Strategic Energy Fund

Renewable Energy Access recently published an article entitled 'Senator Clinton Calls For Investing In Renewable Energy'. Here is the article:

Senator Hillary Rodham Clinton has taken a stand by introducing legislation to create a "Strategic Energy Fund" to help pay for the clean energy transition. It would raise more than $50 billion to fund research, development and deployment of energy technologies that will reduce America's oil dependence and greenhouse gas emissions.

The Strategic Energy Fund will move America toward the goal of producing 20 percent of electricity from renewable sources by 2020 by extending the production tax credit for generating electricity from wind and other renewable sources for 10 years.

It calls for more efficient vehicles on the road by doubling the consumer tax breaks for hybrids, clean diesel, and other advanced vehicles, and creating a tax incentive for fleet owners to purchase more efficient vehicles.

The proposal would speed the development of cellulosic ethanol by providing loan guarantees for the first billion gallons of commercial production capacity, and providing $1 billion for research.

To speed infrastructure conversion, it calls for increasing the availability of "E85" fuel pumps to 50 percent of gas stations by 2015 by providing gas station owners with a 50% tax credit for the cost of installing pumps.

And, by creating a $9 billion "Advanced Research Projects Agency," the legislation seeks to accelerate energy research.

At a speech at the National Press Club last Tuesday, where the Senator called for the "Strategic Energy Fund" to help America reach the goal of reducing oil imports by 50 percent by 2025, she pinpointed the nation's impasse between energy and national security:

"Our present system of energy is weakening our national security, hurting our pocketbooks, violating our common values and threatening our children's future. Right now, instead of national security dictating our energy policy, our failed energy policy dictates our national security," said Senator Clinton.

The proposed legislation also places a temporary fee on major oil company profits that exceed a 2000-2004 profit baseline. The fee would be in place for two years, and companies could offset their fee by investing in refinery capacity, ethanol production, or electricity generation from wind and other renewable sources. In addition, the proposal eliminates oil company tax breaks that the companies have said they don't need, and ensures that oil companies pay their fair share of royalties for drilling on public lands.

Elephant Funeral

This week, The Economist published an article entitled 'Elephant empathy'. If you find this article interesting, I would highly recommend research published in Nature entitled 'Elephant breakdown' by G.A. Bradshaw et al. It discusses in greater detail the complexity of the elephant mind. Here is 'Elephant empathy':

Elephants, proverbially, never forget. This photograph suggests that they may even remember their dead. It comes from a paper about to be published in Applied Animal Behaviour Science by Iain Douglas-Hamilton, a Kenyan zoologist, and his colleagues. The question of whether intelligent mammals such as elephants have similar emotional reactions to those of people is much debated in zoological circles. Mr Douglas-Hamilton's researchers were able to observe the reaction of other elephants to the death of Eleanor, the matriarch of a group called the First Ladies. The picture shows an elephant from a neighbouring group pulling at her body. On several occasions before she died, other elephants had tried to help her stand up. Such behaviour is in contrast to that shown by most animals to sick or dead individuals. They just ignore them.

Economic Overview

This week, The Economist published an overview of the previous weeks economic headlines. Here are the overviews:

Economic and financial indicators
Home sales in America fell by 1.3% in June, as inventories rose to their highest levels since 1997. Sales of condominiums were particularly slow. The median price for an existing home was $231,000 in June, a 0.9% increase from a year earlier. Although that was the smallest such increase since May 1995, American consumer confidence rose in July, according to the Conference Board.

Britain's GDP grew by 0.8% in the second quarter of 2006, compared with 0.7% in the first. The growth was mostly in services such as distribution, restaurants and financial services. Strong retail sales continued into the summer. Sales volumes were 2.1% higher between April and June than they had been in the previous three months.

Business sentiment in Germany dimmed a little in July, according to the widely watched Ifo index. But its reading of 105.6, down from 106.8 in June, remains strong by historical standards. In France and Italy meanwhile, business confidence diverged. French sentiment improved more than expected in July, according to the French statistics office, INSEE. Businessmen were enthusiastic about the strength of exports. In Italy, however, confidence declined after 13 monthly rises, according to the ISAE research institute.

Nevertheless, the euro-area economy as a whole remains quite healthy, according to the EuroCOIN indicator, a measure of economic activity compiled by the CEPR. Its reading of 0.633 for June, up from 0.617 in May, suggests the economy is growing faster than its long-run trend rate, which it calculates at about 0.5% a quarter.

Australia's consumer prices rose by 1.6% in the second quarter, exceeding forecasts and lifting the annual inflation rate to 4%. The jump in prices makes it likely that the Reserve Bank of Australia will raise interest rates so as to bring inflation back towards its preferred range of 2-3%. The Australian dollar strengthened in anticipation of the possible rate increase.

Annual inflation in Canada slowed to 2.5% in June, with core inflation falling to 1.7%. The Canadian dollar fell on the assumption that the Bank of Canada need not tighten monetary policy much further.

Emerging Market Indicators
Several central banks turned hawkish this week. The Reserve Bank of India raised its key interest rate by a quarter of a percentage point to 6%, because of higher energy prices. Hungary's central bank tightened by half a percentage point to 6.75%, following a quarter-point rise in June.

Strong investment helped South Korea's GDP grow by 5.3% in the year to the second quarter.

Future Of Globalisation

This week, The Economist published an article entitled 'The future of globalisation'. As previously posted, the Doha round of trade talks was an opportunity for political leaders to improve the efficiency and equality of free trade. Unfortunately, the failure of Doha "signals a defeat of the common good by special-interest politics. If the wreck is terminal--and after a five-year stalemate, that seems likely--everyone will be the poorer, perhaps gravely so." Here is the end of the article:

Is Doha's collapse just a failure to advance, rather than a reversal? Probably not. True, the seas of world trade are calm. Trade has been growing much faster than global GDP. High commodity prices and robust growth mean that the call for protection is low. But although the system will not fall apart overnight, with the years, the rust will set in.

Next year, the American president will lose the power that Congress has granted him to negotiate trade deals without them being picked to pieces by the legislature. That will make it hard to revive Doha. Rows about farm trade could be aggravated by next year's American farm bill. The ill will evident this week could spread if American and European manufacturers start to shed lots of jobs in a downturn. Western complaints about the piracy of intellectual property could sharpen rows with developing countries.

What's more, the WTO's crucial trade-disputes procedure could easily come unstuck. After this week's failure, next time the WTO rules against America, Congress will not take the offence kindly. Put all of these together, and it is easy to see how easily the whole trading system, not just one round of talks, could be wrecked.

The Doha round was launched after the attacks of September 11th 2001 as proof that a prosperous and united world could rise above Islamist terrorism. This week, faced once again with violence that they seem powerless to halt, political leaders had it within their scope to make the world better off. They failed.

Britain & California Pact

On July 31st 2006, the Associated Press published an article entitled 'Blair, Arnie 'global warming pact'. Here are some excerpts via CNN:

British Prime Minister Tony Blair and California Governor Arnold Schwarzenegger plan to lay the groundwork for a new trans-Atlantic market in carbon dioxide emissions, The Associated Press has learned.

Such a move could help California cut carbon dioxide and other heat-trapping gases scientists blame for warming the planet. President George W. Bush has rejected the idea of ordering such cuts.
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The aim is to fix a price on carbon pollution, an unwanted byproduct of burning fossil fuels like coal, oil and gasoline. The idea is to set overall caps for carbon and reward businesses that find a profitable way to minimize their carbon emissions, thereby encouraging new, greener technologies.

Monday's meeting was being hosted by Steve Howard, CEO of The Climate Group, and John Browne, chairman of British Petroleum. British and American business leaders planned to use it to also discuss other ways of accelerating use of low-carbon technologies.

The world's only mandatory carbon trading program is in Europe. Created in conjunction with the Kyoto Protocol, a 1997 international treaty that took effect last year, it caps the amount of carbon dioxide that can be emitted from power plants and factories in more than two dozen countries. Companies can trade rights to pollute directly with each other or through exchanges located around Europe as long as the cap is met. Canada, one of more than 160 nations that signed Kyoto, plans a similar program.
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A main target of the agreement between Britain and California is the carbon from cars, trucks and other modes of transportation. Transportation accounts for an estimated 41 percent of California's greenhouse gas emissions and 28 percent of Britain's. Schwarzenegger has called on California to cut its greenhouse gas emissions to 2000 levels by 2010. California was the 12th largest source of greenhouse gases in the world last year, bigger than most nations. Blair has called on Britain to reduce carbon emissions to 60 percent of its 1990 levels by 2050. Britain also has been looking at imposing individual limits on carbon pollution. People who accumulate unused carbon allowances -- for example, by driving less, or switching to less polluting vehicles -- could sell them to people who exceed their allowances -- for example by driving more.

