Posts tagged interesting

Egypt, Oil and Democracy



Revolutions are, by their very nature, difficult to predict. The unrest that gripped Eastern Europe and the Soviet Union from 1989 to 1992, and led to the fall of Communist governments there, was anticipated by few policymakers and political scientists in advance.

If a similar transition is now underway in Egypt, as well as in other parts of North Africa and the Middle East, it too will come as a surprise to most in the international community. Tunisia, for instance, where President Zine el-Abidine Ben Ali was overthrown in mid-January, had ranked just 118th out of 177 countries according to Foreign Policy magazine’s Failed States Index, a measure of the likelihood of regime change. Egypt’s ranking, 49th, was considerably higher — and a few experts can be said to have seen some of last week’s events coming — but some of the brightest minds in the business were predicting Egypt’s government would remain intact, even after the ouster of Mr. Ben Ali in Tunisia.

One thing that links Egypt and Tunisia, however — and which forms part of the background against which attempts at revolution might have been more likely in those countries — is that as compared to most of the region, they do not have much oil.

There is a large body of literature in political science connecting oil wealth and democratization. Although the conclusions are not universally accepted and there are some exceptions — Norway, for instance, is one of the most petroleum-rich countries in the world, and also one of the most democratic — the consensus view is toward what Thomas L. Friedman refers to as The First Law of Petropolitics: oil and democracy do not mix. 

Below is a table of statistics on the 16 countries that are traditionally thought of as making up the Middle East and the six that make up North Africa (Egypt is in both groups), along with the United States. For each country, I have listed its oil export revenues (as estimated by the C.I.A. World Factbook) divided by the country’s gross domestic product, as well as by its population. (The calculation assumes an average price of $80 per barrel, which is about the average in recent years.) I have also listed a country’s level of democratization as measured by the Democracy Index published by The Economist magazine.

Egypt does have some oil: it produces about 600,000 barrels a day, with a retail value of about $18 billion annually. Still, because of Egypt’s large population, this would translate to only about $220 per capita. And most of Egypt’s oil stays in its domestic market: it exports only 89,000 barrels a day, which would produce $2.6 billion a year at a price of $80 per barrel, or just $32 per person. This is much less than the aggregate figure for the Middle East, which is $1,605 per person.

Egypt also ranks 18th in natural gas production, which may have some similar effects. But — as with its petroleum — most of it is retained for the domestic market; its exports produce only about $20 annually per capita at prevailing prices.

Whichever measure is chosen, Egypt belongs with the Middle Eastern countries that have relatively few fossil fuel resources, rather than those that have them in abundance. Tunisia’s oil exports are slightly higher, but still well below the regional average.

It’s the resource-poor countries, however, that are more likely to be at least partially democratic. The Economist ranks Cyprus and Israel, which have little to no oil, as being democracies (albeit what it calls “flawed democracies”). Likewise, it classifies Lebanon and Turkey, which also have little oil, as “hybrid states” leaning toward being democracies.

By contrast, The Economist rates all of the oil-rich countries in the region as being authoritarian, with the partial exception of Iraq which — after the United States’ intervention there — was assigned a score of 4.00, placing it just at the brink between authoritarian and partially democratic.

Many of the studies that have identified this effect have concluded that it is not necessarily confined to the Middle East — some evidence also been cited in Africa, for instance, as well as the countries of the former Soviet Union. And many have also concluded that the effects are not merely incidental but, also, causal: when new oil discoveries are made, they tend to retard democratization and enhance authoritarianism (a recent example of this is Equatorial Guinea, which discovered significant amounts of oil in the late 1990s).

Michael Ross, a political science professor at U.C.L.A. who is among the foremost proponents of the hypothesis, has concluded that democratic transitions are 50 percent more likely in oil-poor states than in oil-rich ones. That fact alone is certainly not sufficient to explain why Tunisia has undergone regime change, or why Egypt may be on the brink of it — but it does suggest that the underlying probabilities were greater in those countries than for some of their regional neighbors.

