Category Archives: The Economy

Climate of Fear IX November 2014.

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India is bound to be a big loser from global climate change. The air pollution in Delhi is worse than that in Beijing; sea-level rise could forcibly displace 37 million Indians by 2050, and water for farmers could be affected by accelerated melting of glaciers in the Himalayas or disruption of the monsoons. So, India has a deep interest in limiting climate change. However, India is also one of the principle forces causing climate change.[1]

Burning coal for generating electricity is central to India’s strategy for economic development. The country has huge coal deposits (the fifth largest in the world), but little oil or natural gas. Consequently, India launched a ten year plan for building coal-burning generating plants back in 2009. Generating capacity has already expanded by 73 percent. In 2013 India burned 565 million tons of coal. Most Indian coal has a high ash-content, so it pollutes more than do some other commonly used types of coal. This makes India the third-largest emitter of greenhouse gases. By 2019 the government plans to burn more than a billion tons a year. “India’s development imperatives cannot be sacrificed at the altar of potential climate changes many years in the future,” the government’s Minister of Power has asserted.

It will be difficult to argue that India should adjourn its plans for development. Three hundred million Indians have no electricity at all, and many more have it only in fits and starts. On a per-capita basis, Indians consume only one-fourteenth as much electricity as do Americans. In a country with hundreds of millions of people living in grotesque poverty, making do with less isn’t much of an option. Electricity powers industry and industry raises incomes.

India’s coal-fired industrialization effort alarms environmentalists elsewhere. “If India goes deeper and deeper into coal, we’re all doomed.” said one climate scientist at the Scripps Institute of Oceanography. There isn’t much ground for expecting push-back by Indian environmentalists. For the most part, Indians seem to accept both air pollution and the physical displacement of populations in the countryside to make space for more coal mines. The environmental movement in China seems to have more support behind it and, therefore, more influence with the government than is the case in India.

Nuclear power and solar generation offer alternative energy sources. A lot of Western India is cloudless for much of the year, so a lot of solar energy the ground. The government of Narendra Modi has said that it will launch a program of constructing solar-energy plants. Whether this can be carried forward fast enough and on a large enough scale to replace India’s reliance on coal is hard to tell.

So, that’s a problem. Still, China currently burns as much coal as every other country in the world combined. Can India’s coal-burning really pose more of a problem than does that of China?[2] The recent agreement between the United States and China called for China to cap its greenhouse gas emissions before 2030. The Chinese may continue to shovel on the coal until then, but they also might begin to shift from a reliance on coal to other energy sources. If that comes true, it will be a lot more significant for the climate than is India’s continuing development of coal. If the rest of the world moves in one direction, then India might find a way to follow. There’s a couple of big “Ifs” there. Still, the prospects look better than they did a little while ago.

[1] Gardiner Harris, “Coal Rush in India Could Tip Balance of Climate Change,” NYT, 18 November 2014.

 

[2] China produces 46 percent of the world’s coal and imports more; India produces 7.7 percent of the world’s coal, but has been developing its own reserves because of the cost of imports. See: “Climate of Fear IX.”

The economic mess and policy.

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Median income, adjusted for inflation, is about $3,600 less than when President George W. Bush entered the White House and about $2,100 less than when President Obama entered the White House. America has not recovered from the “Great Recession.” We are rolling up on fifteen years of falling incomes after a long period of rising incomes. In contrast, upper income groups are seeing their wealth and incomes rise. Something is wrong.

What do economists suggest about reviving economic growth? They suggest improving education because America has lost its one-time enormous lead over other nations in terms of human capital. They suggest improving our crumbling infrastructure because roads, bridges, airports, and telecommunications are all falling behind needs. They suggest sorting out the messy tax code to reduce distortions in economic activity. They suggest cutting the cost of health care, which drags on the economy and cuts down money wages.[1]

The problem with these sorts of policies is that they will take a long time to play out, have an uncertain effect, and are complicated to understand. Hence, both side look for nostrums that look good on a bumper sticker. For Republicans, the solution tends to be cuts in taxes on high income-earners and corporations. These are the “job creators.”

