US Economic Policy Needs New Fulcrums

June 24, 2008

Interest rates have been the policy du jour for the Federal Reserve since the creation of the oversight commission.  By manipulating lending rates, and the use of other monetary policy discretion they have been the keepers of growth for nearly a century.  But has the system they were tasked to protect changed significantly from the days they were incepted?  Is monetary policy really capable of the cure-all we so eagerly await when the wizard du jour speaks?

While I do not have the research capability, nor the time to look deeper into this, I wonder how things like consumption vs. production economies respond to fiscal policy.  I also wonder how in a consumption driven economy, like the US how needs like food and energy respond to fiscal policy, post housing-bubble, where consumption was being driven by loose economic policy at least in part supporting a home equity revolution.  Or in an emerged (euphemism for Chindia) global economy, where the US as a central economic power has dissipated, how does our own fiscal policy adversely affect us, particularly in a world of consolidating currencies.

Clearly the need to ease rates is at clear odds with inflationary pressures.  And the need to raise rates puts us in a new conundrum with anemic housing and credit markets.  You’d think Greenspan would love to speak up, doesn’t he love conundrums?

As all conundrums do they end with a definitive outcome, but usually in a way not one us can predict, and typically after a lot of pain.

What would be the efficacy of creating new fulcrums for government(s) to restrain/stimulate growth?  What would the best fulcrums be?  What is the elasticity of demand for money today?  Has it changed from 70 years past?  Or have resources like oil trumped it?  Is capital the core driver in resource constrained world?  Capital, after all, is not fundamentally constrained when we can print it at will.

What we can’t artificially create are the tangible resources that drive our means of production and the goods and services we consume.  Inherent in that may be the markings of a new fulcrum.


Thomas Edison

June 4, 2008

In 1931, not long before he died, he [Edison] told his friends Henry Ford and Harvey Firestone:

“I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.”

This quote was popularized last year in the New York Times by Heather Rogers in an article titled: Current Thinking.

Source:

Current Thinking
Heather Rogers, New York Times, June 3, 2007
http://www.nytimes.com/2007/06/03/magazine/03wwln-essay-t.html?_r=1&ref=magazine&oref=slogin


Fools Rush In

June 2, 2008

You may fool all the people some of the time; you can even fool some of the people all the time; but you can’t fool all of the people all the time. Abraham Lincoln

When it comes to Climate Change legislation, be careful what you ask for. Take a look below at what is coming out of the neo conservative think tank AEI. If we are not careful, folks/fools like this could muddy the water of appropriate solutions around reducing carbon emissions, the underlying cause of climate change

While this “solution” contains so little common sense for it to be worrisome, the fact is that the neo conservative “engine” (gerbils on a wheel) is trying to muster solutions which could ultimately lead to a bifurcation of public opinion on the economic benefits between treating the causes or the effects of carbon emissions. Given the absurdity of this idea, the only underlying motivation here must be an attempt to delay the game as they realize they cannot win on behalf of big oil. After all, legislation that attacks the source of carbon will adversely impact carbon heavy industries quickly and legislation that attacks the effect of climate change, offers hope of skipping over those carbon heavy industries, at least prolonging their existence.

The concept of Geoengineering, as outlined below seeks to “offset the warming effect of greenhouse gases.” On the bright side, it looks like the 1% club of non-believers has finally fallen over the fence to the understanding that carbon emissions are a source cause of global warming! Conversely, on their way over the wall, they must have fallen and hit their heads, as common sense has run fearfully from their minds. I dare a wandering reader of this obscure blog to try to convince me that Geoengineering would be a sustainable solution to climate change. I further invite a well witted scientist to elaborate that the development and deployment of this technology would be cheaper than, and safer than simply funding research, or subsidizing existing carbon lite and carbon free energy sources.

In an attempt to assault our collective intellect, however, I wonder if they think that we won’t notice that Geoengineering does not address efforts to limit the amount of carbon being launched into the atmospere. While it is framed as a solution of last resort, it teams with the fear-mongering, policy-driving, thought process of the current administration. How ironic that the way the conservatives suggest we “solve” global warming is by making us even more afraid that new technologies wont work in time to have a significant effect. It is also ironic that they are posing a solution that does not threaten the existing carbon producing infrastructure.

This “solution” does nothing to treat the cause of climate change, only the effects. It would probably cost more to develop than simply to fund the acceleration of current technologies to become cost competitive, which is happening much more quickly, if not already with oil over $100 a barrel.

Geoengineering: A Revolutionary Approach to Climate Change

For more than twenty years, policymakers have struggled to find ways to reduce greenhouse gas emissions enough to stop global climate change. Congress is likely to enact federal climate legislation in 2009, but many scientists fear that emissions reductions may not occur quickly enough to prevent significant warming. Some scientists also fear that potentially catastrophic effects, such as the melting of the polar ice caps, could happen unexpectedly quickly. If warming proves to be uncontrollable and dangerous, what could we do?A growing number of climate scientists believe that there may be only one possible answer to that question: change features of the earth’s environment in ways that would offset the warming effect of greenhouse gases, a concept known as “geoengineering” (or “climate engineering”).

