Monthly Archives: November 2009

James Hanson On Copenhagen

Newsweek is out with a good interview of world famous NASA Climate Scientist James Hanson regarding Copenhagen and the recent release of controversial e-mails from the Climate Research Unit at the University of East Anglia.

Hanson brushes off the significance of the dust-up over the e-mail release:

Do the e-mails indicate any unethical efforts to hide data that do not support the idea of anthropogenic global warming or to keep contrary ideas out of the scientific literature and IPCC reports?

They indicate poor judgment in specific cases. First, the data behind any analysis should be made publicly available.  Second, rather than trying so hard to prohibit publication of shoddy science, which is impossible, it is better that reviews, such as by IPCC and the National Academy of Sciences, summarize the full range of opinions and explain clearly the basis of the scientific assessment.

On the question of Copenhagen and current US policy , Hanson is even more clear:

How serious a setback would it be if no agreement on a climate treaty is reached in Copenhagen, where 192 countries are meeting starting Dec. 7?

It’s not a setback at all if it allows a careful reassessment of what is needed. The cap-and-trade scheme [that the Copenhagen negotiations were working toward] is just not going to be effective at controlling greenhouse emissions. Political leaders have to realize that the fundamental problem is that fossil fuels are the cheapest form of energy, so they will continue to be burned unless we put a gradually increasing price on carbon emissions [through a carbon tax]. That’s a much better approach than national goals for emissions reductions, which will probably not be met.

What do you think of the climate bills now before Congress?
They’re disasters. We can’t allow the polluters to write the bill, but that’s what happened. What’s needed is putting a price on carbon, not cap-and-trade.

Hanson is even more clear in his editorial about Copenhagen in The Guardian “Is There Any Real Chance of Averting A Climate Crisis?” in which he suggests:

Absolutely. It is possible – if we give politicians a cold, hard slap in the face. The fraudulence of the Copenhagen approach – “goals” for emission reductions, “offsets” that render ironclad goals almost meaningless, the ineffectual “cap-and-trade” mechanism – must be exposed.

He goes on to argue for a simple carbon tax offset by a total return of the tax to the public either through reductions in payroll taxes or “dividends” payed directly to citizens, an approach that has been favored by economists of all political persuasions.

I can’t agree with Hanson when he calls for increased use of nuclear energy, for all the reasons cited here.

But in general, Hanson has it exactly right on how to address climate and energy issues through public policy – put a real price on fossil fuels through the tax system and offset that tax with reductions in regressive taxes like the payroll tax which stifle our economy and discourage jobs creation.

Hanson is absolutely right in his assessment of  on our current policy efforts in Congress and on his hopes for Copenhagen.

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On Wealth and Poverty

In  “What Makes a Nation Rich?“, Daron Acemoglu offers some clear insight. He also answers the opposing question “What is the cause of poverty?”

Choice quotes:

People need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions — the rule of law and security and a governing system that offers opportunities to achieve and innovate. That’s what determines the haves from the have-nots — not geography or weather or technology or disease or ethnicity.Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments……..

He concludes:

There’s no doubt that erasing global inequality, which has been with us for millennia and has expanded to unprecedented levels over the past century and a half, won’t be easy. But by accepting the role of failed governments and institutions in causing poverty, we have a fighting chance of reversing it.

Acemoglu offers numerous clear examples to buttress his thesis. What he doesn’t address in his article is the the long term impact of government failure on previously rich nations. That experiment in the expansion of poverty is unfortunately something we seem destined to embark on here in America. Stay tuned for the academic analysis.

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A Great City In Ruin

Bob Hebert’s description of Detroit is pretty clear in “Detroit: A City In Ruins”

And while Hebert’s call for a government focused solution to the problem is asking for more of the same “solution” that brought this once great city to ruin, his fundamental analysis of the problem is right – we’ve abandoned our industrial base and no longer reward people for producing real stuff in this country. Instead we focus on offering each other services, that at the end of the day we can’t trade or use to pay for our ever burgeoning foreign debt.

There’s a reason Detroit died and that the average house sale in the city now sells for a fraction of the cost of one of the few cars still made there.  Years of bad tax policy, stupid labor policy, no energy policy and the government getting just about everything they touched completely wrong has turned what was once the most productive city on earth to a depressing wasteland that can’t even afford to buy toilet paper for its public schools.

Unless we completely refocus government effort on getting out of the way and allowing people to be productive and to be rewarded for productivity, Detroit will be a harbinger for the future of our nation.

