Argentina Has a Bond It Wants to Sell You. By Robert Shapiro and Nancy Soderberg
Deadbeat nations should be kept out of U.S. capital markets.
WSJ, Feb 27, 2009
Argentina reportedly intends to file for Securities and Exchange Commission approval to re-enter U.S. capital markets. The SEC should instead insist that Argentine securities bear a warning like cigarette packages: "This issuer has a record of misrepresentation, debt defaults and debt repudiation, and therefore may be dangerous to your financial health. Do not consume this issuer's bonds unless you have a platoon of lawyers and a Navy to back them up, and you're prepared to use both."
In this global economic crisis, Argentina's financial behavior is especially worrisome. Its status as history's largest sovereign debt defaulter; its unprecedented repudiation in 2005 of bonds held by those who balked at substandard terms for restructuring; and the lack of transparency and fulsome disclosure surrounding its current capital raising efforts set a dangerous example.
If the SEC fails to keep Argentina out of our capital markets -- or set clear terms for its re-entry -- it could encourage other nations to follow that country's irresponsible path.
In 2001, Argentina defaulted on $81 billion in sovereign bonds. Four years later it presented a unilateral, nonnegotiable restructuring plan worth about 25 cents on the dollar. When half of its foreign lenders said "no thanks," Buenos Aires repudiated their claims.
Since Argentina had earlier agreed to waive sovereign immunity and accept the jurisdiction and judgments of New York courts, more than 160 lawsuits were filed. But the governments of Nestor Kirchner and of his wife and successor, Christina Fernandez, have ignored numerous court judgments. Judge Thomas Griesa has repeatedly condemned their conduct, noting in 2005 that "I have not heard one single word from the [Argentine] Republic except ways to avoid paying those judgments." Nothing has changed since then.
If Argentina gets away with its misdeeds -- offering terrible terms for restructuring its debt and then repudiating its obligations to those who object -- the likelihood of additional defaults could increase substantially. If that occurs, it would inflict another serious blow to a global financial system in crisis.
Already, Buenos Aires's scofflaw behavior is being imitated. Citing Argentina's example, Ecuador recently defaulted on sovereign debts issued in the U.S., though it has the means to meet its obligations. The default drove down the market price of the bonds. The Correa government then entered the American secondary market with a massive repurchase program, scooping up much of its own debt at a very steep discount.
If the offering documents Argentina has submitted to the SEC in the past are any indication, its forthcoming filings will be replete with misleading or meaningless representations. They will inevitably include another pledge to submit to U.S. court jurisdiction and to be bound by any resulting court judgments in the event of default. And they will almost certainly lack candid disclosure about that country's true financial condition -- its $35 billion in outstanding but repudiated debt to foreign creditors, its cozy financial dealings with the Chávez regime in Venezuela, its grossly understated inflation rate, or its recent binge of expropriating assets within its reach to meet its mounting financial obligations.
This issue has already caught the attention of Congress. Rep. Ed Towns (D., N.Y.) supported legislation last year to bar deadbeat foreign governments from our financial markets. He is now chairman of the House Government Reform Committee. Standing up to the world's largest debt defaulter and repudiator would seem to be a minimal step that the SEC should take to protect the integrity of the markets it oversees.
Mr. Shapiro was under secretary of commerce during the Clinton administration. Ms. Soderberg served on the National Security Council during the Clinton administration. They are the co-chairs of the American Task Force Argentina, a coalition of investors and citizen groups seeking a just resolution to Argentina's debt default.
Thursday, February 26, 2009
Eastern Europe Needs Our Help - We can't risk losing 20 years worth of gains in the region
Eastern Europe Needs Our Help. By John Kerry
We can't risk losing 20 years worth of gains in the region.
Wall Street Journal Europe, Feb 27, 2009
Twenty years ago, the Berlin Wall and the repressive Communist regimes of Eastern Europe came crashing down to usher in a new era of political and economic freedom. Today, it is Eastern Europe's banks and economies that are threatening to crash. The Polish zloty is down 38% against the dollar in the last six months alone. Hungary's forint is down 32%. Ukraine posted a staggering 34% drop in January industrial output from a year earlier. While the entire world is reeling, right now the eye of the global financial storm has moved to Central and Eastern Europe.
If Western nations do not act quickly to address the snowballing financial crisis that is brewing from Latvia to Hungary, we risk replacing an era of promise and progress in Eastern Europe with one of soaring unemployment, instability and a weakening of the influence and ideals we have spent decades building.
While many Americans are rightly focused on our domestic troubles, we must also recognize the global dimensions of the current crisis. Last week, Latvia became the second government, after Iceland, to collapse as a result of a financial crisis that has already sparked riots in the Baltics and Greece and is likely to be a driving geopolitical force for a long time.
Eastern Europe's currencies are plummeting as investors instead seek the safety of the dollar and the euro. This means that Eastern European countries, companies and individuals face increasing challenges to pay back their large foreign-currency loans -- which only deepens the currency problems to create a vicious circle.
At first glance this may seem like a traditional emerging-markets crisis like those we saw in the late 1990s. But in fact it's far worse. This is a truly global financial crisis in a highly connected financial world, and Eastern Europe is feeling the brunt. Many of the region's banks are foreign-owned -- in the case of Hungary, more than 80% -- and many of those banks are now contemplating unprecedented protectionist steps, pulling back lending operations to their home countries. Meanwhile, as larger countries consume more of the world's capital in refinancing their own debt, emerging markets like those of Eastern Europe are likely to find the bank windows closed to them.
The result is that the economies of Eastern Europe are already falling faster and further than anyone expected. There is a real danger that, if every country affected by this crisis defines its interests narrowly, several strategically vital countries could fall through the cracks. For example, Ukraine's dire situation could trigger a domino effect, not only destabilizing Western Europe banks with large exposure to East European markets, but actually changing the geopolitical map as well.
America should support World Bank President Robert Zoellick's call for the EU to lead a coordinated global effort, alongside the IMF, World Bank and other development banks, to support the economies of Central and Eastern Europe. Austria, too, deserves credit for trying to focus Europe's attention on the plight not just of eastern member states such as the Baltics, but also of non-EU neighbors like Ukraine.
But Eastern Europe will not be the last financial fire the world will have to help put out in this crisis. Nor will our problems be confined to traditionally unstable corners of the globe. Our oldest European allies are also in deepening financial trouble, and three of our most important partners in the Muslim world, Turkey, Indonesia and Pakistan, today all face acute balance-of-payments crises.
We also need to ensure that the U.S. Treasury and State departments have the capacity to deal with these fast-moving crises in real time even as they turn our domestic economy around. That means the Senate must make clear its willingness to quickly confirm the Obama administration's nominees for posts vital to international economics and finance, such as the international staff at Treasury and the economic staff at the State Department, once the administration nominates them.
Our needs at home are urgent and great. We must put our own economic house in order and we will. But as we balance the domestic and global demands of this crisis, we should be warned that, in cutting corners today we risk incurring far greater costs down the road. A retreat into our domestic problems will not only leave us diminished on the world stage -- because our world is so economically and financially interconnected, it may well also worsen our own economic crisis.
Instead, as we restore confidence in our own markets, we will also need to find a strategy to project leadership, share burdens, build the capacity of institutions like the IMF and spread stability as this crisis continues to reverberate world-wide.
We have already lost a great deal in the last few months. But two decades of prosperity, democracy and institution-building in Eastern Europe is one investment that America must not allow to go up in smoke.
Mr. Kerry, a Democratic senator from Massachusetts, is chairman of the Senate Foreign Relations Committee.
We can't risk losing 20 years worth of gains in the region.
Wall Street Journal Europe, Feb 27, 2009
Twenty years ago, the Berlin Wall and the repressive Communist regimes of Eastern Europe came crashing down to usher in a new era of political and economic freedom. Today, it is Eastern Europe's banks and economies that are threatening to crash. The Polish zloty is down 38% against the dollar in the last six months alone. Hungary's forint is down 32%. Ukraine posted a staggering 34% drop in January industrial output from a year earlier. While the entire world is reeling, right now the eye of the global financial storm has moved to Central and Eastern Europe.
If Western nations do not act quickly to address the snowballing financial crisis that is brewing from Latvia to Hungary, we risk replacing an era of promise and progress in Eastern Europe with one of soaring unemployment, instability and a weakening of the influence and ideals we have spent decades building.
While many Americans are rightly focused on our domestic troubles, we must also recognize the global dimensions of the current crisis. Last week, Latvia became the second government, after Iceland, to collapse as a result of a financial crisis that has already sparked riots in the Baltics and Greece and is likely to be a driving geopolitical force for a long time.
Eastern Europe's currencies are plummeting as investors instead seek the safety of the dollar and the euro. This means that Eastern European countries, companies and individuals face increasing challenges to pay back their large foreign-currency loans -- which only deepens the currency problems to create a vicious circle.
At first glance this may seem like a traditional emerging-markets crisis like those we saw in the late 1990s. But in fact it's far worse. This is a truly global financial crisis in a highly connected financial world, and Eastern Europe is feeling the brunt. Many of the region's banks are foreign-owned -- in the case of Hungary, more than 80% -- and many of those banks are now contemplating unprecedented protectionist steps, pulling back lending operations to their home countries. Meanwhile, as larger countries consume more of the world's capital in refinancing their own debt, emerging markets like those of Eastern Europe are likely to find the bank windows closed to them.
The result is that the economies of Eastern Europe are already falling faster and further than anyone expected. There is a real danger that, if every country affected by this crisis defines its interests narrowly, several strategically vital countries could fall through the cracks. For example, Ukraine's dire situation could trigger a domino effect, not only destabilizing Western Europe banks with large exposure to East European markets, but actually changing the geopolitical map as well.
America should support World Bank President Robert Zoellick's call for the EU to lead a coordinated global effort, alongside the IMF, World Bank and other development banks, to support the economies of Central and Eastern Europe. Austria, too, deserves credit for trying to focus Europe's attention on the plight not just of eastern member states such as the Baltics, but also of non-EU neighbors like Ukraine.
But Eastern Europe will not be the last financial fire the world will have to help put out in this crisis. Nor will our problems be confined to traditionally unstable corners of the globe. Our oldest European allies are also in deepening financial trouble, and three of our most important partners in the Muslim world, Turkey, Indonesia and Pakistan, today all face acute balance-of-payments crises.
We also need to ensure that the U.S. Treasury and State departments have the capacity to deal with these fast-moving crises in real time even as they turn our domestic economy around. That means the Senate must make clear its willingness to quickly confirm the Obama administration's nominees for posts vital to international economics and finance, such as the international staff at Treasury and the economic staff at the State Department, once the administration nominates them.
Our needs at home are urgent and great. We must put our own economic house in order and we will. But as we balance the domestic and global demands of this crisis, we should be warned that, in cutting corners today we risk incurring far greater costs down the road. A retreat into our domestic problems will not only leave us diminished on the world stage -- because our world is so economically and financially interconnected, it may well also worsen our own economic crisis.
