Learning to Live with Volatile Oil Prices

Robert McNally and Michael Levi discuss oil supply and demand and the resultant price issues in an article in Foreign Affairs: A Crude Predicament: The Era of Volatile Oil Prices. They discuss these issues both from a historical context and in light of the current situation. As their title suggests they predict that oil price volatility is here to stay, and we will have to learn how to live with it.

While demand can change relatively quickly due to changing economics, warfare, and/or natural disasters, supply can only change on a much larger timescale. The way in which major price swings have been avoided in the past is by having spare production capacity available. The authors contend that excess capacity of at least 5% of total capacity is required to be effective at damping out short-term variations in either supply or demand. In recent years the Saudis have played the role of moderator by maintaining the ability to provide extra production as needed.

This chart from The Economist provides a history of this excess capacity.

The recent data appears consistent with the authors’ target of 5%. However, to say less than 5% excess capacity puts one in an unstable situation, is not the same as saying the lack of excess capacity caused the extreme price rise seen 2008. At that time there was considerable talk of the role that speculators played in the price increase. The authors are dubious about that claim:

“....careful studies by the U.S. Energy Information Administration and the U.S. Commodity Futures Trading Commission have found that medium-term and long-term price shifts are primarily a function of changes in global supply and demand.”

Toni Johnson of The Council on Foreign Relations discusses Oil Market Volatility and at least leaves the question open for further evaluation.

“A growing number of analysts say oil-price trends can no longer be explained simply through supply and demand. While energy analysts still see those factors as the foundation of the oil market, they also view oil investor behavior as a factor in recent prices. Increasingly speculative behavior by a more diverse set of investors outside the oil industry--including hedge funds, pension funds, and investment banks--has made oil-market trends harder to predict, say analysts. Many believe speculative investments from financial firms contributed to record-high global oil prices seen in early 2008, and that a selloff by firms contributed to the subsequent massive price decline later in the year. As major political events rock the Middle East, analysts also worry about market speculation in 2011, which has already experienced the largest increase in oil's history.”

“However, evidence suggests the price increases of 2008 did not reflect major changes in market fundamentals or political instability. Saudi officials noted that in the year between 2007 and 2008, when oil prices more than doubled, increases in oil supplies outstripped the rise in oil demand, according to a January 2010 report prepared for the International Energy Forum.”

“An August 2009 report from the James Baker III Institute for Public Policy found that noncommercial players now constitute about 50 percent of the U.S. oil futures market, compared to an average of about 20 percent before 2002. "The speculative fervor is so remarkable that the big trading firms now have nearly twice as many long contracts open as they did in 2008, when oil spiked to $147 in the summer....”

To be fair, Johnson’s article quoted a number of experts who would agree with the authors of the Foreign Affairs article. However, there seems to be sufficient smoke out there to keep stoked our suspicions of another conflagration.

The authors go on to detail why this 5% target is not likely to be met in the future. One major reason is the lack of will and, to a certain extent, the lack of capability of the Saudis to maintain the same level of excess capacity they provided in the past. There does not seem to be any other player or players capable, or willing, to step into this role. The result is that we should expect significant fluctuations in price in the future as the inevitable perturbations in supply and demand occur.

The authors suggest some steps that can be taken to protect ourselves from these price excursions. The first involves encouraging all participants to provide current and accurate supply and demand data. Apparently the US and Japan are the only countries who currently provide such data in a timely manner. Clearly, uncertainty in these numbers can only add to volatility.

Interestingly, they also encourage greater participation by financial players. The goal is to help protect industries that are vulnerable to price swings, like automobiles and airlines, by making sure they can hedge against these price swings. This hedging allows them to insure a relatively stable effective price by providing someone who is willing to bet against them on a price move. The airline, for example, can lose if the price of oil goes up, but can balance that loss with winnings from a bet that the price would go up. They need to be able to find people willing to take that bet. The authors believe that planned changes in regulations could improve this type of market if done properly, or make it worse if not done properly.

Other suggestions focus on limiting demand. A number of countries subsidize gasoline for their populations. This is certainly popular, but not likely to help contain gasoline consumption. They encourage the US to try to convince these countries to eliminate this practice.

As for steps the US should take at home, there are no surprises. They recommend increasing domestic production, increasing R&D on alternate technologies that would limit oil consumption, and placing a higher tax on gasoline and diesel fuels.