What do the Democrats want to do to raise stagnant incomes among middle-class “workers”?[2] Well, they haven’t done much for quite a stretch so far as voters can tell. It should surprise no one if lots of them sit out an election. To counteract this trend, Democrats have adopted the cause of a higher minimum wage. In the near future they may turn to a “middle-class tax cut.” It seems most likely that this “cut” would actually take the form of “tax-credits.” These could be presented as tax incentives to save for retirement or for college education. Democrats favor paying for these cuts through higher taxes on upper-incomes. This would be popular with most Americans, who want more money for themselves and resent wealthy people.

How likely is this to happen? On one sense, very likely. The anti-tax frenzy that has gripped America for several decades has led to all Americans paying lower taxes than the historical trend since the Second World War. President Obama was happy to make most of the Bush-era tax cuts permanent.

In another sense, very unlikely. Such policies would have to pass through the House of Representatives. According to one analysis, the House is almost certain to remain in the hands of Republicans for the next decade. Only 28 of the Republicans’ 244 House seats are in districts that voted for President Obama in 2012. The Democrats now hold 188 seats. If all of those seats were moved from Republican to Democrat candidates, then the two parties would tie in the House. Such a shift is very unlikely, given the advantages of incumbents and the unreliable turn-out among Democratic voters. For the last decade American politics has see-sawed between Republicans and Democrats, but what Americans seem to like is a divided government that can’t accomplish anything.

David Leonhardt, “The Great Wage Slowdown, Looming Over Politics,” NYT, 11 November 20014.

Nate Cohn, “The Enduring Republican Grip on the House,” NYT, 11 November 2014.

[1] In fact, health care costs have stopped rising and in some cases have fallen. The reasons for this are subject to debate. It seems unlikely that the Affordable Care Act has anything to do with this—yet.

[2] OK, I’ll leave aside the whole issue of how “workers” used to mean “blue-collar.” Don’t want to suggest that America is really confused about the whole issue of social class.

 

Spiderman on Net Neutrality.

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There are three parties to the “net neutrality” debate. There are Internet Content Consumers (ICCs, individuals and businesses); Internet Content Providers (IPCs); and Internet Service Providers (ISPs). Since the ISPs connect the ICCs with the ICPs, they’re the subject of proposed regulations.

Unlike the public highways, the Internet is private property. To what degree is it legitimate for government to regulate private property? Should the Internet be treated like a utility or like normal company selling goods or services? A utility bills a customer for how much of the service or good that s/he consumes. It does not distinguish between customers, nor is it involved in competition with other providers, nor does it inquire into what purpose s/he uses the service or good.[1] A normal company competes with other companies for customers by offering new and attractive products at as low a price as possible. Which of these business forms does the Internet most closely resemble?

The Obama Administration argues that the Internet is like electricity, a utility. The President professes to fear (or serves as the mouthpiece for ICPs who fear) that ISPs will be able to “restrict the best access or pick winners and losers in the online marketplace.”

Internet Content Providers are not all equal in that some of them (Netflix, Hulu) require a lot more bandwidth than do many others. Internet Service Providers want to be able to charge these customers a different price than they charge other users. They analogize on-line content to cable television content. Being able to charge differential rates has led to an explosion of widely desired content in cable television (HBO for example). The same will happen with on-line content.

Internet Content Consumers and Internet Content Providers both hate this idea. Customers see the ISPs as positioning themselves to gouge money out of consumers by forcing them to pay for “packages” that include content that they don’t want or to pay premium prices for content that they do want. ICPs see the ISPs forging alliances with whoever has the deepest pockets, while squeezing anyone who doesn’t have great wealth yet out of the “fast lane” and into a “slow lane.”

On the other hand, differential pricing and “congestion” pricing are both well-established practices in business, government, and education. The toll on the bridge over the Delaware-Chesapeake Canal goes up on the week-end; colleges discount their price to students by providing different amounts of financial aid to different students; stores have sales.

The Internet is one of the engines of the future growth of the American economy. The Internet is not a “mature” industry or technology. Therefore the single most important issue is to decide what policy best encourages productive investment in and maximum expansion of the Internet. ISPs picking and choosing between customers sounds like a prescription for favoring established interests over new interests in a segment of the economy that is undergoing rapid development, innovation, and change. Ponderous—and perhaps politicized or paralyzed—government regulation sounds like a prescription for driving away badly-needed investment.

“One gives you cancer and the other stunts your growth.” You choose.

Neil Irwin, “A Super-Simple Way to Understand Net Neutrality,” NYT, 11 November 2014.

Eduardo Porter, “The Pitfalls of Net Neutrality,” NYT, 12 November 2014.