Bush has resisted Blair's efforts to make carbon reduction a top international priority. After taking office, Bush reversed a 2000 campaign pledge to regulate carbon dioxide emissions, then withdrew U.S. support from the Kyoto treaty requiring industrialized nations to cut their greenhouse gases to below 1990 levels.

The United States is responsible for a quarter of the world's global warming pollution. Bush administration officials argue that requiring cuts in greenhouse gases would cost the U.S. economy 5 million jobs.

Instead, the administration has poured billions of dollars into research aimed at slowing the growth of most greenhouse gases while advocating a global cut on one of them, methane.

Friday vs. Monday Video

IPO's As Market Indicator?

Can the success, or lack thereof, in the IPO market predict future market performace? In the July 30th 2006 New York Times article entitled 'If Initial Offerings Fall Short, Start Looking for Bulls', Mark Hulbert reviewed a study that suggests that recent IPO postponent & cancellations are an "an indication of investor pessimism that may actually turn out to be bullish for the overall stock market." Here is an excerpt:

Worldwide in June, more companies withdrew or postponed their initial public offerings than in any other month since March 2001, according to Dealogic, a firm based in London that monitors the new-issue market. That March 2001 trough came less than halfway through the 2000-2 bear market, leading many investors to worry that the current gloom in the new-issues market is a harbinger of much lower prices for stocks.

But the stock market’s continuing decline in the months after the March 2001 I.P.O. bust was probably an anomaly, says Jay R. Ritter, a finance professor at the University of Florida who specializes in I.P.O. research.

An analysis of initial offerings market since 1980 suggests that, all else being equal over the next 12 months, the market between now and the summer of 2007 is likely to produce above-average returns.

I found this article interesting, but wished that Jay R. Ritter would have studied the IPO market back to more bearish times, such as the mid-1960's or even further.

Bush Tax Cuts

Last week, The Wall Street Journal Editorial Page published an article by Pete du Pont entitled 'Rising Tide'. In short, the 2003 tax cuts were great, but government spending has increased by nearly 50% and the U.S. National Debt has increased by approximately $2.7 trillion during the Bush administration. Here are some excerpts:

John F. Kennedy believed that "an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget, just as it will never produce enough jobs or enough profits." So he proposed income tax rate reductions, which the Democratic Congress enacted the year after JFK's death. Back then, Democrats were for them: more than 80% of Democratic senators and representatives voted for the Kennedy tax cuts.

My, how times have changed. Today the Democratic Party is so vehemently opposed to income tax cuts that when President Bush's reached their final vote in May 2003, only 4% of Democratic legislators (2 of 48 senators and 7 of 205 representatives) voted "yes."
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Mr. Bush signed the most recent tax cuts into law in the spring of 2003. In the past 33 months the size of America's entire economy has increased by 20%--or, as National Review Online's Larry Kudlow put it, "In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy."

In the 2 1/4 years before the 2003 tax cuts, economic growth averaged 1.1% annually; in the three years since it has averaged 4% per year, and in the first quarter of this year it was 5.6% on an annualized basis. Inflation-adjusted per capita GDP has grown 7.8% from 2003 through the first quarter of this year.

According to the government's establishment survey, in the 36 months since the tax cuts became law, 5.3 million new jobs have been added to the economy. According to its employment survey, 288,000 jobs were added in May and 387,000 in June. The unemployment rate dropped from 6.1% when the bills were signed to 5.4% at the end of 2004 and 4.6% today, and the rate has gone down for men, women, blacks and Hispanics. Hourly wage rates for workers are up 3.9% in the past year, and they increased at an annualized rate of 4.6% in the second quarter of this year, the highest quarterly rate in nearly 10 years.

Incomes are up too. As Stephen Moore noted in The Wall Street Journal, "the percentage of Americans earning more than $50,000 a year rose from 40.8% to 44.2%" between 2002 and 2004. As for very wealthy families, the portion of total income "captured by the richest 1%, 5% and 10% of Americans is lower today than in the last year of the Clinton administration."

All this has been good news for the government. Federal tax receipts increased by 15%-- $274 billion--last year and 13%-- $206 billion--in the first nine months of this fiscal year, which, as the Journal points out, means the nine-month increases for the past two years represent the highest growth rates in 25 years. Looking ahead to the end of this fiscal year, total inflation-adjusted government receipts will likely be 23% above 2003 when the Bush tax cuts were signed into law.

Reducing the capital gains tax rate from 20% to 15% increased capital gains tax receipts by 79% from 2000 to 2004. Cutting the dividend tax rate by more than half--from 39.6% to 15%--increased dividend tax receipts by 35% from 2002 to 2004. And corporate tax receipts have nearly tripled since 2003, reaching $250 billion for the past nine months, 26% higher than the same period last year.

Tax cuts work, and work well, for individuals, employers and even the government, which sees its revenues increase dramatically when tax cuts are enacted and left in place over time.

State governments are coming to the same conclusions. Rhode Island Democrats came to realize their 9.9% top income tax rate--the third highest in the nation--was costing the state business and jobs, so they teamed up with their Republican governor to enact a flat-tax option: pay 7.5% (which phases down to 5.5% over time,) without deductions, instead of 9.9% with them.

Arizona's Democratic governor, Janet Napolitano, signed a 10% across-the-board income tax rate reduction. Oklahoma has reduced its income tax rates by 20%, and New Mexico's Democratic governor, Bill Richardson, cut his state's top rate from 8.2% to 4.9% and its capital gains tax rate in half. Experience has shown that such reductions will be very good for these states' economies. In the late 1970s, when Delaware had the nation's highest personal income tax rate at 19.8% (and also its lowest credit rating and second highest unemployment rate), it began reducing top tax rates down to 5.95%. Over 20 years income-tax revenues increased in every year but one, and became 300% greater than they had been.

The other side of the coin is the government spending rate, for it has grown by more than $800 billion--nearly 50%--during the Bush administration. Excluding war and homeland security expenditures, it has grown about 7% a year, and virtually nothing has been done to stem it.

A veto or two by the president would help, and so would some spine in the Republican House and Senate. A recent National Taxpayers Union Foundation study found that in 2005 the average Republican House member voted to increase discretionary spending by $168 billion, close to the average Democrat's $178 billion. Republicans senators' votes averaged $183 billion in new spending; Democratic senators $217 billion. Compare these numbers to the golden days of the Gingrich leadership: In 1997 the average House member voted to reduce spending by $6 billion while the average senator's increase was only $4 billion.

So there is still economic work to be done in the White House and Congress. But President Bush's tax reductions have been the most successful economic growth and opportunity work of any president in a quarter of a century. To paraphrase JFK, tax rate reduction is indeed a rising tide that lifts all individuals to greater opportunity.

Two Roads Diverged

The Environmental News Network recently published a great article by James Quigley of the Center for Sustainable Energy entitled 'Energy and Climate Crises: On a Collision Course at a Fork in the Road'. Are current economic models guiding global markets to a sustainable future? How can we improve our stewardship of finite resources while continuing economic growth? Here are some excerpts:

On a collision course with this energy crisis is the crisis of global climate change. Melting glaciers and receding polar ice shelves are delivering new supplies of fresh water to the oceans on a Biblical scale. Sea level is rising, both from the melting ice and thermal expansion as surface temperature increases.
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Although the warming is tied to more carbon dioxide in the atmosphere, human activity now pumps more carbon dioxide into the atmosphere than ever before.
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This fork in the road is fraught with peril. Down one side is nuclear power that while avoiding the carbon problem encounters the radioactive waste problem, which some would have us believe is solved by a nuclear waste dump called Yucca Mountain in Nevada, where, it is believed, nuclear waste will sit unmolested in perpetuity, but the well-known geological history of the Earth tells us it will not, as does the ethos of terrorism that now so abounds in global society. So who are we kidding here? And can nuke proponents guarantee there will never be another Three-Mile Island or Chernobyl? The insurance industry is decidedly unwilling to take that chance.

Down the other fork in the road is renewable energy, virtually inexhaustible, at least until the Sun burns itself out. It is common knowledge that as much as ten-thousand times more solar energy falls on the Earth’s surface each day as is used in all daily human activity. With existing, off-the-shelf solar photovoltaic (sunlight-to-electricity) technology operating at a mere 10% efficiency on only 10% of the land mass of Arizona, we could provide for all of the country's electrical power demand. We could accomplish the same end by turning Minnesota into a wind farm with existing wind-to-electric technology. It is not suggested here that we do either to Arizona or Minnesota. The point is that we could distribute this generation capacity throughout the land, putting people to work in a sustainable economy, have a surplus of power to produce hydrogen to propel motor vehicles down the nation’s highway spewing nothing more than water vapor, free ourselves from the violent chemistry of fossil fuels and the social violence it spawns as we grow increasingly desperate to secure it against the demands of others, and in the process, save ourselves from the terrible fate awaiting the human race and most of the other living creatures on the planet if we continue to do nothing about global climate change.