Given recent history and the current situation, we are clearly at risk for price rises capable of limiting economic growth. The only certain way to protect ourselves is by limiting our demand for oil by a mechanism other than a major recession. Hopefully steps will be taken. And hopefully, someone will keep an eye on those speculators.

Is There a Clean Energy Crisis?

David G. Victor and Kassia Yanosek would answer in the affirmative. They have produced an article if Foreign Affairs titled The Crisis in Clean Energy: Stark Realities of the Renewables Craze. These authors argue that the investment strategy in renewable energy has been poorly conceived, and that these conceptual problems are leading to a stall in forward momentum.

Of necessity, renewable energy technologies need government support to get off the ground. That has provided both positive and negative influences. The government and industry, naturally, want to bet on a sure thing. That leads to emphasis on the most attainable technologies, not necessarily the best long-term options. Government funding is also uncertain and can fluctuate with the political winds.

“The root cause of today's troubles is a boom-and-bust cycle of policies that have encouraged investors to flock to clean-energy projects that are quick and easy to build rather than invest in more innovative technologies that could stand a better chance of competing with conventional energy sources over the long haul. Indeed, nearly seven-eighths of all clean-energy investment worldwide now goes to deploying existing technologies, most of which are not competitive without the help of government subsidies. Only a tiny share of the investment focuses on innovation.”

“In the United States, tax credits and depreciation benefits account for more than half the after-tax returns of conventional wind farms, for instance. Investors in solar energy projects depend on U.S. government subsidies for at least two-thirds of their returns. And the U.S. government lavishes on producers of corn-derived ethanol between $1 and $1.50 per gallon of ethanol produced -- just about the costs of production -- despite the fact that almost no one considers corn-derived ethanol to be an economically viable fuel that can protect the environment or reduce dependence on oil.”

The authors argue that this era of shortsighted investment is now beginning to wind down.

“In most of the Western countries leading the industry, the public subsidies that have propelled it to 25 percent annual growth rates in recent years have now become politically unsustainable. Temporary government stimulus programs -- which in 2010 supplied one-fifth of the record investment in clean energy worldwide -- have merely delayed the bad news. Last year, after 20 years of growth, the number of new wind turbine installations dropped for the first time; in the United States, the figure fell by as much as half. The market value of leading clean-energy equipment manufacturing companies has plummeted and is poised to decline further as government support for the industry erodes.”

Perhaps there is no greater example of the pressure building to rein in costs than the recent decision, in a bipartisan vote, to end the tax credit and tariff on ethanol—a politically difficult move. The Economist provides this chart to help visualize how dependent production was on government subsidies.

The authors contend that few of the technologies being supported can be economically competitive in the near future. This leads to the suggestion of a change in strategy.

They describe the current approach as mainly a “push” strategy. By that they mean that specific technologies are supported by subsidies and encouraged to expand their capabilities. They favor more of a “pull” strategy. This would consist of specifying energy goals that have to be met. This could consist of a carbon tax, a cap and trade policy, or just a national clean energy standard that must be met. Combining this with increased investment in universities and government labs in search of more commercially viable solutions is the most promising approach.

“More than half of all research-and-development money in clean energy comes from the government -- proof that private investors are unlikely to fill this gap on their own. (Keeping political support for this funding is particularly important in this era of tight government budgets.) It can also support early stage technologies that private investors will not adequately fund, expanding mechanisms such as the U.S. Department of Energy's new Advanced Research Project Agency-Energy (ARPA-E). Such programs have been controversial with analysts who fear that the government might back the wrong horse. ARPA-E reduces this danger by funding a variety of competing technologies while leaving the private sector to pick the winners. Indeed, ARPA-E was modeled on effective schemes at the Pentagon that back risky, novel technologies [DARPA].”

Along with this change in focus should come a loosening of the definition of “clean energy.” If it does not include cleaner burning coal-fired plants, nuclear power and strict energy efficiency requirements, there is little chance that a “revolution” in energy production will occur.

The authors also argue that collaborations with developing countries, especially China, will be necessary. It is the developing countries who are presently in the process of building new power sources. Their efforts could provide vehicles for experimenting with new production technologies.

The authors allow that some of the current technologies are taking hold, not so much for their commercial viability, but because the consumers have been willing to bear the additional costs.

