Morici Blames Economic Woes on Trade Deficit!

September 2, 2011

I almost fell over when I saw this editorial by economist Dr. Peter Morici.  The following paragraphs say it all:

Jobs creation remains weak, because temporary tax cuts, stimulus spending, large federal deficits, expensive and ineffective business regulations, and increased health care mandates and costs do not address structural problems holding back dynamic growth and jobs creation-the huge trade deficit and dysfunctional energy policies.

… Simply, dollars sent abroad to purchase oil and consumer goods from China, that do not return to purchase U.S. exports, are lost purchasing power. Consequently, the U.S. economy is expanding at less than 1 percent a year instead of the 5 percent pace that is possible after emerging from a deep recession and with such high unemployment.

Without prompt efforts to produce more domestic oil, redress the trade imbalance with China, relax burdensome business regulations, and curb health care mandates and costs, the U.S. economy cannot grow and create enough jobs.

Perhaps this is why the head of the WTO has been wringing his hands over a possible return of “protectionism.”  (See my previous post.)  Is it possible that Morici is expressing in public something that American economists have been, in private, been grousing about for some time now?  Is it possible that change is in the wind?  I doubt it, but you can’t blame me for grasping at reasons for optimism when there are so few to be seen.


Green Job Maker Succumbs to Imports

September 1, 2011

Remember when “green jobs” were going to be the salvation of our economy?  When Obama made this claim, I questioned how such “green jobs” would be immune to the effects of the same idiotic trade policy that sank the rest of our manufacturing sector.  Now comes proof of that.  Yesterday, Solyndra, a solar panel manufacturer, filed for bankruptcy. 

In 2009, Solyndra received a half-billion dollar loan guarantee from the federal government, with Obama using Solyndra as an example of the new “green economy,” one that would create 3,000 jobs.  Only 1,100 workers remained on the payroll when the company filed. 

This morning on Good Morning America came revelations that Solyndra’s loan guarantee may have had more to do with payola than investing in the “green economy.”  It seems that the owner of Solyndra was a huge backer of Obama in the 2008 election. 

“We smelled a rat from the onset,” Representatives Fred Upton of the Energy and Commerce Committee and Cliff Stearns of the Oversight and Investigations Subcommittee said in a joint statement. “In this time of record debt such disregard for taxpayer dollars cannot be tolerated.”

As though Republicans haven’t done the same thing. 

Henry Waxman of the House Committee on Energy and Commerce had this to say:

We should be doing everything possible to ensure the United States does not cede the renewable energy market to China and other countries.

Oh, really Mr. Waxman?  Does that include withdrawing from the World Trade Organization and fixing trade policy that gives away not only the renewable energy market but every other market in the U.S.? 

The “green economy” is only the latest to be cast upon the scrap heap of other “new economy” ideas that were supposed to be our economic salvation.  Remember when “high tech,” including personal computers and cell phones, were to be our salvation?  Even though both were developed in the U.S., is a single one made here any more?  Remember when we were going to become a “service-oriented” economy, as though manufacturing no longer mattered and we could build an economy out of continually emptying our closets to have our clothes dry-cleaned, or grow grass faster and build an economy out of having it mowed?  Remember when housing would be our economic salvation?  Remember when NAFTA (the North American Free Trade Agreement) would somehow magically create jobs while moving factories to Mexico?  Or how about when we could build an economy around infrastructure spending?

It’s been a decades-long, steady stream of BS with the intended purpose of obsuring the truth:  trade deficits don’t work.  You can’t have a viable economy while carving out and giving away its biggest sector – manufacturing.  The American people know it.  What will it take for economists and political leaders to get a clue?

Obama’s 3 New Solar Plants: The Facts

July 4, 2010

On Friday, President Obama announced plans to provide $2 billion in funding for the construction of three new solar energy electric power generating plants, one each to be built in Arizona, Colorado and Indiana. 

I’ve provided three links above.  The first is a Reuters article about the announcement.  The second is an article that provides some facts about the plants – their design and capacity.  The third is an article that provides data about the total annual consumption of electric power in the U.S.

