Tag Archives: regulation

Calculating the Value of Solar Energy for Ratepayers

Recently, I testified at the Rhode Island Statehouse regarding the impact of the state’s Distributed Generation Contracts law on ratepayers. In preparing the testimony, I realized it is important for legislators to have a tool to estimate those impacts under a variety of scenarios. I decided to create that tool for them, which is attached here:

Unger – Value of RI Solar

This isn’t intended to replace a full economic impact study, and actually significantly underestimates the positive benefit of solar for ratepayers. But it gives a general sense that cab hopefully help better inform policy related to renewable energy and utility regulation. Try it out.

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Lomberg on Sustainability

Bjorn Lomborg is often disparaged by environmentalists for questioning what in my view have generally been very questionable public policy prescriptions that environmental advocacy groups have promoted around the issue of climate change.  In a recent Newsweek article, Lomberg takes a great shot at properly defining the concept of sustainability.  He quotes the UN Brundtland report defining sustainable development:

“meets the needs of the present without compromising the ability of future generations to meet their own needs.”

He suggests:

The measure of success, then, is whether or not we give future generations the same opportunities that we have had.

Lomberg goes on to define sustainable solutions in terms of economic opportunities, educational opportunities and technological opportunities that we provide for future generations. After outlining progress the world has made over the last century or so he suggests:

Rather than celebrating this amazing progress, many find it distasteful. Instead of acknowledging and learning from it, we bathe ourselves in guilt, fretting about our supposed unsustainable lives.

At the end of the article he concludes:

We forget too easily that innovation and ingenuity have solved most major problems in the past. Living sustainably means learning the lessons from history. And chief among those is that the best legacy we can leave our descendants is to ensure that they are prosperous enough to respond resiliently to the unknown challenges ahead.

It would be great if environmentalists could celebrate and learn from our long legacy of creative solutions rather than continually viewing the world as a zero sum game.  Lomberg is right. The path to a sustainable future is not through excessive environmental regulation or redefining the fundamental rules of our economy, but rather through economic prosperity, educational opportunity, technological progress, peace and the fair rational enforcement of the rule of law.

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Filed under Climate Policy, Economic Policy, Energy Policy, Environmentalism, Fundamental Perspectives

Idealized Notions And Practical Realities Of Feeding The World

My good friend Robert Leaver has recently been writing about the virtues of various “green” solutions. Many are solutions I also strongly support, like efficient buildings and renewable energy generation.  Robert is a very smart guy. He understands people, organizations and politics far better than most people I have met. He is truly insightful on social matters. But like many folks who are most vocal in arguing for “green” and “sustainable” technology solutions, he has relatively little experience with the technologies he advocates. Like most Americans, he has somewhat limited understanding of the technical challenges of supplying energy, building buildings, growing food or other technological realities of providing for a modern civilization.

One of the “solutions” Robert has recently advocated is “vertical agriculture”, the idea that we should transform our food delivery system by growing food in eight to ten story urban hydroponic “farms”.  For those who focus on urban oriented solutions, this idea is enticing with its promise of delivering fresh locally grown food rather than corporate agribusiness delivering bland bred-for-shipping food products from around the world. It promises to consume far less fuel in food transport. It would arguably provide jobs in the increasingly concentrated urban areas many environmentalists advocate. It would seem to correct many of the challenges of modern agribusiness. Until one more realistically considers engineering, agricultural science, land use, energy use, economics and other practical considerations, vertical urban agriculture is an appealing notion.

Today there are almost seven billion people in the world. In thirty years the population is expected to reach nine billion. Despite the continuing growth in the population, we are feeding a larger proportion of the population than at any time in history. There are very real challenges with our current food supply system. But unfortunately, ungrounded idealized notions won’t address them.