“To be sure, some pockets of robust growth remain, especially where governments have not wavered in their support and found more palatable ways of hiding the full cost of subsidies -- for example, by passing the costs directly on to consumers through taxes in electric power bills. These pockets include offshore wind in northern Europe, onshore wind in China, and residential rooftop solar energy in the United States....”

This issue of commercial viability seems to be based on the notion that clean or renewable energy has to be competitive with current energy “costs.” These costs do not consider the environmental, health, and climate ramifications of utilizing the various energy sources. When a more enlightened costing is done, these alternate sources look a lot better.

The authors have provided a valuable perspective on current renewable energy policy. The idea of a “crisis” might be a bit of a stretch. There are certainly going to be funding problems given the state of the economies of the developed nations, but this could be just another example of the “boom and bust” cycle they decry rather than a loss of will. They also point out that many of their suggestions are already being pursued. What they are really asking for is a change in emphasis rather than moving in a new direction.

I am not sure they have provided a sufficient basis for declaring a crisis.

Free Will and Criminal Behavior

The Tell-Tale Brain: A Neuroscientist's Quest for What Makes Us Human

For some time I have been pondering the existence of “free will.” The more one learns about the brain and its functions and its complexities, the easier it is to believe that our thought processes can all be derived from chemical and electrical activity in our brains. What we refer to as free will could be just a response to the inevitable progression of these physical impulses. One of the reasons I chose to read The Tell-Tale Brain by V.S.Ramachandran was to find some insight and confirmation. Ramachandran provided plenty of insight, but chose to punt when it came to confirmation. When he gets around to discussing free will it is as an aspect of our conscious brain with the properties:

“You have a sense of being able to consciously choose between alternative courses of action with the full knowledge that you could have chosen otherwise.”

He says that we believe we have freedom to chose, not that we actually do have this freedom.

However, the picture of the brain that emerges from his book is one in which the conscious mind is relegated to handling only those functions that the subconscious mind deems to be not critical or time urgent. If a possible threat, such as an animal, appears in your visual space, the analysis and the threat or no threat decision is made for you, and if a fear or flight response is necessary the physiological changes required are set into motion before the conscious mind is allowed to participate. One might say that the book is all about how our unconscious brain is capable of controlling our actions and perceptions.

This leaves one with the feeling that if there is such a thing as free will, it is probably a much smaller component of what we would describe as our “self” than we might have otherwise assumed.

Such considerations are intellectually interesting but probably not resolvable. It is a bit like arguing religion. Free will is an attribute that most humans fervently want to believe in, and rational arguments are not likely to be persuasive.

These thoughts become more than mere intellectual games when we come face-to-face with criminal behavior and the need to deal with it in society. There is a truly excellent article dealing with this topic by David Eagleman in The Atlantic: The Brain on Trial. Eagleman sees advances in our understanding of brain function necessitating changes in the way we view and deal with criminals.

As for free will, he has this to say:

“Free will may exist (it may simply be beyond our current science), but one thing seems clear: if free will does exist, it has little room in which to operate. It can at best be a small factor riding on top of vast neural networks shaped by genes and environment. In fact, free will may end up being so small that we eventually think about bad decision-making in the same way we think about any physical process, such as diabetes or lung disease.”

Eagleman provides these comments as perspective on how to begin considering a response to anti-social behavior.

“Many of us like to believe that all adults possess the same capacity to make sound choices. It’s a charitable idea, but demonstrably wrong. People’s brains are vastly different.”

“Who you even have the possibility to be starts at conception. If you think genes don’t affect how people behave, consider this fact: if you are a carrier of a particular set of genes, the probability that you will commit a violent crime is four times as high as it would be if you lacked those genes. You’re three times as likely to commit robbery, five times as likely to commit aggravated assault, eight times as likely to be arrested for murder, and 13 times as likely to be arrested for a sexual offense. The overwhelming majority of prisoners carry these genes; 98.1 percent of death-row inmates do. These statistics alone indicate that we cannot presume that everyone is coming to the table equally equipped in terms of drives and behaviors.”