From these articles we can deduce certain facts.  These three plants combined will generate 840 megawatts of power.  Assuming the Arizona plant can generate electricity for 18 hours per day (because of its use of technology that stores the energy for up to 6 hours past sun-down) and the other plants can provide electricity for 12 hours per day, that’s a capacity of 4.3 million megawatt-hours.  The projects will create 5,000 jobs, of which 1500 will be permanent jobs.  The plants will be completed in about three years.  Contrary to those who say that this is just more deficit spending, adding to the national debt, the $1.9 billion is actually in the form of loan guaratees, all of which will be paid back.

Annual electric power consumption in the U.S. is about 4200 million megawatt-hours.  That’s about 14 megawatt-hours per person. 

Doing the math, we find that these three plants combined will generate enough electric power to meet the needs of about 300,000 people.  The problem is that our population grows by that many people every five weeks.  So, regarding the claim that this will help reduce our dependence on foreign oil:  it will, for about five weeks.  After that, we’ll be even more dependent on foreign oil.  By the time these plants come on line in 2013, our population will have grown by 30 times the number of people that can be supplied with electricity by these three plants. 

Regarding the claim that this will add 5,000 new jobs:  that’s being very disingenuous.  By the time that these plants come on line in three years, providing 1,500 permanent jobs, population growth (driven mostly by immigration) will have added 4.5 million workers to the labor force.  If this is the president’s plan for cutting unemployment, he’s coming up short by 4.9985 million jobs.  And besides, if he had done nothing, the extra power required for this population would have been generated anyway, whether through fossil fuel power plants or through these solar plants, adding the same number of jobs (give or take) regardless.

Don’t get me wrong.  I’m not opposed to switching to solar and wind power and away from fossil fuel.  If I were president, I’d be imposing huge tariffs on imported oil and would be providing loan guarantees for three new renewable energy plants every week.  The point I’m trying to make is that we can never, ever attain energy independence or put our people back to work solely with approaches like these.  It’s impossible without adopting a population management strategy that stabilizes and even reduces our population.  And restoring full employment is impossible without a trade strategy that takes immediate steps to restore a balance of trade, bringing our manufacturing jobs back home.

It’s such a shame that, in spite of the promise of hope and change, we’re instead saddled with yet another president who is squandering the incredible chance he’s been given to put this country back on a path to energy independence and sustainability and economic prosperity.  Mr. President, please, sit down and spend just an hour doing some math and decide for yourself (without listening to Larry Summers and Christine Romer) what’s needed to permanently correct the direction in which this country is headed.

Was That a Trumpet I Heard?

May 4, 2010

Though the oil spill in the gulf is a little off-topic for me (this blog focuses not on resource issues associated with population growth, but its role in driving unemployment), I couldn’t resist sharing a thought. 

As I watched news coverage a couple of nights ago, I was struck by the aerial views of the huge slick that showed a sea that appeared to be streaked with red.  It reminded me of something from the Book of Revelation in the Bible.  Here’s the passage:

When the second angel blew his trumpet, something like a large burning mountain was hurled into the sea.  A third of the sea turned to blood, a third of the creatures  living in the sea died and a third of the ships were wrecked.  (Revelation 8: verse 8.)

Biblical scholars caution us that Revelation is not to be taken literally – that it was written as an admonition for the Christians of the first century to stand firm against the persecutions of Rome, drawing heavily upon symbolism from the Old Testament.  Biblical scholars cannot say for certain whether the author, “John,” is the apostle John.  Neither can they say for sure that it isn’t a a literal description of visions revealed to John.  If it is, it’s easy to see how someone of that day, if shown news footage of what’s happening in the gulf, might describe the exploding, burning oil rig that eventually collapsed into the sea as “something like a large burning mountain was hurled into the sea.”  And someone of that day may interpret red streaks in the sea as blood.  The slick is expanding daily and could easily cover a third of the gulf if not stopped soon.  No doubt, lots of “creatures living in the sea” will be killed by this.  A third of the ships wrecked?  Not yet, anyway. 

It’s always interesting to hear someone try to relate a current event to something in the Book of Revelation.  Usually, it’s a stretch of the imagination to make such a connection.  But in this case, it seems an eerily accurate description.  Maybe it is a description of a burning oil rig and subsequent oil spill – if not this one, then perhaps another in the future.  Or maybe it’s nothing of the sort.  No one could ever say for sure.  But it’s interesting – even fun (in a morbid sort of way) – to speculate.  So, at the risk of being labeled a nut case and ruining my credibility on this blog, I just thought it’d be an interesting thought to share.  Make of it what you will.