What gets quite complicated are the relationships between oil wealth and the health of a country’s economy more generally, which requires one to sort through several theories that are not obviously complementary. On the one hand, wealthier countries tend to be more democratic. On the other, it is not clear that the discovery of natural resources actually produces more wealth (one well-known theory, the so-called resource curse, holds to the contrary).

But, also, Dr. Ross has hypothesized that the mechanism by which authoritarian regimes perpetuate themselves in oil-rich states is through what he calls the “rentier effect“: popular dissent is quelled through low taxes and lavish government spending. Countries like Qatar and the United Arab Emirates — authoritarian and oil-rich regimes where most citizens nevertheless enjoy a high standard of living — are generally thought to be more stable than others that provide fewer services for their citizens.

Complicating matters further is that it is one thing for a regime to be toppled, and another for it to actually be replaced with a functional (or even semifunctional) democracy. It may be that poorer nations are more likely to experience political upheaval, but that wealthier ones — particularly if the wealth comes from sources other than oil riches — are more likely to successfully transition into being democracies.

How oil wealth is distributed — it usually goes to the few rather than the many, but to different degrees in different countries — is yet another factor. But regimes like the one in Qatar, which earns the equivalent of $26,000 per citizen per year from its oil exports, at least have some good choices to make.

That is not true for Egypt, which would not make enough from oil to materially improve its standard of living no matter how the revenues were distributed. Nor is it true for some of the other countries in the region that are experiencing political tension. Yemen, for instance — although its oil exports constitute a relatively large share of its G.D.P. because its economy is so underdeveloped otherwise — earns only about $350 per capita per year from its oil exports. Syria, whose authoritarian regime is said to be nervous about the developments in Egypt, makes about $200 per head, as does Sudan, which is about to split in two. And Jordan has no oil exports at all. If the theory holds, then governments like these — and not oil-rich ones like Libya, Algeria, or the states of the Arabian Peninsula — are more likely to be the next to fall.

h/t reader Adam. #readersubmission

Black? White? Asian? More Young Americans Choose All of the Above

Great article from Sunday’s frontpage. Yes, Sunday. We’ve been busier than you can possibly fathom. Excerpt below (along with embedded chart). Click photo or text linke for full piece. Enjoy…

From left: Shannon Palmer, Japanese/Irish; Vasco Mateus, Portuguese/African-American/Haitian; Laura Wood, black/white.More Photos »

COLLEGE PARK, Md. — In another time or place, the game of “What Are You?” that was played one night last fall at the University of Maryland might have been mean, or menacing: Laura Wood’s peers were picking apart her every feature in an effort to guess her race.

“How many mixtures do you have?” one young man asked above the chatter of about 50 students. With her tan skin and curly brown hair, Ms. Wood’s ancestry could have spanned the globe.

“I’m mixed with two things,” she said politely.

“Are you mulatto?” asked Paul Skym, another student, using a word once tinged with shame that is enjoying a comeback in some young circles. When Ms. Wood confirmed that she is indeed black and white, Mr. Skym, who is Asian and white, boasted, “Now that’s what I’m talking about!” in affirmation of their mutual mixed lineage.

Then the group of friends — formally, the Multiracial and Biracial Student Association — erupted into laughter and cheers, a routine show of their mixed-race pride.

The crop of students moving through college right now includes the largest group of mixed-race people ever to come of age in the United States, and they are only the vanguard: the country is in the midst of a demographic shift driven by immigration and intermarriage.

One in seven new marriages is between spouses of different races or ethnicities, according to data from 2008 and 2009 that was analyzed by the Pew Research Center. Multiracial and multiethnic Americans (usually grouped together as “mixed race”) are one of the country’s fastest-growing demographic groups. And experts expect the racial results of the 2010 census, which will start to be released next month, to show the trend continuing or accelerating.

Many young adults of mixed backgrounds are rejecting the color lines that have defined Americans for generations in favor of a much more fluid sense of identity. Ask Michelle López-Mullins, a 20-year-old junior and the president of the Multiracial and Biracial Student Association, how she marks her race on forms like the census, and she says, “It depends on the day, and it depends on the options.”

