Archive for December, 2007|Monthly archive page

Pharmaceutical Crackup?

The Wall Street Journal has a great article about the big players in the pharmaceutical industry, showing how it is dealing with its lack of progress in developing new drugs — by more intensive marketing, taking over smaller, more innovative companies, and laying off workers. Even so, Wall Street is looking forward to lower profits.  Here is the article and another one on layoffs in the industry. Continue reading

Does Wall Street Lead to Socialism?

It is fun to push Brad Setser’s words to suggest that socialism (not real socialism, but the way the public understands it — public ownership) may be the ultimate outcome of finance capital.

Brad Setser (December 06, 2007)

“It wasn’t all that long ago that Wall Street — Citi bankers included — were scouring the emerging world for state-owned companies that could be sold to private investors in the US and Europe. Now the world’s investment bankers seem to be scouring the US and Europe for private assets that can be sold to government investment funds and state-owned companies in the emerging world.

Privatization is out. Selling private companies – or big chunks of a private company — to another country’s government (partial renationalization?) is in.”

Destroying Science in a Helium Balloon

A few years ago I published a book The Perverse Economy: The Impact of Markets on People and Nature (NY: Palgrave, 2003), which included a short discussion about the dangers created by the right wing of obsession about privatizing helium. The Wall Street Journal just published an article confirming my speculations, that the privatization represents a major threat to science. Campoy, Ana. 2007. “As Demand Balloons, Helium Is in Short Supply.” Wall Street Journal (5 December): p. B 1.

What follows is first the extract from my book, and then the article itself:


No matter that present values are generally illusory. Present value calculations serve a vital purpose for economic theory. Once the world is reduced to present values, economists can treat the world as if the future does not exist: each decision becomes a once-and-for-all choice without any regard for the future other than what the price system was already signaling.

Concerns about resources have no place within this framework. If a real danger of resource scarcity were looming on the horizon, markets would recognize that fact. The price structure would induce firms to take action by economizing on the resource and by developing alternatives.

The treatment of the national helium reserves illustrates this troubling relationship between discounting and scarcity. Helium is a remarkable substance. Because it is inert, it does not combine with other substances. Because of its perceived military importance in dirigibles, during the 1920s the United States began to collect helium under a federal monopoly.

Helium has properties other than being lighter than air. No other element can reach the low temperature of liquid helium. This property makes it useful in a broad array of high-tech industrial, research, and medical technologies, such as fiber-optic cables and magnetic-resonance imaging systems (National Research Council 2000).

The government later established a facility in Texas to store crude helium (National Research Council 2000). The Texas location is not accidental. Although atmospheric helium is plentiful, it is dispersed. Extracting this helium from the air is a very expensive proposition since only minute quantities of helium exist within a fairly large volume of air.

The sedimentary rocks that form the gas carry about one part per million of uranium. According to Kenneth Deffeyes, “During the slow decay to lead, each uranium atom spits out six to eight alpha particles. An alpha particle in physics is identical to the nucleus of a helium atom in chemistry. The helium gas that we put in party balloons is simply used alpha particles” (Deffeyes 2001, p. 66).

In contrast to its dispersion in the atmosphere, helium in natural gas deposits is relatively concentrated. Some natural gas deposits have helium concentrations as high as 8 percent, making them the most economical source of this element (National Research Council 2000, p. 40). Separating helium from natural gas costs only about 1/1000 as much as obtaining it from the atmosphere (Koopmans 1979).

In 1960, Congress amended the Helium Act, which had originally authorized the helium depository. This new legislation eliminated the federal monopoly of helium, although the Bureau of Mines continued to collect helium. Several companies in the United States entered the market to collect and sell the gas. These companies sold their excess helium to the federal government, which stored it in the National Helium Reserve in Texas.

Private consumption of helium reached a low point in the 1970s, even though private production was still vigorous. As a result, the government continued to accumulate more helium in the reserves until around 1980. With the build-up of federal stockpiles, conservatives singled out the helium reserves as a particularly egregious example of government waste (see Stroup and Shaw 1985). Christopher Cox, the California Congressman who led the fight to privatize helium labeled the reserve: “The poster child of Government waste” (Verhovek 1997).