Instead, as we restore confidence in our own markets, we will also need to find a strategy to project leadership, share burdens, build the capacity of institutions like the IMF and spread stability as this crisis continues to reverberate world-wide.
We have already lost a great deal in the last few months. But two decades of prosperity, democracy and institution-building in Eastern Europe is one investment that America must not allow to go up in smoke.
Mr. Kerry, a Democratic senator from Massachusetts, is chairman of the Senate Foreign Relations Committee.
US Agency and Coca-Cola Partner to Bring Clean Water to Mozambique
USAID and Coca-Cola Partner to Bring Clean Water to Mozambique
USAID, February 25, 2009
CHIMOIO, MOZAMBIQUE - The United States Agency for International Development (USAID) and Coca-Cola have formed a global alliance - the Water and Development Alliance (WADA) - to provide clean, potable water to Mozambique's sixth largest urban region, Chimoio. This alliance brings together funding commitments from all partners totaling about $1.79 million, of which $500,000 comes from USAID.
Currently, 10-15 percent of Chimoio's 250,000 residents are served by an inconsistent and inadequately treated water supply that poses serious public health risks and hampers industrial and commercial growth. WADA and its partners will supply running water to about 25,000 people, 12 schools, one provincial hospital, one secondary health facility, and local industrial and commercial users. This project will also improve the health of Chimoio residents, and increase economic activity and employment.
Coca-Cola is a long standing global USAID partner, but this is Mozambique's first partnership with the global beverage company. "We are looking forward to a long and productive relationship with the possibility of taking this partnership to other provinces where USAID and Coca Cola operate and have common goals," said Todd Amani, USAID Mission Director in Mozambique.
Funds provided by the alliance will be used to rehabilitate the TextAfrica Water Treatment Plant, part of a dilapidated former textile factory located on the outskirts of Chimoio. The project will rehabilitate several parts of the system - including pipes and pumping stations - to improve water delivery management and develop cost-recovery polices to ensure that the plant is sustainable once the work has been completed.
Other projects will focus on 14 boreholes throughout the city. In addition, workers will extend a secondary water distribution network to Bairro 4 - a neighborhood indentified by the municipal and community leaders as most in need of an improved water supply system. In addition, six new small water systems will be installed in neighborhoods throughout Chimoio City to provide enough water for present and future needs.
For more information about USAID and its programs in Mozambique, visit: http://www.usaid.gov/.
USAID, February 25, 2009
CHIMOIO, MOZAMBIQUE - The United States Agency for International Development (USAID) and Coca-Cola have formed a global alliance - the Water and Development Alliance (WADA) - to provide clean, potable water to Mozambique's sixth largest urban region, Chimoio. This alliance brings together funding commitments from all partners totaling about $1.79 million, of which $500,000 comes from USAID.
Currently, 10-15 percent of Chimoio's 250,000 residents are served by an inconsistent and inadequately treated water supply that poses serious public health risks and hampers industrial and commercial growth. WADA and its partners will supply running water to about 25,000 people, 12 schools, one provincial hospital, one secondary health facility, and local industrial and commercial users. This project will also improve the health of Chimoio residents, and increase economic activity and employment.
Coca-Cola is a long standing global USAID partner, but this is Mozambique's first partnership with the global beverage company. "We are looking forward to a long and productive relationship with the possibility of taking this partnership to other provinces where USAID and Coca Cola operate and have common goals," said Todd Amani, USAID Mission Director in Mozambique.
Funds provided by the alliance will be used to rehabilitate the TextAfrica Water Treatment Plant, part of a dilapidated former textile factory located on the outskirts of Chimoio. The project will rehabilitate several parts of the system - including pipes and pumping stations - to improve water delivery management and develop cost-recovery polices to ensure that the plant is sustainable once the work has been completed.
Other projects will focus on 14 boreholes throughout the city. In addition, workers will extend a secondary water distribution network to Bairro 4 - a neighborhood indentified by the municipal and community leaders as most in need of an improved water supply system. In addition, six new small water systems will be installed in neighborhoods throughout Chimoio City to provide enough water for present and future needs.
For more information about USAID and its programs in Mozambique, visit: http://www.usaid.gov/.
The Green Movement and the Challenge of Climate Change
The Green Movement and the Challenge of Climate Change. By Lee Lane
AEI, Thursday, February 26, 2009
To produce net benefits, climate policy will have to make careful trade-offs between the costs and benefits of greenhouse gas (GHG) emission controls. Many environmentalists regard cost-benefit trade-offs as taboo--a strongly negative reaction that can block rational decision-making. Some green groups, however, have now embraced so-called cap-and-trade emission controls.[1] At least one recent analysis regards the green groups' move toward cap-and-trade as a sign that they are rising above the taboo response to embrace economic reasoning. A closer look shows that there may be less to this story than advertised.
Full article w/notes here.
What explains the traditional resistance of many green groups to economic reasoning? A theory developed several years ago by political psychologist Philip Tetlock offers a possible answer. Tetlock calls his theory the Sacred Value Protection Model (SVPM). According to this view, economic principles express "secular" values. Tetlock believes, however, that many people would regard protecting the environment as a "sacred" value. Proposing a trade-off between secular and sacred values triggers a "taboo" response.[2]
More recently, in an article written with green activist and scientist Michael Oppenheimer, Tetlock argues that green advocacy groups have displayed relatively high degrees of realism, tolerance, truth-seeking, and an ability to learn from experience. (Oppenheimer, it should be noted, is a vocal advocate of proposals to use cap-and-trade as a means of controlling GHG emissions that contribute to global climate change.) Oppenheimer and Tetlock concede that the record of green policymaking is more nuanced than the SVPM allows. "On one hand," they write, "we discover what seem to be strong pockets of taboo cognition--policy domains in which even speculative forms of cost-benefit analysis (would you change your mind if . . . ?) are likely to provoke sharp resistance. On the other, we discover numerous exceptions and qualifications."[3]
According to Oppenheimer and Tetlock, cap-and-trade is one such exception. In the early 1990s, one green advocacy group, Environmental Defense, took a stance in favor of cap-and-trade in the case of one air pollutant: sulfur dioxide (SO2). The SO2 cap-and-trade plan was eventually incorporated into the Clean Air Act Amendments of 1990.
As Oppenheimer and Tetlock describe the course of events, "despite considerable opprobrium (low to moderate moral outrage), it would go too far to assert that Environmental Defense was ostracized."[4] At that time, most green groups opposed the position. Years later, when the effectiveness of the trading system seemed to be confirmed, many green groups (although not all of them) embraced the concept. "Thus, the taboo has become the accepted practice."[5]
Superficially, the embrace of the SO2 program looks like an important step toward reconciling green thinking with the dictates of economics. If this impression is correct, it would mark an important turning point: the green groups would have been able to learn a major lesson from economic theory. It would suggest a defeat for the power of the SVPM among the green groups. But is this the right interpretation?
Hard Caps versus Prices
With GHG controls, the devil is in the details--and Oppenheimer and Tetlock skip the details. The result is that they misinterpret the environmentalists' stance.
Most green groups strongly prefer controls that set quantitative limits on GHG releases. This form of cap-and-trade does not allow a trade-off between control costs and environmental damage. Price-based GHG control mechanisms--for example, a carbon tax or a cap-and-trade system featuring an allowance price safety valve--would allow trade-offs of this kind. With a price-based system, if the costs of abatement prove to be excessive, the option exists to merely pay the price of continuing to emit. Almost all of the green groups, however, fiercely reject those approaches.
The choice between the green groups' preferred systems and the price-based GHG limits is not a mere technical matter. It can dramatically change the balance between the costs and benefits of future climate policy. The green groups' preferred approach of quantity-based ("hard") caps suffers from severe defects.
A control policy based on hard caps virtually ensures very high volatility of GHG emission allowance prices. Many previous cap-and-trade programs have also exhibited this volatility.[6] Even rather modest fluctuations in business cycles or weather will cause GHG allowance prices to fluctuate. And the price swings can be very large. As two prominent economists have observed:
For example, consider an effort to reduce domestic carbon dioxide emissions by 5% below future forecast levels over the next ten years--to about 1.8 billion tons of carbon. . . . Based on central estimates, the required reductions would amount to about 90 million tons of carbon emissions, and might cost the economy as a whole around $1.5 billion per year. However, reaching the target could instead require 180 million tons of reductions because of otherwise higher emissions related to a warm summer, a cold winter, or unexpected economic growth. Based on alternative model estimates, it could also cost twice as much to reduce each ton of carbon. The result could be costs that are eight times higher than the best guess.[7]
Because GHG allowances will be an important part of the cost of doing business and because their prices will fluctuate, many firms will have to incur substantial costs to hedge against these price swings. Note, though, that while the prices of emission rights may vary widely, the harm done by releasing an additional ton of GHG into the atmosphere does not.[8] The future harm from GHG output depends on cumulative global emissions over many decades. A given country's overshooting or undershooting its annual caps is merely noise in the system. It follows that all costs incurred by firms hedging against allowance price swings are pure deadweight loss to society.
In general, economists have favored carbon taxes as GHG control tools--or cap-and-trade plans that are designed to mimic carbon taxes. These approaches, many believe, are the most cost-effective means of reaching any given GHG reduction target.[9] The advantages of price-based GHG tools are the mirror image of the drawbacks of hard caps. Price-based tools are well suited to stimulating open debate about the public's willingness to pay for GHG reductions. These tools can also entirely avoid the gyrations in abatement costs that plague hard caps. And they distribute emission reductions through time based on the actual state of technology, not on ex ante expectations.
Sharp GHG Cuts and Uncertain Technology
Green groups assume a great deal of progress in GHG control technology. They wish not only to impose hard caps, but also to set those caps to require rapid GHG cuts. Policies of this kind could be very costly. For example, proposals by former vice president Al Gore and British government economist Nicholas Stern have been calculated to entail global net costs of $17 trillion and $22 trillion, respectively.[10] That is, these proposals are far more expensive than would be a policy of simply ignoring climate change.
Such proposals are based on the hope that new technology will emerge and that this technology will make the GHG reductions much cheaper. But the future course and rate of technology change is highly unpredictable, and Congress is not famous for the accuracy of its predictions on this score. If the new technologies fail to appear on schedule, abatement costs are likely to rise far above optimal levels, and they may stay that way for an extended period of time.