They are also using the strength in their growing numbers to affirm roots that were once portrayed as tragic or pitiable.

“I think it’s really important to acknowledge who you are and everything that makes you that,” said Ms. Wood, the 19-year-old vice president of the group. “If someone tries to call me black I say, ‘yes — and white.’ People have the right not to acknowledge everything, but don’t do it because society tells you that you can’t.”

No one knows quite how the growth of the multiracial population will change the country. Optimists say the blending of the races is a step toward transcending race, to a place where America is free of bigotry, prejudice and programs like affirmative action.

Pessimists say that a more powerful multiracial movement will lead to more stratification and come at the expense of the number and influence of other minority groups, particularly African-Americans.

And some sociologists say that grouping all multiracial people together glosses over differences in circumstances between someone who is, say, black and Latino, and someone who is Asian and white. (Among interracial couples, white-Asian pairings tend to be better educated and have higher incomes, according to Reynolds Farley, a professor emeritus at the University of Michigan.)

Along those lines, it is telling that the rates of intermarriage are lowest between blacks and whites, indicative of the enduring economic and social distance between them.

Prof. Rainier Spencer, director of the Afro-American Studies Program at the University of Nevada, Las Vegas, and the author of “Reproducing Race: The Paradox of Generation Mix,” says he believes that there is too much “emotional investment” in the notion of multiracialism as a panacea for the nation’s age-old divisions. “The mixed-race identity is not a transcendence of race, it’s a new tribe,” he said. “A new Balkanization of race.”

But for many of the University of Maryland students, that is not the point. They are asserting their freedom to identify as they choose.

“All society is trying to tear you apart and make you pick a side,” Ms. Wood said.

Who Is Marrying Whom

Nearly 9 percent of all marriages in the United States in 2009 were interracial or interethnic, more than double the percentage in 1980. The rates of intermarriage vary widely depending on gender, race or ethnicity. Gender differences are most pronounced among blacks and Asians. Black men marry someone from a different group twice as often as black women do, while among Asians, the gender pattern is reversed. Over all, black Hispanics and American Indians have the highest rates of intermarriage. For Asians and white Hispanics, the rates of intermarriage have remained static or decreased.

Goldman Vs. Apple: Who Generates the Highest Economic Return?

I’ve been wanting to get this up all day.

First, here’s to all of God’s workers. You know who you are. Your just reward awaits.

More importantly, John Cassidy (New Yorker) had a great Rational Irrationality piece today. In full below…..

Contrary to appearances, I’m not obsessed with Goldman Sachs, and this will be my last post on the subject for a while. But the Wall Street firm issued its latest profit report today, and I thought it would be interesting to compare its results to those of Apple, another iconic American business, which yesterday published its own profit figures.

Many people are put off by financial accounts, but they provide an invaluable window into what is really going on in a given corporation, and to how much it is contributing to society. I may be weird, but sometimes I actually like poking around in 10-Qs, 8-Ks, and other disclosure forms that public companies have to file with the Securities and Exchange Commission. One word of warning, though. What follows should be considered a process of me thinking out loud, and pointing out some things that strike me, rather than reaching any definitive conclusions.

As everybody knows, Goldman and Apple are both making tons of money (although Goldman’s latest results disappointed investors somewhat). In the final quarter of 2010, the bank generated net profits of $2.39 billion on revenues of $8.64 billion. Apple, which has a much bigger turnover, made profits of $6 billion on revenues of $26.4 billion.

On Wall Street and in the computer industry, quarterly profits tend to bounce around a bit, so it is perhaps more illuminating to look at the entirety of 2010. With Goldman, whose fiscal year follows the calendar, this is easy. In the past twelve months, Goldman recorded net profits of $8.35 billion on revenues of $39.16 billion. Apple’s financial year ends in September, but by combining the results from its first fiscal quarter of 2011, which has just ended, and the final three quarters of 2010, I came up with the following figures. Apple made $17.63 billion on revenues of $76.28 billion.