My early work was in agriculture, first as a laborer in a horticultural nursery and later organizing small farmers in SE Massachusetts and Rhode Island to participate in what became the largest farmers market in the region.  I saw clearly from the perspective of real farmers, the harsh realities of the limited growing season and narrow range of crops that make economic sense to grow here in New England.  Keeping land in farms has been hard over the last few decades with all the economic pressure for land uses with higher financial benefits. I also organized community gardens in the late seventies and early eighties, with similar notions of idealism that inspire the urban agriculture advocates today. Even with the abundance of fresh vegetables from June to October, there are very good economic and climatic reasons that New England doesn’t supply a significant portion of its own food. I have been a serious hobby gardener myself and have close friends that farm, so I know a bit about of the challenges of agriculture. There is good reason that despite the best efforts of agriculture, land preservation and environmental advocates, New England farms have continued to disappear. I have immense respect for people who are successful farming.

I spent almost a decade primarily building sunrooms and greenhouses and learned first hand the challenges and costs of building and maintaining such structures and managing the climates of indoor environments suitable for growing. Though I never operated a greenhouse myself, I learned from clients and friends the increased challenges of pest and disease control that greenhouse environments entail.

Having owned and worked on large buildings more recently, I know some of the engineering challenges that taller structures entail. Those challenges would be compounded by the loads imposed by hydroponics proposed for vertical agriculture. Building and conditioning these structures would be expensive. The costs of building, owning and operating such structures would significantly impact the economics of “vertical agriculture”.

As an owner of commercial urban real estate, I also understand some of the economic challenges of urban taxes, insurance, regulations, labor costs and other factors that being in an urban environment would also pose to the economic realities of urban agriculture relative to the impacts of those cost factors in rural environments.

Then there is the generally high labor cost factor of any such concentrated agriculture relative to the highly mechanized systems under which most food is grown today in America.

Should all these practical considerations somehow not prove vertical urban agriculture uncompetitive, one would have to wonder what all the current farm land in the world would be used for. Today food prices are so low that the US government feels the need to subsidize farmers to stay in business and we can dedicate over 40% of our corn crop to making ethanol fuel for transportation. If urban agriculture actually had any real impact and more farmland becomes underutilized, agricultural commodity prices would become even lower, pushing even harder against the economics of the idealized notion of vertical urban agriculture.

The reality, for better or worse, is that the low cost of energy makes food production remarkably efficient and cheap in our current system. Unless we see food and energy costs exponentially higher and the overall economies of urban areas essentially collapse, I cannot envision any scenario where growing food in urban areas makes any real significant impact on the agricultural economy or where urban high rise hydroponic farms could ever be anything other than a grant funded curiosity for technologically and economically unrealistic idealists to celebrate.

The scale of the challenge of providing food for billions of people sometimes seems lost on people that advocate ideas like vertical farming. Driving across our nations heartland, one has to marvel at the vast scale of food production now being managed by less than two percent of our population that is  not only feeding America, but providing one of the few consistent export surpluses for our nation.

My father worked in an industry that many of my environmentalist friends abhor. He started out washing test tubes in a lab and ended up managing worldwide research in agricultural chemicals for Rohm and Hass Company, which during his career was one of the world’s largest chemical manufacturers. When I was a young idealist in the early seventies, Dad’s work inspired my youthful rebellion and my choice to get as degree in environmental science. Back in the day, we had a few fights about his work. Later, I came to appreciate the huge contribution to humanity that he made through his work and have become both very proud of that contribution and somewhat humbled by it.

Apparently, when Dad was a student, he was as fervently idealistic as any environmentalist I ever met.  Hundreds of millions of people were starving in India and China.  He and other idealists like him saw technology as the solution to this and many other serious problems in the world.  The pragmatism that those idealistic technologists brought to their careers in the fifties and sixties saved the lives of millions of people, along with creating many positive technology advances of modern civilization. The wealth and prosperity they created provided the opportunity for many of the social advances we take for granted in the US today. In large part thanks to the “Green Revolution” inspired by Norman Borlaug and supported by modern agricultural practices Dad and many other idealists like him spent their careers on, today India and China have the fastest growing economies in the world and are lifting millions out of poverty.  Now they too are beginning to be able to afford cultural luxuries like environmentalism, that historically most poor societies have not been able to sustain.

