Vital Systems Security

Here is an interesting piece from NY Times on some familiar issues we have been dealing with in the OEP research. 

The record storms and floods that swept through the Midwest last month struck at the heart of America’s corn region, drowning fields and dashing hopes of a bumper crop.

They also brought into sharp relief a new economic hazard. As America grows more reliant on corn for its fuel supply, it is becoming vulnerable to the many hazards that can damage crops, ranging from droughts to plagues to storms.

Apparently the price of ethanol went up by 19 percent in a month after the floods. The article goes on to construct a scenario that can take place once the share of biofuel in the overall supply of gasoline goes up to 20 percent:

Experts fear that a future crop failure could take so much fuel out of the market that it would send prices soaring at the pump. Eventually, the cost of filling Americans’ gas tanks could be influenced as much by hail in Iowa as by the bombing of an oil pipeline in Nigeria.

Just as in the case of OEP once again a catastrophic event (storm and flood) in a medium inherently governed by stochastic processes (the weather) problematized as a potential threat to the stability of the economy as a vulnerable system (eventually leads to the question of resilience again as we saw in the case of war mobilization and inflation problem by the early 70s under Nixon). As the article argues, introduction of biofuel leads to a new level of vulnerability:

Hurricanes Katrina and Rita interrupted a quarter of the nation’s oil production and closed dozens of refineries for weeks. Lines formed for the first time since the 1970s as gasoline spiked above $3 a gallon, a record at the time. The nation’s increasing dependence on crops for motor fuel adds another level of vulnerability from the weather.

I thought what is particularly interesting in this case is the opening up of a blockage as we pass a threshold with the emergence of biofuel. To my knowledge this is a very new development as corn, a conventional and critical source of food for populations is becoming a source of energy as the seemingly stable barrier between these two categories of vital domains are being linked for the first time as we demolished the barrier separating these two domains. Now we face with a new interface that is in need of being governed as one can even see in the concerns that IMF and World Bank have expressed their worries about this new phenomenon recently. 

It seems like at a technical level the first 3 generations of biofuels, there is nothing new about the process of transforming biomass into biofuel. It is a simple process of production of ethanol. However, what is interesting is that a company called Synthetic Genomics is is genetically engineering microorganisms to produce fuel directly from carbon dioxide on an industrial scale, which might be a possible solution to the problem of vulnerability mentioned above. I believe the founder of the company might be a familiar figure to those who are working on synthetic biology: Craig Venter, a member of the effort to map the human genome and the founder of The Institute for Genomic Research. An interesting convergence of VSS and Synthetic Biology and Nanotechnology blogs…

An interesting article in Time magazine on response to floods in Tabasco reports that the Mexican Government did an admirable job when compared to the response to Katrina in the United States. Among other things, it seems that the military was out in force two days before the worst of the flooding, and was constantly running rescue operations during the entire event — a stark contrast to New Orleans, where, as we know, getting military and national guard rescue into gear was problematic and slow.

Fantastic, informative article in NYT Magazine takes a peek at ‘cat bonds’ — or catastrophe bonds — and the argument for pricing insurance in accordance with more ‘realistic’ models of risk, for example for hurricanes or disasters. Interesting, compelling, and well-written… I don’t like being so cynical but it almost has one believe that the insurance industry can play a socially useful role in solving the problem of risk mitigation: by encouraging people not to build and live on fault lines or in highly vulnerable hurricane zones — or by pricing insurance sans state subsidy in such a manner as to cover actual losses as opposed to the fantasy losses that the industry, pre-Katrina, historically pre-supposed. All of this sounds great if it didn’t ignore the fact that at a population level those most vulnerable to extreme disasters are to be found in the lower strata of the social class and SES registers. There is also a pretty heavy correlation between race and vulnerability to extreme events.

Just thinking out loud here, but it seems there are at least two parallel discussions going on here in the area of catastrophic insurance: On the one hand are those discussions which focus on the specific techniques and practices around insurance which are introduced and made viable (and visible) in discourse and policy without reference to a number of salient elements such as social class, race, etc. On the other hand, there exist a number of critiques which point almost exclusively to ‘the social’ — to social disadvantage, the reproduction of oppression, and inequalities in a number of domains — to explain the root ’causes’ of disasters (and offer a way forward) without specific reference to the very rationality and techniques which parse the world into (usually predictable) risks and rewards. This is maybe a crude second-order observation to be considered in light of Stephen’s flag of the Kunreuther piece.

Howard Kunreuther, one of the major figures in insurance and catastrophe risk in the United States, has an op-ed in today’s Times about hurricane insurance post-Hurricane Katrina (he has also co-edited a book on risk and natural catastrophe post-Katrina that is worth a look). Apparently, State Farm, the major insurer for flood risk in the area, has decided to stop selling policies to homeowners in the area. Thus the question: Who will cover loss for the next big hurricane?

This has been a topic on which Kunreuther has been focused since at least the late 1960s, when attention in the United States began to turn to the question of increasing catastrophe risk as people moved into more risk-prone areas, and the role of government in promoting this “risky” behavior through compensation or cheap loans after the event. (Some studies showed that people ended up better off financially, at least in some cases, after natural catastrophes than before.)