On the face of it, the two firms’ profit margins seem pretty similar. For every dollar of revenue it generates, Goldman makes a profit of about twenty-one cents; Apple makes about twenty-three cents. But that is where the comparisons end. From an economic perspective, the real measure of a business is the return it generates on the capital it employs, which could be used in alternative projects. By this metric, Apple leaves Goldman far behind.

One popular measure of capital is “shareholders’ equity,” which consists largely of money invested in the firm and retained earnings. Wall Street analysts tend to fixate on return on equity (ROE), but it can be a misleading, especially when applied blindly to financial institutions. In good times, banks can increase their ROE simply by taking on more leverage (borrowing). Until the fall of 2008, this was precisely the strategy that Goldman and its rivals pursued: in the boom years, Goldman often generated a return on ROE of more than twenty per cent, but this wasn’t sustainable. When the credit bubble burst, high levels of leverage destroyed some banks and forced others into the arms of the government. In effect if not intention, the banks had been creating fictitious profits, much of which ultimately ended up as losses.

During the past couple of years, the banks, Goldman included, have cut their leverage ratios sharply, partly by issuing more equity to shareholders, partly by selling assets and paying down debts. As a result, we now have a more realistic estimate of their earnings power. Despite its return to profitability in 2009 and 2010, Goldman’s ROE last year was just 11.5 per cent. Apple, by contrast, generated a ROE of about thirty-two per cent in 2010, almost three times the Goldman figure.

Another way to gauge a firm’s performance is to take everything it possesses—its buildings, its machinery and other equipment, its product designs, and its financial holdings—and look at how much profit it generates for each dollar of assets on its books. In my opinion, this measure, which is known as return on assets (ROA), is the best way to judge a business, because it excludes the amplifying effect of leverage. Now let’s apply it to Goldman and Apple.

According to its latest filing with the S.E.C., Goldman ended 2010 with assets of $911 billion, which means its ROA for the year was roughly .91 per cent. (Yes, that is less than one per cent.) Apple ended 2010 with total assets of $86.7 billion, which means it generated an ROA of about 20.3 per cent.

To summarize: Apple isn’t merely generating a higher return on the capital it employs than Goldman; it is more than twenty times as profitable! How can this be?

Part of the answer is an accounting foible. Unlike some corporations, Apple doesn’t record on its balance sheet much of the value of its patents and other intellectual property—the look and feel of the iPad, for example. If it did this, the figure for total assets recorded on its books would be considerably higher, and its ROA would be lower. But accounting is only a small part of the story. (As far as I know, Goldman doesn’t capitalize its intellectual capital, such as it is, either.)

The main reason why Apple is so much more profitable than Goldman is a reassuring one. It makes tangible things—iMacs, iPhones, iPads—that millions of people want to buy, and for which they are willing to pay a premium price. (I am writing this post on an iMac.) Despite operating in a highly competitive industry, Steve Jobs’s firm has successfully differentiated its product line to such an extent that it now has considerable monopoly power: it can charge considerably more for its gizmos that they cost to manufacture.

Goldman, for all its reputation and smarts, has no such franchise. It does some things that its clients value and are willing to pay for—making markets, raising capital, providing investment advice, hedging risky positions—but rival banks, such as JPMorgan Chase and Morgan Stanley, provide practically the same suite of services, and pricing power is limited. (Not limited enough in some areas, such as I.P.O.s.) The only way Goldman (or any other investment bank) can increase its profit margins in a big way is to leverage up its balance sheet and live by its wits in the financial markets. But when banks all try this together, the consequences are usually disastrous.

Another thing that differentiates Goldman from Apple is how much it pays its employees. In 2010, Goldman’s 35,700 employees took home an average of $430,700. Apple doesn’t publish much information about its labor costs. According to the jobs Web site Simply Hired, the average salary at Apple is $46,000. Another Web site, Salary List, quotes a substantially higher figure—$107,719—but that doesn’t appear to include people working at Apple’s more than three hundred retail stores. Whichever number is more accurate, the basic message is the same. Apple employees earn a lot less than their counterparts at Goldman despite the fact they generate a much higher return—private and social—on the capital they use.