What is needed now more than ever is a public that is awakened from its complacency and leadership that has enough vision to overcome the seduction of powerful interests who are blinded by their own preoccupation with the global extraction and delivery of fossil fuels. This country that undertook massive public works projects like putting a man on the moon, or building the interstate highway system, and became the most vital economy of all time, has a choice of either fading into oblivion, or correcting the course of human history. We can do it. We should, or at least die trying.

Economic Slowdown

This week, The Economist published an article entitled 'Fears of a slowdown' that describes the current state of the global economy. Are we headed for a soft landing after 17 consecutive rate hikes, slower growth in the housing market and GDP, and rising commodity prices? Is China headed towards an economic meltdown in a couple of years? While this article might not answer all of your queries, it is an interesting look at the global economy. Here are some snippets:

America has long been dubbed the engine of the world economy. Voracious American consumer demand, buoyed by a strong property market, has become the mainstay of export-driven growth in many corners of the globe. And if America is the engine, China is the world’s boiler: the entry of its 1.3 billion people into the labour market has provided the energy for years of rapid growth combined with low inflation in America and elsewhere.

This global dependence naturally makes economists worry about potential train wrecks. So far the dynamic duo has hauled its load uphill, helping to keep world growth at a lively 5.3%, despite increasingly difficult circumstances. But there are signs of creakiness. On Friday July 28th, the American government’s Bureau of Economic Analysis released early estimates for second quarter GDP. After sizzling first quarter growth of 5.6% (annualised), economists had expected to see the economy grow by at least 3% in the second. The actual figure, however, was only 2.5%, though growth over the 12 months to the second quarter was a more respectable 3.5% (see chart).
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Consumer spending has remained astonishingly high recently but only because Americans are increasingly willing to borrow, largely on their now-more-valuable homes. Personal-savings rates have been negative since the second quarter of last year. The share of household incomes devoted to servicing debt is at an all-time high.

This is not sustainable and several factors suggest that it will soon have to end. Inflation is rising, thanks largely to high energy costs. This not only cuts into the amount Americans can spend on French cheese and cheap Chinese textiles but also forces the central bank to raise interest rates higher than it otherwise would. This is proving painful for America’s heavily indebted consumers, particularly amid signs that the housing market is weakening.

Interest rates could rise again if the international lenders who have been pouring capital into America decide to put their money elsewhere—which they may do if the dollar continues, as expected, to fall. And even if American consumers extricate themselves from their financial difficulties, a falling dollar will dampen the demand for imports that many economies depend on.

And just as more cracks appear in the engine, the boiler seems to be in danger of burning itself out. Figures released this month show that China’s economy grew by 11.3% compared with the year before in the second quarter. After three years of 10% annual growth, this news is less welcome than one might think. On Wednesday Wen Jibao, China’s prime minister, called for “forceful measures” to stop the economy overheating. Chinese officials—and many analysts—are worried that the boom could be out of control. If not carefully managed, the current frantic pace of investment and expansion could spark inflation and asset bubbles. The hangover could leave industry with unused capacity, banks burdened with bad loans and the government threatened by enormous levels of unemployment.
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China has tried to bolster its weak macroeconomic controls with microeconomic interventions, placing administrative restrictions on investment in specific industries it considers to be growing too fast. China’s economy may now be too big for such policies to do much good but the government is fearful of choking off export-led growth when so many Chinese are desperate for jobs. And the relatively primitive state of China’s financial system makes it hard to fine-tune either micro or macroeconomic policies—particularly since so much investment is driven by political considerations at all levels of government.

Problems With Ethanol

Related Posts: Corn Ethanol Critiques

Archer Daniels Midland is the largest producer of ethanol in the United States. ADM is also ranked as the tenth worst corporate air polluter, on the Toxic 100 list of the Political Economy Research Institute at the University of Massachusetts. How can this be? I thought corn ethanol would make the greens happy?! What was once considered a solution to pollution, now better represents isolationism through subsidies and a phobia towards the Middle East. But I thought President Bush said in his 2000 campaign, "I would be a free trading president, a president that will work tirelessly to open up markets for agricultural products all over the world. I believe our American farmers can compete so long as the playing field is level" i.e. American cotton!

Lester R. Brown is the creator of the Worldwatch Institute and Earth Policy Institute. Maybe he has something better to say about corn ethanol. Here is an excerpt from a previous post:

Lester Brown sees ethanol production as being incredibly wasteful. Fill up your SUV with ethanol, he says, and you're doing nothing for the environment. Moreover, Brown points out that growing ethanol, any kind of ethanol, requires water and that half the world already is pumping more water than they should be. Countries like the U.S. and China are depleting aquifers so rapidly that there won't be enough to grow food, let alone renewable sources of energy. To be sure, he thinks cellulosic ethanol will be part of the solution. But he worries about the rise of corn-based ethanol creating a competition between fuel and food. He advocates gas-electric hybrids powered by wind-generated electricity, and a carbon tax offset by income tax reductions (now being considered in China and Japan).

Here is the latter half of an Associated Press article by H. Josef Hebert via ENN entitled 'Ethanol Won't Solve Energy Problems'.

If every acre of corn were used for ethanol, it would replace only 12.3 percent of the gasoline used in this country, Hill's study said, adding that the energy gains of corn-produced ethanol are only modest and the environmental impacts significant.

As a motor fuel, ethanol from corn produces a modest 25 percent more energy than is consumed -- including from fossil fuels -- in growing the corn, converting it into ethanol and shipping it for use in gasoline.

While often touted as a "green" environmentally friendly fuel, corn-based ethanol's life cycle environmental impacts are mixed at best, the researchers said.

Compared with gasoline, it produces 12 percent less "greenhouse" gasses linked to global warming, according to the study. But the researchers also said it has environmental drawbacks, including "markedly greater" releases of nitrogen, phosphorous and pesticides into waterways as runoff from corn fields. Ethanol, especially at higher concentrations in gasoline, also produces more smog-causing pollutants than gasoline per unit of energy burned, the researchers said.

"There's a lot of green in the money that's going into ethanol, but perhaps not so much green is coming out as far as the environment," said Hill, the lead author, in a telephone interview.

For more information on this topic, I recommend this article by the Wall Street Journal.

Desertification In Darfur

In the September 2006 issue of Seed, Joshua Braun wrote an article entitled 'A Hostile Climate'. Here is the article:

Did global warming cause a resource war in Darfur?

Though a sudden agreement gave hope for peace in Darfur, the lack of support from small anti-government groups, the spillover of refugees into Chad and the opposition of the central government to UN peacekeepers mean that the conflict drags on. Lost in discussions about ending the Sudanese government's attacks on its people, however, is the acknowledgement of how the dispute began: Darfur may well be the first war influenced by climate change.

In recent years, increasing drought cycles and the Sahara's southward expansion have created conflicts between nomadic and sedentary groups over shortages of water and land. This scarcity highlighted the central government's gross neglect of the Darfur region--a trend stretching back to colonial rule. Forsaken, desperate and hungry, groups of Darfurians attacked government outposts in protest. The response was the Janjaweed and supporting air strikes.

The theory that current climate change will result in resource scarcity that could spark warfare has gained traction in the past decade, with research on the topic commissioned by organizations ranging from the United Nations to the Pentagon. In March, British Home Secretary John Reid publicly fingered global warming as a driving force behind the genocide in Darfur. "[Environmental] changes make the emergence of violent conflict more rather than less likely," he said. " The blunt truth is that the lack of water and agricultural land is a significant contributory factor to the tragic conflict we see unfolding in Darfur. We should see this as a warning sign."

Desertification and increasingly regular drought cycles in Darfur have diminished the availability of water, livestock and arable land. "The effect of climate change on these resources has been a latent problem," said Leslie Lefkow, an expert on Darfur with Human Rights Watch. "And instead of addressing the cause of that tension and putting money into development of water resources...the government has done nothing. So the tensions have grown. And these tensions are of the reasons why the rebellion started."

Chalking the Darfur conflict up to climate change alone would be an oversimplification, argues Eric Reeves, a leading advocate and a professor of English literature at Smith College. " The greater cause, by far, lies in the policies of the current National Islamic Front regime," he said. Marc Lavergne, a researcher with the French National Center for Scientific Research and former head of the Centre D'Etudes et de Documentation Universitaire Scientifique et Technique at the University of Khartoum, agrees. "The problem is not water shortage as such, and water shortages don't necessarily lead to war. The real problem is the lack of agricultural and other development policies to make the best use of available water resources since colonial times."

Though global warming may fail to directly explain the conflict, some experts--like Michael Klare, a global security specialist at Hampshire College and author of the book 'Resource Wars'--argue that Darfur is part of an emerging pattern of resource conflict: "I don't think you can separate climate change patterns and globalization... It's really one phenomenon... In a place like Africa, where the infrastructure and the government are weak, all these pressures are multiplying...and it's creating conflict and schisms, which often arise along ethnic and religious lines, because that's how communities are organized. But they're really fighting over land or water or timber or diamonds." And in Darfur, they're fighting against the inexorable reach of an expanding desert.