Relatively early in his career, Dad developed Dithane, a broad spectrum, low toxicity fungicide that even decades after the expiration of its patents is still a primary tool in helping to control crop diseases and feeding the almost seven billion people that our modern agricultural system feeds every day. Later, he guided his company to produce other solutions to help feed the world.

I vividly recall one of the most important lessons Dad ever taught me, though I was too stubborn and ideologically foolish to recognize the value and truth in what he was telling me at the time.  Having studied biological pest control in school, I passionately argued that in his career position, he should refocus research on such solutions. He responded that with the tens of millions of dollars and decade long regulatory gauntlet required for the approval of agricultural pest control products, only very large companies could play in the game and those companies could only afford to consider solutions with billion dollar markets. The huge costs and risks created by very well intended health and environmental protection regulations made it economically impossible to consider solutions that didn’t promise such huge returns.

While those regulations addressed some very real existing and potential problems with agricultural chemicals, an unintended consequence of the regulations was to concentrate influence over agricultural technology in a few large corporations. Despite environmental advocates clear intent to the contrary, those regulations also had the effect of driving the trend toward mono-cropping to maximize the effectiveness of the relatively few solutions that get through the regulatory hurdles. Similar unintended consequences of very well intended policy can be seen in every sector of the economy.

As I came to better appreciate the effective idealism of my father and his generation of technology pioneers, Monsanto, another large chemical company at the time, embraced the criticisms of my fellow environmentalists and recognizing the promise of biotechnology, transformed themselves from a chemical company to a biology company. Monsanto embraced the promise of biological controls that I and other environmentalists had passionately argued for and bet the future of the company on creating biological solutions at sufficient scale to seriously address the worlds need for food while minimizing the use of potentially hazardous chemicals. Through biotechnology, they invented new varieties of crops which both resisted insects and diseases themselves and which were resistant to low toxicity but highly effective herbicides. In return, Monsanto earned the wrath of the environmental community, recently being declared the most evil corporation in the world by many of the politically correct crowd for creating genetically modified food. (Do a Google search for:  Monsanto Evil Corporation)

The current “Green Revolution” of environmentalism is not like the idealistic truly progressive and creative endeavor that Borlaug led. Rather than embracing science, technology, engineering or practical economics, too many environmentalists show little respect for such fundamental building blocks of progress. Too many seem to feel that idealistic good intentions alone are sufficient.

The challenging realities of feeding almost seven billion people seems to be lost on my idealistic friends who argue for economically and technically unrealistic ideas such as vertical urban agriculture. It seems as if the economics and scale of the challenge are sometimes not clear to them. Unfortunately, we can’t feed the world or address the challenges of modern agricultural systems through idealized notions. We need real solutions, both technically and economically suitable for the scale of the challenges at hand.

Fortunately, so far at least, we have been able to feed an increasingly large portion of the worlds increasingly large population an increasingly better diet for decades. And thanks largely to those successes in agriculture, the pressures on population growth are subsiding as people are freed from the drudgery of traditional agriculture to become educated and more prosperous.

According to the USDA in 1900 over 41% of the US workforce was employed on farms, while today only 1,9% of the US workforce provides our food and a substantial surplus for export. Worldwide, over a third of the world’s workforce is still employed in agriculture and related fields, most in poor countries, toiling in inefficient traditional forms of agriculture.

Like vertical farming, traditional peasant agricultural cultures are also idealized by many of my “green” friends. I do not question the good intentions of such idealistic notions. But it is important to realize that the reason that such idealists have the free time and luxury to pay homage to such romanticism is that they don’t have to do that brutally hard work themselves. The efficiencies of modern civilization allows them the luxury to ponder idealized notions like vertical agriculture without the pressures of bothering to consider the practical realities of economics, engineering or agricultural science.