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The Coming Dollar Panic

“Is The US Setting Up For A ‘Final Dollar Panic’?”, Peter Morici describes all the factors driving the US dollar (and the US economy) toward collapse. Morici is a business professor at the University of Maryland, and former chief economist at the U.S. International Trade Commission – hardly a radical.

He focuses on all the same factors that as a layperson seem obvious to me. We can’t keep federal spending exorbitantly beyond revenues, massively borrowing, importing vastly more than we export, focusing on social and other feel good political agendas, engaging in “bank bailouts, reckless stimulus and other fiscal foolishness”, all while ignoring fundamental economic reality.

While all the brilliant experts in Washington and Wall Street can fool themselves with their complex analysis, more and more Americans realize the fundamental math that Morici clarifies is completely unsustainable.

One has to wonder what the crash, the backlash and the aftermath is going to be like.

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IMF Suggests Major Nations Risk Default

Writing in Newsweek magazine, in his article “Up Against A Wall Of Debt, Part II” Robert J Samuelson reports that the International Monetary Fund confirms his concern that the United States, Great Britain, Japan and other major nations face increasing risk of defaulting on their sovereign debt obligations.

These kinds of concerns are familiar in the blogosphere. Being validated by Samuelson, Newsweek and the IMF is frankly scary. The best one can hope is that this kind of reporting will hopefully be a warning to those continuing to push for out of control spending in Washington and other capitals.

The fundamental message Samuelson sends:

“The political implications of these dry numbers are chilling. To prevent an unending upward spiral of debt would require huge spending cuts or tax increases. The IMF report doesn’t suggest that those be made immediately, because doing so might cripple the fragile economic recovery. But the report does argue that without these adjustments, government debts could become unmanageable.”

“To show the size of needed changes, the IMF performed one final exercise. It estimated the spending cuts or tax increases needed over the next decade to return a country’s debt-to-GDP ratio to 60 percent by 2030. For the United States, the changes would amount to 8.8 percent of GDP. In today’s dollars, that’s about $1.2 trillion and roughly a third of the existing federal budget. But again, some other countries would face even larger adjustments: 12.8 percent of GDP for Great Britain, 10.7 percent for Spain, 13.4 percent for Japan, 11.8 percent for Ireland, and 9 percent for Greece.”

We are in for some interesting politics in the years ahead.

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Keynes’s Old Tricks Don’t Work Anymore

In “Not Your Grandfather’s (or Keynes’s) Economy” economist Arnold Kling offers rational argumanets why the federal “stimulus” bill is not working and won’t work to create jobs.

Most striking to me was a Bureau of labor Statistics graph showing that as of 2008, manufacturing jobs represent only 6.9% of the American workforce, down from 27.5% in 1948. The Economist Pocket World In Figures, 2008 Edition suggests that agricultural employment in the US is only 2% of the workforce. Forestry, fishing, mining and other primary resource extraction industries do not employ huge percentages of the US population either.

So what do we sell to the rest of the world, to balance out imports from trading partners and to pay for our ever burgeoning foreign debt? Optimists point to a huge and under-counted export in software, engineering services and other intellectual property of our engineering and scientific communities. But the reality is that China, India and other developing nations have millions of smart, aggressive and increasingly well educated scientists and engineers starting to compete with us aggressively in professional arenas we once completely dominated.

If only 10 or 15% of the workforce are needed to produce not only most of the domestically produced stuff we use here in the United States, but also most of the stuff we export, that leaves the rest of the population fundamentally providing services of one kind or another to each other. But there is only so much service a country can afford if we aren’t producing net economic value for export to the rest of the world.

If we look at the largest economic growth area in the last generation, it has been the information economy – microprocessors, computers, software, the internet, telecommunications. Industries that barely existed when I entered the workforce have completely transformed the world, creating massive wealth of opportunity for people worldwide. This incredible creative productive boom has been largely unregulated by government.

It seems to me that a lot of the good jobs the government is trying to stimulate are being destroyed rather than being “created or saved” by excessive government interventions. Until we recreate the dynamic competitive markets that allows us to unleash entrepreneurial creativity and regain traction in world trade, our economic prospects do not appear very bright. Excessive government burdens on the economy aren’t going to help.

As Kling suggests:

“Over the next ten years, some sectors of the economy on long-term downward trends will continue to shrink……….. Much of the new strength in the economy will come from underlying long-term forces. New workers will be absorbed by businesses that have not yet been launched in industries that we have not even imagined. For this restructuring, what I like to call The Great Recalculation, Keynesian stimulus will be irrelevant.”

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