Seed Magazine

Seed is one of those magazines that every time I receive it in the mail, I drop everything to read the informative articles and enjoy the exquisite photographs. In each issue, there are two-page layouts that are solely devoted to beautiful photographs and a quote. Each time that I receive Seed Magazine in the mail, I will post these quotes. Here are the quotes from the June/July 2006 issue:

"The landscape and culture of Russian research and science has shifted--and, in places, been dismantled--to make way for western approaches to R+D."

"Future historians of science may look back and consider violent young elephants as symbols of a dramatic epistemic turning point in science and culture."

"Umbraphilia is not only an addiction, but a way of life. The more common term 'eclipse chaser' is nearly synonymous, but somehow does not convey the depth of commitment to this lifelong endeavor."

"Symmetry conditions our understanding of the universe more completely than any of these other ideas."

Maize vs. Sugarcane

Here is a little post from the back pages of a recent issue of The Economist. Perverse subsidies suck! U.S. politicians could never convince me that American agriculture currently represents free trade. Here's the article:

In America it is cheaper to make fuel ethanol from maize because of the high domestic price of sugar. The Agriculture Department forecasts that America will use 34% more maize in ethanol production next season, some 20% of the harvest. Prices, up by a fifth this year, look set to rise further.

World Population & U.S. Debt

The current human population as of 11:56pm on July 24th 2006 is 6,530,372,499
The current U.S. National Debt as of 11:56pm on July 24th 2006 is $8,422,067,602,263.91

The human population has increased by 6,306,046 since June 24th 2006
The U.S. National Debt has increased by $25,525,153,884.87 since June 24th 2006

Cotton-Farmers & Doha

This week, The Economist published an article entitled 'A tangle of troubles'. "America's cotton-farmers are worried about both drought and Doha... The absurdity of America's cotton subsidies is well known... The end of this gravy train is long overdue." Here is the article:

“That's what the drought does for us,” says Barry Evans, a family farmer near the west Texas town of Kress. He is peering out of his pickup at thin, scraggly green cotton plants, a foot or so high in between rows of dry stalks. It barely rained last winter and, by June, Kress had received less than two-thirds of the rain that fell a year earlier. Now blistering heat is drying out the plants even more. Across the Texas plains, cotton experts estimate that 1m acres—perhaps 15% of the state's crop—have already been lost.

If weather were the only problem facing cotton farmers, things might not be so bad. They are used to nature's whims: Kress lies in the heart of the 1930s Dust Bowl, and even today dirt storms (and sometimes tornadoes) roll through in the spring. Fortunately cotton requires much less water than, say, maize. Many farmers tap the Ogallala Aquifer for at least part of their crop, but Texas also has substantial areas of “dry-land cotton” (about one-third of Mr Evans's crop, for example) that remain outside the irrigators' reach.

Free trade is even more of a threat. The cotton industry exists in America only because of subsidies, and it stands to lose much if the World Trade Organisation's Doha negotiating round succeeds. Cutting trade-distorting farm subsidies is a top priority in the trade round and negotiators have already promised that subsidies for cotton will be cut “more ambitiously” than others.

Nothing will happen immediately, since the talks are at a standstill. American negotiators have offered to cut the limits for the most trade-skewing subsidies by 60% in return for greater access to international markets. The European Union and big developing countries want bigger cuts in America's subsidies but are loth, as always, to dismantle their own barriers.

The absurdity of America's cotton subsidies is well known. Uncle Sam spends over $4 billion a year propping up cotton farmers, with the bulk of the money going to those whose operations are much larger than Mr Evans's. Cotton receives far more government cash per acre than other crops—in 2001, four or five times that of maize or wheat, according to a recent paper by the National Centre for Policy Analysis, a conservative think-tank. The losers are not just American taxpayers but some of the world's poorest farmers, as America's subsidised production pushes down world prices. Cotton prices have halved since the mid-1990s as America's subsidies have doubled.

The end of this gravy train is long overdue. Some change is inevitable even without a Doha deal, as the WTO has already declared some American cotton subsidies illegal. The uncertainly is casting a pall over the Cotton Belt—especially Texas, where more than a third of America's 20m bales are grown. Mr Evans, looking gloomily ahead, fears his livelihood may be about to be “traded away”.

Don Ethridge, director of the Cotton Economics Research Institute at Texas Tech University, reckons that if America cuts its cotton subsidy by 60%, income for cotton farmers would fall by 26% over six years—or 19% if America won great access to international markets. “We're scared to death,” says Mr Evans. Though not scared enough, it seems, to think beyond today's subsidies. Some dream that cottonseed oil, already used for cooking, could one day power America's cars. But “I sure am not going to bet my long-term future on biofuels,” says Mr Evans. “We just don't know enough yet.”

Made-In-Canada Policy

This week, The Economist published an article entitled 'Interpreting smoke signals'. A new policy from prime minister of Canada Stephen Harper entitled "made-in-Canada" will lay the foundation for a climate exchange in Canada. Here are some excerpts:

Having shunned Kyoto, Stephen Harper is searching for a policy on emissions

The people who run the Montreal Exchange know all about risk. What began life as a market for penny stocks in a mining boom in the 1870s now deals exclusively in derivatives, an asset class known for its volatility. This month, the exchange announced plans to start trading credits for carbon-dioxide emissions, a scheme modelled on the Amsterdam-based European Climate Exchange set up last year. But the government regulations and registry of companies needed to make a climate exchange work do not yet exist in Canada. The exchange's bet is that they will appear this autumn, when Stephen Harper, the prime minister, unveils his promised “made-in-Canada” policy to address climate change.

Mr Harper, who won an election in January, has long argued that Canada could not possibly meet the emissions targets it had agreed to under the Kyoto Protocol. But since taking office, he and his environment minister, Rona Ambrose, have sent out confusing signals about what they intend to do about this. Joining the United States and Australia, fellow Kyoto-doubters, in the rival Asia-Pacific Partnership has been mooted. So has staying within Kyoto. An aide says, vaguely, that the government plans a “holistic” approach that covers air, land and water pollution.

Canada's policy on emissions has long been a shambles. Since the late 1980s, successive governments, Conservative and Liberal, agreed to targets but without the measures required to meet them. The latest was the Kyoto Protocol, which Canada ratified under a Liberal government in 2002. This requires Canada to cut emissions of greenhouse gases to a level 6% below 1990 levels by 2012.

The Liberals spent billions on programmes intended to encourage households and companies to curb their energy use, to little effect. Emissions of greenhouse gases continued to climb—but faster still. The government admits that in 2004 they totalled 758m tonnes—or a third more than the Kyoto target. On present trends, they will be double the target by 2012. To meet it, the government would have to spend billions more buying emission credits from countries such as Russia that have exceeded their goals.

So Mr Harper was merely stating the obvious. But on taking office, he cut several Liberal environmental programmes without putting anything in their place. Coming up with alternatives will not be easy. A wasteful attitude to energy use, business fears of extra costs and the eternal tension between federal and provincial governments all stand in his way.

It doesn't help that global warming sounds like good news in a country of interminable winters. Climate change may be melting the Arctic ice cap, endangering polar bears and the traditional way of life of the Inuit, but most Canadians live far to the south. They tell pollsters they are increasingly worried about the environment. But in practice they are champion energy consumers, outpaced only by Iceland and Luxembourg among rich countries (see chart).
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As for business, the degree of resistance to emissions curbs varies. Abitibi-Consolidated, a big paper producer, has already cut emissions from its Canadian mills to 42% below 1990 levels. But energy efficiency in the oil and gas industry has plummeted because companies in Alberta's oil sands use large amounts of natural gas to extract oil.

There is no shortage of suggestions for a new set of policies. Most borrow from international experience of pricing air pollution. The C.D. Howe Institute favours a carbon tax, compensated by cuts in other taxes. Another possibility is to use provincial schemes as building blocks for a national effort. Alberta and Quebec have already set up company registries for emissions, says Daniel Schwanen, an environmental analyst. It would cost Ottawa little to make them compatible.

Mr Harper could also look to the government's own advisory body, the National Round Table on the Environment and the Economy, which reported last month that emissions could be reduced by 60% by 2050. Technology is not the problem, said the report. What is needed is a clear signal from the government that it is serious about climate change. But so far Mr Harper has been uncharacteristically muddled. Perhaps a summer vacation—the ultimate Canadian antidote to long winters—will bring clarity.