Copenhagen: A Failure of Economics

December 21, 2009

President Obama, like other world leaders, returned home from Copenhagen empty-handed.  No binding agreement to reduce carbon emissions.  Some blame Obama for not offering enough.  Others blame Chinese President Jintao for resisting verification.  Others blame developing countries for demanding too much in exchange for reductions in deforestation. 

But the real blame lies at the feet of the field of economics.  For the better part of two centuries, after disowning Malthus and vowing never again to consider the ramifications of population growth, economists have clung to a doomed model of perpetual growth.  They fail to understand that just because limitations have been pushed back a hundred or even a thousand times, doesn’t mean they can be pushed back forever in this finite world.  Closing their eyes to this reality like the “see no evil” monkey, they steadfastly maintain that man is clever enough to overcome any obstacle to growth. 

Until now, nothing has proven them wrong.  Oceans over-fished?  No problem!  Fish are now raised on “farms.”  Oil getting scarce?  We learned to drill off-shore.  Even when the earth’s ozone layer was threatened by CFCs, we were ready with benign, substitute refrigerant compounds.  Global cooperation in the interest of the common good wasn’t a problem when technological solutions were waiting in the wings.  But then came global warming.    

It’s not as though they didn’t see it coming.  We’ve known for at least half a century that we would run out of oil some day in the future.  And suspicion about the climate effects of rising CO2 levels has been building for at least two decades.  Our leaders, scientists and economists calmed our fears with talk of alternative energy – primarily wind and solar.  What they didn’t tell us was that the energy needed to keep the economy humming at its current level dwarfs what could be provided by those renewable sources even in their wildest dreams, not to mention the energy needed by developing nations clawing their way out of poverty and the energy needed to sustain economic growth into perpetuity. 

Some spoke of converting the economy to natural gas on a huge scale, a short-term solution at best.  Others spoke of more nuclear plants, ignoring the fact that nobody wants a nuclear waste dump in their back yard, and there’s no longer any place left that isn’t someone’s back yard. 

What they were counting on all along was the holy grail of energy – nuclear fusion – the energy that powers the sun.  Clean and limitless, it promised to remove energy as a constraint to growth for all time.  But after decades of pouring billions of dollars into research, the sad reality is that it’s simply not feasible. 

So we’re left with nothing.  If you don’t believe this, just read the “cap and trade” legislation that’s pending in the house of representatives.  You’ll find that it relies heavily on technology to capture and store CO2 underground – technology that doesn’t even exist yet – while continuing to burn fossil fuels.  Included in the bill is money to incentivize the development of such technology. 

So for the first time in Copenhagen, political leaders, economists and the scientific community came together to face a global threat to the common good with goals, but no solution.  They reached deep into the economic tool bag and found only one tool left – delaying the inevitable.  Given a choice between acting for the common good of future generations vs. basking in the “we can grow forever” delusion for just a little longer, they chose the latter.  Given the opportunity to finally cast off their failed model in exchange for one built on stability and sustainability, the “see no evil monkey” of economics and its minions of gullible political leaders chose to close their eyes even more tightly. 

Whether you believe that global warming is man-made or not is probably irrelevant.  The point is that the majority of scientists, political leaders and even economists believe that it is, enough so that they convened this conference in Copenhagen to address it.  They came with goals for cutting emissions, but because they were without solutions, they couldn’t bring themselves to pull the trigger.  At Copenhagen, the field of economics,  its model of perpetual growth and its blind faith in man’s ability to push back boundaries was finally exposed as a fraud.

October Trade Headlines Look Good, Details Not So Much

December 10, 2009

Trade data for the month of October, released this morning by the Bureau of Economic Analysis (BEA), was all good news, as long as you don’t look too deeply into the report.  The big headline is that the trade deficit fell by $2.8 billion to a deficit of $32.9 billion.  Indeed, that is good news.  Exports rose by $3.5 billion – more good news, more than off-setting a smaller rise of $0.7 billion in imports.  However, the 3-month moving average rose from a deficit of $32.5 billion per month in September to $33.0 billion in October – not good news. 

The trade balance is a combination of goods and services.  The balance in services improved by $0.1 billion, so almost all of the improvement is in goods – more good news.  The trade deficit in goods improved from -$47.4 billion in September to -$44.8 billion, a reduction of $2.6 billion. 

