Sunday, December 7, 2008
Sand Castles
I live in Massachusetts; we must have a gazillion sandy beaches. Lots of rocky ones too. Kids of all ages build sand castles wherever they can. Economically minded kids build elaborate sand castles above the high tide line. Kids like this don't want their precious work to wash away at the next high tide. Many kids, however, don't mind seeing their work wash away. The ephemeral may fascinate them. Maybe they are not aware of how the tide and erosion work. Or, they think someone will help them to rebuild.
Some of the best sandy beaches in Massachusetts are on barrier beaches. Barrier beaches are stretches of sand that are moved around by the waves and tides. Some barrier beaches are small, perhaps a few hundred yards long. Some, are miles long and quite wide: just big enough to build lots of houses on.
Building a home on a barrier beach is just like building a sand castle. Some barrier beaches in Massachusetts move hundreds of feet in a century. Some have holes or breaches punched through them in a single storm. Any home built on a barrier beach is in jeopardy from wind, waves, storms and ordinary erosion. It is just a matter of time before the beach moves and the home is lost.
No barrier beach is a safe place for substantial real estate investment.
A Massachusetts barrier beach named Plum Island has been in the news a lot lately. A small storm at high tide caused the erosion that led to the dramatic loss of one home. The pictures of the home tumbling over the eroded sand dune were dramatic and wrenching. The unfortunate homeowner lost all her possessions and the real estate her home was built on. She was bereft. The town, mindful of public safety, later condemned other homes in danger of falling over the edge. I imagine those homeowners were outraged.
The town later bulldozed beach sand to reinforce the eroding dune against further catastrophic erosion. This was an attempt to save other homes that might be in imminent danger.
Reinforcing a barrier beach that is subject to active erosion in small storms and relatively ordinary high tides is not practical, economic, or public safety oriented thinking. Just like a sand castle built below high tide, the reinforcing sand will wash away. It may take some time. Maybe the sand will last a few weeks or a few years, but it will wash away. The homes that were protected for a time will shortly follow the reinforcing sand.
Does the ephemeral fascinate the people who build on barrier beaches? Do the homeowners understand the heartache that nature will force on them someday? Are they just not aware of how the tide, waves and erosion work? Or, do they think that the public will save them from the folly of building in an area that is just plain hazardous?
The barrier beach problem of poor judgment is oddly similar to at least one aspect of the current economic crisis:
Who pays when systematic poor judgment is used?
Friday, December 5, 2008
The Little Bridge That Couldn't
The Little Bridge That Couldn't
get built... My neighborhood is quite isolated from the world at large by a small mill pond with a tiny brook. A small, crumbling bridge used to run over the brook. The bridge span could not have been more than 30 feet long and 20 feet wide. The 200 residents of my condo community and the hundreds of other neighbors were dismayed to hear that the proposed bridge replacement might take up to 2 years. “What the %%$#@!”, we thought in unison “How can so tiny a bridge take so long?”. The construction story provides object lessons in poor planning, incompetence and the need for regulation.
Removal of the old bridge proceeded quite quickly. The private contractors hired by the state show knowledge of and sensitivity to issues raised by working in wetlands. They took all the appropriate measures to ensure a proper balance between getting the job done and protecting the environment. Or so we thought.
Construction of the new bridge structures proceeded in fits and starts. The contractors seemed to be on permanent coffee break. So much for private business work being conducted more efficiently than work run directly by the government. I am a regulator familiar with many such bridge replacements and have never seen one move so slow.
A storm came along. Not a big storm, but it dumped about 1 ½ inches of rain overnight. The little mill pond just about doubled in area. The stream picked up speed. The increased area of a flood is termed the “flood plain”. The storm was intense enough to be categorized as a “25 year event”. That means a storm of that size was likely to occur once every 25 years.
The sad little bridge under construction suffered severe damage from this very likely, quite small event. The extent of damage meant the bridge work had to be completely redone. However, all work was stopped until the state and private contractor figured out what had gone wrong.