Economic Overview

This week, The Economist published an overview of the previous weeks economic headlines. Here is the article:

Economic and financial indicators
In America consumer prices rose by 0.2% in June, after increasing by 0.4% in May. Prices were 4.3% higher than in June 2005. Core prices, which exclude the volatile categories of energy and food, increased by 0.3% for the fourth month in a row, thanks to rising rents. In the three months to June core inflation set an annual pace of 3.6%, though in comments to Congress this week Ben Bernanke, chairman of the Federal Reserve, said that he expects inflation to slow.

Industrial production in America rose by 0.8% in June. It managed an annualised rate of expansion of 6.6% in the second quarter, its fastest pace since 1999. Companies are now operating at 82.4% of their full capacity, the highest rate since June 2000, suggesting little slack in the economy.

America attracted a net capital inflow of $69.6 billion in May, up from $51.1 billion the month before. Private investors showed a strong appetite for government bonds, even as official creditors, such as foreign central banks, sold a net $14.3 billion of Treasuries. Consumer confidence ebbed in July, according to the University of Michigan's survey. The decline was attributed to dearer oil, geopolitical uncertainty and falling share prices.

Japan ended its zero-interest-rate policy, raising its key rate for the first time in nearly six years, to 0.25%. The central bank said it will adjust rates gradually, and that they will probably stay “very low” for some time. Japan's Nikkei 225 index fell by 4.9% this week, the Topix fell by 5.6%.

Annual inflation in the euro area remained unchanged at 2.5% in June. High prices for transport fuel, gas and heating oil kept inflation above the European Central Bank's ceiling of 2%. Meanwhile, industrial production beat expectations, rising by 1.6% in May from the previous month and by 4.9% from a year earlier.

The euro area's merchandise trade deficit reached €3.2 billion ($4 billion) in May, from a deficit of €1.9 billion in April and a surplus of 2.3 billion a year earlier.

In Britain prices rose beyond expectations last month, as annual inflation increased to 2.5% in June, from 2.2% in May. The figures raised the possibility of an interest-rate hike when the Bank of England next meets on August 3rd. The minutes of its last meeting revealed that the monetary-policy committee voted unanimously to keep rates on hold.

Emerging-market indicators
China's GDP grew by 11.3% in the year to the second quarter, thanks to strong investment and a plentiful harvest. It was the fastest expansion since 1994, prompting renewed fears of overheating.

Argentina's industrial production grew by 8.9% in the year to June, reflecting big gains in construction and carmaking.

NASA's Mission Statement

The New York Times recently published an article by Andrew C. Revkin entitled 'NASA’s Goals Delete Mention of Home Planet'. NASA's mission is no longer "to understand and protect our home planet". Here is the beginning and end of the article:

From 2002 until this year, NASA’s mission statement, prominently featured in its budget and planning documents, read: “To understand and protect our home planet; to explore the universe and search for life; to inspire the next generation of explorers ... as only NASA can.”

In early February, the statement was quietly altered, with the phrase “to understand and protect our home planet” deleted. In this year’s budget and planning documents, the agency’s mission is “to pioneer the future in space exploration, scientific discovery and aeronautics research.”

David E. Steitz, a spokesman for the National Aeronautics and Space Administration, said the aim was to square the statement with President Bush’s goal of pursuing human spaceflight to the Moon and Mars.

But the change comes as an unwelcome surprise to many NASA scientists, who say the “understand and protect” phrase was not merely window dressing but actively influenced the shaping and execution of research priorities. Without it, these scientists say, there will be far less incentive to pursue projects to improve understanding of terrestrial problems like climate change caused by greenhouse gas emissions.

“We refer to the mission statement in all our research proposals that go out for peer review, whenever we have strategy meetings,” said Philip B. Russell, a 25-year NASA veteran who is an atmospheric chemist at the Ames Research Center in Moffett Field, Calif. “As civil servants, we’re paid to carry out NASA’s mission. When there was that very easy-to-understand statement that our job is to protect the planet, that made it much easier to justify this kind of work.”
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The shift in language echoes a shift in the agency’s budgets toward space projects and away from earth missions, a shift that began in 2004, the year Mr. Bush announced his vision of human missions to the Moon and beyond.

The “understand and protect” phrase was cited repeatedly by James E. Hansen, a climate scientist at NASA who said publicly last winter that he was being threatened by political appointees for speaking out about the dangers posed by greenhouse gas emissions. Dr. Hansen’s comments started a flurry of news media coverage in late January; on Feb. 3, Mr. Griffin issued a statement of “scientific openness.”

The revised mission statement was released with the agency’s proposed 2007 budget on Feb. 6. But Mr. Steitz said Dr. Hansen’s use of the phrase and its subsequent disappearance from the mission statement was “pure coincidence.”

Dr. Hansen, who directs the Goddard Institute for Space Studies, a NASA office, has been criticized by industry-backed groups and Republican officials for associating with environmental campaigners and his endorsement of Senator John Kerry in the 2004 presidential election.

Dr. Hansen said the change might reflect White House eagerness to shift the spotlight away from global warming. “They’re making it clear that they have the authority to make this change, that the president sets the objectives for NASA, and that they prefer that NASA work on something that’s not causing them a problem,” he said.

China Growth

Robert Reich recently posted an article on the economic growth of China. Fast growth and increased global population are likely to increase commodity prices in the near future. Here is the article entitled 'China Growth':

I've been watching the statistics coming out of China about its economic growth. Here are three things you should know. (1) The people managing China's economy (I'm not talking about the politicians but about the financial and economic wizards who are actually making decisions about money supply, capital markets, and the like) are extremely good. They match the best economic minds anywhere in the world. In other words, they know what they're doing. (2) The latest data show China is now growing at a rate faster than 11 percent. That's extraordinary. It's faster than China has been growing for the last five years -- and that was faster than anyone had predicted. China's rate of economic growth is the biggest economic news in the world. (3) That growth is putting huge demands on world energy supplies, and raw materials. Oil prices will continue to rise, as will all other commodities. This is the most important economic fact in the world right now. It is also among the most important political facts in the world.

Ozone Affects Keystone Species

On July 21st 2006, ABC News published an article entitled 'Ozone hole found to affect ocean food supply'. The economic implications of this article are far-reaching. Overfishing accompanied by phytoplankton reduction will drastically hinder economic sustainability efforts in fisheries. Here is the article:

New research in Antarctica has suggested the long-term effects of ozone depletion could have a dramatic impact on the ocean's food supply.

A group of Tasmanian scientists have measured the effects of ozone depletion on levels of phytoplankton - the major food source of lower species, like krill.

They measured a 60 per cent reduction in phytoplankton levels at low ozone concentrations, compared with the six per cent of previous studies.

Andrew Davidson, of the Australian Antarctic Division at Kingston, south of Hobart, says his team used different methodology, taking measurements over a series of days.

He says the findings have significant implications for species higher up the food chain.

"So if you remove the amount, or reduce the amount of food they've got, you're reducing the capacity for a keystone species such as krill to abound in those waters," he said.

"If we verify that this is the extent which plant material is being reduced, it's a very important finding because it's far and above what ... previous scientific research has suggested is the situation."

Pollution & China Farms

On July 21st 2006, the Associated Press published an article entitled 'China Farms Losing US$2.5 Billion a Year to Pollution'. Here is the article via the Environmental News Network:

China's farms are losing more than 20 billion yuan (US$2.5 billion; euro2 billion) a year to industrial pollution that leaves grain tainted with mercury and other heavy metals, a government agency said Friday.

An estimated 12 million tons of grain have been contaminated with copper, lead, mercury and other metals annually in recent years, the State Environmental Protection Administration said on its Web site.

The report didn't say whether any of the contaminated grain was consumed by people, and a SEPA spokesman, Zhang Shanling, declined to give any more details. "Our initial evaluation is that the polluted farmland is around 10 million hectares (25 million acres), accounting for 10 percent of China's total," Zhang said.

Pollution has become a prominent issue in China following a string of chemical spills in rivers that forced authorities to suspend running water to several major cities. The government also worries about pollution of farmland and severe smog in cities.

Leaders including Premier Wen Jiabao have called repeatedly for more stringent environmental protection. But officials often are reluctant to enforce rules that might hurt important local companies. SEPA said it plans to spend 1 billion yuan (US$125 million; euro100 million) by 2008 to carry out a nationwide study of farmland pollution. Last year, China's grain production reached 484 million tons, up 3.1 percent from 2004, according to the government.

British Carbon Trading

On July 20th 2006, the Associated Press published an article by Beth Gardiner entitled 'Britain May OK Pollution Points Trades'. I find carbon as a commodity to be a realistic approach that will one day become extraordinarily efficient in curbing pollution. "Imagine a country where carbon becomes a new currency." Here is the first half of the article via the Environmental News Network:

Britain may require individuals to limit the carbon dioxide they produce to combat global warming -- and permit energy-savers to profit by selling their carbon allowances, the environment secretary said Wednesday.