My idealistic friends also decry American jobs lost to China and Indian due to low cost labor and the the intolerable working conditions people in those countries are subjected to. The reality is that the primary reason factory labor in third world countries is so low cost is that most people growing up in traditional third world agricultural communities will do almost anything to escape the grinding poverty, including working in what appear to be miserable factory conditions to those of us living in the developed world.

Idealized notions of agriculture are like too many of the “solutions” promoted by the well-intentioned folks who migrate into politics. Unfortunately history has taught the hard lesson that when good intentions are met by practical realities, reality always wins, yet the bill for the idealized good intentions still always comes due. Perhaps, before allowing people to enter politics, we should demand some real experience in the productive sectors of the economy – growing food, building buildings, creating products or doing some other activity constrained by the practical realities of economics, science and engineering.

We should clearly foster more understanding of science, math, engineering and economics in our educational system, so that even if they don’t work in such realms, all our citizens can more readily sort out the sensible solutions for the future from those ideas that have little hope of becoming practical.

Clearly our agricultural system needs improvement and needs further progress away from its current dependency on high levels of energy and chemical inputs.  But to feed the world, a sustainable agricultural system will need the best solutions modern science has to offer, not just the ones that are most romantically appealing.

I spend much of my time with idealistic friends like Robert. They inspire me to stretch my thinking in new and interesting ways. They are more fun to be around than strictly pragmatic people. Most of the idealists I spend time with are very talented and inspiring professionals in their own realms. Robert’s professional work is bringing people together to find consensus around decisions that they face as an organization or community. I have immense respect for his accomplishment and skill as a facilitator.

Unfortunately, in matters of practical concern, consensus in itself is not adequate unless there are people involved in decisions who are able to inform the discussion with practical experience and guide the consensus in useful and practical directions. As we are now learning as the bill for decades of very unrealistic good intentions are coming due in Washington DC, idealism and good intentions need grounding within the realm of  practicality. Idealism needs to be matched with technical expertise and hard economic discipline to foster real and credible solutions.

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Why Isn’t The American Job Market Recovering?

Jim Tankersley asks “What Really Happened to 15 Million Jobs?”.  After pouring over statistics, he seems at a complete loss to speculate on any real answers. It seems that like so many other Washington focused pundits, he really just doesn’t want to face the quite obvious answers. I felt compelled to contribute in the comments section:

If one can manufacturer anywhere in the world; communicate instantly to anywhere in the world; find plenty of skilled educated labor virtually anywhere in the world; and ship raw materials, components and finished products at low cost thanks to still very inexpensive energy prices – then there are some very fundamental questions to be asked.

Even if one is a very dedicated American patriot, does it make sense to expand in a location with oppressive zoning, building, environmental, labor, financial and other regulations; extremely high and unreasonable litigation exposures and risk; an assertive and active legislative and regulatory environment in which the rules of the game are constantly changing; increasingly intrusive direct government involvement in businesses and markets; massive and unsustainable public deficits, debt and unfunded liabilities; already high taxes inevitably moving higher; labor costs five or ten times higher than those in China or India; increasingly business hostile rhetoric from the dominant political party; decaying infrastructure; and a pervasive culture of entitlement?

It actually isn’t any surprise at all this country is losing jobs and companies worldwide are choosing to invest elsewhere, except perhaps to those who still believe the naive platitudes of the political “progressives” who are impeding any chance of reviving any actual progress.

The gross imbalances we have enjoyed relative to most of the world are unsustainable. Pretending otherwise is foolish.  Our living standards will move into balance with the rest of the world, as will our regulatory environment, legal environment and all the other factors that influence the real competitive advantages of  locating a business in one place over another. Its inevitable.

Its time to get real about making the US competitive again. It can be done through deliberate public policy decisions or much more slowly and unhappily through unstoppable global economic forces. Protectionism or militarism will only make matters worse.