The cause of the problem was easily determined. The contractor had failed to develop construction plans that accounted for a 100 year flood event. That means that the likelihood of a much bigger flood was once every 100 years. This more rainfall and a much bigger floodplain. In fact, it meant a storm that was about as likely as Hurricane Katrina. Planning for 100 year events is an absolute and well known absolute standard for any structure in a floodplain. There was no excuse for using a lesser factor in construction of this little bridge.
The bridge is finally nearing completion using the correct construction standards for this floodplain. Soon, I will not have to drive an extra 15 to 20 miles per day to go about my business.
There some lessons here. First, regulation is often necessary to ensure public safety. Second, well known regulations do not usually contribute to inefficient business practices. Third, failure to follow regulations does result in inefficiency and increased costs. Fourth, the social cost of regulation could be debated endlessly. However, examples like Katrina and my little bridge demonstrate the the social costs of faulty project engineering.
get built... My neighborhood is quite isolated from the world at large by a small mill pond with a tiny brook. A small, crumbling bridge used to run over the brook. The bridge span could not have been more than 30 feet long and 20 feet wide. The 200 residents of my condo community and the hundreds of other neighbors were dismayed to hear that the proposed bridge replacement might take up to 2 years. “What the %%$#@!”, we thought in unison “How can so tiny a bridge take so long?”. The construction story provides object lessons in poor planning, incompetence and the need for regulation.
Removal of the old bridge proceeded quite quickly. The private contractors hired by the state show knowledge of and sensitivity to issues raised by working in wetlands. They took all the appropriate measures to ensure a proper balance between getting the job done and protecting the environment. Or so we thought.
Construction of the new bridge structures proceeded in fits and starts. The contractors seemed to be on permanent coffee break. So much for private business work being conducted more efficiently than work run directly by the government. I am a regulator familiar with many such bridge replacements and have never seen one move so slow.
A storm came along. Not a big storm, but it dumped about 1 ½ inches of rain overnight. The little mill pond just about doubled in area. The stream picked up speed. The increased area of a flood is termed the “flood plain”. The storm was intense enough to be categorized as a “25 year event”. That means a storm of that size was likely to occur once every 25 years.
The sad little bridge under construction suffered severe damage from this very likely, quite small event. The extent of damage meant the bridge work had to be completely redone. However, all work was stopped until the state and private contractor figured out what had gone wrong.
The cause of the problem was easily determined. The contractor had failed to develop construction plans that accounted for a 100 year flood event. That means that the likelihood of a much bigger flood was once every 100 years. This more rainfall and a much bigger floodplain. In fact, it meant a storm that was about as likely as Hurricane Katrina. Planning for 100 year events is an absolute and well known absolute standard for any structure in a floodplain. There was no excuse for using a lesser factor in construction of this little bridge.
The bridge is finally nearing completion using the correct construction standards for this floodplain. Soon, I will not have to drive an extra 15 to 20 miles per day to go about my business.
There some lessons here. First, regulation is often necessary to ensure public safety. Second, well known regulations do not usually contribute to inefficient business practices. Third, failure to follow regulations does result in inefficiency and increased costs. Fourth, the social cost of regulation could be debated endlessly. However, examples like Katrina and my little bridge demonstrate the the social costs of faulty project engineering.
Tuesday, December 2, 2008
Should We Sue
Class action suits are brought to bring those companies that hurt the public health and trust into line with the principle of doing no harm to the public. Over the last 8 years many Wall St. firms have run amok. They have created investment vehicles that the knew or should have known were dangerously risky. The aggressively sold these vehicles and conspired to to have them rated as safe investments. Yes, consumer greed contributed to this meltdown we are now experiencing. Everyone wanted safe, easy money.
This meltdown is analogous to the advertising and misinformation conducted by cigarette companies. Many people were seduced into dangerous smoking habits by assurances of safety and images that made smoking seem like the thing to do. Tobacco companies were then subject to class action suits that resulted in increased warnings about smoking, smoking bans and awards to the injured.