“And this feeds into a larger lesson of biology: we are not the ones steering the boat of our behavior, at least not nearly as much as we believe. Who we are runs well below the surface of our conscious access, and the details reach back in time to before our birth, when the meeting of a sperm and an egg granted us certain attributes and not others. Who we can be starts with our molecular blueprints—a series of alien codes written in invisibly small strings of acids—well before we have anything to do with it. Each of us is, in part, a product of our inaccessible, microscopic history. By the way, as regards that dangerous set of genes, you’ve probably heard of them. They are summarized as the Y chromosome. If you’re a carrier, we call you a male.”

“Genes are part of the story, but they’re not the whole story. We are likewise influenced by the environments in which we grow up....And every experience throughout our lives can modify genetic expression—activating certain genes or switching others off—which in turn can inaugurate new behaviors. In this way, genes and environments intertwine.”

“When it comes to nature and nurture, the important point is that we choose neither one. We are each constructed from a genetic blueprint, and then born into a world of circumstances that we cannot control in our most-formative years. The complex interactions of genes and environment mean that all citizens—equal before the law—possess different perspectives, dissimilar personalities, and varied capacities for decision-making. The unique patterns of neurobiology inside each of our heads cannot qualify as choices; these are the cards we’re dealt.”

Eagleman provides a number of examples of criminal behavior that can be attributed to something other than pure volition. He does not argue that these people should be excused for their conduct. People who are dangerous or who otherwise engage in illegal behavior need to be dealt with, and incarceration is still a valid response by society. He sees the functions of sentencing and rehabilitation as the areas in which science and knowledge of brain function can provide more effective and more humane results.

“Instead of debating culpability, we should focus on what to do, moving forward, with an accused lawbreaker. I suggest that the legal system has to become forward-looking, primarily because it can no longer hope to do otherwise. As science complicates the question of culpability, our legal and social policy will need to shift toward a different set of questions: How is a person likely to behave in the future? Are criminal actions likely to be repeated? Can this person be helped toward pro-social behavior? How can incentives be realistically structured to deter crime?”

What sort of things might science be able to provide to influence and change behavioral tendencies? Unfortunately, there is not much available at present. Eagleman points to an increased realization that many of the incarcerated are in fact addicts, mentally ill, or both. In any case, incarceration without adequate treatment is not going to be effective. One fears that there will be over exuberance in defining mental illness and treating it with the current set of drugs. While these may be able to modify symptoms in the short term, there is little evidence that they do anything but harm in the long-term.

More promising are methods that hold promise of changing impulse tendencies by a bio-feedback approach. Eagleman mentions one approach that is being tested that he refers to as “the prefrontal workout.” It is probably more informative to refer to it as cognitive bias modification. Eagleman’s suggestion is to find a signal from brain activity that represents an emotion such as severe anger. The idea is that if the subject can see a representation of the level of his anger, he can learn how to suppress the response. The therapist generates situations in which there will be an anger response and the subject tries to cope with it. It is a promising idea, but it is not ready for prime time yet.

Eagleman has provided a thought-provoking article. Our justice system is based on the notion that all people have free will to chose or chose not to commit a crime. Eagleman has made a valuable contribution if his effort results in more people questioning this notion of equality between individuals.

It would seem that free will and biological research are on a collision course. It will be interesting to see how this plays out.

Manufacturing in the US: What Can We Learn from Germany?

Make It In America: The Case for Re-Inventing the Economy


I came across an article by Louis Uchitelle in the latest issue of The American Prospect: Once Made in the USA. The point of the article was to highlight the opinions of Andrew N. Liveris. Liveris is the Chairman of the Dow Chemical Company and he has written a book titled Make It in America: The Case for Reinventing the Economy. From his title it is clear that Liveris is in favor of a larger manufacturing role in the US economy. According to Uchitelle:

“....he argues that the United States is at a tipping point — if manufacturing does not make a comeback soon, the opportunity to do so will slip away, and the nation will inevitably lose its status as an economic powerhouse.”

Liveris argues that the conventional wisdom that says let the simpler, more labor-intensive production go overseas while we concentrate on the high end production has a logical flaw. He contends that production and innovation go together and by eliminating our participation in certain areas we may be passing up opportunities to enhance our technology base. Presumably this is the basis for claiming we are approaching a tipping point.

Liveris faults the government for not having manufacturing-friendly policies. He is in favor of a government investment policy that would “pick winners” and support them. In other words he wants us to treat our industries more like the Chinese treat theirs. One has to assume that Mr. Liveris votes Democratic and would like to see taxes raised so that his desired efforts can be supported.