Go figure.

The New Yorker: To-Do List: New Leaders in Tunisia, at Apple, Among Starbucks Cup Sizes

January 24, 2011

The unthinkable has happened. The Scrambler’s first paper edition arrived this weekend. I’ve joined the ranks of the snobby elite. To quote an excellent film…

I have foresworn myself. I have broken every law I have sworn to uphold, I have become what I beheld and I am content that I have done right! 

A t-shirt to the first person who comes back with the movie. No googling.


To know: Congresswoman Gabrielle Giffords is making a promising recovery—doctors have upgraded her condition from critical to serious—but the political climate in Arizona continues to suffer: three Republican district officials have resigned due to increasing concern for their own safety….Chinese President Hu Jintao will meet with President Obama in Washington this week. And three ministers in Tunisia have already withdrawnfrom the country’s new national unity government, which was formed after the president fled the country on Friday. (Read Amy Davidson on the Tunisian protests and WikiLeaks, and Erin Overbey on The New Yorkers past coverage of Tunisia.)

To readPresident Obama’s op-ed piece in the Wall Street Journal on the executive order that he is signing today to review and revamp the federal regulatory system.

To get the first shot at Facebook stockForeign investors only.

To be the new Michael Steele: Reince Priebus, who ousted Steele as chairman of the Republican National Committee on Friday afternoon. Priebus plans to start by removing several staffers who had been closest to Steele, according to Politico’s Alexander Burns.

To be the new Steve Jobs? Timothy Cook, who will take over day-to-day operations of Apple with Jobs on his third medical leave in under a decade. Some investors are worried that, this time, Jobs won’t return, according to the New York Times.

To one-up the Venti: Starbucks newest and biggest beverage size, the Trenta. The thirty-one-ounce cup will be introduced today in fourteen states. New York is not among them.

To one-up the grand piano: The Stuart and Sons grand piano, which has fourteen more keys (nine low, five high) than the typical, eighty-eight-key grand.

Inside the Knockoff-Tennis-Shoe Factory

From Sunday’s NYTMag. Maybe we’re in the wrong business…

A shopkeeper in Italy placed an order with a Chinese sneaker factory in Putian for 3,000 pairs of white Nike Tiempo indoor soccer shoes. It was early February, and the shopkeeper wanted the Tiempos pronto. Neither he nor Lin, the factory manager, were authorized to make Nikes. They would have no blueprints or instructions to follow. But Lin didn’t mind. He was used to working from scratch. A week later, Lin, who asked that I only use his first name, received a pair of authentic Tiempos, took them apart, studied their stitching and molding, drew up his own design and oversaw the production of 3,000 Nike clones. A month later, he shipped the shoes to Italy. “He’ll order more when there’s none left,” Lin told me recently, with confidence.

Lin has spent most of his adult life making sneakers, though he only entered the counterfeit business about five years ago. “What we make depends on the order,” Lin said. “But if someone wants Nikes, we’ll make them Nikes.” Putian, a “nest” for counterfeit-sneaker manufacturing, as one China-based intellectual-property lawyer put it, is in the south­eastern Chinese province of Fujian, just across the strait from Taiwan. In the late 1980s, multinational companies from all industries started outsourcing production to factories in the coastal provinces of Fujian, Guangdong and Zhejiang. Industries tended to cluster in specific cities and sub­regions. For Putian, it was sneakers. By the mid-1990s, a new brand of factory, specializing in fakes, began copying authentic Nike, Adidas, Puma and Reebok shoes. Counterfeiters played a low-budget game of industrial espionage, bribing employees at the licensed factories to lift samples or copy blueprints. Shoes were even chucked over a factory wall, according to a worker at one of Nike’s Putian factories. It wasn’t unusual for counterfeit models to show up in stores before the real ones did.