David Miliband, a rising star in the governing Labour Party, argued that Britain needed to make fundamental changes to combat global warming. He said it was a bigger and more immediate problem than most people realized. Miliband described the idea of personal carbon trading as a "compelling thought experiment" but said it would not happen in the short term. He said officials are already considering so-called emissions trading programs for businesses and large public organizations.

But regulators must eventually tackle pollution by individuals, he said, who account for 44 percent of Britain's emissions chiefly through driving, flying, electricity use and home heating. "Imagine a country where carbon becomes a new currency," Miliband said in a speech to the Audit Commission. He described a future where Britons "carry bank cards that store both pounds and carbon points." Under such a plan, the government would allot every Briton points to "spend" when they use gas or electricity, he said. People who needed more could buy points from others who had points to spare. Miliband did not suggest how much carbon each person would be allowed to create.

Prime Minister Tony Blair's government has long described climate change as a top priority, but has been criticized for not doing enough to confront it.

Miliband said the average British household produces 10 tons of carbon dioxide a year. While hybrid cars, more efficient boilers and the use of personal wind turbines and solar panels may help decrease that by as much as 30 percent, a carbon trading system could be the best way to encourage people to make bigger reductions, he said. "It is easy to dismiss the idea as too complex administratively, too utopian or too much of a burden for citizens," he acknowledged. "Are there not simpler ways of achieving the same objective? ... And will it ever be politically acceptable?"

Timber Markets & Carbon Sinks

The Associated Press recently published an article by Don Thompson entitled 'Program Lets Forests Grow Longer to Combat Global Warming'. Here are some comments by Tim Haab followed by excerpts from the AP article via the Environmental News Network.

Since the mid-1800's economists have understood that a private owner of a stand of trees will harvest the trees when the future returns to leaving the trees in the ground (to grow) dip below the returns that could be earned by cutting the trees. But, if the trees provide external--social--benefits beyond those captured in the private market, like for example storing carbon, then the private owner of the trees must be given the monetary incentive to incorporate these benefits. Otherwise, the private benefits and the social benefits will not be the same and the trees will be cut too soon. That's exactly the premise behind Forest Protocols program of the California Climate Action Registry.

Don Thompson explains this program:

Californians could soon invest in trees to offset the greenhouse gases they pump into the air when they heat their homes or drive to work.

The nonprofit California Climate Action Registry was set up by the state six years ago to encourage corporations and government agencies to track, and ultimately reduce, their emissions. The Forest Protocols program will allow environmentally minded citizens to pay to preserve enough trees to offset their personal carbon emissions.

The registry has calculated how much the timber industry loses by allowing trees to grow longer and bigger -- past the time they are normally harvested. The industry would then be compensated by other companies that buy carbon credits -- or shares of the trees -- to offset their carbon emissions.
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For instance, Pacific Gas and Electric Co. in January asked the California Public Utilities Commission to let it start a program next year where customers could choose to pay about 3 percent more on each monthly bill, with the money earmarked to preserve trees in a registered forest.

The utility pumps about 5.3 tons (4.8 metric tons) of carbon dioxide into the atmosphere each year to supply the electricity and natural gas used by a typical household. If the homeowner opted to pay about $4.31 (euro3.40) each month to be invested in forests, the trees would store an equivalent amount of carbon.

"It would cost them about $4.31 a month to become climate neutral," said Wendy Pulling, PG&E's director of environmental policy.

timber markets

China's $175 Billion Investment

On July 18th 2006, Reuters published an article entitled 'China to Invest $175 Billion in Environment Clean-Up'. Here is the article via the Environmental News Network.

China plans to invest 1.4 trillion yuan ($175 billion porque $1 = 8 yuan) in environmental protection in the next five years, state media said on Tuesday, to curb water and air pollution so severe it causes riots and health problems. The money -- equivalent to about 1.5 percent of GDP -- is to be spent on measures including control of water pollution, improving air quality in cities and halting soil erosion, the official Xinhua news agency quoted He Bingguang, of the State Development and Reform Commission, as saying.

Sewage treatment plants would be built in 10 river valleys to dispose of waste water discharged by urban areas and part of the funds would also be used to reduce sulphur dioxide and dust in major cities.

China is home to 20 of the world's 30 most smog-choked cities.

The country also faces serious pollution of its soil, Xinhua added, saying that the problem threatens China's food safety, people's health and the sustainable development of agriculture. "It is estimated that nationwide 12 million tonnes of grain are polluted by heavy metals that have found their way into soil each year," Xinhua quoted Zhou Shengxian, director of the State Environmental Protection Administration, as saying in a separate report. China produced about 484 million tonnes of grain in 2005.

The country has been struggling to curb its environmental degradation, the product of more than two decades of near-double-digit annual growth. Its pollution woes became a subject of international concern last November when a toxic spill poisoned the Songhua river, a source of drinking water for millions.

Environmental Improvement

Jason D. Scorse recently posted some great thoughts for Grist Magazine. "My hope is that these four points will eventually seep into the minds of all environmentalists and the greater public. When this happens we can look forward to a much improved public discussion on environmental policy and greatly improve our chances of making substantial gains in environmental protection."

The Four E's of Environmental Improvement

1. Eliminate all natural resource subsidies

Subsidies to timber companies, fisherman, farmers, and the oil and gas industry are by far the most damaging environmental policies engaged in by governments around the world. Not only do these subsidies directly increase environmental degradation, but by artificially lowering the prices of natural resources they spur over-consumption, decrease conservation, and make it harder for substitute resources to compete. In addition, they cost taxpayers hundreds of billions of dollars a year; money that could be used instead for improving human welfare in myriad ways. (Many economists refer to these types of subsidies as “perverse subsidies” because they actually exacerbate bad behavior instead of encouraging good behavior).

2. Expand property rights in areas where they are weak or non-existent

The areas in the world where we witness the greatest levels of environmental degradation (the oceans, many large tropical forests, and the atmosphere) are those where property rights are absent, unclear, or poorly enforced. Without property rights resources are almost always treated as “open access”, which leads to a “tragedy of the commons”. While in many instances private property may be the best form of property rights from an environmental standpoint, property rights can also be held by the government (public property) or collectively by groups of individuals. They key is creating transparent and enforceable property rights for all of the world’s resources so that individuals, groups, governments, and corporations have the incentive to use the resources wisely and invest in their preservation.

3. Empower society with information

Basic environmental science is something that will be under-funded in a pure “free market” because it is rarely profitable, and therefore, governments should do more to support scientific research that helps us better understand the links between our actions and environmental outcomes. In addition, laws that mandate that companies disclose their pollution emissions and environmental impacts provide individuals, politicians, non-governmental organizations, and investors with information that can help gauge a company’s environmental performance and differentiate “green” companies from “brown” companies.

4. Enlarge green markets through government purchases

Since governments are some of the largest buyers of natural resources in the world (e.g. paper, power, food) their purchases have a huge impact on markets and the environment. If governments can increase their demand for “green” products (e.g. chlorine-free paper, power from renewable energy, pesticide-free food) they can push businesses towards much more environmentally-friendly practices at a greatly accelerated pace. In addition, governments can both save money and improve the environment by investing in state-of-the-art efficiency for all government buildings and infrastructure.

Globalization & Inequality

On July 17th 2006, Mark Thoma had some great thoughts on globalization and increased inequality.

What should we do about globalization and growing inequality? Making a comparison to the medical profession, it may be that while we can diagnose some conditions clearly, we have no effective cure for them (though there are economists hard at work daily hoping to change that, just as medical researchers are trying to find cures for their set of ills), it requires waiting for the system to "heal" itself over time.

Economists can suggest healthy diets (e.g. monetary and fiscal policy), but that is no guarantee that the economy will not get sick anyway and when it does, we don't always have the cure at hand, though I do think we have, for the most parts, prescriptions to help the economy heal faster. But people want instant cures, a pill to take that makes it better now, not a long difficult road to recovery.

Education, worker retraining, those sorts of things aren't cures, they simply (hopefully) speed the healing process along, and sometimes that can be a much longer process than any of us like.

I know a lot of you like to beat us up because we don't have the answers, and it's useful to motivate us to look all that much harder, but I'm not any more embarrassed for our profession because we can't solve every problem than doctors are who can't cure the common cold. And (this will make some of you mad) they, like us, have to listen to a lot of folk remedies that supposedly work, be told they are idiots, etc. And though every once in awhile the folk remedy is valid, generally the suggestions come from people who really don't understand all facets of the problem. You can't argue with them, they really believe their folk remedies work, so it's best to listen to them attentively, smile and nod, and not engage.

But that's pessimistic. My economics tells me that there will be winners and losers from things like free trade and that the winners will [generally] have enough to compensate the losers and still be better off themselves. So my solution would recognize this reality and, along with all the things we need to do to help the economy heal, it would also redistribute income in a way that produces far more winners and far fewer losers. But I don't think we have the political will to do that yet, the understanding that everyone will still be better off after the redistribution, though the the GOP's change of heart to allow consideration of a vote on the minimum wage is one sign that this is being recognized.