Within a few days of reading the The American Prospect article, an announcement was made by the Obama administration that they are calling for a “renaissance in American manufacturing.” This initiative will be backed $500 million. The focus seems to be a partnership between Universities and manufacturing companies.

“The administration's plan includes $70 million for a robotics initiative. It also is steering $300 million toward national security industries and $100 million for research and training to more quickly develop advanced materials at lower costs. Some of the $500 million would come from existing allocations to government agencies, but other money would require approval by Congress, where Republicans are more focused on cutting spending than approving new government initiatives.”

“The initiative Obama announced Friday is the brainchild of the President's Council of Advisors on Science and Technology. In a report issued Friday, the council warned that U.S. leadership in manufacturing is at risk. It said the United States has been losing research and development associated with manufacturing to other countries. Most importantly, the council noted, the United States is losing the manufacturing competition for products that were invented in the U.S., including laptop computers, flat panel displays and lithium ion batteries.”

With delightful timing, Obama chose two people to take charge of the effort.

“Leading the effort will be Andrew Liveris, president and CEO of the Dow Chemical Co., and Susan Hockfield, president of the Massachusetts Institute of Technology.”

This move belongs in the annals of “watch what you wish for.” One can only hope that Mr. Liveris has a bite commensurate with his bark.

There was also a very relevant article in Foreign Affairs by Steven Rattner: The Secrets of Germany’s Success: What Europe’s Manufacturing Powerhouse Can Teach America.

Rattner points to enlightened collaboration between government, industry, and labor, and wise decisions by industry on where to focus effort. Germany’s manufacturing base was helped by legislation that traded the prospect of limited wages for a promise of greater job security. For example, when business decreases a company can put workers on part time and the government will provide compensation to make up the difference in the workers’ income. This seems much more productive than “unemployment compensation.”

“Of at least equal importance was the role of the private sector, especially the innumerable small and medium-sized manufacturing firms known as the Mittelstand. These companies combine the advantages of stable family ownership with a focus on producing sophisticated goods that emerging markets cannot easily replicate. As Germans like to say, ‘We make the thing that goes inside the thing that goes inside the thing.’ Although family-owned businesses can be a mixed blessing, of course -- they are subject to familial strife and succession problems -- the overall success of these companies is widely acknowledged. The Mittelstand now employ millions of people and seem to put a higher priority on employing Germans than do publicly traded multinational giants. Many Germans believe that since the Mittelstand are privately owned, they focus more on long-term growth than short-term profits.”

“A significant portion of Germany's industrial success can be traced to two manufacturing sectors. The first, heavily dominated by the Mittelstand, includes companies that build the sophisticated machine tools that emerging markets need as they develop their own manufacturing capabilities. This might sound like selling arms to one's adversary, but it has worked well for Germany. The second sector includes Germany's marquee auto brands -- BMW, Daimler, Porsche, Audi, and the like. Automakers are, of course, central to the German economy, composing about 20 percent of GDP. In particular, high-end cars have become hot commodities for affluent consumers in booming new markets, such as China, which alone accounts for 25 percent of BMW's global profits.”

If we are to practice what we have learned from Germany we should build up a broad industrial base of small, privately-owned firms that make clever things that no one else makes, and are run by patriots. That seems simple enough. Then we should create a huge market for US made luxury and performance cars and then sell these models across the world. That one might be a bit more difficult.

Rattner points out that Germany has some advantages that the US cannot even attempt to duplicate.

“Meanwhile, the introduction of the euro in 1999 quietly brought Germany another advantage: it fused the country to others whose competitiveness, as measured by the cost of each unit of labor, had stagnated, particularly Greece, Ireland, Italy, Portugal, and Spain, but also France. Meanwhile, since 1999, Germany's competitiveness has increased by nearly 20 percent. Germany wins more business worldwide when it competes against other eurozone countries to sell its exports, and it even outperforms them in their home markets. About 80 percent of Germany's trade surplus comes from its trade with the rest of the European Union.”