“There’s no way to get inside anymore,” Lin told me, describing the enhanced security measures at the licensed factories: guards, cameras and secondary outer walls. “Now we just go to a shop that sells the real shoes, buy a pair from the store and duplicate them.” Counterfeits come in varying levels of quality depending on their intended market. Shoes from Putian are designed primarily for export, and in corporate-footwear and intellectual-property-rights circles, Putian has become synonymous with high-end fakes, shoes so sophisticated that it is difficult to distinguish the real ones from the counterfeits.

In the last fiscal year, U.S. Customs and Border Protection seized more than $260 million worth of counterfeit goods. The goods included counterfeit Snuggies, DVDs, brake pads, computer parts and baby formula. But for four years, counterfeit footwear has topped the seizure list of the customs service; in the last fiscal year it accounted for nearly 40 percent of total seizures. (Electronics made up the second-largest share in that year, with about 12 percent of the total.) The customs service doesn’t break down seizures by brand, but demand for the fake reflects demand for the real, and Nike is widely considered to be the most counterfeited brand. One Nike employee estimated that there was one fake Nike item for every two authentic ones. But Peter Koehler, Nike’s global counsel for brand and litigation, told me that “counting the number of counterfeits is frankly impossible.”

Lunchtime Read- Your Move: The Maze of Free Will


Needless to say, I’m really liking The Stone blog over at NYT. Excerpt below.

You arrive at a bakery. It’s the evening of a national holiday. You want to buy a cake with your last 10 dollars to round off the preparations you’ve already made. There’s only one thing left in the store — a 10-dollar cake.

On the steps of the store, someone is shaking an Oxfam tin. You stop, and it seems quite clear to you — it surely is quite clear to you — that it is entirely up to you what you do next. You are — it seems — truly, radically, ultimately free to choose what to do, in such a way that you will be ultimately morally responsible for whatever you do choose. Fact: you can put the money in the tin, or you can go in and buy the cake. You’re not only completely, radically free to choose in this situation. You’re not free not to choose (that’s how it feels). You’re “condemned to freedom,” in Jean-Paul Sartre’s phrase. You’re fully and explicitly conscious of what the options are and you can’t escape that consciousness. You can’t somehow slip out of it.

You may have heard of determinism, the theory that absolutely everything that happens is causally determined to happen exactly as it does by what has already gone before — right back to the beginning of the universe. You may also believe that determinism is true. (You may also know, contrary to popular opinion, that current science gives us no more reason to think that determinism is false than that determinism is true.) In that case, standing on the steps of the store, it may cross your mind that in five minutes’ time you’ll be able to look back on the situation you’re in now and say truly, of what you will by then have done, “Well, it was determined that I should do that.” But even if you do fervently believe this, it doesn’t seem to be able to touch your sense that you’re absolutely morally responsible for what you next.

The case of the Oxfam box, which I have used before to illustrate this problem, is relatively dramatic, but choices of this type are common. They occur frequently in our everyday lives, and they seem to prove beyond a doubt that we are free and ultimately morally responsible for what we do. There is, however, an argument, which I call the Basic Argument, which appears to show that we can never be ultimately morally responsible for our actions. According to the Basic Argument, it makes no difference whether determinism is true or false. We can’t be ultimately morally responsible either way.

The argument goes like this.

(1) You do what you do — in the circumstances in which you find yourself—because of the way you then are.

(2) So if you’re going to be ultimately responsible for what you do, you’re going to have to be ultimately responsible for the way you are — at least in certain mental respects.

(3) But you can’t be ultimately responsible for the way you are in any respect at all.

(4) So you can’t be ultimately responsible for what you do.

The key move is (3). Why can’t you be ultimately responsible for the way you are in any respect at all? In answer, consider an expanded version of the argument.

(a) It’s undeniable that the way you are initially is a result of your genetic inheritance and early experience.

(b) It’s undeniable that these are things for which you can’t be held to be in any way responsible (morally or otherwise).

(c) But you can’t at any later stage of life hope to acquire true or ultimate moral responsibility for the way one you are by trying to change the way you already are as a result of genetic inheritance and previous experience.

(d) Why not? Because both the particular ways in which you try to change yourself, and the amount of success you have when trying to change yourself, will be determined by how you already are as a result of your genetic inheritance and previous experience.