A worrisome aspect of this approach is that by adopting very stringent emission caps, green groups are departing sharply from the model of the SO2 program. In large measure, that program achieved relatively low abatement costs because its targets were selected to fall well within the range of capabilities of existing technology. A subsequent assessment of the SO2 program made clear that more was involved than just the concept of trading:
[T]he cost reductions observed in the SO2 trading experience will not necessarily be repeatable in other markets. One key feature of the SO2 market would need to be present again. The SO2 cap was set at a level that left a wide range of options for many individual sources, and more importantly, for all affected sources in the aggregate. An approximate 50% overall emissions reduction was required in a situation where there was a technologically-proven option that could achieve reductions of 95%. Combined with that was the presence of a wide continuum of lower percentage reductions possible via fuels with many different sulfur content levels. Thus, there was room for applying the best available control measures on only a small fraction of the regulated units, where they would be truly cost-effective and, more generally, for meaningful competition among a diverse set of options.[11]
The particulars of the SO2 case suggest caution about efforts to extrapolate its results to the quite different problem of GHG controls. In fact, even the SO2 program would have yielded much different results had it been based on emission reductions steep enough to require universal application of the most expensive available control technology. As later economic analysis pointed out, "A more stringent cap would have reduced this flexibility, and price competition among suppliers of control options. For example, the ability to take advantage of cheaper low-sulfur coals from the West would have been greatly diminished if aggregate required SO2 reductions had been substantially greater than 50%."[12]
A central factor in the SO2 program's success, therefore, was that its caps fell well within the reach of then-available technology. Setting a cap of this kind does seem to imply the acceptance of a secular-sacred trade-off. But in accepting cap-and-trade, the green groups are not accepting modest caps. Still less are they accepting the legitimacy of secular-sacred trade-offs. So far, at least in the case of GHG controls, green groups continue to resist such trade-offs to the limits of their political power.
In contrast to the green groups' stance on GHG controls, most economists have argued that the best policy would be to make modest, but gradually increasing, reductions in GHG releases.[13] In effect, economists tend to prefer the more modest goals that characterized the actual SO2 program to the steep reductions favored by the green groups. Economists also point out that it appears to be possible to learn to live with a fair amount of the predicted rise in GHG levels.[14] Climate policy, in their view, requires patience. Some environmental harm must be accepted. Otherwise, GHG control costs can easily be more expensive than the environmental damages that the controls prevent.
Hard Caps and Policy Stability
Environmentalists' intransigence about cost-benefit trade-offs in an emissions trading scheme is likely to carry a high price tag. It may do so even from the green groups' own point of view. The use of hard caps is likely to increase the chance of expensive changes in the course of policy.
Hard caps preclude certainty about future abatement costs. As a result, they largely foreclose reasoned discussion about the public's willingness to pay for GHG reductions. Green groups' rhetoric compounds the problem. For example, as the discussion in California illustrates, extravagant claims about emissions-reducing free lunches are common. An analysis by the California Air Resources Board (CARB) makes this claim about its new climate action plan: "The results consistently show that implementing the Scoping Plan will not only significantly reduce California's greenhouse gas emissions, but will also have a net positive effect on California's economic growth through 2020."[15]
Independent economists have greeted these claims with great skepticism. As one noted in reviewing the report, "I have come to the inescapable conclusion that the economic analysis [of CARB] is terribly deficient in critical ways and should not be used by the State government or the public for the purpose of assessing the likely costs of CARB's plans." He went on to observe that "the analysis is severely flawed, and hence not useful for the purpose for which it was intended."[16] Another reviewer wrote, "The net dollar cost of each of these regulations is likely to be much larger than what is reported. . . . There is a national consensus that carbon pricing is not a 'free lunch.'"[17]
The green advocacy groups, however, have enthusiastically embraced this report and the claims that GHG controls do, indeed, offer a free lunch. The Natural Resources Defense Council stated, "We concur with the overall finding that the Proposed Scoping Plan will provide economic benefits in 2020 for the overall state economy as well as to individual households and businesses."[18] Other groups have made similar claims with reference to the AB 32 Scoping Plan. Environmental Defense has said, "California's leadership on global warming will usher in a new wave of entrepreneurial innovation and be the economic engine that will drive greater prosperity in the state."[19]
At stake is much more than a dispute between the green groups and mainstream economists. If the promised free lunch turns out to carry a hefty price tag, the policy may change. Congress has a long record of policy reversals on environmental targets.[20] If that happens, many investments in GHG control may become stranded assets.
Fearing this risk, firms may defer investments until the level of government resolve becomes clearer. The resulting delay of investment decisions can itself impose serious costs.[21] Further, industry's motive for investing in R&D designed to develop less expensive future control technologies will be weaker than it would have been with a more certain future policy.[22] This result is the very opposite of the one for which the supporters of hard caps wish.
A Taboo Preserved
On closer inspection, the green groups' gradual acceptance of emission rights trading appears to be more an example of a taboo preserved than one of pragmatism vanquishing taboo. One can hardly help noticing that price-based controls make the secular-sacred trade-off that is inherent in climate policy visible for all to see. Key to the superiority of a price-based system is that it allows the market to determine the cumulative GHG reductions on a year-by-year basis. Thereby, it calibrates GHG cuts to the sacrifices that achieving them will require.
Tetlock's original SVPM theory predicts that making this secular-sacred trade-off transparent should render price-based controls anathema to green groups. It hardly seems coincidental that, while many environmental groups have embraced quantity-based cap-and-trade, every major environmental organization has rejected the bills that would have relied on price-based controls.[23] Yet Oppenheimer and Tetlock cite the groups' partial embrace of cap-and-trade as proof of ideological flexibility. At the same time, they neglect the green groups' near unanimous rejection of price-based GHG controls and do so even though this aspect of the groups' position goes to the heart of Tetlock's SVPM theory.
Tetlock's initial article spoke to the need to make trade-offs. It also discussed how people get around their own taboos. These trade-offs are a central reality of all policymaking. They clearly dominate climate policy, an area in which the stakes are high but good GHG control options are few and far between. Thus, tacitly, Tetlock's original article poses an important challenge to the green advocacy groups.
Conclusion
Oppenheimer and Tetlock, in telling the story of the green groups and cap-and-trade, never grasp the importance of the choice between hard caps and price-based tools. They do not distinguish between the SO2 program's form and its relatively gradual targets. They ignore the baleful potential of suppressing needed public debate on willingness to pay.
As a result, Oppenheimer and Tetlock miss a deeper reality about green NGOs: that they
continue to evade the needed trade-off between the goal of protecting the environment and that of preserving prosperity. This trade-off lies at the heart of making good policy on climate change. By ignoring it, the green groups are pursuing an approach that is deeply flawed.
Lee Lane is a resident fellow at AEI and codirector of the AEI Geoengineering Project.
AEI, Thursday, February 26, 2009
To produce net benefits, climate policy will have to make careful trade-offs between the costs and benefits of greenhouse gas (GHG) emission controls. Many environmentalists regard cost-benefit trade-offs as taboo--a strongly negative reaction that can block rational decision-making. Some green groups, however, have now embraced so-called cap-and-trade emission controls.[1] At least one recent analysis regards the green groups' move toward cap-and-trade as a sign that they are rising above the taboo response to embrace economic reasoning. A closer look shows that there may be less to this story than advertised.
Full article w/notes here.
What explains the traditional resistance of many green groups to economic reasoning? A theory developed several years ago by political psychologist Philip Tetlock offers a possible answer. Tetlock calls his theory the Sacred Value Protection Model (SVPM). According to this view, economic principles express "secular" values. Tetlock believes, however, that many people would regard protecting the environment as a "sacred" value. Proposing a trade-off between secular and sacred values triggers a "taboo" response.[2]
More recently, in an article written with green activist and scientist Michael Oppenheimer, Tetlock argues that green advocacy groups have displayed relatively high degrees of realism, tolerance, truth-seeking, and an ability to learn from experience. (Oppenheimer, it should be noted, is a vocal advocate of proposals to use cap-and-trade as a means of controlling GHG emissions that contribute to global climate change.) Oppenheimer and Tetlock concede that the record of green policymaking is more nuanced than the SVPM allows. "On one hand," they write, "we discover what seem to be strong pockets of taboo cognition--policy domains in which even speculative forms of cost-benefit analysis (would you change your mind if . . . ?) are likely to provoke sharp resistance. On the other, we discover numerous exceptions and qualifications."[3]
According to Oppenheimer and Tetlock, cap-and-trade is one such exception. In the early 1990s, one green advocacy group, Environmental Defense, took a stance in favor of cap-and-trade in the case of one air pollutant: sulfur dioxide (SO2). The SO2 cap-and-trade plan was eventually incorporated into the Clean Air Act Amendments of 1990.
As Oppenheimer and Tetlock describe the course of events, "despite considerable opprobrium (low to moderate moral outrage), it would go too far to assert that Environmental Defense was ostracized."[4] At that time, most green groups opposed the position. Years later, when the effectiveness of the trading system seemed to be confirmed, many green groups (although not all of them) embraced the concept. "Thus, the taboo has become the accepted practice."[5]
Superficially, the embrace of the SO2 program looks like an important step toward reconciling green thinking with the dictates of economics. If this impression is correct, it would mark an important turning point: the green groups would have been able to learn a major lesson from economic theory. It would suggest a defeat for the power of the SVPM among the green groups. But is this the right interpretation?
Hard Caps versus Prices
With GHG controls, the devil is in the details--and Oppenheimer and Tetlock skip the details. The result is that they misinterpret the environmentalists' stance.
Most green groups strongly prefer controls that set quantitative limits on GHG releases. This form of cap-and-trade does not allow a trade-off between control costs and environmental damage. Price-based GHG control mechanisms--for example, a carbon tax or a cap-and-trade system featuring an allowance price safety valve--would allow trade-offs of this kind. With a price-based system, if the costs of abatement prove to be excessive, the option exists to merely pay the price of continuing to emit. Almost all of the green groups, however, fiercely reject those approaches.
The choice between the green groups' preferred systems and the price-based GHG limits is not a mere technical matter. It can dramatically change the balance between the costs and benefits of future climate policy. The green groups' preferred approach of quantity-based ("hard") caps suffers from severe defects.
A control policy based on hard caps virtually ensures very high volatility of GHG emission allowance prices. Many previous cap-and-trade programs have also exhibited this volatility.[6] Even rather modest fluctuations in business cycles or weather will cause GHG allowance prices to fluctuate. And the price swings can be very large. As two prominent economists have observed:
For example, consider an effort to reduce domestic carbon dioxide emissions by 5% below future forecast levels over the next ten years--to about 1.8 billion tons of carbon. . . . Based on central estimates, the required reductions would amount to about 90 million tons of carbon emissions, and might cost the economy as a whole around $1.5 billion per year. However, reaching the target could instead require 180 million tons of reductions because of otherwise higher emissions related to a warm summer, a cold winter, or unexpected economic growth. Based on alternative model estimates, it could also cost twice as much to reduce each ton of carbon. The result could be costs that are eight times higher than the best guess.[7]
Because GHG allowances will be an important part of the cost of doing business and because their prices will fluctuate, many firms will have to incur substantial costs to hedge against these price swings. Note, though, that while the prices of emission rights may vary widely, the harm done by releasing an additional ton of GHG into the atmosphere does not.[8] The future harm from GHG output depends on cumulative global emissions over many decades. A given country's overshooting or undershooting its annual caps is merely noise in the system. It follows that all costs incurred by firms hedging against allowance price swings are pure deadweight loss to society.
