite a doubling in global demand, because it’s a cartel maximizing its income. OPEC sets oil’s price at a level that exploits our addiction but is generally not high enough for long enough that we go cold turkey.

Oil profits enhance the ability of dictators and autocrats to dominate their people. This is one reason that eight of the top nine oil exporters (Norway is the exception) are dictatorships or autocratic kingdoms, as are virtually all of the 22 states that depend on oil and gas for at least two-thirds of their exports.

Saudi Arabia’s oil wealth enables it to control around 90% of the world’s Islamic institutions even though it has less than 2% of the world’s Muslims. So the teaching in most Islamic schools is not the tolerant form of Islam associated with the late Indonesian President Abdurrahman Wahid. These schools teach Saudi Wahhabi doctrine — fundamental hostility to Shiites, Jews, homosexuals and apostates; oppression of women; and the pursuit of a global caliphate, or theocratic dictatorship. This doctrine bears startling resemblance to the substantive teachings of the Taliban and al Qaeda (although of course they and the Wahhabis disagree passionately about who should have power). The effect is that we now are financing both sides in our war with radical Islam.

Because OPEC has very large reserves and cheap extraction costs, the cartel can fend off competition from costly alternatives — so Woolsey recommends just such costly alternatives: improved internal-combustion vehicles, natural-gas vehicles, flex-fuel vehicles, and electric vehicles.

What he doesn’t suggest is a gas tax, which would transfer “excess profits” from the OPEC cartel to the US government, without increasing the price at the pump all that much:

The result is a simple application of the theory of tax incidence. The burden of a tax falls on those who can least afford to escape the tax. The world’s demand for oil is inelastic but the supply is even more inelastic. What is Saudi Arabia, for example, going to do with its oil except sell it? The oil is already fetching a price well above cost so if there is a world tax on oil that’s like a tax on land — Saudi Arabian land to be precise — and a tax on land is born by land owners not by consumers.

The Limits of Power

Saturday, April 24th, 2010

Thomas Sowell discusses the limits of power:

When I first began to study the history of slavery around the world, many years ago, one of the oddities that puzzled me was the practice of paying certain slaves, which existed in ancient Rome and in America’s antebellum South, among other places.

In both places, slave owners or their overseers whipped slaves to force them to work, and in neither place was whipping a slave literally to death likely to bring any serious consequences.

There could hardly be a greater power of one human being over another than the arbitrary power of life and death. Why then was it necessary to pay certain slaves? At the very least, it suggested that there were limits to what could be accomplished by power.

Most slaves performing most tasks were of course not paid, but were simply forced to work by the threat of punishment. That was sufficient for galley slaves or plantation slaves. But there were various kinds of work where that was not sufficient.

Tasks involving judgment or talents were different because no one can know how much judgment or talent someone else has. In short, knowledge is an inherent constraint on power. Payment can bring forth the knowledge or talent by giving those who have it an incentive to reveal it and to develop it.

Payment can vary in amount and in kind. Some slaves, especially eunuchs in the days of the Ottoman Empire, could amass both wealth and power. One reason they could be trusted in positions of power was that they had no incentive to betray the existing rulers and try to establish their own dynasties, which would obviously have been physically impossible for them.

At more mundane levels, such tasks as diving operations in the Carolina swamps required a level of discretion and skill far in excess of that required to pick cotton in the South or cut sugar cane in the tropics. Slaves doing this kind of work had financial incentives and were treated far better. So were slaves working in Virginia’s tobacco factories.

The point of all this is that when even slaves had to be paid to get certain kinds of work done, this shows the limits of what can be accomplished by power alone.

His punchline:

Yet so much of what is said and done by those who rely on the power of government to direct ever more sweeping areas of our life seem to have no sense of the limits of what can be accomplished that way.