In 1996, Congress eliminated the National Helium Reserve, leaving the management of helium to the free market and the likes of Enron, Exxon, and Panhandle Eastern Corporation. Well, not exactly, the free market. The law required that the government dispose of its helium over a couple of decades to prevent privatization from decreasing the price that the private producers charge. The promised cost savings have yet to appear.

The American Physical Society, a prominent group of physicists, has warned that the privatization plan is dangerous, because it has no requirement that a large stockpile will be maintained (Verhovek 1997; Powell 1996). Helium demand is now increasing at about 10 percent per year. The supply may be largely depleted by 2015, the date by which Congress proposes to phase out the reserve.

Indeed, a federal report says that the current trends indicate that shortages will appear within less than 20 years, unless private business develops new technologies. However, these experts are confident that business will somehow meet the challenge, although they give no indication of what this new technology might be (Natioal Research Council 2000).

Discounting Helium

The helium story is interesting in several respects, especially, taken in conjunction with the role of natural gas. As is well known, natural gas is probably the least environmentally destructive fossil fuel. Of course, the consumption of natural gas is not without problems, over and above the damage involved in moving it from its natural state to the place where it is ultimately burnt. In addition to obvious costs of the depletion of the gas itself and the contribution to global warming, the careless consumption of natural gas causes the dissipation of helium.

In this sense, the helium story brings us back to the theme of extraction versus production, but with a twist. Ironically, this same helium, which is being squandered because of the inattention to storing it for the future may well prove to be a vital part of high technology that could possibly lead to significant savings in energy, including natural gas.

In addition, the helium story serves as a useful reminder of the complex pathways of cause and effect typical of most environmental systems. Push in any direction and unexpected consequences crop up. In contrast, the contemporary profit system works with an appallingly simple mindset. Here is a resource that can benefit some corporations. Give it to them to exploit without much thought about the ultimate consequences.

The economist who may have given the most attention to the question of helium is the late Tjalling Koopmans, whom I noted in the discussion of hyperbolic discounting. Koopmans was a distinguished theoretical economist and winner of the 1975 Nobel Prize in economics. He proudly associated himself with the study of pure economics. He violently denounced those economists who relied on empirical data, without first carefully situating it in abstract theory (Mirowski 1989b). He was so fanatically committed to abstract economic theory that he even “seriously opposed … fine writing in economics, not a common crime in our field. According to his code of scientific honor, mere elegance must not give ideas an unfair boost” (Samuelson 1989).

In 1978, Koopmans delivered the presidential address to the American Economic Association (Koopmans 1979). His lecture concerned the difficulties that economists had in communicating with natural scientists. Koopmans was not speaking out of ignorance of the ways of natural science. In fact, he had earned a degree in quantum physics. Koopmans explained to a meeting of the American Physical Association in 1979 that he initially decided to switch from physics to economics because he “felt the physical sciences were far ahead of the social and economic sciences” (cited in Mirowski 2002, p. 251).

By the time that he gave his lecture, Koopmans seemed to think that economics had advanced to the point where he could confidently recommended that scientists learn to accept the economists’ approach.

In effect, harkening back to Adam Smith’s account of the complex production process behind the appearance of a single coat, Koopmans attributed a superiority to economics over natural science. Whereas a scientist might be inclined to think of a helium policy in terms of the use or the production of helium, the economist uses monetary values to capture the systemic ramifications of a helium policy. In Koopmans’s words:

In the present context, an important trait of the neoclassical (economic) model is that it does not postulate one sole primary resource, be it labor, energy or any other, whose scarcity controls that of all other goods, and which thereby becomes a natural unit of value for all other goods. [Koopmans 1979, p. 7]

Instead, as Lionel Robbins observed in his influential study of economic methodology, the economy is a “complex of ‘scarcity relationships'” (Robbins 1969, p. 19). Within this context, prices take into account a wide array of factors, rather than a single objective, such as the conservation of helium.

In his address, Koopmans related his experience working on the report to the Helium Study Committee of the National Research Council. Most of Koopmans’s discussion of helium merely dealt with technical questions regarding the supply and the extraction of helium. The one point that Koopmans kept returning to was the scientist’s insistence that “Btu’s are the same everywhere and at all times” (Koopmans 1979, p. 8). Koopmans wanted to teach the scientists that discounting future benefits, which lay behind the calculations justifying privatization, was rational.