Of that improvement in the goods trade deficit, most is due to oil.  The volume of oil imports, 8.34 million barrels per day, was the lowest level since January of 2000.  So our trade deficit in petroleum products fell by $2.7 billion.  But the BEA reports that the deficit in non-petroleum goods (which includes manufactured products) also fell by $0.6 billion.  (The reason these two add up to reductions of more than $2.6 billion is what the BEA calls “adjustments.”)

Any time I hear that the trade deficit in manufactured goods declined in this environment of free trade with overpopulated nations, I get suspicious.  So let’s examine the data more closely.  Click the above link to the BEA report and go to “Exhibit 6.  Exports and Imports of Goods by Principal End-Use Category” found on page 6 of the report.  There you’ll see six end-use categories.  The first, “Foods, Feeds and Beverages,” is exactly that – trade in food products.  The second, “Industrial Supplies,” is dominated by trade in petroleum.  It’s the next four categories that comprise manufactured products – “Capital Goods,” “Automotive Vehicles, Etc.,” “Consumer Goods” and “Other Goods.”  Let’s examine these categories and see where any improvement in manufactured goods may be found. 

The first category, “Capital Goods,” is basically the machinery and equipment used by industry.  As you can see, we have a pretty good balance of trade there, with $33.72 billion in exports and $32.04 billion in imports, a trade surplus of $1.68 billion.  In September we had a trade surplus of $1.6 billion in that category.  So there’s very little improvement there.

The second category, “Automotive Vehicles, Etc.,” includes both cars and parts.  In September we had a trade deficit of -$8.83 billion.  In October it remained unchanged at -$8.83 billion.  Small increases in exports were off-set by imports.  No improvement in the trade balance in this category of manufactured goods. 

The third category, “Consumer Goods,” includes just about every other product you can imagine that you might buy including clothing, appliances, electronics, etc.  In September we had a trade deficit of -$22.63 billion.  It remained unchanged in October at -$22.63 billion.  Once again, absolutely no improvement.

The fourth category, “Other Goods,” by far the smallest of the goods categories, representing only 3.5% of trade in goods, will remain a mystery to anyone who tries to figure out what it is.  Nowhere is it explained in the report.  However, since I’m able to match up the product descriptions found in “Exhibit 8” on page 9 with the product codes in the trade data I track country by country, I can tell you for certain that “military aircraft” and “military equipment” are included in this category.  So what happened in this category?  In September we had a trade deficit of -$1.40 billion.  In October that fell to -$0.46 billion, an improvement of $0.94 billion. 

If you’ll examine the “Other Goods” category more closely, you’ll see that the level of imports and exports swing fairly dramatically (in percentage terms) from one month to the next. 

In conclusion, all of the improvement in the trade deficit in October can be traced to two factors – unusually low levels of oil imports (almost certain to be reversed in November), and a big swing in the category that includes military aircraft and equipment and is likely influenced by big swings in shipments.  In other words, there’s nothing in the October trade deficit data that shows any improvement in U.S. manufacturing vis-a-vis other countries.

Obama’s Jobs Plan: Much Ado About Nothing

December 9, 2009

Following my post last week, in which I flow-charted the various options available to President Obama to help boost hiring by businesses, I looked forward to analyzing the actual plan.  Unfortunately, the “plan” he unveiled yesterday was so vague and short on specifics, that there’s not much to say, except to observe that this was more political theater than political action.  The vague proposals would all be dependent on action by congress, already clogged with two major plans awaiting debate:  health care and climate change legislation.  Nothing meaningful on yesterday’s proposals is likely to happen anytime soon, other than perhaps extensions of unemployment benefits. 

Nevertheless, the above-linked article contains the high-lights, as follows:

Here’s how Obama’s proposals break down:

Small Business: Obama would eliminate for one year capital gains taxes on new investments in the stock of small businesses. The details are not clear but the plan builds on an existing, less generous, Recovery Act tax break.

Obama would also extend through 2010 tax breaks for certain small business capital investments up to $250,000. And small businesses would get a tax break for hiring new employees. He would also eliminate fees for loans made through the Small Business Administration. Those fees had been waived for most of this year, but the funding ran out two weeks ago.

This wasn’t an option I put on my flow chart, since it does nothing more than add to business’ bottom line.  One could argue that it might encourage business investment, but such investment is just as likely to destroy jobs by encouraging investment in automation in order to reduce labor costs. 