Policies can protect people from losing jobs, but I think that's a recipe for stagnation in the long-run. Policy can help people get new jobs faster, that's where education, retraining, etc. come in, but that hasn't worked as well as we would like (but that's not an excuse to stop trying and my solution involves these things even though so many of you object to such policies). Policy can raise income for lower income groups, that's where minimum wages, negative income taxes, redistribution policy, etc. come in. These help ease the globalization transition by transferring income to affected groups and hence make it easier to accept politically, but it's not clear they make the transition occur any faster.

Finally, we can hope the electoral process results in a change in the use of political power to bring about transfers of income toward higher levels. We have enough trouble dealing with the economics driving such changes, we don't need legislation that makes it even worse.

I think part of the silence is that economists have no instant cure for problems that occur with globalization. We think it's necessary for our long-run health, and we can recommend policies that aid the recovery process, but perhaps our silence is because we've been waiting for some economist working hard to have a "Eureka" moment and announce to all of us a cure is at hand. Until that happens, we will be stuck with less satisfying rehabilitative solutions.

Economic Overview

This week, The Economist published an overview of the previous weeks economic headlines. Here is the article:

Economic and financial indicators
America's businesses, excluding farms, added 121,000 workers to their payrolls in June. The unemployment rate remained unchanged at 4.6%. America's trade deficit in goods and services reached $63.8 billion in May, thanks in part to higher oil prices. Its biggest bilateral deficit, with China, expanded to $17.71 billion from $17.03 billion in April.

Industrial production in Germany and France made big gains in May. Increases in manufacturing and construction raised German industrial output by 1.5% from the previous month and 6% from a year earlier. In France production rose by 2%, the biggest gain in six months, leaving it 2.7% higher than in May 2005.

In Japan core orders for machinery, which exclude those from ship builders and electricity companies, fell by less than expected in May. The 2.1% drop from the previous month was less than forecasts of over 5%, suggesting that investment spending may be stronger than expected. Meanwhile, producer prices in Japan rose by 3.3% in the year to June.

Average earnings in Britain increased faster than expected in the three months from March to May, at an annual pace of 4.1%. Pay was boosted by bonuses in financial services and the public sector. Unemployment hit a 5½-year high of 5.4%, largely because of a growing labour pool.

Emerging-market indicators
China chalked up a record trade surplus of $14.5 billion in June, compared with $13 billion in May. In the past 12 months it has accumulated a surplus of $123 billion. Russia's surplus for the year to May was even bigger, reaching $136 billion.

Brazil's consumer prices dropped by 0.2% in June, the biggest fall since 1998, because of cheaper ethanol and food. Consumer prices were still 4% higher than a year before.

Ambitious Economic Models

This week, The Economist published a very interesting special report entitled 'Economic models: Big questions and big numbers'. Here are some excerpts:

We cannot live without big and ambitious economic models. But neither can we entirely trust them.

Among the many gadgets, instruments and artefacts in its care, London's Science Museum holds a peculiar contraption that most resembles the work of a deranged plumber. Yellow tubes connect together a number of tanks and cisterns, around which coloured water can be pumped. Sluices and valves govern the flow of liquid and makeshift meters record the water-levels.

The “plumber” responsible for this device was William Phillips. Educated as an engineer, he later converted to economics. His machine, first built in 1949, is meant to demonstrate the circular flow of income in an economy. It shows how income is siphoned off by taxes, savings and imports, and how demand is re-injected via exports, public spending and investment. At seven feet (2.1 metres) high, it is perhaps the most ingenious and best-loved of economists' big models.

Economists today use computers and software not perspex and piping, but they share Phillips's itch to build models that faithfully mirror the real economy. For each of the big economic questions facing the world (What do we stand to gain from a global trade deal? By how much has expensive oil retarded growth? What might be the economic costs of an avian flu pandemic?) there is a model that will provide a big numerical answer ($520 billion, 1.5% of world GDP, and $4.4 trillion, respectively). Such figures are trotted out far and wide. But can we entirely trust them?

Economic models fall into two broad genres. Macroeconomic models, the distant descendants of Phillips's machine, belong mostly in central banks. They capture the economy's ups and downs, providing a compass for the folks with their hands on the monetary tiller. The second species, known as computable general equilibrium (CGE) models, largely ignore the vagaries of the business cycle. They concentrate instead on the underlying structure of production, shedding light on the long-term repercussions of such things as the Doha trade round, a big tax reform or climate change.
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Short of good data, and stretched to their computational limits, the early modellers nonetheless had high ambitions. They aimed not merely to understand the economy, but to run it.
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Such ambitions now seem quaint. In countries not cursed by socialism or war, the market is left to decide what to produce and in what proportions. But the state remains responsible for keeping the overall macroeconomy ticking over. Policymakers are largely indifferent to what is in demand, so long as the tank of demand remains full.
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These measurements were fed into their models, which in turn guided their policy advice.

In 1958, for example, Phillips showed that for long stretches of British history, high unemployment coincided with low wage inflation, and vice versa. Many macroeconomic models therefore featured a trade-off between the two: doves could choose low unemployment at the expense of high inflation; hawks the opposite.

But in the 1970s these trusted relationships broke down. And in 1976 Robert Lucas, of the University of Chicago, explained why. Such trade-offs, he argued, existed only if no one expected policymakers to exploit them. Unanticipated inflation would erode the real value of wages, making workers cheaper to hire. But if central bankers tried to engineer such a result, by systematically loosening monetary policy, then forward-looking workers would pre-empt them, raising their wage claims in anticipation of higher inflation to come. Cheap money would result in higher prices, leaving unemployment unchanged.

In short, one could not judge how the macroeconomy would respond to a new policy based on its behaviour under the old regime. The “Lucas critique”, as it was called, brought its author fame and a Nobel prize. But it dealt a big blow to the confidence of model-makers. As Christopher Sims of Princeton University has put it, “Use of quantitative models as a guide to real-time policy advice was cast into such deep disrepute that academic research on the topic nearly completely ceased.”
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In the past decade, a number of central banks—and even the International Monetary Fund (IMF)—have reared a new generation of practical macroeconomic models, all of them sporting microfoundations. First-born was Canada's Quarterly Projection Model in the mid-1990s; its close siblings include the Bank of England Quarterly Model (BEQM) introduced in 2004; the SIGMA model groomed by the Federal Reserve's International Finance Department; and the IMF's new Global Economic Model (GEM). Old hands doubt whether the new microfoundations are quite as secure as they seem—the macroeconomy is surely rather more than the sum of its parts—but no self-respecting theorist can now be seen in public without them.

Stabilising the macroeconomy is only one of the responsibilities of governments in a market economy. They must also raise taxes and most feel the need to impose tariffs, both of which put rocks in the stream of economic life. When they contemplate big changes to these policies, most governments cannot resist turning to CGE models to forewarn them of the consequences.
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Trade's virtuous effects are of two distinct kinds. First, trade helps countries make the most of what they already have. It frees countries to allocate their resources—whether they be cheap labour, fertile land or educated minds—as efficiently as possible. But, secondly, trade can also allow countries to accumulate resources more quickly. Indeed, the biggest prizes lie in faster growth, not heightened efficiency; in accumulation and innovation, not allocation.

By their nature, CGE models are better suited to capturing the first effect than the second. They provide “before and after” snapshots of the economy at two points in time. They are therefore good at capturing the one-off gains that might arrive from a redeployment of the economy's resources. They are much less good at capturing the continuing gains that result from a faster accumulation of capital, or a quickened pace of productivity growth. Most trade models, indeed, hold productivity fixed.
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Most empirical exercises confront theory with numbers—they test theories against the data; sometimes they even reject them. CGE models, by contrast, put numbers to theory. If the modeller believes that trade raises productivity and growth, for example, then the model's results will mechanically confirm this. They cannot do otherwise. In another context, Robert Solow, a Nobel prize-winner, has noted the tendency of economists to congratulate themselves for retrieving juicy plums that they themselves planted in the pudding.
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To be fair, most modellers are quite open about the theoretical principles that underlie their simulations. But to compute an economic model, this theory has to be given concrete form, spelt out in definite algebraic terms. Alfred Marshall, one of the fathers of neo-classical economics, distrusted mathematics for this very reason. To be expressed in mathematical form, he complained, many important economic considerations had to be “clipped and pruned till they resembled the conventional birds and animals of decorative art.” Economic theory gives only the roughest guide to this pruning. It points out, for example, that supply rises when prices increase. But does it rise in a straight line or curve upwards? Perhaps, as prices rise, supply traces out an inverted U-shape or an S-shape?
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Phillips's pump-action model was, he wrote, meant for “exposition rather than accurate calculation.” But all models should ultimately be seen as pedagogical devices, their calculations a means to the end of helping policymakers think through their decisions. Unfortunately, Phillips's model was rather better at this than many of its more sophisticated successors. It was transparent: you could see through its casing, trace the flow of expenditures through its pipes and watch wealth accumulating in its tanks. Get things wrong and prosperity drained away in front of your eyes. The model was also easy to tinker with: valves could be loosened, sluices opened and taps tightened. It was clear what was governing its results.