Even if you grant the importance of discount rates, nobody knows how to select the appropriate discount rate for determining whether or not responsibility for collecting and storing helium should be privatized. Some discount rates would have been consistent with privatization. Other lower rates would not. Koopmans never mentioned how to decide on the correct discount rate. Nor did Koopmans indicate that he had any inkling of the possibility of hyperbolic discounting. In fact, the absence of an adequate theory of discounting represents a major challenge that stands in the way of the scientific aspirations of economists.

Tjalling Koopmans, the National Research Council, and most economic and political forces aligned themselves against those who express any concerns about sustainability. Presumably, if a problem occurs, they proposed that the resulting profit opportunities will create sufficient incentives to generate a solution. Their proposed solution is not sustainable, but instead an outcome in which the system efficiently maximizes discounted present values. Unfortunately, they did not have a clue as to what that discount rate should be.


Syracuse University physicist Gianfranco Vidali spends most of his time studying how molecules are made in outer space, but a couple of months ago he abruptly dropped his interstellar research to address an earthly issue: the global shortage of helium.

The airy element best known for floating party balloons and the Goodyear blimp is also the lifeblood of a widening world of scientific research. Mr. Vidali uses the gas, which becomes the coldest liquid on earth when pressurized, to recreate conditions similar to outer space. Without it, he can’t work. So when his helium supplier informed him it was cutting deliveries to his lab, Mr. Vidali said, “it sent us into a panic mode.”

Helium is found in varying concentrations in the world’s natural-gas deposits, and is separated out in a special refining process. As with oil and natural gas, the easiest-to-get helium supplies have been tapped and are declining. Meanwhile, scientific research has rapidly multiplied the uses of helium in the past 50 years. It is needed to make computer microchips, flat-panel displays, fiber optics and to operate magnetic resonance imaging, or MRI, scans and welding machines.

The technology explosion is sucking up helium supplies at dizzying rates. U.S. helium demand is up more than 80% in the past two decades, and is growing at more than 20% annually in developing regions such as Asia.

“We’ve not seen the supply and demand at this imbalance in the past. We’re running on the edge of the supply-demand curve,” says Jane Hoffman, global helium director for Praxair Inc.

Supplies in the world’s largest helium reserve near Amarillo, Texas, are expected to run out in eight years. Finding and developing new helium sources will take years and millions of dollars in investment.

Glitches at some of the world’s biggest helium-producing plants have put a further pinch on supplies in the past year. As supplies have tightened, prices have surged in recent months. For one New York laboratory, prices have increased to $8 a liquid liter, from close to $4 at the end of the summer.

The upshot: Helium users — from party planners to welding shops — are having to do with less. Large industrial manufacturers are better able to weather the helium shortage, taking steps like installing equipment that can recycle the gas. So it is the nation’s cash-strapped scientific community that is getting the worst of the crunch.

Soaring helium expenses could shut the doors of some independent labs, many which have produced important research over the years, and slow down work at bigger research centers. Helium is used in research to find cures to deadly diseases, create new sources of energy and answer questions about how the universe was formed.

Helium is essential to cool the magnets in nuclear magnetic resonance, or NMR, instruments used to map the chemical structure of molecules. Dale Ray, from The Cleveland Center for Structural Biology, an association that groups researchers from several institutions, says he is considering selling or shutting down two machines at the NMR lab he manages. The increase in helium prices is making it unaffordable to run the equipment, which is used to study proteins responsible for Alzheimer’s disease, among other things.

Physicists are particularly affected by the helium shortage because their equipment requires more frequent helium refills. After experiencing interruptions in his helium deliveries, Moses Chan, a physicist at Penn State, launched a poll among his colleagues to find out how widespread the problem was. The results: the majority of helium users at 26 different institutions experienced canceled deliveries at least once, as well as price increases, some of them as much as 100%.

Myriam Sarachik, a physicist at City University of New York, might have to shut down her research. Among other things, Ms. Sarachik studies new materials that could bring a quantum leap in computing capabilities. Helium now absorbs most of her lab’s budget, leaving little extra for everything else.