[1] I wonder if this is actually true in some place like Humboldt Country, CA, where there are a ton of grow houses?

 

Colleges Bobbing for French Fries.

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Education has always been a commodity like any other. Sellers set the price at what the market will bear. Calling colleges and universities “not-for-profit” hides from this reality. The only difference between Chrysler and a college is that colleges have no shareholders or proprietors.[1] Therefore, increased revenue goes directly to the employees. The reverse is also true. In a period of revenue constraint, the costs are taken out of the hide of the employees.

Suzanne Mettler has argued that the political gridlock in Washington has kept federal aid, like Pell grants, from rising enough to keep an increasing burden for tuition from falling on ordinary families. At the state level, the requirement to balance budgets and a widespread hostility to taxes has intersected rising costs for Medicaid and prisons to force cuts to state aid to public institutions.[2] Access to college is becoming a privilege of wealth instead of motor of American prosperity.

Barton Swaim isn’t buying it.[3] First, he sees a huge expansion of the scale and activities on the part of colleges and universities since the mid-1980s. “Departments and schools have multiplied, lavishly expensive student facilities and high-tech research centers have gone up even during recessions, well-paid administrators have multiplied like locusts, and federal grant-money has poured in at ever-increasing rates.” Why has this happened? “When government pays the bills, prices always go up.” Sellers charge what the market will be bear. Second, Swaim argues that the supposed recent “cuts” in state-funding for education are usually presented in terms of a falling share of state budgets, rather than as inflation-adjusted real dollars. (Swaim himself doesn’t bother to give any figures to support his alternative interpretation.) Implicitly, what is needed is some market discipline. Third, Swaim’s interpretation fits into the narrative of the unforeseen—and disastrous–consequences of liberal good intentions. Mettler, he says, “is right that American higher education is no longer the force of equality and opportunity that predominantly liberal policy makers intended it to be. What she misses is that those policy makers are to blame.”

What does Swaim get right and what does he get wrong? First, he’s right about the fact of the huge expansion in activities since the mid-1980s. He’s just wrong about the cause of it. Simply put, there are too many colleges and universities relative to the demand for them. They compete by multiplying academic program to reflect the latest fad, degrading academic standards, engaging in an amenities arms race, and multiplying recruitment and support staffs (i.e. administrators). We need a shake-out.

Second, he’s wrong on the cuts-in-state-financing-causing-tuition-increases issue. Tuition at public school has spiked much more than has tuition at private ones. This is the product of cuts in state aid. (See: “College costs: the old eat the young,” 27 September 2014.)

Third, he misses (or dodges) the chance to talk about the equivalent unforeseen—and disastrous–consequences of conservative good intentions. The war on drugs and the conversion of tax cuts from a rational policy choice into a primitive fetish (of the religious, rather than the sexual sort[4]) have been just as much exploding cigars as anything liberals have advocated.

[1] On the other hand, when is the last time you heard of a student recall? Jus sayin.

[2] Suzanne Mettler, Degrees of Inequality (Basic Books, 2014).

[3] Swaim, review of Mettler, Degrees of Inequality, WSJ, 14 March 2014.

[4] Although I suppose that someone could work up a funny patter on the parallels with BDSM. If that’s how you roll.

The International Trade in Jobs and Workers

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It is an article of faith among most economists and businessmen that barriers to trade between nations create inefficiencies and lower standards of living.[1] What kinds of barriers to trade exist? Tariffs are taxes on imported goods that raise the sales price to a level that makes the import uncompetitive with a domestic product. Government subsidies (payments) to domestic producers of some goods allow them to hold down prices compared to imports. Government regulations and standards for goods which vary from one country to another can force adaptation costs onto foreign producers, thus raising the price of their goods to a point where it isn’t worth the trouble to sell in a foreign market. The effect of these barriers is to reduce competition, efficiency, and specialization, while raising the cost of living for consumers.

So, trade barriers are bad. In 1994 businessmen won passage of the international treaty called the North American Free Trade Agreement (NAFTA). This treaty abolished tariffs and other barriers to trade on 70 percent of the goods produced and consumed in Mexico, the United States, and Canada. What is the up-side of this agreement? Trade between Mexico and the US tripled during the decade and a half after passage of the treaty; Canadian exports also tripled. What is the down-side of the agreement? Wages haven’t gone up in either Mexico or the US.