Over at the Atantic, Arvay responded to my comments:

Dialing down our society to the conditions that make China’s labor so inexpensive — few environmental protection regs, massive poverty, child labor, company housing that’s more like a Stalag than a home — if that’s the future you want, I think you should brace yourself for the inevitable revolt here. Your economies will be nullified by the internal security measures necessary to protect the elite.

Pervasive culture of entitlement? You mean Social Security and medicare? Or the swollen Pentagon budget? Which would you sacrifice?

If American business can’t figure out how to make itself valuable to a broad range of the public, especially via job creation — we’ll need to find a different model. Oh, you’ll get your Chinese type government, but I think you’ll find the public executions of executives who fail or cheat to be a notable downside.

Be careful what you wish for.

Good thoughts. Here’s how I responded:

Arvay,

I did not suggest what I wish for. I suggested why businesses choose to locate jobs where they do.

What I wish for is a more common sense approach to government. We can have environmental protection without regulations being unnecessarily expensive, arbitrary, complicated and time consuming to comply with. We can have tort reform and a responsive legal justice without huge costs for participation in the system and outrageous rewards to lawyers for things like class action suits. We can scale back the role of government in selecting winners and losers in business. We can have rational financial regulation that protects Main Street and average citizens from the voracious “too big to fail” banks, offers real competition and opportunity for small banks in our financial system, and shuts down the huge institutions that caused our financial mess rather than continuing their ongoing bailouts and subsidies. We can have antipoverty programs that don’t engender a culture of dependency and an underground economy. We can create retirement systems that aren’t based on the exact same formulas used by Mr Ponzi and Mr Madoff for funding. We can create a medical payment system that protects people from catastrophic medical events but makes us all pay for regular, routine and minor medical care so there is some natural consumer driven price control built into the system. We can have a balanced budget amendment for the Federal Government so we are forced to pay for all the largess our Senators and Representatives bribe us with rather than burdening our children with unsustainable debts. We can reverse the growth of regulation that has crossed beyond the point of necessary and effective and in sum is making our society much less well off due the the cumulative impact and drag on our economy. We can start paying the real price of fossil fuels rather then continuing the subsidy of their waste. We can get the government out of the role of skewing the economy in favor of large corporate interests rather than competitive businesses. We can dramatically scale back the military, close at least 90% of our foreign military bases and end the hopeless wars we are engaged in. We can make citizens more responsible and accountable for our own decisions. We can scale back our government, deficits, debt, entitlements and taxes.

Not only can we do all those things, we have to if we want to be competitive in the global economy. As Tankersley pointed out in his article, labor costs are a small fraction of the cost of manufactured goods. And as middle classes grow in emerging markets, wage disparities are narrowing for the right reasons – their standards of living are improving. If labor were the only factor, the advantages of being close to America’s huge market and avoiding the risk of political backlash that is emerging in our country would outweigh the labor cost discrepancy. But there are far too many factors that are within our capacity to control that we are just doing wrong. For the most part, things have been moving in the wrong direction on policy matters for decades.

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Revisiting Health Care

David Brooks wrote an excellent summary of all the reasons the recently passed health care bill is inevitably going to fail to achieve its purported goals. He highlights the need for both parties in congress to provide realistic plans for addressing the out of control cost escalation in the health care system and thus in government entitlements and budgets.

The formula for reform promoted a year and a half ago by Whole Foods CEO John Mackey is still the most reasonable approach I have seen proposed.

The early failures of the new health care policy that Brooks points out, as well as the skyrocketing cost of the similar Massachusetts health care system, should be enough for any responsible politicians to want to seriously revisit the issue in a credible manner. Unfortunately politics always trumps good policy in Washington. So it will be a couple years before anything effective is done about health care costs. Meanwhile our new law will continue to make matters worse than they were in regards to costs, government budget impacts and distorting business decisions.