Polio Is Spreading

Saturday, April 24th, 2010

Polio is spreading across Africa, despite the $700 million Bill Gates has spent trying to eradicate the disease once and for all — for reasons like this:

In 2003, Islamic leaders in northern Nigeria spread rumors that polio vaccines sterilized Muslim girls. Leaders halted vaccinations, allowing the virus to spread. The WHO said the virus eventually infected 20 countries.

Donors prefer the “vertical” strategy of targeting specific diseases, like smallpox, which was wiped out in 1979.

Third World leaders prefer a “horizontal” strategy, where they receive large sums of money to improve their entire health-care system. This seems to appeal to journalists too, but I don’t recommend it for countries in a Malthusian Trap.

Last Call

Friday, April 23rd, 2010

Tyler Cowen reviews Daniel Okrent’s Last Call: The Rise and Fall of Prohibition, which explains why Americans decided to endure a ban on alcohol:

The introduction of the income tax made Prohibition fiscally feasible. Women’s suffrage made it politically feasible. World War I created a surfeit of patriotism, a willingness to sacrifice, and an embrace of the expansion of federal power. By 1920 everything was in place for a bold new government intrusion into everyday life.
At the same time as temperance was flowering, so were crusades for clean water and sanitation, which saved millions of lives. Alcohol, seen as a major scourge of civil society, looked ripe for a once-and-for-all ban that would put mankind on a new course. “Figuring per capita,” Okrent writes, “multiply the amount Americans drink today by three and you’ll have an idea what much of the nineteenth century was like.”

New Deadly Fungus Found in Oregon

Friday, April 23rd, 2010

A new, deadly fungus, Cryptococcus gattii, has already killed six Americans, in Oregon:

The new strain is of the species Cryptococcus gattii, an airborne fungus native to tropical and subtropical regions, including Papua New Guinea, Australia, and parts of South America. An older strain of the fungus was frst detected in North America in British Columbia, Canada, in 1999.

No one knows how the species got to North America or how the fungus can thrive in a temperate region, experts say.

“The alarming thing is that it’s occurring in this region, it’s affecting healthy people, and geographically it’s been expanding,” said study co-author Edmond Byrnes, a graduate student at the Joseph Heitman Lab at Duke University.

Less common than bacterial and viral infections, fungal diseases usually strike people with weakened immune systems — part of what makes the recent deaths of otherwise healthy people in Oregon so worrisome.

People can become infected with Cryptococcus gattii by inhaling the microscopic organisms — and there’s not much you can do about it.

There’s no vaccination or other preventative measure available for the new strain, though the infection can be treated with antibiotics, the study says. [...] On a positive note, fungal infections, unlike viruses, can’t be passed from person to person.

The study appears in PLoS Pathogens.

Progressive Conservatism

Friday, April 23rd, 2010

David Brooks describes his philosophy as progressive conservatism

It starts with the wisdom of Edmund Burke — the belief that the world is more complex than we can know and we should be skeptical of handing too much power to government planners. It layers in a dose of Hamiltonian optimism — the belief that limited but energetic government can nonetheless successfully enhance opportunity and social mobility.

To the chagrin of such a centrist, politics has become more polarized than ever:

The administration came into power at a time of economic crisis. This led it, in the first bloom of self-confidence, to attempt many big projects all at once. Each of these projects may have been defensible in isolation, but in combination they created the impression of a federal onslaught.

One of the odd features of the Democratic Party is its inability to learn what politics is about. It’s not about winning arguments. It’s about deciding which arguments you are going to have. In the first year of the Obama administration, the Democrats, either wittingly or unwittingly, decided to put the big government-versus-small government debate at the center of American life.

Just as America was leaving the culture war and the war war, the Democrats thrust it back into the government war, only this time nastier and with higher stakes.

This war is like a social script. Once it was activated, everybody fell into their preassigned roles.