In general, economists have favored carbon taxes as GHG control tools--or cap-and-trade plans that are designed to mimic carbon taxes. These approaches, many believe, are the most cost-effective means of reaching any given GHG reduction target.[9] The advantages of price-based GHG tools are the mirror image of the drawbacks of hard caps. Price-based tools are well suited to stimulating open debate about the public's willingness to pay for GHG reductions. These tools can also entirely avoid the gyrations in abatement costs that plague hard caps. And they distribute emission reductions through time based on the actual state of technology, not on ex ante expectations.
Sharp GHG Cuts and Uncertain Technology
Green groups assume a great deal of progress in GHG control technology. They wish not only to impose hard caps, but also to set those caps to require rapid GHG cuts. Policies of this kind could be very costly. For example, proposals by former vice president Al Gore and British government economist Nicholas Stern have been calculated to entail global net costs of $17 trillion and $22 trillion, respectively.[10] That is, these proposals are far more expensive than would be a policy of simply ignoring climate change.
Such proposals are based on the hope that new technology will emerge and that this technology will make the GHG reductions much cheaper. But the future course and rate of technology change is highly unpredictable, and Congress is not famous for the accuracy of its predictions on this score. If the new technologies fail to appear on schedule, abatement costs are likely to rise far above optimal levels, and they may stay that way for an extended period of time.
A worrisome aspect of this approach is that by adopting very stringent emission caps, green groups are departing sharply from the model of the SO2 program. In large measure, that program achieved relatively low abatement costs because its targets were selected to fall well within the range of capabilities of existing technology. A subsequent assessment of the SO2 program made clear that more was involved than just the concept of trading:
[T]he cost reductions observed in the SO2 trading experience will not necessarily be repeatable in other markets. One key feature of the SO2 market would need to be present again. The SO2 cap was set at a level that left a wide range of options for many individual sources, and more importantly, for all affected sources in the aggregate. An approximate 50% overall emissions reduction was required in a situation where there was a technologically-proven option that could achieve reductions of 95%. Combined with that was the presence of a wide continuum of lower percentage reductions possible via fuels with many different sulfur content levels. Thus, there was room for applying the best available control measures on only a small fraction of the regulated units, where they would be truly cost-effective and, more generally, for meaningful competition among a diverse set of options.[11]
The particulars of the SO2 case suggest caution about efforts to extrapolate its results to the quite different problem of GHG controls. In fact, even the SO2 program would have yielded much different results had it been based on emission reductions steep enough to require universal application of the most expensive available control technology. As later economic analysis pointed out, "A more stringent cap would have reduced this flexibility, and price competition among suppliers of control options. For example, the ability to take advantage of cheaper low-sulfur coals from the West would have been greatly diminished if aggregate required SO2 reductions had been substantially greater than 50%."[12]
A central factor in the SO2 program's success, therefore, was that its caps fell well within the reach of then-available technology. Setting a cap of this kind does seem to imply the acceptance of a secular-sacred trade-off. But in accepting cap-and-trade, the green groups are not accepting modest caps. Still less are they accepting the legitimacy of secular-sacred trade-offs. So far, at least in the case of GHG controls, green groups continue to resist such trade-offs to the limits of their political power.
In contrast to the green groups' stance on GHG controls, most economists have argued that the best policy would be to make modest, but gradually increasing, reductions in GHG releases.[13] In effect, economists tend to prefer the more modest goals that characterized the actual SO2 program to the steep reductions favored by the green groups. Economists also point out that it appears to be possible to learn to live with a fair amount of the predicted rise in GHG levels.[14] Climate policy, in their view, requires patience. Some environmental harm must be accepted. Otherwise, GHG control costs can easily be more expensive than the environmental damages that the controls prevent.
Hard Caps and Policy Stability
Environmentalists' intransigence about cost-benefit trade-offs in an emissions trading scheme is likely to carry a high price tag. It may do so even from the green groups' own point of view. The use of hard caps is likely to increase the chance of expensive changes in the course of policy.
Hard caps preclude certainty about future abatement costs. As a result, they largely foreclose reasoned discussion about the public's willingness to pay for GHG reductions. Green groups' rhetoric compounds the problem. For example, as the discussion in California illustrates, extravagant claims about emissions-reducing free lunches are common. An analysis by the California Air Resources Board (CARB) makes this claim about its new climate action plan: "The results consistently show that implementing the Scoping Plan will not only significantly reduce California's greenhouse gas emissions, but will also have a net positive effect on California's economic growth through 2020."[15]
Independent economists have greeted these claims with great skepticism. As one noted in reviewing the report, "I have come to the inescapable conclusion that the economic analysis [of CARB] is terribly deficient in critical ways and should not be used by the State government or the public for the purpose of assessing the likely costs of CARB's plans." He went on to observe that "the analysis is severely flawed, and hence not useful for the purpose for which it was intended."[16] Another reviewer wrote, "The net dollar cost of each of these regulations is likely to be much larger than what is reported. . . . There is a national consensus that carbon pricing is not a 'free lunch.'"[17]
The green advocacy groups, however, have enthusiastically embraced this report and the claims that GHG controls do, indeed, offer a free lunch. The Natural Resources Defense Council stated, "We concur with the overall finding that the Proposed Scoping Plan will provide economic benefits in 2020 for the overall state economy as well as to individual households and businesses."[18] Other groups have made similar claims with reference to the AB 32 Scoping Plan. Environmental Defense has said, "California's leadership on global warming will usher in a new wave of entrepreneurial innovation and be the economic engine that will drive greater prosperity in the state."[19]
At stake is much more than a dispute between the green groups and mainstream economists. If the promised free lunch turns out to carry a hefty price tag, the policy may change. Congress has a long record of policy reversals on environmental targets.[20] If that happens, many investments in GHG control may become stranded assets.
Fearing this risk, firms may defer investments until the level of government resolve becomes clearer. The resulting delay of investment decisions can itself impose serious costs.[21] Further, industry's motive for investing in R&D designed to develop less expensive future control technologies will be weaker than it would have been with a more certain future policy.[22] This result is the very opposite of the one for which the supporters of hard caps wish.
A Taboo Preserved
On closer inspection, the green groups' gradual acceptance of emission rights trading appears to be more an example of a taboo preserved than one of pragmatism vanquishing taboo. One can hardly help noticing that price-based controls make the secular-sacred trade-off that is inherent in climate policy visible for all to see. Key to the superiority of a price-based system is that it allows the market to determine the cumulative GHG reductions on a year-by-year basis. Thereby, it calibrates GHG cuts to the sacrifices that achieving them will require.
Tetlock's original SVPM theory predicts that making this secular-sacred trade-off transparent should render price-based controls anathema to green groups. It hardly seems coincidental that, while many environmental groups have embraced quantity-based cap-and-trade, every major environmental organization has rejected the bills that would have relied on price-based controls.[23] Yet Oppenheimer and Tetlock cite the groups' partial embrace of cap-and-trade as proof of ideological flexibility. At the same time, they neglect the green groups' near unanimous rejection of price-based GHG controls and do so even though this aspect of the groups' position goes to the heart of Tetlock's SVPM theory.
Tetlock's initial article spoke to the need to make trade-offs. It also discussed how people get around their own taboos. These trade-offs are a central reality of all policymaking. They clearly dominate climate policy, an area in which the stakes are high but good GHG control options are few and far between. Thus, tacitly, Tetlock's original article poses an important challenge to the green advocacy groups.
Conclusion
Oppenheimer and Tetlock, in telling the story of the green groups and cap-and-trade, never grasp the importance of the choice between hard caps and price-based tools. They do not distinguish between the SO2 program's form and its relatively gradual targets. They ignore the baleful potential of suppressing needed public debate on willingness to pay.
As a result, Oppenheimer and Tetlock miss a deeper reality about green NGOs: that they
continue to evade the needed trade-off between the goal of protecting the environment and that of preserving prosperity. This trade-off lies at the heart of making good policy on climate change. By ignoring it, the green groups are pursuing an approach that is deeply flawed.
Lee Lane is a resident fellow at AEI and codirector of the AEI Geoengineering Project.
FDA Says Ranbaxy Plant Falsified Data, Results
FDA Says Ranbaxy Plant Falsified Data, Results. By Jennifer Corbett Dooren and Jared A Favole
WSJ, Feb 26, 2009
The Food and Drug Administration said a manufacturing plant owned by Ranbaxy Laboratories Ltd. falsified data and test results in approved and pending drug applications.
The agency said it was halting the review of drug applications made at Ranbaxy's Paonta Sahib plant in India. Last September, the FDA banned Ranbaxy from importing more than 30 generic drugs into the U.S. because of manufacturing violations it found at two company plants in India, including Paonta Sahib, making it likely that most products made at that plant are no longer on U.S. shelves. Such drugs include generic versions of the cholesterol-lowering drug Zocor and the heartburn treatment Zantac.
The Justice Department had been investigating whether Ranbaxy made false claims and fabricated data to get FDA approval for generic drugs. It's unclear whether the probe is continuing.
Deborah Autor, the director of the FDA's Office of Compliance, said most of the falsified data involves required tests to prove drugs are stable over a certain time period.
The FDA said it hasn't identified any health problems with drugs made at the Paonta Sahib site and said consumers shouldn't stop taking medications made by Ranbaxy. "To date the FDA has no evidence that these drugs do not meet their quality specifications," the agency said in a statement.
Agency officials said they have tested about 80 drugs made by Ranbaxy and so far haven't found any problems with the drugs themselves. They also said they have conducted more than 20 inspections of four Ranbaxy facilities in India and U.S. facilities since 2005.
In a statement, the company said: "Ranbaxy will continue to co-operate with the USFDA," adding "no effort or action will be spared" to protect some pending drug applications before the agency from the Paonta Sahib plant.
The problems were uncovered during a 2006 inspection of the Paonta Sahib plant. Among other things, FDA inspectors found hundreds of drug samples meant for required stability testing stored in refrigerators even though the samples should have been stored at room temperature.
FDA inspectors found that logbooks didn't identify which samples were in the refrigerator or how long they had been there. The FDA issued a June 15, 2006, warning letter to the company.
The FDA also said it found problems with signatures on records during a March 2008 inspection for a drug. and found that some records submitted to the FDA contained signatures or initials of Ranbaxy employees who weren't present in the facility on the dates mentioned in the records.
WSJ, Feb 26, 2009
The Food and Drug Administration said a manufacturing plant owned by Ranbaxy Laboratories Ltd. falsified data and test results in approved and pending drug applications.