In the United States the response to NAFTA is ambivalent. The normal line of development in an advanced economy is that low-wage foreign competitors in low-skill sectors take jobs from the advanced economy, while the advanced economy creates jobs in high-skill and high-wage sectors. That is one of the things that seem to be happening in the United States. By 2008, three million American manufacturing jobs had been lost since the passage of NAFTA. This doesn’t count the many more jobs lost during the “Great Recession.” On the other hand, more jobs were created in those years than in the fourteen years before passage of the treaty. Similarly, highly-mechanized North American farming is far more productive and cheaper than is much Mexican farming, so agricultural exports to Mexico have also greatly increased. However, neither American politicians nor American media have been very good about pointing out the realities of the situation. Job-loss and displacement normally gets a lot more media attention than does job creation. “If it bleeds, it leads.” Those three million manufacturing jobs that went up in smoke since 1994? Mostly they went to China and India, not to Mexico.

In Mexico the response has been profoundly hostile. Mexicans dislike NAFTA by about two-to-one. Why is that? About forty percent of Mexicans still live in poverty. Small and inefficient Mexican farms have been unable to compete with low-cost imports from North America, so many Mexican farmers have been driven to the wall. There was been a huge increase in illegal immigration to the United States, until the “Great Recession” hit. Eight million of the twelve million Mexican illegal immigrants in the United States have come since the passage of NAFTA. Is NAFTA solely or even principally to blame for the flood of illegal immigrants? Not necessarily. One Mexican observer argues that the upper classes have creamed off all the rewards of expanded trade. This has kept the benefits of increased trade from flowing downward in society through higher taxes on the well-off, better services for ordinary people, and higher wages for most workers.

This raises the possibility that the Mexican upper-class is intentionally exporting much of its population to the United States in order to defend an inequitable social order at home.

[1] “Coming to terms with NAFTA,” The Week, 30 May 2008, p. 13.

Sore Winners and Sore Losers from Obamacare.

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Medicare provides health insurance for 98 percent of Americans aged 65 and over.

Who lacked/lacks health insurance before/since the Affordable Care Act (ACA)?

Group                                                  Before ACA               Today              Difference.

All Americans under 65                      16.4 percent                11.3 percent    -31 percent.

Hispanic-Mexicans                              26.2 percent                16.5 percent    -37 percent

Blacks                                                             24.1 percent                16.1 percent    -33 percent.

Whites                                                14.1 percent                10.0 percent    -29 percent

Asians                                                             13.6 percent                 9.7 percent    -29 percent

Aged between 18 and 34,                   21.6 percent                14.2 percent    -34 percent[1]

Aged 35 to 44                                     16.4 percent                11.2 percent    -32 percent

Aged 45 to 54                                     15.0 percent                10.6 percent    -29 percent

Aged 55 to 64                                                 12.7 percent.               9.1 percent    -28 percent

Poorest 20 percent of neighborhoods 26.4 percent                17.5 percent    -36 percent

Next poorest 20 percent                      21.6 percent                14.3 percent    -34 percent

Middle 20 percent,                              17.6 percent                11.9 percent   -33 percent

Next highest 20 percent                      13.4 percent                 9.4 percent    -30 percent

Richest 20 percent                               6.5 percent                6.5 percent    ————–

 

Overall and within almost all groups, the ACA has reduced the uninsured by about one-third. Still, two-thirds of those who were uninsured before the ACA remain uninsured today.

Why hasn’t a plan intended to provide almost all Americans with health insurance come anywhere near to achieving that goal? In large measure, the failures of this part of the ACA go back to its design. The ACA originally sought to coerce the states into expanding Medicaid to cover many of those who are uninsured today. In 2012, the Supreme Court rejected that component of the plan. States were left free to expand or not expand Medicaid. So far, twenty-seven states have chosen to expand Medicaid, while twenty-three have rejected it.

Why did many states reject Medicaid expansion? One answer would be Republican wrecking tactics directed against the center-piece of President Obama’s agenda. However, not all Republican-led states rejected expansion and not all Democratic-led states accepted it.

It is possible that rational calculation played a role. The states that rejected expansion had an average uninsured rate of 18.2 percent before the ACA, while those that accepted expansion had an average uninsured rate of 14.9 percent. Federal subsidies for expanded Medicaid are scheduled to be reduced in a few years. States will have to increase their share of the expanded costs. Many of the states that rejected Medicaid expansion pursue a low-tax strategy to attract business. Other parts of the ACA were not completely thought through. Perhaps the failure to make the complete Federal subsidy permanent is another such “glitch.” It will take a Democratic House, Senate, and White House to fix it.