“I’m going to retire. That’s the handwriting on the wall,” says Ms. Sarachik, who has been doing experiments with helium for more than 40 years.

For one project, Ms. Sarachik and her students use 150 liters of liquid helium a week to cool the inside of a four-feet-high metal vessel to temperatures close to zero degree Kelvin, or about minus 459 Fahrenheit. Inside, they place tiny samples of materials mounted on chips and send electric currents to measure their properties. Without the helium, it would be impossible to monitor how the electrons respond because their behavior is masked by heat vibrations.

The National High Magnetic Field Laboratory, home of the world’s strongest magnets, also is being affected. Hundreds of scientists travel from all over the world to Tallahassee, Fla., to use its magnets. They use the lab free of charge, but pay for their helium consumption. Many of them are on a very tight budget. To keep them coming, lab director Greg Boebinger will allocate $300,000 of his own tight budget to offer free helium.

“They need whatever relief we can provide,” he says. “If they stop coming we’re dead in the water.”

There are a few helium projects scheduled to come on line in the next couple of years, but experts predict supplies will remain tight in coming years. Despite its higher prices, helium isn’t expensive enough yet to warrant projects devoted to its extraction, so it must piggyback on investments made by natural-gas producers.

Additionally, the biggest helium reserve in the world, which is operated by the U.S. government, is in steady decline. Stored in a depleted natural-gas cavern known as the Bush Dome near Amarillo, it supplies 35% of the helium consumed in the world. The government started the reserve in 1925, but by the mid-90s decided to sell it to pay off debt it incurred from stockpiling helium over the years.

Under law, the entire contents of the Bush Dome should be sold by 2015. Helium is very expensive to store because, like a stranded party balloon, it floats up and disappears into the atmosphere. As a result, there is little storage capacity for the gas. Virtually all helium is processed and shipped to its final user as soon as it is extracted from the ground. Once the Bush Dome reserve is gone, there will be no stored helium to supply the market in case of disruptions at production facilities, making for even spottier deliveries and higher prices.

Experts predict this situation will eventually price out many helium users, who will find substitutes or modify their technology. Some party balloon businesses are filling balloons with mixtures that contain less helium. Some welders are using argon. Industrial users are installing recovery systems. In places where helium isn’t easily available, like India, scientists already focus on experiments that can be done using liquid nitrogen, says Michael Cuthbert, a sales manager for Oxford Instruments, a company that sells scientific instruments all over the world.

Reem Jaafar, a researcher at Ms. Sarachik’s lab at CUNY, says she will go into another area of physics if helium prices stay at their current levels. “If you have a fixed amount in a grant, and you have to spend it all on helium, you don’t have anything left over,” she says.

NAFTA Suits Against Governments

This article supports the NAFTA clause that lets foreign firms sue the US governments for redress of trade wrongs. The story is especially interesting because it shows how down and out people may enjoy punishing corporations. The author obviously sympathizes with the Canadian firm, but the story of the trial is entertaining. The Canadian firm was totally outlawyered and maybe even treated unfairly, but if it wins, the precedent will be terribly destructive. Continue reading

On the proper way to learn economics

vi: “We have not succeeded in answering all our problems.  The answers we have found only serve to raise a whole set of new questions.  In some ways we feel we are as confused as ever, but we believe we are confused on a higher level and about more important things.”

Posted outside the mathematics reading room, Tromse University

Oksendal, B., 2007. Stochastic Differential Equations (New York: Springer).

The Elite Universities Play Pacman with the Educational System

Continuing with the discussion of elite universities, Business Week reports on the difference between elite universities and the rest. With massive endowments and donations from the wealthy, these schools can poach the most promising or famous faculty with bloated salaries, while Stanford can provide a nice stable for students to keep their horses and Princeton can build a luxurious mansion/dorm. At the same time, public universities fall further behind. Continue reading

The Ethics of Elite Professors

I just read a fascinating study of the way Harvard professor (especially Dershowitz) rely on untrained assistants to do their work for them to allow the elite academics become public intellectuals, while doing shoddy work.

Russell, Jacob Hale. 2007. “A Million Little Writers.” 92138 (November/December): p. 78.