The agency said it was halting the review of drug applications made at Ranbaxy's Paonta Sahib plant in India. Last September, the FDA banned Ranbaxy from importing more than 30 generic drugs into the U.S. because of manufacturing violations it found at two company plants in India, including Paonta Sahib, making it likely that most products made at that plant are no longer on U.S. shelves. Such drugs include generic versions of the cholesterol-lowering drug Zocor and the heartburn treatment Zantac.
The Justice Department had been investigating whether Ranbaxy made false claims and fabricated data to get FDA approval for generic drugs. It's unclear whether the probe is continuing.
Deborah Autor, the director of the FDA's Office of Compliance, said most of the falsified data involves required tests to prove drugs are stable over a certain time period.
The FDA said it hasn't identified any health problems with drugs made at the Paonta Sahib site and said consumers shouldn't stop taking medications made by Ranbaxy. "To date the FDA has no evidence that these drugs do not meet their quality specifications," the agency said in a statement.
Agency officials said they have tested about 80 drugs made by Ranbaxy and so far haven't found any problems with the drugs themselves. They also said they have conducted more than 20 inspections of four Ranbaxy facilities in India and U.S. facilities since 2005.
In a statement, the company said: "Ranbaxy will continue to co-operate with the USFDA," adding "no effort or action will be spared" to protect some pending drug applications before the agency from the Paonta Sahib plant.
The problems were uncovered during a 2006 inspection of the Paonta Sahib plant. Among other things, FDA inspectors found hundreds of drug samples meant for required stability testing stored in refrigerators even though the samples should have been stored at room temperature.
FDA inspectors found that logbooks didn't identify which samples were in the refrigerator or how long they had been there. The FDA issued a June 15, 2006, warning letter to the company.
The FDA also said it found problems with signatures on records during a March 2008 inspection for a drug. and found that some records submitted to the FDA contained signatures or initials of Ranbaxy employees who weren't present in the facility on the dates mentioned in the records.
How Geithner Can Price Troubled Bank Assets
How Geithner Can Price Troubled Bank Assets. By Peter J. Wallison
AEI, Thursday, February 26, 2009
After its chilly reception of Treasury Secretary Tim Geithner's bank-rescue plan, the market is now worried about nationalization. As well it should. Because if the Obama administration cannot come up with a viable plan to take troubled assets off their balance sheets, major banks will not recover and nationalization -- a disastrous policy -- might actually become the last resort.
Many observers suggest that the Obama administration, like the Bush administration before it, is unable to solve the problem of how to price the banks' troubled assets. If the assets are bought at their "real" values, it is said, the money the banks would get would not be enough to keep them from insolvency. But if Treasury bought these assets at the supposedly bloated values the banks are carrying them, the taxpayers would be paying too much.
In fact, neither of these statements is likely to be true. Both taxpayers and banks could come out well -- and so would our economy -- if the government were to buy the assets at their "net realizable value," which is based on an assessment of their current cash flows, discounted by their expected credit losses over time. Here's the explanation:
The accounting rules relating to assets such as mortgage-backed securities require that they be marked to market if they are held for trading, or in a category called "available for sale." Most banks hold these assets in one of these two accounts, and so mark-to-market rules apply. What happens, then, when there is virtually no market for these assets -- as has been true for at least a year? In that case, accounting rules require the banks use whatever market indicators are available.
The banks follow two steps. First, they establish the net realizable value for the portfolio. This is simply what the value of the cash flows would bring in a fully functioning market, including discounts for several factors like anticipated future losses. Paradoxically, many of the banks' most troubled assets are flowing cash near their expected rates, and thus their net realizable values are higher than the values to which they have been written down.
The banks' second step, after establishing a net realizable value, is marking the assets to market. And that is where the write-downs occur.
Because there are few if any buyers for these assets, their market value is much reduced. Potential buyers are not interested because there is no assurance they will be able to resell the assets when they need to. In other words, potential buyers are afraid of becoming distressed sellers themselves if their financing should disappear before the market becomes liquid again.
Thus, under mark-to-market rules, the banks must discount their assets' net realizable values. And because of the write-downs, the banks' apparent capital is impaired.
These facts have enormous implications for government policy. If the losses on banks' assets are principally liquidity losses, they are temporary, and the only significant issue is whether the banks have the financing to carry the assets until liquidity returns to the asset-backed market.
And if this is indeed the case, the banks are not in any sense insolvent, and nationalization would be a huge mistake. On the other hand, if the government were to buy the assets at their net realizable values -- rather than their marked-down values -- this would significantly improve the capital positions of the major banks.
A hint of the true situation was contained in a remark by Vikram Pandit, the CEO of Citibank, in testimony before the House Financial Services Committee last week. He noted that Citi marks to market and that "those marks are reflected in the losses we've taken, as well as in our income statements and balance sheets." But Mr. Pandit then went on to point out that the bank has a duty to shareholders: "And the duty is if it turns out [the assets] are marked so far below what our lifetime expected credit losses are" -- i.e., their net realizable value -- "I can't sell [them]."
In other words, Citi has marked some assets below their net realizable value, and selling them at a price lower than that value would be unfair to its shareholders. This opens a key route to a solution for the government -- buying the assets at the value that banks like Citi would be willing to sell them.
Would the taxpayer be hurt if the government buys these troubled assets at these values? Not likely. The banks have already made an assessment of the assets' net realizable values, as Mr. Pandit suggests was done at Citi. The government can quickly verify the accuracy of these valuations, including the rates used for discounting, and can of course come up with its own lower evaluation if it disagrees.
But the important point is that if the banks' net realizable values are even close to correct, taxpayers will not lose much, if anything, if the government bought the assets at those values. Because their cash flows determine their value, the government should be able to sell the assets in the future at roughly what it paid for them.
But the key benefit is the boost in the banks' capital which comes from a sale now. This would eliminate doubts about banks' solvency and free up their ability and willingness to lend again.
If this is a win-win for the banks and the government, why is it that no one has thought about doing this before? Part of the answer is that the question has been phrased incorrectly.
Most of those who recognize the problems created by mark-to-market accounting have asked that the system be suspended. This has run into opposition from the accounting industry and investor groups, who are afraid that it will be a license for banks to manipulate their financial statements.
But no change in mark-to-market accounting is necessary for the government to buy the assets at net realizable value, only a decision to buy the assets at the value they would have if there were a liquid market. Unlike a private buyer, the government does not have to worry about selling at any particular time, since it can hold the assets indefinitely.
Finally, one might ask why Mr. Geithner is claiming he needs more time to do something so simple and seemingly effective. The answer here, unfortunately, is that he seems to be barking up the wrong tree.
Mr. Geithner may believe that the banks have not written their assets down below their net realizable value. Or he may believe that others believe purchasing these troubled assets at net realizable value will be unfair to the taxpayers, and he doesn't want the criticism if he does so. That would explain why he is enlisting the private sector to make the pricing decision.
But Mr. Geithner should check his premises. There's a solution to his problem, the banks' problem and the economy's problem right in front of him.
Mr. Wallison is a senior fellow at the American Enterprise Institute.
AEI, Thursday, February 26, 2009
After its chilly reception of Treasury Secretary Tim Geithner's bank-rescue plan, the market is now worried about nationalization. As well it should. Because if the Obama administration cannot come up with a viable plan to take troubled assets off their balance sheets, major banks will not recover and nationalization -- a disastrous policy -- might actually become the last resort.
Many observers suggest that the Obama administration, like the Bush administration before it, is unable to solve the problem of how to price the banks' troubled assets. If the assets are bought at their "real" values, it is said, the money the banks would get would not be enough to keep them from insolvency. But if Treasury bought these assets at the supposedly bloated values the banks are carrying them, the taxpayers would be paying too much.
In fact, neither of these statements is likely to be true. Both taxpayers and banks could come out well -- and so would our economy -- if the government were to buy the assets at their "net realizable value," which is based on an assessment of their current cash flows, discounted by their expected credit losses over time. Here's the explanation:
The accounting rules relating to assets such as mortgage-backed securities require that they be marked to market if they are held for trading, or in a category called "available for sale." Most banks hold these assets in one of these two accounts, and so mark-to-market rules apply. What happens, then, when there is virtually no market for these assets -- as has been true for at least a year? In that case, accounting rules require the banks use whatever market indicators are available.
The banks follow two steps. First, they establish the net realizable value for the portfolio. This is simply what the value of the cash flows would bring in a fully functioning market, including discounts for several factors like anticipated future losses. Paradoxically, many of the banks' most troubled assets are flowing cash near their expected rates, and thus their net realizable values are higher than the values to which they have been written down.
The banks' second step, after establishing a net realizable value, is marking the assets to market. And that is where the write-downs occur.
Because there are few if any buyers for these assets, their market value is much reduced. Potential buyers are not interested because there is no assurance they will be able to resell the assets when they need to. In other words, potential buyers are afraid of becoming distressed sellers themselves if their financing should disappear before the market becomes liquid again.
Thus, under mark-to-market rules, the banks must discount their assets' net realizable values. And because of the write-downs, the banks' apparent capital is impaired.
These facts have enormous implications for government policy. If the losses on banks' assets are principally liquidity losses, they are temporary, and the only significant issue is whether the banks have the financing to carry the assets until liquidity returns to the asset-backed market.
And if this is indeed the case, the banks are not in any sense insolvent, and nationalization would be a huge mistake. On the other hand, if the government were to buy the assets at their net realizable values -- rather than their marked-down values -- this would significantly improve the capital positions of the major banks.
A hint of the true situation was contained in a remark by Vikram Pandit, the CEO of Citibank, in testimony before the House Financial Services Committee last week. He noted that Citi marks to market and that "those marks are reflected in the losses we've taken, as well as in our income statements and balance sheets." But Mr. Pandit then went on to point out that the bank has a duty to shareholders: "And the duty is if it turns out [the assets] are marked so far below what our lifetime expected credit losses are" -- i.e., their net realizable value -- "I can't sell [them]."
In other words, Citi has marked some assets below their net realizable value, and selling them at a price lower than that value would be unfair to its shareholders. This opens a key route to a solution for the government -- buying the assets at the value that banks like Citi would be willing to sell them.
Would the taxpayer be hurt if the government buys these troubled assets at these values? Not likely. The banks have already made an assessment of the assets' net realizable values, as Mr. Pandit suggests was done at Citi. The government can quickly verify the accuracy of these valuations, including the rates used for discounting, and can of course come up with its own lower evaluation if it disagrees.
But the important point is that if the banks' net realizable values are even close to correct, taxpayers will not lose much, if anything, if the government bought the assets at those values. Because their cash flows determine their value, the government should be able to sell the assets in the future at roughly what it paid for them.
But the key benefit is the boost in the banks' capital which comes from a sale now. This would eliminate doubts about banks' solvency and free up their ability and willingness to lend again.