Even in states that expanded Medicare, 9.2 percent of people remain without insurance.   Why? Ignorance? A libertarian resistance to coercive good intentions? Most Republicans have an ideological opposition to an “entitlement” that was forced on them by Democrats. Unlike post-war Europe, there is no consensus on this issue.

Kevin Quealy and Margot Sanger-Katz, “Obama’s Health Law: Who Was Helped Most,” NYT, 29 October 2014.

[1] Understates the gain because it doesn’t include the three million people who are allowed to remain on parents’ insurance.

Signals from the Depths.

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Democratically-elected governments have been responding to the “Great Recession” by trying to cut public spending.[1] This is a throw-back to the initial—and disastrous—response to the “Great Depression” after 1929. It is a rejection of the subsequent Keynesian deficit-spending policies that eventually got countries out of the Depression. The “sequester” in place of more stimulus has dragged on American economic recovery since 2011; the Germans insist upon austerity in the European Union, and Japan’s parliament recently passed a higher consumption tax that short-circuited an attempt to stimulate growth there.

In the absence of spending programs, central banks have used, are using, or may be about to use purchases of long-term debt (called “quantitative easing”) to pump money into the economy. This is better than nothing.[2] The Federal Reserve Bank has just ended its buying of long-term bonds and has hinted at higher interest rates in 2015. Thus, it is signaling its belief that economic recovery is well underway in the United States.

Still, amidst all the talk about an improving American economy, there have been signs of new troubles ahead in the world economy.[3] By early October 2014, world prices for bonds, currency, and commodities were being read to suggest the possibility of a new global slowdown. It isn’t clear that there are any policy tools that could check this descent.

Economic growth should reduce un-employment. Over time, lower unemployment should lead to a rise in wages and to higher prices. However, all the major advanced economies seem headed toward low long-term interest rates. There appears to be a widely-shared belief among knowledgeable people that inflation is not going to fire up any time soon. Why would people believe this?

First, the value of the dollar has been rising against the currencies of Europe, Japan, South Korea, and Japan. You could read this as investors taking flight from those currencies to the security of currently stable dollars. This may reflect a belief that by investors that the world economy is headed downhill and that there aren’t any policy tools to control the descent.

Second, stocks and bonds usually move in opposite directions. In an expanding economy, money will flow toward stocks as investors try to share in profits and rising share prices. In a shrinking economy, money will flow to bonds as people try to avoid being stuck with stocks whose price is falling. Monetary policy usually seeks to keep interest rates low when the economy needs to be propped-up. Until that is shown to be working, investors will accept even low yields from bonds. The interest rate on 10-Year US bonds has fallen over the course of the year from 3.0 percent to 2.2 percent. Purchasers are bidding-down the interest on these bonds out of their eagerness to have them in their portfolio.

Third, the price of commodities has been falling. The price of crude oil is down 22 percent since the end of June. The price of corn futures has fallen by 31 percent since late April. Abundant production is forcing down prices. It comes at an awkward time for confidence in the world economy.

What do you do when unelected experts and private investors disagree with elected representatives on the best policy? What if the experts and investors are right?

[1] Neil Irwin, “What the Bank of Japan’s Surprise Move Means for the Global Economy,” NYT, 31 October 2014.

[2] Moreover, it pushes up the prices of assets, which are owned by upper income groups, better than it stimulates employment or raises wages. So, many voters find themselves preoccupied by inequality.

[3] Neil Irwin, “The Depressing Signals the Markets Are Sending About the Global Economy,” NYT, 15 October 2014.

Climate of Fear VIII.

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In September 2014 the New York Times published a hard-headed essay by Robert Stavins, one of the authors for multiple reports by the UN’s Intergovernmental Panel on Climate Change.[1] He made some important points.

First, Americans first became sufficiently concerned about the environment to take action back in the late 1960s, when air and water pollution had become too obvious to be ignored. Then their attention turned to the issue of climate change during the 1980s and 1990s. Joining in a movement with other advanced economies, the United States signed a series of international agreements to reduce the emission of greenhouse gases. As a result of those agreements, emissions by these countries were held flat or even reduced.