Addendum: Matt Welch of Reason re-phrases Brooks’ point:

David Brooks: It’s a Pity We Didn’t Drive a Stake Through Barry Goldwater’s Dead Heart When We Had the Chance

Not Really Simple

Friday, April 23rd, 2010

The problem with the simplicity movement, Charlotte Allen says, is that its proponents — namely the writers in Real Simple magazine — mistake simplicity, an aesthetic lifestyle choice, for humility, a genuine virtue:

Genuine simple-living people —  such as, say, the Amish — are not part of the simplicity movement, because living like the Amish (no iPod apps or granite countertops, plus you have to read the Bible) would be taking the simple thing a bit far. Modern simplicity practitioners like Jesus (although not quite so much as they like Buddhist monks, who dress more colorfully) because he wore sandals and could be said to have practiced alternative medicine, but they mostly shun religious movements founded in his name.

Thus, simplicity people are always eager to tell you how great the Amish are, growing their own food (a highly valued trait among simplicity people), espousing pacifism (simplicity people shy away from even just wars), and building those stylishly spare barns (aesthetics rank high in the simplicity movement), but really, who wants to have eight kids and wear those funny-looking hats?

For similar reasons, genuinely poor people don’t qualify for the simplicity movement, mostly because of their awful taste in everything from beer to bling to American Idol. Tattoos, flatbill caps, Ed Hardy T-shirts, and chin piercings are not the stuff of the fashion pages in Real Simple.

Hunting is usually taboo in the simplicity movement because it involves guns (hated by the professionally simple) and exploitation of animals (ditto). However, if you’re hunting boar in the upscale hills ringing the San Francisco Bay so as to furnish yourself a “locally grown” boar paté, as does Berkeley professor and simplicity movement guru Michael (The Omnivore’s Dilemma) Pollan, or perhaps to experience an “epiphany,” as another well-fixed Bay Area boar hunter recently told the New York Times, you’re doing a fine job of returning to the simple life.

Simple doesn’t come cheap:

In their 2007 book, Plenty, Alisa Smith and James MacKinnon, who had vowed to spend a year sticking to the 100-mile locavore eating radius (and, as freelance writers, had plenty of time to put together meals that lived up to this promise), discovered that they were spending $11 per jar on honey to substitute for $2.59 sugar and that one of their locally foraged dinners cost them $130 and more than a day to prepare.

(Hat tip to Foseti.)


Friday, April 23rd, 2010

When it comes to useful skill and ability, Aretae reminds us, practice, practice, practice goes a long way — especially when the goal is competence, rather than winning one of a few select spots at the top of the hierarchy.

But then he mentions programming, and I can’t hold back:

When the question is can you write software?, the answer — for the vast majority of people — is no.

In fact, if the question is will you ever be able to write decent software?, the answer is no, never-ever.

We can easily test to see who has the potential to learn programming, and who doesn’t — the non-programmers for whom you might as well be teaching Chinese to a monkey.

I would go so far as to say that programming appears wholly unnatural for neurotypical humans — even sharp ones.

Enjoy the whole back-and-forth exchange.

The Only Thing That Can Stop This Asteroid is Your Liberal Arts Degree

Friday, April 23rd, 2010

The only thing that can stop this asteroid is your liberal arts degree:

I don’t need some pencilneck with four Ph.D’s, one-thousand hours of simulator time, and the ability to operate a robot crane in low-Earth orbit. I need someone with four years of broad-but-humanities-focused studies, three subsequent years in temp jobs, and the ability to reason across multiple areas of study. I need someone who can read The Bell Jar and make strong observations about its representations of mental health and the repression of women. Sure, you’ve never even flown a plane before, but with only ten days until the asteroid hits, there’s no one better to nuke an asteroid.

I’ve seen your work and it’s damn impressive. Your midterm paper on the semiotics of Band of Outsiders turned a lot of heads at mission control. Your performance in Biology For Non-Science Majors was impressive, matched only by your mastery of second-year Portuguese. And a lot of the research we do here couldn’t have happened without your groundbreaking work on suburban malaise and its representation and repression in John Hughes’ films.

I don’t know who Michael Lacher, the writer, is, but I like the cut of his jib.