If this is a win-win for the banks and the government, why is it that no one has thought about doing this before? Part of the answer is that the question has been phrased incorrectly.
Most of those who recognize the problems created by mark-to-market accounting have asked that the system be suspended. This has run into opposition from the accounting industry and investor groups, who are afraid that it will be a license for banks to manipulate their financial statements.
But no change in mark-to-market accounting is necessary for the government to buy the assets at net realizable value, only a decision to buy the assets at the value they would have if there were a liquid market. Unlike a private buyer, the government does not have to worry about selling at any particular time, since it can hold the assets indefinitely.
Finally, one might ask why Mr. Geithner is claiming he needs more time to do something so simple and seemingly effective. The answer here, unfortunately, is that he seems to be barking up the wrong tree.
Mr. Geithner may believe that the banks have not written their assets down below their net realizable value. Or he may believe that others believe purchasing these troubled assets at net realizable value will be unfair to the taxpayers, and he doesn't want the criticism if he does so. That would explain why he is enlisting the private sector to make the pricing decision.
But Mr. Geithner should check his premises. There's a solution to his problem, the banks' problem and the economy's problem right in front of him.
Mr. Wallison is a senior fellow at the American Enterprise Institute.
A Radical Presidency
A Radical Presidency, by Daniel Henninger
WSJ, Feb 26, 2009
When Barack Obama delivered his 44-minute acceptance speech in August among the majestic columns of Denver, it was apparent his would be an expansive presidency. Some wondered whether his solutions for a very long list of problems was too ambitious. On Tuesday, before Congress, he made clear across 52 minutes that the economic downturn would not deflect him from his Denver vision.
Instead, the economic crisis, as it did for Franklin D. Roosevelt, will serve as a stepping stone to a radical shift in the relationship between the people and their government. It will bind Americans to their government in ways not experienced since the New Deal. This tectonic shift, if successful, will be equal to the forces of public authority set in motion by Lyndon Johnson's Great Society. The Obama presidency is going to be a radical presidency.
Barack Obama is proposing that the U.S. alter the relationship between the national government and private sector that was put in place by Ronald Reagan and largely continued by the presidencies of Bill Clinton and the Bushes. Then, the private sector led the economy. Now Washington will chart its course.
Mr. Obama was clear about his intention. "Our economy did not fall into this decline overnight," he said. Instead, an "era" has "failed" to think about the nation's long-term future. With the urgency of a prophet, he says the "day of reckoning has arrived." The president said his purpose is not to "only revive this economy."
In fact, people would probably coronate Mr. Obama if he merely revived the Dow Jones Industrial Average. The Dow's fall since the Sept. 14 collapse of Lehman Brothers and sale of Merrill Lynch to Bank of America has eviscerated the net wealth of Americans across all incomes. Many are in the most dispirited state in their lifetimes.
Yesterday, the post-Obama Dow lost another percentage point. No matter. In his worldview, "short-term gains were prized over long-term prosperity." His speech did include a plan to address the market crisis. It consists of a program to support consumer and small-business loans; a mortgage refinancing mechanism; and the "full force of the government" to restart bank lending. Mr. Obama delivered that last element with a rather crude pistol-whipping of the nation's bankers and CEOs, thousands of whom have been operating their companies in a responsible, productive way.
This was just the prelude. Notwithstanding the daily nightmares of the economic crisis, now is the time to "boldly" rebuild the nation's "foundation." The U.S. budget he released today isn't just a budget. "I see it as a vision for America -- as a blueprint for our future." With it, Mr. Obama becomes the economy's Architect-in-Chief.
This blueprint will reshape energy and health. With energy, it proposes a gradual tear-down of the existing energy sector and its replacement with renewables. This vision has foundered before on the price disadvantage of noncarbon energy. Mr. Obama says he will "make" renewable energy profitable. He'll do this with a cap-and-trade system for carbon. The goal here is to "make" renewables economic by driving up the price of carbon.
The once-private auto industry, now run by federal "car czar" Steve Rattner, a reformed investment banker, is about to be ordered to produce "more efficient cars and trucks." Americans, like it or not, will buy these government-designed vehicles with government-supported car loans.
Mr. Obama believes health-care costs cause a bankruptcy "every 30 seconds" and will drive 1.5 million Americans from their homes this year. Therefore, the budget's vision on health is "historic" and a "downpayment" toward comprehensive health insurance. This "will not wait another year," he said.
He announced "tax-free universal savings accounts" as a solution to Social Security's crisis. This is a savings plan supported by federal matching contributions automatically deposited in individual accounts.
Mr. Obama acknowledged that this spending -- which in the public sector's new vocabulary is always "investment" -- will be costly. His read-my-lips moment was that no family with an income under $250,000 will pay a "single dime" in new taxes to support the construction of this new federal skyscraper. If that's still true in 2015, Mr. Obama will be walking back and forth across the Potomac River.
He told Congress he does not believe in bigger government. I don't believe that. It's becoming clear that the private sector is going to be demoted into a secondary role in the U.S. system. This isn't socialism, but it is not the system we've had since the early 1980s. It would be a reordered economic system, its direction chosen and guided by Mr. Obama and his inner circle.
Gov. Bobby Jindal's postspeech reply did not come close to recognizing the gauntlet Mr. Obama has thrown down to the opposition. Unless the GOP can discover a radical message of its own to distinguish it from the president's, it should prepare to live under Mr. Obama's radicalism for at least a generation.
WSJ, Feb 26, 2009
When Barack Obama delivered his 44-minute acceptance speech in August among the majestic columns of Denver, it was apparent his would be an expansive presidency. Some wondered whether his solutions for a very long list of problems was too ambitious. On Tuesday, before Congress, he made clear across 52 minutes that the economic downturn would not deflect him from his Denver vision.
Instead, the economic crisis, as it did for Franklin D. Roosevelt, will serve as a stepping stone to a radical shift in the relationship between the people and their government. It will bind Americans to their government in ways not experienced since the New Deal. This tectonic shift, if successful, will be equal to the forces of public authority set in motion by Lyndon Johnson's Great Society. The Obama presidency is going to be a radical presidency.
Barack Obama is proposing that the U.S. alter the relationship between the national government and private sector that was put in place by Ronald Reagan and largely continued by the presidencies of Bill Clinton and the Bushes. Then, the private sector led the economy. Now Washington will chart its course.
Mr. Obama was clear about his intention. "Our economy did not fall into this decline overnight," he said. Instead, an "era" has "failed" to think about the nation's long-term future. With the urgency of a prophet, he says the "day of reckoning has arrived." The president said his purpose is not to "only revive this economy."
In fact, people would probably coronate Mr. Obama if he merely revived the Dow Jones Industrial Average. The Dow's fall since the Sept. 14 collapse of Lehman Brothers and sale of Merrill Lynch to Bank of America has eviscerated the net wealth of Americans across all incomes. Many are in the most dispirited state in their lifetimes.
Yesterday, the post-Obama Dow lost another percentage point. No matter. In his worldview, "short-term gains were prized over long-term prosperity." His speech did include a plan to address the market crisis. It consists of a program to support consumer and small-business loans; a mortgage refinancing mechanism; and the "full force of the government" to restart bank lending. Mr. Obama delivered that last element with a rather crude pistol-whipping of the nation's bankers and CEOs, thousands of whom have been operating their companies in a responsible, productive way.
This was just the prelude. Notwithstanding the daily nightmares of the economic crisis, now is the time to "boldly" rebuild the nation's "foundation." The U.S. budget he released today isn't just a budget. "I see it as a vision for America -- as a blueprint for our future." With it, Mr. Obama becomes the economy's Architect-in-Chief.
This blueprint will reshape energy and health. With energy, it proposes a gradual tear-down of the existing energy sector and its replacement with renewables. This vision has foundered before on the price disadvantage of noncarbon energy. Mr. Obama says he will "make" renewable energy profitable. He'll do this with a cap-and-trade system for carbon. The goal here is to "make" renewables economic by driving up the price of carbon.
The once-private auto industry, now run by federal "car czar" Steve Rattner, a reformed investment banker, is about to be ordered to produce "more efficient cars and trucks." Americans, like it or not, will buy these government-designed vehicles with government-supported car loans.
Mr. Obama believes health-care costs cause a bankruptcy "every 30 seconds" and will drive 1.5 million Americans from their homes this year. Therefore, the budget's vision on health is "historic" and a "downpayment" toward comprehensive health insurance. This "will not wait another year," he said.
He announced "tax-free universal savings accounts" as a solution to Social Security's crisis. This is a savings plan supported by federal matching contributions automatically deposited in individual accounts.
Mr. Obama acknowledged that this spending -- which in the public sector's new vocabulary is always "investment" -- will be costly. His read-my-lips moment was that no family with an income under $250,000 will pay a "single dime" in new taxes to support the construction of this new federal skyscraper. If that's still true in 2015, Mr. Obama will be walking back and forth across the Potomac River.
He told Congress he does not believe in bigger government. I don't believe that. It's becoming clear that the private sector is going to be demoted into a secondary role in the U.S. system. This isn't socialism, but it is not the system we've had since the early 1980s. It would be a reordered economic system, its direction chosen and guided by Mr. Obama and his inner circle.
Gov. Bobby Jindal's postspeech reply did not come close to recognizing the gauntlet Mr. Obama has thrown down to the opposition. Unless the GOP can discover a radical message of its own to distinguish it from the president's, it should prepare to live under Mr. Obama's radicalism for at least a generation.
Are Executives Paid Too Much?
Are Executives Paid Too Much? By Judith F. Samuelson and Lynn A. Stout
Congress asks the wrong question and comes up with the wrong answer.
A last-minute provision added to the stimulus bill President Barack Obama signed into law on Feb. 17 restricts companies that accept federal bailout funds from paying performance bonuses that exceed one-third of an executive's total annual compensation. This punitive measure may be understandable as a reflection of populist fury over bonuses being paid to heads of failing companies that received billions in taxpayer money. But it utterly fails to fix the real problem with executive compensation: short-termism.
Our economy didn't get into this mess because executives were paid too much. Rather, they were paid too much for doing the wrong things.
There have been nearly as many reasons proposed for the current crisis as there are experts to propose them. But if we had to pick one overarching cause, it would be business leaders taking on excessive risk in the quest to increase next quarter's profits. This short-term thinking, in turn, was driven by two trends in the business world: shareholders' increasingly clamorous demands for higher earnings, and compensation plans that paid managers handsomely for taking on risks today that would only be realized later.
In the summer of 2006, well before most economists had any inkling of the calamity that was about to unfold, the Aspen Institute brought together a diverse mix of high-level business leaders, investment bankers, governance experts, pension fund managers, and union representatives. When you put successful people with such disparate and conflicting backgrounds and loyalties together in the same room, the result can be a shouting match. But the members of the newly formed Aspen Corporate Values Strategy Group found they shared an unprecedented consensus: Short-term thinking had become endemic in business and investment, and it posed a grave threat to the U.S. economy.