“The eurozone's weak economic performance and the simmering sovereign debt crises in several peripheral eurozone countries have kept the value of the euro well below what the deutsche mark would be worth today if it still existed. (According to some estimates, if Germany abandoned the euro, its currency would immediately appreciate by 30 to 40 percent.) This gives Germany an enormous competitive trade advantage over countries with their own, more expensive currencies, such as the United Kingdom and the United States. The economic stimulus from the undervaluation of the euro has been so powerful that the biggest economic worry in Germany today is that the economy will overheat and trigger inflation.”

A small company in Germany can become an exporter by loading product on a truck and driving down the road to the next country? And Germany’s currency is as devalued as that of China?

As interesting as Rattner’s article was, I am not sure that we have learned anything about Germany that will help us. Germany has sought for effective social policies for generations. We seem intent on dismembering whatever social policies we possess. Germany seems to have also had a strong industrial base for generations, and it has used it well as times have changed. Its political and geographic locations in the world provide it with unique advantages. As for having enlightened policies, that is always a good idea. Unfortunately, enlightened policies usually require enlightened legislators to create them. They seem to be in short supply at the moment.

Let us hope that Mr. Liveris and his collaborators rise to the occasion and deliver us a ”renaissance” in manufacturing. If they do it will be because they took advantage of unique opportunities or unique capabilities that we possessed.

A Comparison of Work and Leave Policies

The Economic Policy Institute provides us with an interesting comparison of work and leave policies in various countries comparable to the US. 

Vacation practices are particularly interesting. The US has no mandated vacation policy, which makes it unique among the countries included. Effectively, a full-time worker will generally receive two weeks paid with a transition to three weeks after a number of years. The better paying jobs might transition to as much as five weeks. There will be a large number of people who are working part-time and may accrue no paid vacation at all. An attempt at an equivalent average for the nation’s workers will be 2.5 weeks.

Clearly, the Europeans like their time off. A mandated six weeks of vacation, as in France and Denmark, would take some getting used to. With that much time off one has to accumulate some hobbies, some passions, some sporting skills—to say nothing of savings—in order to use all that time wisely. My brief encounters with Europeans have indicated that they have learned well how to consume their play time. We in the US would probably need at least a generation in order to learn how to play properly. At the moment, given six weeks of vacation, most would probably try to figure out a way to keep working and turn the vacation into cash.

The US also has no mandated paid holidays. That does not make us unique. As a practical matter, most people with full-time jobs will receive about 10 days in holiday pay. Again, there will be those classes of jobs where many fewer days will be available, but we will stick with the round number of 10 (two weeks). Italy and Austria mandate 13 paid holidays. I would hazard a guess that Italy might be throwing in some religious activities as holidays. One might guess that Austria has had enough history to have generated that many reasons to take a day off. It would be interesting to see how many holidays each country actually takes, mandated or not, and see if there is some correlation with a national attribute.

The table provides the average number of weeks worked per year by an equivalent full-time worker. If one subtracts vacation and holiday weeks from the full year, then takes the difference with weeks actually worked, one arrives at a number that might be called “other leave.” This would include sick leave, maternity leave and probably a few other things. This number should give an indication of how generous the given nation is in caring for its workers.

If one calculates “other leave” for the US (52-2.5-2-45.9)) one arrives at 1.6 weeks of other leave. That is not what one might call a generous number. The same calculation for Norway, using the numbers in the table, provides 10.5 weeks of extra leave. Let’s allow that paid holidays were underestimated and subtract two more weeks. That still leaves 8.5 weeks versus the 1.6 for the US. That is a huge difference, one that highlights the differences in social policies between the two countries. The US often tracks the UK in social matters. Giving the UK two more weeks of paid vacation we come up with 5.2 weeks of extra leave. Now consider Australia, one of the other British children. Australia’s numbers provide us with a negative one week of extra leave. That can only be interpreted as Australians refusing to use their vacations. C’mon guys—no one is going to lie on their deathbed and say “I wish I could have worked another week.”

My amateur analysis of this situation is that England spawned nations with the same awful social values that it possessed. However, England subsequently had to survive two world wars and their aftermaths and was forever changed. The US and Australia have had no equivalent event that would create a feeling of solidarity and a recognition that mutual assistance can be a good thing.

Amateur hour has now come to an end.

Mental Illness: Alternatives to Drugs

Unhinged: The Trouble with Psychiatry - A Doctor's Revelations about a Profession in Crisis

After writing so many negative articles about psychiatry it seemed appropriate to seek something positive to say.