The most plausible way of doing this would be to use very fine particles in (or above) the stratosphere to block a small fraction (roughly 2 percent) of sunlight. While geoengineering science is in its infancy, most scientists who have studied the idea believe it is likely to be feasible and cost-effective.Is geoengineering feasible? What do scientists know about it–and what do they need to learn if we want to have the option of deploying these technologies in an emergency?

If geoengineering proves to be feasible, would it be desirable? What are the policy implications of this revolutionary idea? What should it mean for the current debate over climate policy in Congress and for international climate negotiations? Who would benefit from geoengineering? Which countries might object–and how should their concerns be addressed?

To explore these and other questions, Lee Lane and Samuel Thernstrom will host a series of AEI conferences that will present the findings of original commissioned research papers on the policy implications of geoengineering. Speakers at this event will provide a broad overview of the state of the science of geoengineering and the range of public policy questions raised by this revolutionary concept. Tom Wigley, senior scientist at the National Center for Atmospheric Research, will examine the state of the science; Kerry Emanuel of the Massachusetts Institute of Technology and Vaughan Turekian of the American Association for the Advancement of Science will comment. Subsequently, Johns Hopkins University professor Scott Barrett will explore the policy implications of geoengineering, followed by commentary from Fred Iklé of the Center for Strategic and International Studies.

While I may be quick to jump at the jugular here, with admittedly only surface knowledge of the real cost and impact of Geoengineering, my contempt is not precisely for the technology, but rather for the policy makers looking to polish their egos and careers by complicating simple solutions.   When it comes to public policy, you only need to fool some of the people some of the time. And the damage from doing so can be immense. As these debates progress, please don’t be fooled.

Sources:

Quote
Abraham Lincoln (1809-65, Bartleby.com, Accessed: June 2, 2008
http://www.bartleby.com/73/609.html

Geoengineering: A Revolutionary Approach to Climate Change
American Enterprise Institute, Tuesday, June 3, 2008
http://www.aei.org/events/eventID.1728,filter.all,type.upcoming/event_detail.asp


What can the federal government do to directly affect alternative energy solutions?

June 2, 2008

This was one of the most telling slides I’ve seen in recent times that was presented at the recent World Science Festival in my home town of New York City.  I’ll try my best to cite the provocateur correctly, but the panel had a number of luminaries on it.  The panel was discussing “Powering the Planet: A Townhall Meeting” and I believe the panelist responsible for pointing this out was either Saul Griffith or Dan Nocera, sorry I was not taking diligent notes.  If you want to see who was there, you can follow the link to the bios of the presenters above.

In any event, the slide below is amazingly insightful as to what it will take for the United States to truly mobilize serious efforts around decoupling our energy consumption from carbon production.  The below chart shows aggregate dollars spent on non-defense R&D over the last half-century.  The blue area for health according to the presenter is largely attributable to the war on cancer.  The initial spike in space spending of course was the chase to win the space race.  The small and short spike in energy spending in the 1970’s was of course the result of energy issues of that day.  What is truly amazing is that once that period’s spike (green) subsided, so did adequate investment moving forward.

The presenters made it clear (as if I was doubting before I went) that all of the technology needed to ween ourselves off of a carbon economy exists today.  However, without proper mobilization, manufacturing processes and scale, and cost effectiveness, we will be forced to wait longer than we might have to to create the change needed to slow, stop and ultimately reverse the growing carbon concentration in the atmosphere, and in turn to slow, stop and reverse the chemistry causing global warming.

Trends in Nondefense R&D by Function, FY 1953-2009

This is a tremendous point in an election year, and in what may be deemed a “lite” discussion in the media of what we need to do from capital hill.  It is clear that regardless of what carbon pricing model ultimately makes its way through Capital Hill, the next administration will need to see our current predicament as the result of systemic underinvestment in our energy and national security.  How much would you pay in taxes for cheap, clean energy?  More or less than you are paying for gas today?

For those interested in the answer to the unintended question of: well if that is non-defense R&D, then how much do we actually spend on defense in contrast? I am adding the slide below.

Outlays for the conduct of R&D, FY 1949-2009, billions of constant FY 2008 dollars

I was extremely excited to attend three presentations at the World Science Festival on sustainability.  I was even more impressed by how crowded the rooms were, and by the depth of the questions coming from all ages in the audience.  While I think the festival sponsors could have done a better job on promoting the event, as I did not hear of it until Tuesday last week, despite the majority of the presentations taking place in my own neighborhood in Greenwich Village, I was surprised by the turnout.

I can say with great passion that I can’t wait for the 2nd annual World Science Festival next year!