People in all walks of life need months or years to master a significant new project, whether it be getting a graduate degree or perfecting a 75 mph minor-league pitch into a 90 mph major-league fastball. Large corporations operate on a time scale that can be even longer. They pursue complex, uncertain projects that take years or decades to reach fruition: developing brand names, building specialized manufacturing facilities, exploring and drilling for oil and gas fields, or developing new drugs, products and technologies.
Yet over the past decade, corporations in general -- and banks and finance companies in particular -- have become increasingly focused on a single, short-term goal: raising share price. Rather than focusing on producing quality products and services, they have become consumed with earnings management, "financial engineering," and moving risks off their balance sheets.
This collective myopia had many causes. One cause, the Aspen Group concluded, was the demands of the very shareholders who are now suffering most from the stock market's collapse. It is extremely difficult for an outside investor to gauge whether a company is making sound, long-term investments by training employees, improving customer service, or developing promising new products. By comparison, it's easy to see whether the stock price went up today. As a result, institutional and individual investors alike became preoccupied with quarterly earnings forecasts and short-term share price changes, and were quick to challenge the management of any bank or corporation that failed to "maximize shareholder value."
Meanwhile, inside the firm, executives were being encouraged to adopt a similarly short-term focus through the widespread use of stock options. The value of a stock option depends entirely on the market price of the company's stock on the date the option is exercised. As a result, managers were incentivized to focus their efforts not on planning for the long term, but instead on making sure that share price was as high as possible on their option exercise date (usually only a year or two in the future), through whatever means possible.
Executives eager to maximize the value of stock options began adopting massive stock-buyback programs that drained much-needed capital out of firms; jumping into risky "proprietary trading" strategies with credit default swaps and other derivatives; cutting payroll and research-and-development budgets; and even resorting to outright accounting fraud, as Enron's options-fueled and stock-price obsessed executives did.
The system was perfectly designed to produce the results we have now. To get different results, we need a different system.
Simply cutting executive pay is not going to get either executives or investors to pay more attention to companies' long-term health. To get business back on track, the Aspen Group concluded, it is essential to focus on not just one but three strategies: designing new corporate performance metrics, changing the nature of investor communications, and reforming compensation structures.
Starting with metrics, we need new ways to measure long-run corporate performance, rather than simply relying on stock price. In terms of investor communications, companies need to ensure corporate officers and directors communicate with shareholders not about next quarter's expected profits, but about next year's and even next decade's.
Finally, and perhaps most importantly, companies must change the ways they reward not only CEOs and midlevel executives, but also institutional portfolio managers at hedge funds, mutual funds, and pension funds. Executives and managers should be rewarded for the actions and decisions within their control, not general market movements. Incentive-based pay should be based on long-term metrics, not one year's profits. Top executives who receive equity-based compensation should be prohibited from using derivatives and other hedging techniques to offload the risk that goes along with equity compensation, and instead be required to continue holding a significant portion of their equity for a period beyond their tenure.
It's always tempting in the midst of a crisis to look for a quick fix. But that's the kind of short-term focus that got the business world into trouble in the first place. So long as our metrics, disclosures and compensation systems encourage executives and institutional fund managers to look only a year or two ahead, we have to expect that that is what they'll continue to do. It's time for a long-term investment in promoting long-term business thinking.
Ms. Samuelson is the founder and executive director of the Aspen Institute Business and Society Program. Ms. Stout is professor of corporate and securities law at the UCLA School of Law and director of the UCLA-Sloan Research Program on Business Organizations.
Congress asks the wrong question and comes up with the wrong answer.
A last-minute provision added to the stimulus bill President Barack Obama signed into law on Feb. 17 restricts companies that accept federal bailout funds from paying performance bonuses that exceed one-third of an executive's total annual compensation. This punitive measure may be understandable as a reflection of populist fury over bonuses being paid to heads of failing companies that received billions in taxpayer money. But it utterly fails to fix the real problem with executive compensation: short-termism.
Our economy didn't get into this mess because executives were paid too much. Rather, they were paid too much for doing the wrong things.
There have been nearly as many reasons proposed for the current crisis as there are experts to propose them. But if we had to pick one overarching cause, it would be business leaders taking on excessive risk in the quest to increase next quarter's profits. This short-term thinking, in turn, was driven by two trends in the business world: shareholders' increasingly clamorous demands for higher earnings, and compensation plans that paid managers handsomely for taking on risks today that would only be realized later.
In the summer of 2006, well before most economists had any inkling of the calamity that was about to unfold, the Aspen Institute brought together a diverse mix of high-level business leaders, investment bankers, governance experts, pension fund managers, and union representatives. When you put successful people with such disparate and conflicting backgrounds and loyalties together in the same room, the result can be a shouting match. But the members of the newly formed Aspen Corporate Values Strategy Group found they shared an unprecedented consensus: Short-term thinking had become endemic in business and investment, and it posed a grave threat to the U.S. economy.
People in all walks of life need months or years to master a significant new project, whether it be getting a graduate degree or perfecting a 75 mph minor-league pitch into a 90 mph major-league fastball. Large corporations operate on a time scale that can be even longer. They pursue complex, uncertain projects that take years or decades to reach fruition: developing brand names, building specialized manufacturing facilities, exploring and drilling for oil and gas fields, or developing new drugs, products and technologies.
Yet over the past decade, corporations in general -- and banks and finance companies in particular -- have become increasingly focused on a single, short-term goal: raising share price. Rather than focusing on producing quality products and services, they have become consumed with earnings management, "financial engineering," and moving risks off their balance sheets.
This collective myopia had many causes. One cause, the Aspen Group concluded, was the demands of the very shareholders who are now suffering most from the stock market's collapse. It is extremely difficult for an outside investor to gauge whether a company is making sound, long-term investments by training employees, improving customer service, or developing promising new products. By comparison, it's easy to see whether the stock price went up today. As a result, institutional and individual investors alike became preoccupied with quarterly earnings forecasts and short-term share price changes, and were quick to challenge the management of any bank or corporation that failed to "maximize shareholder value."
Meanwhile, inside the firm, executives were being encouraged to adopt a similarly short-term focus through the widespread use of stock options. The value of a stock option depends entirely on the market price of the company's stock on the date the option is exercised. As a result, managers were incentivized to focus their efforts not on planning for the long term, but instead on making sure that share price was as high as possible on their option exercise date (usually only a year or two in the future), through whatever means possible.
Executives eager to maximize the value of stock options began adopting massive stock-buyback programs that drained much-needed capital out of firms; jumping into risky "proprietary trading" strategies with credit default swaps and other derivatives; cutting payroll and research-and-development budgets; and even resorting to outright accounting fraud, as Enron's options-fueled and stock-price obsessed executives did.
The system was perfectly designed to produce the results we have now. To get different results, we need a different system.
Simply cutting executive pay is not going to get either executives or investors to pay more attention to companies' long-term health. To get business back on track, the Aspen Group concluded, it is essential to focus on not just one but three strategies: designing new corporate performance metrics, changing the nature of investor communications, and reforming compensation structures.
Starting with metrics, we need new ways to measure long-run corporate performance, rather than simply relying on stock price. In terms of investor communications, companies need to ensure corporate officers and directors communicate with shareholders not about next quarter's expected profits, but about next year's and even next decade's.
Finally, and perhaps most importantly, companies must change the ways they reward not only CEOs and midlevel executives, but also institutional portfolio managers at hedge funds, mutual funds, and pension funds. Executives and managers should be rewarded for the actions and decisions within their control, not general market movements. Incentive-based pay should be based on long-term metrics, not one year's profits. Top executives who receive equity-based compensation should be prohibited from using derivatives and other hedging techniques to offload the risk that goes along with equity compensation, and instead be required to continue holding a significant portion of their equity for a period beyond their tenure.
It's always tempting in the midst of a crisis to look for a quick fix. But that's the kind of short-term focus that got the business world into trouble in the first place. So long as our metrics, disclosures and compensation systems encourage executives and institutional fund managers to look only a year or two ahead, we have to expect that that is what they'll continue to do. It's time for a long-term investment in promoting long-term business thinking.
Ms. Samuelson is the founder and executive director of the Aspen Institute Business and Society Program. Ms. Stout is professor of corporate and securities law at the UCLA School of Law and director of the UCLA-Sloan Research Program on Business Organizations.
On WaPo's article "Climate Fears Are Driving 'Ecomigration' Across Globe"
Swimming Against the Tide
World Climate Report, Feb 25, 2009
http://www.worldclimatereport.com/index.php/2009/02/25/swimming-against-the-tide/
The Washington Post ran a front page story on Monday, February 23, describing ecomigration—in this case, people moving to avoid the impacts of global warming. The story was odd because in the starring role was a fellow moving his family from Montgomery County, Maryland, to New Zealand! When we think of reasons people want to leave Montgomery County, global warming doesn’t jump to the top of list—perhaps moving to try to get away from all the traffic produced by the large influx of all the other people moving into the region is a more likely candidate.
Another potential ecomigrant highlighted in the Post article who was considering fleeing from global warming’s way was a guy who was thinking of moving back to Michigan from his home in Florida. Again, someone who is apparently swimming against the tide of domestic (and otherwise) migrants into the state of Florida—one the fastest growing places in the U.S.
Now maybe these examples were selected by Washington Post staffwriter Shankar Vedantam to show that people in places other than the Pacific atolls of Tuvalu or Kiribati are concerned about the coming climate, but the choices were strange.
[As an aside, for an amusing and enlightening glimpse into what kind of earthly paradises Tuvalu or Kiribati are (not), we recommend J. Maarten Troost’s descriptions of his time spent there as chronicled in his book The Sex Lives of Cannibals: Adrift in the Equatorial Pacific (hint: Chapter 7 is titled “In which the Author settles into the theme of Absence, in particular the paucity of food options, and offers an account of the Great Beer Crisis, when the island’s shipment of Ale was, inexcusably, misdirected to Kiritimati Island, far, far away from those who need it most”)]
For one thing, you’ve got to wonder just how on earth the Post writer managed to find someone in Montgomery Co. moving to New Zealand because of global warming? Is there a national registry of ecomigrants somewhere?
For another, while these folks are moving out (or at least thinking about it) many tens of thousands of people are moving in. Figure 1 shows recent population growth across the U.S., and the DC area and Florida are leading the way. Apparently, these intrepid souls are throwing caution to the wind and moving (voluntarily) into places that will increase their climate risk.
Obviously, in their minds the rewards won out over the risks.