Japanese Typewriters

Thursday, April 22nd, 2010

With several thousand characters to contend with, how were the Japanese able to use typewriters before the advent of digital technology?

The answer is the kanji typewriter, which was invented by Kyota Sugimoto in 1915. This invention was deemed so important that it was selected as one of the ten greatest Japanese inventions by the Japanese Patent Office during their 100th anniversary celebrations in 1985.

The kanji typewriter used separate metal pieces as strikers, somewhat like movable type. They were arranged in a grid in the tray beneath the typewriter:

One of the things that made the typewriter difficult to use was getting the strike lever force correct. If struck with even just regular force, characters such as decimal points or punctuation would pierce the ribbon and paper, becoming stuck in the rubber platen. On the other hand, very complex characters required striking with additional force to compensate for the large surface area of the typeface. This combined with the huge number of characters (which makes hunt and peck typing on a QWERTY keyboard seem trivial) meant that only experienced operators could use these typewriters.

Adopting a Lifestyle Brand

Thursday, April 22nd, 2010

On some level, Keith Yost says, it is hard not to sympathize with the Emiratis of Dubai:

The executives I met all showed pictures of their youth, reminding me that just a few decades ago, their country was nothing more than sand, tents, and simple stone. Maybe they held on to the pictures to impress upon me the great progress Dubai has made, maybe they held on to them to reassure themselves that life would go on even if they had to return someday to their tents. Personally, I took the pictures as a reminder that the men running Dubai’s gargantuan companies had been given an upbringing that could not prepare them corporate management. I could criticize, but I had the benefit of rigorous secondary and college education. Had I shared their circumstances, could I have done any better than them, and if not, how much blame could I really place on their shoulders?

Nonetheless, whatever disadvantages Dubai’s natives may suffer from, my judgment is that their failures were entirely avoidable. I am not convinced that they were well-intentioned or trying their best. My impression of the average Emirati businessman varies between apathetic and self-important. They are running businesses much in the same way a teenager would buy clothes with a swoosh on them — they aren’t trying to generate profits so much as they are adopting a lifestyle brand. Their empires are not built for power, they are built for image. When you are born with everything, the one thing that you cannot buy is the sense that you earned your status. But it is counter-productive to try and scrub off the image that you lucked your way into wealth — trying to overstep one’s limitations only highlights them.

Perhaps it is too late for Dubai. Their oil reserves are gone, and depending on the seriousness of their financial troubles, so too might be much of the money they made from the past sale of oil. But for Dubai’s neighbors, such as Abu Dhabi, who still have seas of petroleum at their command, the collapse may prove to be a teachable moment.

Abu Dhabi needs to review the business case for locating industry in the UAE. Labor is not cheap — there is little of it natural to the area, and that which is imported (both of the skilled and non-skilled variety) typically costs three times more than what it would cost in its native country. Energy is not cheap — lacking coal or dammable rivers, the UAE is powered by natural gas, itself often imported from neighbors like Qatar or Saudi Arabia at high cost. Equipment, buildings, and other capital are no cheaper in the UAE than elsewhere — indeed, if anything the relatively harsh environment is more costly to build and operate in. Water and food supplies are more expensive. Even the things that the UAE has in spades, sun and sand, are no great benefit — solar insolation is impeded by the frequent presence of dust clouds, and the sand is unsuitable as a feedstock for silicon or glass production. The one natural resource available is oil, and the ease of transporting that liquid makes it easier to locate industry elsewhere and export the crude.

The basis for Dubai’s “ambition” seems little more than an optimistic interpretation of New Trade Theory. Much as Silicon Valley has established itself as high technology cluster, and New York has become a finance hub, Dubai hoped that through the might of its wealth it would become a world center for something and maintain its position through inertia and network effects rather than natural advantages. Even if this strategy were feasible (and there is much to suggest that it is not), it was executed poorly — Dubai made little attempt to understand the clustering phenomenon it hoped to take advantage of, invested in a scattershot manner, and left its holdings to be managed incompetently.