Second, developing nations (China, India, South Korea, Mexico, Brazil, South Africa) refused to join in such agreements because their own industrialization is both carbon-fueled and essential to raise the living standards of their people. China leads this process: China produces 29 percent of the world’s annual carbon emissions and will pass the United States as the world’s leading total carbon emitter before mid-century. None of the developing countries want to check their own emissions because they fear that it will check economic growth. Their preferred solution is that the advanced countries restrict their emissions even more than they have to make space for the emissions of developing countries.

Third, unlike economists such as Robert Frank and Eduardo Porter (see: Climate of Fear II), Stavins doesn’t try to sugar-coat the costs of limiting emissions. The UN wants to hold the temperature rise to two degrees Celsius above the pre-industrial temperature. That would entail reducing carbon emission by 40 to 70 percent by 2050. Stavins argues that this would reduce economic growth by 0.06 percent per year from now to the end of the 21st Century. In total, that would cumulate to an annual reduction of economic activity of 5 percent.

Furthermore, even those predictions depend to some extent upon the rapid development of cheap alternative energy sources and technologies to limit emissions. Absent such cheap new technologies and the cost estimates are more than twice as high. Stavins appears skeptical that this will happen. Furthermore, cutting carbon emissions will require a large-scale use of nuclear energy and a world-wide carbon tax.

Fourth, the politics of meeting popular expectations raise a huge barrier to action. This isn’t a “democracy versus autocracy” issue. The rulers of China and India are sensitive to the economic aspirations of their people, even if they aren’t real democracies or democracies at all. Greenhouse gases are invisible and their impact is slow to show itself, rather than dramatic in form. So what if the people of the Seychelles have to take to the boats? Imposing costs immediately to avoid something bad in the future (or to someone else in the present) isn’t going to be popular anywhere. Similarly, the UN is just trying to limit the rise in temperature in the future, not to roll-back the 0.8 degrees Celsius rise that has already taken place. “If you make big sacrifices, then things will stay the way that they are now or get a little worse.” Try putting that on a bumper-sticker, then run for office.

Couple of things worth thinking about. On the one hand, is the best we can hope for a patchwork of wavering national efforts to limit emissions through administrative action? On the other hand, is there a way to make higher energy prices and more nuclear reactors palatable to voters? Or do we just adapt by drilling for deep water and moving back from the coasts?

[1] Robert N. Stavins, “Climate Realities,” NYT, 21 September 2014.

 

Climate of Fear VII.

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Back in 1792, the Marquis de Condorcet was in hiding from some French Revolutionaries who wanted to cut off his head. To while away the time in a garret, he wrote an essay predicting the continual improvement of the human situation. Science would tell us more about the world, while education would make that knowledge widely understood and the emancipation of women would enrich the stock of human capital. A week later he was dead, but his philosophical essay continued to inspire optimists. In 1798, Thomas Malthus approached the issue of human progress from the hard-headed perspective of mathematics. Human population would always tend to run ahead of food supply. Most people would find their standard of living forced down to the bare subsistence level. Two intelligent people approaching the same question from two different perspectives arrived at radically different answers.[1]

Accept that global warming is real. What’s the worst that could happen? As was the case with Condorcet and Malthus, the answer depends on who is doing the imagining. Diane Ackerman, The Human Age: The World Shaped by Us (New York: Norton, 2014) is “enormously hopeful.” For one thing, humans have been remodeling the planet almost since they climbed down out of the trees. It has been one long Lowe’s project: dams, dikes, canals, logging, and moving life-forms (bacteria, plants, animals, people) from continent to continent. All of this even before the Industrial Age began. Human beings do stupid things, or smart things that turn out to have awkward, unforeseen consequences. However, human beings are also endlessly inventive when solving problems. Florida may become uninhabitable as the seas rise, but Florida only became inhabitable for large numbers of people in the first place through the invention of air-conditioning and insecticide. People will accommodate to a changing environment; new technologies will emerge to deal with new demands.[2]

Both Naomi Oreskes and Erik Conway, The Collapse of Western Civilization: A View From the Future (New York: Columbia UP, 2014) and Naomi Klein, This Changes Everything: Capitalism vs. the Climate (New York: Simon and Schuster, 2014) are less sanguine.[3] Klein argues that “we have not done the things that are necessary to lower emissions because those things fundamentally conflict with deregulated capitalism, the reigning ideology for the entire period we have been struggling to find a way out of this crisis.” Where will this lead? http://www.youtube.com/watch?v=5BmEGm-mraE Naomi Klein at least, urges a “Great Transition” away from capitalism that will solve not merely the climate crisis, but will also resolve a host of other social ills.