Tax breaks for hiring new employees falls under “option 5” on my flow chart – providing government incentives for hiring new workers.  Sounds great, but many have questioned the practicality of managing such a program in a way that avoids gaming the system.  What is really a “new employee” vs. a replacement?  I’ll be surprised to see any such program enacted and, if it is, the impact will be minimal.  Few businesses are going to grow their labor costs (by $30,000 per employee, let’s say) in order to get some small tax break.  For others who were going to hire anyway, it’ll simply be a give-away.   

And eliminating fees on small business loans?  The problem small businesses are having is that they can’t get credit at all.  Those that can have such good business plans that loan fees aren’t going to stand in their way.  I don’t see much effect from this.

Business: All companies would for another year pay fewer taxes on capital expenditures – a temporary benefit that kicked in with the Recovery Act.

Same comment as the first paragraph above. 

Infrastructure: Obama would spend approximately $50 billion on infrastructure projects for roads, bridges, airports and ports. The House has talked about spending $70 billion on a similar initiative.

Again, this falls under the category of “option 5” on my flow chart – government incentives to hire more workers.  Though in this case it’s likely to be more effective, as projects will begin that otherwise would have gone by the wayside for lack of funds.  And there’s no shortage of work needing to be done on our infrastructure.  An unanswered question is the time frame over which this $50 billion would be spent.  The more it’s spread, the more it waters down the job-creating effect.  And whether it should be done at all with deficit spending is another issue.

Energy: He would offer rebates to consumers who retrofit their homes, making changes such as caulking or replacing windows with more energy efficient products. Obama would also expand a stimulus program that gives greater borrowing power to private companies that create manufacturing jobs producing machines, such as wind turbines, that cut down on greenhouse gasses.

This was “option 2” on my flow chart, cutting taxes to boost spending.  But it’s done in a very targeted way that is likely to provide at least some temporary boost in employment in industries involved in manufacturing home building products.  As such, it’s probably the most meaningful element of the president’s plan. 

No doubt it will work.  People with homes that are anywhere close to needing windows, furnaces and air conditioners replaced would be foolish not to take the plunge and get a huge discount.  I did it myself this year, replacing deteriorating wood windows on my 21-year old home to take advantage of a 30% tax credit.  Next year I plan to replace the furnace to use the rest of the unused tax credit, but it sounds like there might be a bigger windfall for me if I wait for this new plan.  So Congress better hurry on this one.  Otherwise, I’ll actually be delaying my furnace purchase while I wait for this better deal.  Gee, did Obama just put a temporary crimp in energy efficiency sales?  Quite possibly!  And, again, the problem is that this is all unfunded, worsening the country’s fiscal problems.

And all of this talk about creating green jobs with tax incentives has proven to be nothing but talk.  Oil and gas prices are still too low to make alternative energy sources viable.  I’ve looked at both solar and wind energy for my home and it just doesn’t make economic sense at these prices.  Sure, there are a few token projects going on, but nothing serious.  The tax incentives would have to be huge to stimulate any meaningful activity in this field. 

Safety net: Obama said he wants Congress to extend unemployment benefits and offer more help for the jobless paying for Cobra health insurance. He wants to give seniors and veterans $250 payments and also give money to states to prevent layoffs of teachers, police officers and firefighters.

No new jobs here.  Some saved perhaps, although municipalities are reluctant to take advantage of such federal stimulus plans, knowing that they’re kicking the can down the road and setting up a worse fiscal crisis for the following year. 

I’d give the president a big “F” for this plan.  Once again, he’s passed on doing anything meaningful for the economy by fixing broken trade policy, which he could do with the stroke of a pen.  He’s taking the politically correct way out.  Worse, he continues to demonstrate a lack of concern for unemployed Americans by continuing the long-standing practice of importing over a half million immigrant workers a year to take jobs away from Americans. 

Sorry, Americans, no help here.  The hope is that you won’t remember by the time the next election rolls around.

Population Growth Injected into Carbon Cut Debate

October 14, 2009

As reported in the above-linked Reuters article, at least one low-level government official recognizes that projected U.S. population growth will make America’s goals for reducing carbon emissions much more difficult.  Brian O’Neill, a scientist at the U.S. National Center for Atmospheric Research, who also works at the International Institute for Applied Systems Analysis in Austria, has correctly observed that projected population growth makes carbon emissions reductions more difficult for the U.S. compared to some other developed countries where their populations are stable or declining. 