One of the motives psychiatrists claim for moving away from classical psychoanalysis to drug therapy is simple economics. Since we are in a positive mood we will ignore the economic factors of gifts and bribes that are available from the drug companies and focus on a more fundamental issue.

Standard “talk therapy” in which the method involves searching for underlying causes of emotional responses can be long and expensive, and with no guarantee of success. Even if a cause is found, that does not necessarily equate to a cure. Medical insurance companies are hesitant to invest in such an open-ended process. A drug regimen, on the other hand is well-defined and more predictable. A psychiatrist has the choice of billing his hour as 50 minutes of therapy or four 15 minute medication sessions. With a little luck a medicated patient will fall into a monthly 15 minute checkup pattern. Daniel Carlat, in his book: Unhinged: The Trouble with Psychiatry—A Doctor’s Revelations about a Profession in Crisis, points out that the medication route can double a psychiatrist’s income. That is a significant and tempting amount of money.

Carlat acknowledges that there continues to be a role for medications in treating mental illness, but he believes that a greater role has to be reacquired by therapy if justice is to be done to the patients. Clearly a solution to the economics issue would be possible if more efficient forms of therapy were available. Carlat believes there is such a technique. It is called cognitive behavioral therapy (CBT).

“....devised by a disenchanted psychoanalyst named Aaron Beck. Beck became impatient with the global pace of progress in psychoanalysis, and decided that a more efficient way to get patients to feel better is to teach them to think better. Instead of asking ‘How does that make you feel,’ he began asking patients ‘How does that make you think?’ He found that depression and anxiety are often triggered by irrational thoughts and ideas. If patients could identify their distorted thoughts and question them, they could presumably change the negative emotions the thoughts had triggered.”

The efficiency of this approach derives from the fact that it deals with the present rather than the past. Treatment then can have a definable duration rather than being open ended. There is even the suggestion that the approach is amenable to self-guided, computer-driven therapy.

“CBT has been studied by comparison with medications and has been found to be equally effective for depression and anxiety disorders. In some cases, it is more effective, especially for preventing relapses over the long term.”

The fact that the placebo effect is so strong in the cases of those suffering from depression and anxiety would indicate that the cause of the problem can be controlled by the unconscious mind. If the unconscious can eliminate the condition, then the conscious mind ought to be able to learn how to do it also.

The Economist has an article titled Therapist-Free Therapy. They describe CBT as an effective treatment for depression and anxiety that can be accomplished in 12-16 one hour sessions. They then proceed to describe cognitive-bias-modification (CBM) which has been shown to produce results in a few 15 minute sessions at a computer.

“CBM is based on the idea that many psychological problems are caused by automatic, unconscious biases in thinking. People suffering from anxiety, for instance, may have what is known as an attentional bias towards threats: they are drawn irresistibly to things they perceive to be dangerous. Similar biases may affect memory and the interpretation of events. For example, if an acquaintance walks past without saying hello, it might mean either that he has ignored you or that he has not seen you. The anxious, according to the theory behind CBM, have a bias towards assuming the former and reacting accordingly.”

“The goal of CBM is to alter such biases, and doing so has proved surprisingly easy. A common way of debiasing attention is to show someone two words or pictures—one neutral and the other threatening—on a computer screen. In the case of social anxiety these might be a neutral face and a disgusted face. Presented with this choice, an anxious person instinctively focuses on the disgusted visage. The program, however, prods him to complete tasks involving the neutral picture, such as identifying letters that appear in its place on the screen. Repeating the procedure around a thousand times, over a total of two hours, changes the user’s tendency to focus on the anxious face. That change is then carried into the wider world.”

This approach sounds like it is too new to be properly evaluated, but preliminary results involving “social anxiety” were sufficiently promising that larger studies are underway, and attempts are being made to expand the technique into other areas.

There is no biological justification for treating mental illness with drugs. Drugs can only provide short-term remission of symptoms. Carlat quotes a pediatrician named Ingeborg Van Pelt who provides an appropriate metaphor.

“Tranquilizers and psychotropic drugs serve as a life jacket—they keep you afloat, but they do not show you the way back to shore.”

To which Carlat adds:

“Therapy gets patients back to shore.”

If we can arrive at more efficient and effective modes of therapy then we would finally have a true “revolution in psychiatry.”