Nathaniel Rich, “Books: Feeling Our Rising Temperature,” NYT, 23 September 2014, D5.

 

So who is correct? Goldilocks. It’s likely to be worse than Ackerman expects, especially if you live in one of the fragile zones of the Earth. Human adaptivity will deal with the changes better than Klein, Oreskes, and Conway fear.

What is the most prudent response? Do what we can to limit the changes that will come, while creating an environment to stimulate adaptive responses and new technologies. Carbon taxes would be a good place to start. Raise the price of carbon. Let consumers and entrepreneurs—not governments—figure out how to respond.

[1] Julian Simon and Paul Ehrlich continued this debate in the late 20th Century.

[2] My own hope is to grow rich by building a marina and resort on Baffin Island.

[3] I suppose you could call them “Naomi-sayers.” Ha! Is joke.

 

Oil for the Lamps of China.

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Half of the world’s easily available oil is in Iran, Iraq, and Saudi Arabia. That oil powered the great Western economic surge since the Second World War. In 1973 and 1979 “oil shocks”—sudden rises in the price of oil and restrictions in supply—badly damaged the world’s economy in multiple ways. In 1979 the Soviet Union invaded Afghanistan, on the border with Iran when it was caught up in the turmoil of the Iranian Revolution. Visions of Red Army tanks reaching the northern shores of the Persian Gulf danced through the heads of many people. In 1980 President Jimmy Carter announced that “Any attempt by an outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States.”

Actually, the American concern went beyond combatting an “outside force [seeking] to gain control.” The American concern encompassed any Middle Eastern state seeking to dominate so much of the region’s oil production that it could move the world market price for oil. What the Americans wanted was a stable world market in oil. President George H. W. Bush showed just how seriously the United States took both Carter’s declaration and the larger interest in price stability when he gathered a broad international coalition to cream Iraq in 1990-1991 after it occupied Kuwait.[1]

The spread of the Industrial Revolution into Asia has created a vastly more complicated situation. The collapse of the Communist experiment in the Soviet Union led the Peoples’ Republic of China (PRC) and then other one-time believers in a planned economy to turn toward a market economy. A head-long rush to industrialization in the non-Western world followed. Oil became in ever-greater demand. Thus, no sooner had Saddam Hussein’s invasion of Kuwait been defeated than the PRC entered international oil markets. By 2003 China had passed Japan as the world’s second largest economy and the second largest oil consumer.

The Chinese strategy began with two components. First, China re-cycles part of the profits from exporting low-cost manufactured goods to the West into buying up oil and gas drilling rights in developing countries. These export earnings leave China with deep pockets, so the Chinese often just out-bid their Western competitors. More than thirty countries have received Chinese investments in oil production. They include Algeria, Libya, Egypt, Sudan, Chad, Nigeria, Iran, and Indonesia. All Persian Gulf countries sell oil to China.

Second, China went where Western countries would not go. In particular, China began to court Sudan and Iran. By 2005, China had invested $15 billion in Sudan’s oil drilling and production. China chose to ignore the outcry in the West over the government of Sudan’s brutal war against its own people in the western and southern parts of the country. In Iran, China began trading modern weapons for oil to a state under a Western arms embargo. Cash investments soon followed. People in rich countries often forget that a delicate conscience is a luxury.

The Chinese demand for oil destabilizes the world oil market. Fighting China won’t be like fighting Iraq. So, perhaps people will strike a deal?

On all aspects of energy: http://www.eia.gov/countries/index.cfm?view=consumption

Matthew Yeoman, The World in Numbers: Crude Politics,” Atlantic, April 2005, pp. 48-49.

[1] The Great Depression of the 1930s had brought Hitler to power in Germany and had paralyzed the Western democracies. Reasoning backward from their own youthful experiences, many people in the West thought that if you hadn’t liked the Second World War and the Holocaust, then you should try to avoid a new world economic crisis. So, regardless of what Western liberals and Middle Eastern conspiracy theorists believe, “war for oil” isn’t the same thing as “war for oil companies.” It’s the same thing as “war for peace and prosperity.”