The prescriptions now are the same as the prescriptions then: better evaluation of catastrophe loss risk, pricing of insurance to reflect that risk, and individual decisions about what kinds of risks they are willing to take, and what kind of premiums they are willing to pay. Kunreuther adds a proposal for vouchers that would help low-income households pay for insurance, which, he holds is vastly preferable to blanket subsidies which mask the real risks assumed by location decisions.

I blogged on a similar topic some time ago, concerning the Army Corps efforts to disseminate information about flood risk in New Orleans through new visualizations based on the web. Kunreuther is offering a broader overview of what might be called a neo-liberal apparatus of catastrophe risk management through the calculative choices of free actors. Sounds pretty good to me.

Read on for the full op-ed:
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Melinda Cooper recently drew my attention to an interesting study conducted by Harvard Medical School Center and sponsored by Swiss Re and the United Nations Development Programme. The study predicts that “climate change will significantly affect the health of humans and ecosystems and these impacts will have economic consequences.” In addition, the study attempts to “survey” existing and future costs of climate change. It argues that the insurance industry “will be at the center of this issue, absorbing risk and helping society and business to adapt and reduce new risks.”

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Yesterday news sources were announcing that the Army Corps of Engineers had made available, online, findings from its post-Katrina risk and reliability reports on New Orleans. The site is well worth a look, in part because the technology is cool. They have made flood map data available in a format that can be read by google earth, so “citizens” can choose a neighborhood in New Orleans, and then view flood maps for 50, 100, and 500 year events pre- and post-Katrina (the latter taking into account improved flood control installed since the hurricane).

These kinds of flood maps have been produced by the Army Corps for a long time, and they are crucial to contingency planning for agencies like FEMA (now part of DHS). Part of what is interesting here, however, is the explicit emphasis on making such maps publicly available so that “citizens”, as the report notes, “can make risk-informed decisions.” There is, as I have written in the past, a long history of efforts to make individual citizens take greater account of natural catastrophe risk in their decisions about where to build or buy houses. The 1968 Federal Flood Insurance Act was intended precisely to create a technology through which insurance companies would “price” the risk of flood, so that this risk would be built into housing costs through insurance premiums. The new technology, however, has afforded an apparently more direct way to communicate this information. One wonders, however, about the conflicting incentives created by federal programs aimed at New Orleans. One of the conditions for receiving federal aid is that one must live in your house (previously damaged by floods) for a period of time. The political pressure to promote reconstruction may come into conflict with the desire to govern citizens through their calculative decisions about flood risk.

An article in today’s Times reports on substantial housing development in the flood plain of the the Mississippi River following the floods of 1993.

Building is happening on flood plains across Missouri, but most of the development is in the St. Louis area, and it is estimated to be worth more than $2.2 billion. Though scientists warn about the danger of such building, the Missouri government has subsidized some of it through tax financing for builders.

“No one has really looked at the cumulative effect,” said Timothy M. Kusky, a professor of natural sciences at St. Louis University, who calculates that there has been more development on the Missouri River flood plain in the years since 1993 than at any other time in the history of the region.

These developments raise again a series of problems relating catastrophe, risk, and insurance that first emerged after the United States passed its first disaster relief act in 1950, formalizing federal aid to flood victims. Immediately, it was recognized that these policies created a problem of moral hazard: individual homeowners would not purchase insurance against what they perceived to be unlikely events, particularly since they counted on the federal dollars to bail them out (often, or so libertarian and economist critics argues, leaving them in better shape than when they started).

In 1968 a program of federal flood insurance was created, which relied on the government to construct hazard models that would serve as the basis for determining premiums, and counted on private insurers to provide policies. But this program — which has been revised many times since — did not entirely solve the problem. On the one hand, individuals purchased policies at much lower rates than was expected, leaving much of the damage from floods still to be covered by federal relief (and the government often stepped in to offer even more relief after major events). On the other hand, these policies did not always do enough to prevent development in flood-prone areas. Of note in the article is the line drawn around the “100 year flood.” This threshold was key to the original program of federal flood insurance, which mandated insurance policies for homeowners living in the damage area of a 100 year event. The question, of course, is how accurate the models are, and whether that threshold is the right one.

One resident who had purchased a house outside the 100 year flood plain (and was thus not required to purchase insurance), said that “It’s not going to flood here for another 100 years, and I won’t be around by then.” A touch unclear on the concept, one might say. In the long run the dynamic is familiar. Bigger levies mean more housing in the flood plain. Which may contain small events, but open the gates for ever bigger, if rarer, events. “If history tells us anything, it’s that levees once built eventually fail,” Professor Pinter said. “But instead of being farmland there, now it’s a strip mall or residential area, or a whole city.” As Aaron Wildavsky might say, “safety” is being purchased at the price of resilience.

CHICAGO, May 8 — For months, Gov. Kathleen Sebelius of Kansas and other governors have warned that their state National Guards are ill-prepared for the next local disaster, be it a tornado a flash flood or a terrorist’s threat, because of large deployments of their soldiers and equipment in Iraq and Afghanistan.

Then, last Friday night, a deadly tornado all but cleared the small town of Greensburg off the Kansas map. With 80 square blocks of the small farming town destroyed, Ms. Sebelius said her fears had come true: The emergency response was too slow, she said, and there was only one reason.

“As you travel around Greensburg, you’ll see that city and county trucks have been destroyed,” Ms. Sebelius, a Democrat, said Monday. “The National Guard is one of our first responders. They don’t have the equipment they need to come in, and it just makes it that much slower.”
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