(e) And any further changes that you may become able to bring about after you have brought about certain initial changes will in turn be determined, via the initial changes, by your genetic inheritance and previous experience.

The interplay between prosperity—and poverty—and religious observance has become a recent fascination of a small number of economists and other social scientists, for understanding these patterns can help us better predict the future. Do hard times produce more fundamentalists? Do prosperous times produce more do-gooders? Will a lengthy economic slump pull people into the pews to pray for jobs and ladle soup for needier neighbors? Or will it keep people at home on the couch, nursing psychic wounds and cursing their creator?

Lisa Miller, on whether recessions make us more religious.  (via newsweek)

Good questions, Lisa. Also, read Nick Paumgarten’s piece asking why people view tragedies as “acts of God”:

“Questions of agency, divine or otherwise, dog us these early-summer days, amid a pileup of ill tidings: an intractable war; hints, once again, of economic depression; the deep-sea oil disaster in the Gulf of Mexico. Who’s to blame? Who’s in charge? On the day of the Mayor’s pronouncement, a technician who is working with British Petroleum to drill relief wells told the Times, in response to questions about the state of the damaged well, and about the prospects for fixing it, ‘No human being alive can know the answers.’ A line like that could put a man in a theological mood—especially on the heels of the technician’s previous remark, a triumph of the triple negative: ‘I won’t say there haven’t been relief wells that haven’t worked.’”

(via newyorker)

What Caffeine Actually Does to Your Brain

Lifehacker, coming strong today. Excerpt below, follow the link for full piece. Fascinating.

Right off the bat, it’s worth stating again: the human brain, and caffeine, are nowhere near totally understood and easily explained by modern science. That said, there is a general consensus on how a compound found all over nature, caffeine, affects the mind.

What Caffeine Actually Does to Your BrainEvery moment that you’re awake, the neurons in your brain are firing away. As those neurons fire, they produce adenosine as a byproduct, but adenosine is far from excrement. Your nervous system is actively monitoring adenosine levels through receptors. Normally, when adenosine levels reached a certain point in your brain and spinal cord, your body will start nudging you toward sleep, or at least taking it easy. There are actually a few different adenosine receptors throughout the body, but the one caffeine seems to interact with most directly is the A1 receptor. More on that later.

What Caffeine Actually Does to Your BrainEnter caffeine. It occurs in all kinds of plants, and chemical relatives of caffeine are found in your own body. But taken in substantial amounts—the semi-standard 100mg that comes from a strong eight-ounce coffee, for instance—it functions as a supremely talented adenosine impersonator. It heads right for the adenosine receptors in your system and, because of its similarities to adenosine, it’s accepted by your body as the real thing and gets into the receptors.

What Caffeine Actually Does to  Your BrainMore important than just fitting in, though, caffeine actually binds to those receptors in efficient fashion, but doesn’t activate them—they’re plugged up by caffeine’s unique shape and chemical makeup. With those receptors blocked, the brain’s own stimulants, dopamine and glutamante, can do their work more freely—”Like taking the chaperones out of a high school dance,” Braun writes in an email. In the book, he ultimately likens caffeine’s powers to “putting a block of wood under one of the brain’s primary brake pedals.”

It’s an apt metaphor, because it spells out that caffeine very clearly doesn’t press the “gas” on your brain, and that it only blocks a “primary” brake. There are other compounds and receptors that have an effect on what your energy levels feel like—GABA, for example—but caffeine is crude way of preventing your brain from bringing things to a halt. “You can,” Braun writes, “get wired only to the extent that your natural excitatory neurotransmitters support it.” In other words, you can’t use caffeine to completely wipe out an entire week’s worth of very late nights of studying, but you can use it to make yourself feel less bogged down by sleepy feelings in the morning.

These effects will vary, in length and strength of effect, from person to person, depending on genetics, other physiology factors, and tolerance. But more on that in a bit. What’s important to take away is that caffeine is not as simple in effect as a direct stimulant, such as amphetamines or cocaine; its effect on your alertness is far more subtle.