The leaders of the G8 nations have agreed to cut carbon emissions by 2050 by 80% from their 1990 levels.  Some of these developed nations are expected to decline in population by 2050, but not the U.S., whose population is projected to be 60% higher in 2050 (at 400 million people), vs. its 1990 population of 250 million.  So an 80% reduction in those emissions by 2050 would translate into a per capita reduction of 87.5% for the U.S.  For nations whose populations are projected to decline, their per capita reductions would be less than 80%.  This will translate into a lower standard of living for Americans than for other developed countries. 

Why is O’Neill talking to Reuters correspondents about this?  Is he a rogue low-level official speaking for himself?  Or is he parroting thinking that he’s heard at higher levels in his organization?  Or is it possible that this is an intentional move by the Obama administration to inject the subject of population growth into the carbon emissions debate? 

If the latter is the case, then to what end is the administration broaching this subject?  Two possibilities come to mind.  Since virtually all of our population growth is due to immigration, could it be that the administration is setting the stage for a dramatic change to immigration policy?  The second possibility seems more likely to me – that the administration is trying to shift the focus of carbon emissions reductions to a per capita basis instead of total emissions.  If so, they may think that the U.S. can get some relief on its own emissions goals vis-a-vis other G8 nations, but there’s a danger that such an approach could back-fire.  If total carbon emissions reductions are translated into a per capita basis, then it would be logical to apply the per capita figure evenly to all people of the world.  In such a scenario, U.S. emissions would have to be cut much further, since vast numbers of people already exist at far lower levels of per capita emissions, and population growth projections for many third world countries is even worse than the projections for the U.S.  In other words, if everyone gets to emit their fair share, then U.S. emissions will have to be cut much more drastically than 80%, a level that many already believe is simply unattainable. 

My interest in all of this is, of course, not so much reductions in carbon emissions, but the pressure that this subject brings to bear on the need to reduce our population.  Since economists don’t understand that reductions in our population would actually have huge economic benefits, we’ll all be better off in the end whether the impetus for population reductions is economic or some environmental concern.  The good news here is that, as much as environmentalists would like to keep the population factor below the radar, it’s beginning to be openly discussed.

Finally, the article ends with a quote so egregious that I can’t let it pass without comment:

David Satterthwaite, of the International Institute for Environment and Development (IIED), said … “It’s consumption that drives dangerous climate change, not population.” … “There is at most a weak link between population growth and rising emissions of greenhouse gases.”

Anyone who would make such a statement is being disingenuous, to put it mildly.  The rise in greenhouse gas emissions is directly related to the growth in population over the past couple of centuries.  Even a fifth-grader can understand that total emissions is a function of population times the average per capita emissions.  Only a fool would focus solely on per capita emissions while discounting the role of population growth.  Stabilizing and reducing our population is critical to achieving our goals for greenhouse gas emissions reductions.  If reduced enough, it could also have the side effect of providing a huge boost to the standard of living for everyone.

Renewable Energy Jobs Go Bye-Bye

September 10, 2009

The above-linked article is a little old, but I didn’t want to let it pass without comment.  When the administration began championing “green jobs” and renewable energy as the solution to our unemployment problem, I countered that the manufacture of solar cells and wind turbines was just as likely to end up in foreign plants as any other product. 

Now comes the first evidence of this:

German solar firms Conergy and Solarworld have voiced strong concern about the pricing practices of Chinese panel makers — who undercut their German peers’ products by around 20 percent.

Industry experts say U.S. firms share those German concerns.

… The once red-hot solar sector faces a massive oversupply of cells and modules that has driven down average selling prices for solar systems by more than a fifth in Germany and the United States — two major solar markets — and Chinese companies are grabbing market share by slashing costs.

… Making solar energy affordable through subsidies was always a challenge for Western governments promoting clean energy use, but resisting low-cost imports from China may prove a bigger hurdle.

Equipment for the renewable energy industry is no different than any other product.  It can be manufactured anywhere and, without tariffs to make domestic manufacturing the logical alternative, it will by default end up in the hands of countries where labor is in the worst state of over-supply.  There is no way to gimmick our way out of this fundamental economic truth.