We have all been injured by Wall St. firms who planned to produce recklessly dangerous investment vehicles and advertised them to the public and other institutions. Sales were high, but the results were disastrous.
I don't pretend to have even a small part of the answer to the national dilemma about what to do about Wall St. We certainly do not want to stifle safe investment. We want the risks of any investment to be clearly communicated and well known. I would like to start a discussion about "What to do about Wall St.?".
A focus of the discussion could be "Should we sue?" or it could be the subject of engineering risk in investment. Write to me or comment on this blog. Thanks.
This meltdown is analogous to the advertising and misinformation conducted by cigarette companies. Many people were seduced into dangerous smoking habits by assurances of safety and images that made smoking seem like the thing to do. Tobacco companies were then subject to class action suits that resulted in increased warnings about smoking, smoking bans and awards to the injured.
We have all been injured by Wall St. firms who planned to produce recklessly dangerous investment vehicles and advertised them to the public and other institutions. Sales were high, but the results were disastrous.
I don't pretend to have even a small part of the answer to the national dilemma about what to do about Wall St. We certainly do not want to stifle safe investment. We want the risks of any investment to be clearly communicated and well known. I would like to start a discussion about "What to do about Wall St.?".
A focus of the discussion could be "Should we sue?" or it could be the subject of engineering risk in investment. Write to me or comment on this blog. Thanks.
Rush to Plan: Detroit Bailout
A Reuters headline caught my eye this morning: "Automakers rush to finish plans for Congress". I had headlines like that in front of my burning eyes after a college all-nighters left me frantic to finish papers. The headline in front of me read: "Stupid for Not Planning Your Time!". I managed to get pretty good grades anyhow, but the auto industry? Do they have good grades? Do they have the capability of pulling together company saving plans with all nighters this late in the game?
Gee whiz, the Big Three have fleets that get terrible gas mileage. They have plans for fuel efficient vehicles that might make it out the door in 2010. They speak in terms of satisfying demand when discussing Sport Utility Vehicles. Maybe they are the only car companies foolish enough to hitch their futures to fuel inefficient vehicles.
I like planning. Planning means using the crystal ball that research into the past and guessing at the future gives us. Some plans are mathematical model heavy; meaning they are obscure. Some plans are light on math; meaning that they are indefinite.
The best plans are readable, definite, supported (but not obscured by) math and provide one or more outcomes that can be believed. Such good plans are believable because of the timely research that went into them.
Even carefully thought out plans miss things that they should include. The financial engineers on Wall St. developed plans that did not include the idea that housing prices might fall. In simple words, their planning crystal ball did not include research into past housing bubbles. Now, we all suffer from their poor planning.
I sincerely hope the Big Three make it. Maybe they will become the Big Two. Or, maybe The Only One. Lack of timely planning, such as the Big Three are exhibiting now, seems to ensure that the auto companies will become the Infinitesimal Zero
Gee whiz, the Big Three have fleets that get terrible gas mileage. They have plans for fuel efficient vehicles that might make it out the door in 2010. They speak in terms of satisfying demand when discussing Sport Utility Vehicles. Maybe they are the only car companies foolish enough to hitch their futures to fuel inefficient vehicles.
I like planning. Planning means using the crystal ball that research into the past and guessing at the future gives us. Some plans are mathematical model heavy; meaning they are obscure. Some plans are light on math; meaning that they are indefinite.
The best plans are readable, definite, supported (but not obscured by) math and provide one or more outcomes that can be believed. Such good plans are believable because of the timely research that went into them.
Even carefully thought out plans miss things that they should include. The financial engineers on Wall St. developed plans that did not include the idea that housing prices might fall. In simple words, their planning crystal ball did not include research into past housing bubbles. Now, we all suffer from their poor planning.
I sincerely hope the Big Three make it. Maybe they will become the Big Two. Or, maybe The Only One. Lack of timely planning, such as the Big Three are exhibiting now, seems to ensure that the auto companies will become the Infinitesimal Zero
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