Living With Strong Russia

This week, The Economist published an article entitled 'Living with a strong Russia'. Here are some excerpts:

Forget the formal agenda at this weekend's G8 summit, given over to energy security, infectious diseases and education. The really awkward issue for the leaders of the seven rich democracies gathering in St Petersburg concerns their host: how to live with a strong, but increasingly undemocratic, Russia.

Since Vladimir Putin became president in 2000, Russia has in many ways been a remarkable success. Thanks largely to high oil prices, its economy has grown by an average of 6.5% a year. Living standards have improved and a sizeable middle class has emerged. The stockmarket has boomed. Russia is running a huge current-account surplus, it is paying off the last of its debt and the rouble has just been made fully convertible. At the summit Russia also hopes to surmount the last hurdles to its joining the World Trade Organisation.
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Yet as well as these steps forward Russia has taken steps backwards. In Mr Putin's early years optimists hoped that stability and prosperity would not come at the expense of liberty and democracy. Western leaders gave him the benefit of their doubts over such matters as the war in Chechnya or curbs on the media. But it has become ever clearer that Russia is moving in the wrong direction. Greater state control of the economy, especially in the energy industry, has bred corruption and inefficiency. Any serious political opposition has been crushed. The broadcast media have been shut down or taken over by the government and its allies. Regional governors have been squashed—one of the last elected governors was arrested recently—and parliament has been emasculated, continuing the Kremlin's drive not merely to centralise, but to monopolise, political power.
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So what can the West do? The short answer is, not a lot. In the 1990s an economically enfeebled Russia needed help from abroad. Unless the oil price unexpectedly collapses, no such leverage will be available in the near future. Politically, too, pressure from outside is likely to rebound. With the Kremlin once again firmly in control, Russia will almost certainly change only from within—or not at all.
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They (western leaders) should speak out against Mr Putin's moves away from democracy, against his policy in Chechnya, or against Russian use of energy to bully its neighbours (many west European countries have been too timid in their criticism). They should continue to help NGOs and others who are trying to establish a civil society that may, one day, provide an alternative to the dead weight of the Kremlin. As the next presidential election of March 2008 nears, they should insist that any move to amend the constitution so that Mr Putin can run again is unacceptable—and would result in Russia's expulsion from the G8. They should do what they can to press for free and fair elections, even if the Kremlin's chosen candidate seems sure to win.

There are things they should not do, as well. Russia's membership of the G8 may be an embarrassment, since it is supposedly a club of democracies. But to throw it out now would only push Russia farther out of the West's orbit, and risk making it even less helpful over such issues as curbing Iran's nuclear ambitions. Equally, Americans and Europeans are right to assist countries in Russia's near-abroad that want to escape its baleful influence. But to push for Ukraine or Georgia, say, to join NATO before they are ready would serve no good purpose. Above all, Western leaders should avoid giving the impression that what they really object to is not an illiberal and undemocratic Russia but a strong and rich one—a paranoia that even Russia's few remaining liberals all too often share.

Sixty years ago a wise American diplomat, George Kennan, proposed that the right policy of the West towards an expansionary Soviet Union under Joseph Stalin should be “containment”. Russia today is clearly no such threat. But it still matters, and the West should care about where it is going. The best policy now is no longer containment but “wary engagement”.

The Value of Remittance

The Los Angeles Times recently published an interesting four-part special entitled 'The New Foreign Aid'. Here are some excerpts discussing the value of remittance:

Migrants have been sending money home, in one form or another, for centuries. But only recently have economists recognized its significance. Today, remittances are the largest, fastest-growing and most reliable source of income for developing countries. Poor nations reported $167 billion in receipts from overseas workers last year, according to the World Bank, more than all foreign aid. Including unrecorded transactions, the bank estimates that the total exceeded $250 billion.
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Mexico's annual remittance inflow has doubled since 2002 and reached $20 billion last year, second only to petroleum as a generator of wealth for the country.

Other developing nations also depend heavily on their migrants' money. Brazilian laborers in Japan send home more than $2 billion a year, out-earning their country's coffee exports. Remittances bring in more than tea exports do in Sri Lanka and tourism does in Morocco. In Jordan, Lesotho, Nicaragua, Tonga and Tajikistan, they provide more than a quarter of the gross national product.

Unpredictable Tax Revenues

On July 16th 2006, The New York Times published an article by Edmund L. Andrews entitled 'Those Wild Budget Swings'. Here is the article:

It was enough to make a supply-side, tax-cutting Republican beam with pride. Striding into the East Room on Tuesday morning, President Bush announced that tax revenues had been pouring in so fast this year that the federal deficit was likely to shrink for the second year in a row — even though spending continued to balloon. Tax revenue hasn’t climbed this quickly since President Bill Clinton was in office. After plunging throughout Mr. Bush’s first term, tax receipts are running 27 percent higher this year than in 2004 — an added $500 billion. The White House now predicts that the budget deficit this year will be $296 billion, down from $318 billion in 2005 and $412 billion two years ago.

But the real news is not that tax revenues are particularly high; they are not. The big change is that tax revenues have become more of a crapshoot — more volatile, more unpredictable and more buffeted by swings in the stock market than they were 10 years ago.

Why? Because tax revenues are increasingly dependent on the fortunes of the very rich. And it turns out that the rich are different from most other taxpayers. Much more of their income is tied, not to wages and salaries, but to the stock market and to executive bonuses, which can swing widely from year to year. Relying on these gyrating tax revenues makes it harder to gauge the government’s true fiscal health. Mistakes are easier to make, and long-term problems can be glossed over.

At first blush, the recent jump in tax revenue would seem to validate Mr. Bush and those who believe that tax cuts ultimately generate higher tax revenues because they prompt people to work harder, invest more and take more entrepreneurial risk. The White House, in a news release last week, boasted that tax revenues have climbed 34 percent since Congress passed Mr. Bush’s second big tax cut — which included a major reduction in taxes on stock dividends and capital gains.

But revenues are only up in comparison with how low they had plunged in recent years. Individual income taxes, the biggest component of federal revenue, are barely back to the level that was reached in 2000, $1 trillion. Adjusting for inflation, income tax revenue is still lower than six years ago. “The idea that tax cuts have led to higher revenues is pernicious,” said Robert L. Bixby, executive director of the Concord Coalition, a bipartisan research group that lobbies for fiscal discipline. “Tax revenues may be higher, but they are not higher than they would have been if the tax cuts hadn’t occurred.”

But beyond the perennial debate about whether “fiscal discipline” means raising taxes or cutting spending, there is also an issue about the increasingly erratic pattern of the tax revenue itself. The top 1 percent of taxpayers — those who earn more than $300,000 a year — provide about 30 percent of the federal government’s individual income tax revenues. The top 10 percent of taxpayers — those with incomes above $100,000 — provide about two-thirds of income tax revenue. The lopsided burden is partly a result of progressive taxation, and partly a result of widening income disparities between people at the top and bottom of the economic ladder.

It’s hard to imagine what the federal government could do to reduce instability. Because about 40 million people do not owe any federal income taxes, almost any attempt to broaden the tax base would shift more of the tax burden from the wealthy to middle-income households. Yet the more the rich bear the burden, the more they will seek to escape it.

The unpredictable tax revenues first surfaced almost 10 years ago, as booming economic growth and the dot-com frenzy propelled the stock market to spectacular highs. The result was a tidal wave of tax revenue that far eclipsed projections by both the White House and the Congressional Budget Office. As if by magic, budget deficits disappeared and turned into surpluses. For the most part, the Congressional forecasts missed the mark by less than 4 percent from 1982 until 1995. But starting in 1996, when the dot-com frenzy erupted in earnest, the agency began undershooting by as much as 9.5 percent. In 1996, tax revenues came in $93 billion higher than expected; in 1997, they were $163 billion higher; in 1999, they were $152 billion higher. When the dot-com bubble popped in 2001, and the economy slid into a brief recession, tax revenues plunged $308 billion below what the Congressional Budget Office had predicted and remained depressed for the next three years.

NOW the pendulum is swinging once again. Corporate tax payments, which plunged more than $70 billion from 2000 to 2003, could hit a new record of $332 billion this year. Capital gains taxes could climb back from a low of $50 billion in 2003 to $75 billion this year. Few budget analysts would say the jump in revenues is bad news. But if the last decade is any indication, it would be foolish to count on more of the same.

The Bush administration has quietly acknowledged the point. Its latest estimate anticipates that tax revenues will be almost flat in 2007 and that the deficit will widen to $339 billion. But only if things turn out as expected.