Cap and Trade: Trading One Problem for Another

June 30, 2009

On Friday, barely noted by the media amid all the hubbub about the death of Michael Jackson, the U.S. House of Representatives passed sweeping “cap and trade” legislation that, over the next forty years, will slowly but profoundly change our way of life in America. 

The main goal of the legislation is to address global climate change by reducing CO2 (and other “greenhouse gas”) emissions by 83% from 1997 levels by the year 2050.  It establishes an all-encompassing energy policy and, though not stated in the legislation, also offers the added benefit of dramatically reducing our dependence on foreign oil (or so I had hoped).  The top link provided above will take you to a summary of this 1200 page bill.  (Just enter “H.R.2454” in the search window to get to the bill.  The 2nd link will take you to a Reuters article reporting on the passage of this legislation by the House.) 

I applaud the administration for tackling this urgent issue.  But, based upon my reading of the summary, I have two major concerns.  First, upon hearing that the major goal of the legislation was to reduce greenhouse gas emissions by 83%, I jumped to the conclusion that this would translate into an 83% reduction in our use of fossil fuels – eliminating our dependence on foreign oil and, with it, a big percentage of the trade deficit that has driven us to the brink of financial ruin.  But that’s not the case.  Since the law would only require that 20% of our electricity come from renewable sources by the year 2039, it’s clear that the bulk of the reductions in greenhouse gas emissions will be achieved by capture and underground sequestration.  That is, the CO2 will be removed from the by-products of combustion of fossil fuels, stored and then eventually be pumped underground. 

In fact, the legislation calls for programs to incentivize the development of the technology and even a corporation for the management of the underground storage facilities.  In other words, our strategy is to continue extracting fossil fuels from the ground, filling the voids with CO2 and other greenhouse gases, and hoping to God that it never leaks.  This is the same strategy for dealing with waste from nuclear power plants that has been such a source of concern that it has prevented any such new plants from being built in the U.S. in decades.  I think that most people, when they come to understand the strategy, will be very disappointed in this legislation.

But secondly, my bigger concern is that, as far-reaching and sweeping as this legislation is, it has a hole big enough to sail a super-tanker through it.  That is, it does absolutely nothing to address the government’s plans to increase our population by 50% by the year 2050 and indefinitely beyond.  The bill addresses total emissions but, since that’s simply a function of only two variables – per capita emissions and population – it means that if we allow the size of our population to drift higher by 50%, then per capita emissions will have to be cut not by 83% by 2050, but by 92%.  And the underground gas bubble, just waiting to explode to the surface following an unexpected catastrophe or good old corporate mismanagement, will be 50% bigger than it needs to be. 

Opponents of this legislation warn that it could dramatically lower our standard of living, cut consumption and lead to staggering job losses.  They may very well be right.  (Although the alternative of extinguishing life as we know it doesn’t seem a viable alternative.)  It doesn’t have to be this way.  By 2050 we could make dramatic progress toward cutting our population in half.  Greenhouse gas emissions would be reduced by 50% – without spending a single dime, without creating massive new government agencies requiring more taxes to fund them.  The remaining 33% reduction in emissions could easily be achieved through the conversion to renewable energy. 

Obviously, Obama’s economic advisors – avid followers of primitive, 18th century economics that relies upon population growth as an engine for economic growth – had a heavy hand in crafting this legislation.  Even when population growth has brought us to this – relying upon the creation of giant, high-pressure, underground CO2 gas bubbles to avoid cooking ourselves in our own atmosphere, they cling desperately to the mantra of economics that mankind is smart enough to overcome any obstacle to growth. 

This isn’t responsible leadership, it’s creating the illusion of action while actually kicking the can down the road, transforming today’s obstacle to further growth – global warming – into a different obstacle to further growth to be dealt with by future generations and their economists – how to deal with the threat from the rapidly growing, high-pressure, underground CO2 gas bubble.  I suspect that, if they had the opportunity to question their ancestors, they’d grab them by the throats and, barely containing their anger, would shout  “What in the hell were you thinking?!?!?”

Waving a wand and crossing our fingers, hoping that future generations can come through with technologies to comply with mandates,  isn’t the kind of serious, sober handling of issues that we expected from Obama and his administration.  Is this what they teach at Harvard, that the earth beneath us is an infinite trash can into which we can just dump our problems – out of sight, out of mind?  Come on, President Obama, get real.  We want real, permanent solutions, not dodges.