For anyone paying attention, there is a general rule that can be observed in the functioning of government. The longer, more complex, more ambitious and hard to understand a law or regulation is, the more likely its unintended consequences will lead to the opposite net impacts that its sponsors purported to achieve.

It is not clear that responsible grownups will rule in Washington any time soon. But the current symbolic efforts to repeal the health care fiasco passed last year are a good sign that at least some people in Congress are starting to realize that citizens expect realistic and responsible solutions from our government.

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The Cheesy Nanny State

The New York Times reports that “While Warning About Fat, U.S. Pushes Cheese Sales”.

Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting.

Urged on by government warnings about saturated fat, Americans have been moving toward low-fat milk for decades, leaving a surplus of whole milk and milk fat. Yet the government, through Dairy Management, is engaged in an effort to find ways to get dairy back into Americans’ diets, primarily through cheese.

This story reminds me of my friends who ran a dairy farm in the 1980s. They got heavily subsidized by the Massachusetts Division of Food and Agriculture  to modernize their long unused dairy barn, buy some cows and get into the milk business in a state funded effort to promote local agriculture. Two or three years later, when the the US Department of Agriculture was trying to prop up wholesale milk prices, they were paid a huge pile of cash by the feds to slaughter their cows and promise not to sell milk for some bureaucratically determined period of time. So they went back full-time to the construction business just as the housing boom was starting to pick up and bought themselves a nice large sailboat with all the government largess.

Perhaps it just shouldn’t be the governments job to either market certain products, tell us what to eat, or micromanage whole industries. Why is a federally funded and mandated organization paying for Dominic Pizza’s marketing program? And why do the do-gooders in the federal government feel empowered to tell us what to eat?

Can we really afford to spend a fortune for one part of the government encourages certain activities, while other government bureaucrats are paid to discourage those exact same things? Wouldn’t it perhaps make more sense to stop squandering tax dollars on the nanny state and just let the market sort things out and treat citizens as if they had some responsibility for their own lives?

Once again, this story points out  the need for congress to clarify and restrain the role of government in our society. Though cutting government programs will be politically difficult, there sure are a few programs that seem ripe for not only cutting, but permanent elimination.

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The Responsible Politician’s Pledge

It is irresponsible insanity that we have allowed our current  federal deficit to grow to around 10% of GDP, have allowed our government to budget for deficits in the trillion dollar range far into the future, have allowed unfunded federal liabilities to grow to over $100 trillion and have allowed our state and local governments to drift into equally irresponsible fiscal condition.

Despite all the attention to taxes in the press these days, fiscal problems as huge as we face simply can’t be fixed on the revenue side. Raising tax rates will only further weaken the economy and reduce actual tax receipts. We need Congress, state legislatures and local governments to all seriously address the cost side of the equation by eliminating at least 30% of existing government spending – across the board.

At the same time, we need to address the ever growing regulatory burdens in our country that are stifling creativity,  job creation and productive economic activity. The ever growing morass of regulation is leaving our businesses uncompetitive in the global economy, while facing huge uncertainties and unable to respond effectively to domestic opportunities.

The good intentions of all kinds embedded in our current laws, programs and regulations are killing our economy and severely threatening the viability of our nation’s economic future.

Despite all the other challenges we face, we cannot afford any more idealistic good ideas from our leaders in government, at least not until we get our fiscal house in order. More than anything, we need to reduce the costs and damage created by all the idealistic good ideas that we are already stuck with.

We should only elect politicians willing to make a pledge to not create any new programs, create any new regulatory burdens or fund any new projects at all for the duration of their term. They should all spend their next terms focused entirely on eliminating and trimming existing unaffordable programs and regulations that we are already burdened with. By necessity that will involve making the hard unpopular cuts in politically untouchable programs like Medicare and Social Security, as well as completely eliminating vasts swaths of government activity.

We can’t leave our children with our inexcusable levels of government debt and regulation.  We need to elect only politicians willing to make the hard and immediate cuts necessary to restore fiscal and economic responsibility to our government.

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