[Figure 1. Typical example of U.S. population trends, in this case, the trend from 2000 to 2003 (source: http://academic.marion.ohio-state.edu/schul/400/0003popchg.png)]
Which brings us to a question that has been nagging us for some time, and that maybe someone would be interested in helping us figure out the answer (if so let us know!)—are Americans assuming more climate risk voluntarily (by moving around) than they would be assuming involuntarily from climate change (by staying put)? If it is the case (and we would guess it is), then clearly the impacts of climate change are something that are not a major factor in our ultimate choice of our places of residence (with a few exceptions that Shankar Vedantam managed to ferret out).
That a recent poll by the Pew Research Center for the People and the Press that found that climate change was last on our list of top rpiorities for the new Administration to deal with seems to further support this contention.
Basically, Shankar Vedantam’s article in Monday’s Post completely missed the mark, or at least did not set the proper context. In the U.S., at least, ecomigration is most likely driven to a far larger degree by “climate” rather than “climate change” (and many of our choices are made despite assuming a greater climate risk).
World Climate Report, Feb 25, 2009
http://www.worldclimatereport.com/index.php/2009/02/25/swimming-against-the-tide/
The Washington Post ran a front page story on Monday, February 23, describing ecomigration—in this case, people moving to avoid the impacts of global warming. The story was odd because in the starring role was a fellow moving his family from Montgomery County, Maryland, to New Zealand! When we think of reasons people want to leave Montgomery County, global warming doesn’t jump to the top of list—perhaps moving to try to get away from all the traffic produced by the large influx of all the other people moving into the region is a more likely candidate.
Another potential ecomigrant highlighted in the Post article who was considering fleeing from global warming’s way was a guy who was thinking of moving back to Michigan from his home in Florida. Again, someone who is apparently swimming against the tide of domestic (and otherwise) migrants into the state of Florida—one the fastest growing places in the U.S.
Now maybe these examples were selected by Washington Post staffwriter Shankar Vedantam to show that people in places other than the Pacific atolls of Tuvalu or Kiribati are concerned about the coming climate, but the choices were strange.
[As an aside, for an amusing and enlightening glimpse into what kind of earthly paradises Tuvalu or Kiribati are (not), we recommend J. Maarten Troost’s descriptions of his time spent there as chronicled in his book The Sex Lives of Cannibals: Adrift in the Equatorial Pacific (hint: Chapter 7 is titled “In which the Author settles into the theme of Absence, in particular the paucity of food options, and offers an account of the Great Beer Crisis, when the island’s shipment of Ale was, inexcusably, misdirected to Kiritimati Island, far, far away from those who need it most”)]
For one thing, you’ve got to wonder just how on earth the Post writer managed to find someone in Montgomery Co. moving to New Zealand because of global warming? Is there a national registry of ecomigrants somewhere?
For another, while these folks are moving out (or at least thinking about it) many tens of thousands of people are moving in. Figure 1 shows recent population growth across the U.S., and the DC area and Florida are leading the way. Apparently, these intrepid souls are throwing caution to the wind and moving (voluntarily) into places that will increase their climate risk.
Obviously, in their minds the rewards won out over the risks.
[Figure 1. Typical example of U.S. population trends, in this case, the trend from 2000 to 2003 (source: http://academic.marion.ohio-state.edu/schul/400/0003popchg.png)]
Which brings us to a question that has been nagging us for some time, and that maybe someone would be interested in helping us figure out the answer (if so let us know!)—are Americans assuming more climate risk voluntarily (by moving around) than they would be assuming involuntarily from climate change (by staying put)? If it is the case (and we would guess it is), then clearly the impacts of climate change are something that are not a major factor in our ultimate choice of our places of residence (with a few exceptions that Shankar Vedantam managed to ferret out).
That a recent poll by the Pew Research Center for the People and the Press that found that climate change was last on our list of top rpiorities for the new Administration to deal with seems to further support this contention.
Basically, Shankar Vedantam’s article in Monday’s Post completely missed the mark, or at least did not set the proper context. In the U.S., at least, ecomigration is most likely driven to a far larger degree by “climate” rather than “climate change” (and many of our choices are made despite assuming a greater climate risk).
Wednesday, February 25, 2009
Greens, population policies, global warming and liberal democracy
All the Leaves are Brown, by Steven F Hayward
Claremont Review of Books, Winter 2008
http://www.claremont.org/publications/crb/id.1588/article_detail.asp
Full article w/correct format here.
Books discussed in this essay:
The World Without Us, by Alan Weisman
American Earth: Environmental Writing Since Thoreau, edited by Bill McKibben, Foreword by Al Gore
How We Can Save the Planet: Preventing Global Climate Catastrophe, by Mayer Hillman, Tina Fawcett, and Sudhir Chella Rajan
The Climate Change Challenge and the Failure of Democracy, by David Shearman and Joseph Wayne Smith
The Green State: Rethinking Democracy and Sovereignty, by Robyn Eckersley
Fatal Misconception: The Struggle to Control World Population, by Matthew Connelly
Break Through: From the Death of Environmentalism to the Politics of Possibility, by Ted Nordhaus and Michael Shellenberger
Where We Stand: A Surprising Look at the Real State of Our Planet, by Seymour Garte
Useless Arithmetic: Why Environmental Scientists Can't Predict the Future, by Orrin H. Pilkey and Linda Pilkey-Jarvis
"On what principle is it," wondered Thomas Babington Macaulay in 1830, "that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?" Environmentalism didn't exist in its current form in Macaulay's time, or he would easily have discerned its essential pessimism bordering at times on a loathing of humanity. A trip down the environment and earth sciences aisle of any larger bookstore is usually a tour of titles that cover the narrow range from dismay to despair.
On the surface this is not exceptional. Titles predicting decline, decay, and disaster are just as numerous in the real estate, economics, and social science shelves, though, ironically, not so much in the religion book racks, where one would expect to find apocalypticism well represented. This is an important distinction: unlike the eschatology of all major religions, the eco-apocalypse is utterly without hope of redemption for man or nature. The greens turn purple at the suggestion that most environmental conditions in rich nations are actually improving, and they bemoan the lack of "progress" toward the transformation of the human soul that is thought necessary for the planet's salvation. Yet some cracks are starting to appear in their dreary and repetitive story line. Although extreme green ideology won't go away any time soon—the political and legal institutions of the environmental movement are too well established—there are signs that the public and a few next-generation environmentalists are ready to say goodbye to all that. There are even some liberal authors with environmentalist sympathies who are turning against the environmental establishment. But it is necessary to claw our way through the deepening slough of green despondency to see this potential turning point.
More than 30 years ago political scientist Anthony Downs wrote in the Public Interest of a five-step "issue-attention cycle" through which public enthusiasm for an issue gradually diminishes as we come to recognize the high cost of drastic action, and that the nature of the problem was exaggerated or misconceived. The environment, he wrote, would have a longer cycle than most issues because of its diffuse nature, but it appears that the public is finally arriving at the late stages of Downs's cycle. Opinion surveys show that the public isn't jumping on the global warming bandwagon despite a multi-million dollar marketing campaign and full-scale media hysteria. More broadly there are signs that "green fatigue" is setting in. Magazine publishers recently reported that their special Earth Day "green" issues generated the lowest newsstand sales of all issues published in 2008. "Suddenly Being Green Is Not Cool Any More," read a London Times headline in August.
This has been building for a long time. Three years ago New York Times green-leaning columnist Nicholas Kristof lamented that the environmental movement was losing credibility because of its doomsaying monomania, with the result that "environmental alarms have been screeching for so long that, like car alarms, they are now just an irritating background noise." Environmental leaders did not take well to his wandering from the reservation. In response to the popular indifference to green alarms, conventional environmentalists have ratcheted up their level of vitriol against humanity and democratic institutions. One of the most popular books of 2007 among environmentalists was The World Without Us by Alan Weisman, which projects a "thought experiment" about what would occur if human beings were suddenly removed entirely from the planet. Answer: nature would reassert herself, and ultimately remove nearly all traces of human civilization within several millennia—a mere blink of an eye in the planetary timescale. Environmentalists cheered Weisman's vivid depiction of the resilience of nature, but what thrilled them was the scenario of a humanless earth. Weisman made sure to stroke his audience's self-loathing with plenty of boilerplate about resource exhaustion and overpopulation. The book rocketed up the best-seller list, the latest in a familiar genre stretching back at least to Fairfield Osborn's Our Plundered Planet in 1948, arguably the first neo-Malthusian doomsday tract of modern environmentalism. Time magazine named The World Without Us the number one non-fiction book of 2007.
Rethinking Democracy
The same view of environmentalism is on display in the Library of America's American Earth: Environmental Writing Since Thoreau. This collection, though worthy in some respects, has to be judged a disappointment compared to many other fine Library of America offerings—a shortcoming entirely attributable to the selection of Bill McKibben as editor. (The easier clue is the Foreword by Al Gore.) McKibben is another in the sad line of environmentalists who became bores by endlessly reprising the one-hit wonders of their youth (in McKibben's case, his mildly interesting 1989 book, The End of Nature). He begins and ends with Henry David Thoreau—"a Buddha with a receipt from the hardware store"—because he thinks environmental writing is to be distinguished from nature writing. Environmental writing, McKibben explains, "takes as its subject the collision between people and the rest of the world."
It was probably too much to expect that McKibben would balance the usual suspects such as Rachel Carson, Lynn White, Paul Ehrlich, and Garrett Hardin with such intelligent dissenters as Julian Simon, Terry Anderson, Frederick Jackson Turner, and R.J. Smith. But McKibben's adherence to environmental correctness is so narrowly conceived that he excludes a number of American authors who offer worthy reflections on man and nature. His tacit premise that man is not part of nature, or is opposed to the rest of nature, necessarily constricts the range of perspectives that can be brought to bear on the broad idea of "the environment." So though his collection includes Theodore Roosevelt, by representing American environmental writing as beginning with Thoreau, it excludes worthy earlier reflections such as Thomas Jefferson's Notes on the State of Virginia (or any of Jefferson's other agrarian reflections that can be read as precursors to Wendell Berry, who is included in McKibben's reader), or Tocqueville's prescient observations on American wilderness, our emerging attitudes toward it, and its relation to our democratic character.
McKibben and many other environmental writers affect an indifference toward, or transcendence of, politics in the ordinary sense, but ultimately cannot conceal their rejection of the liberal tradition. Here we observe the irony of modern environmentalism: the concern for the preservation of unchanged nature has grown in tandem with the steady erosion in our belief in unchanging human nature; the concern for the "rights of nature" has come to embrace a rejection of natural rights for humans. McKibben is one of many current voices (Gore is another) who like to express their environmentalism by decrying "individualism" (McKibben calls it "hyperindividualism"). Finding that individualism is "the sole ideology of a continent," he explains:
Fighting the ideology that was laying waste to so much of the planet demanded going beyond that individualism. Many found the means to do that in the notion of ‘community'—a word almost as fuzzy and hard to pin down as ‘wild,' but one that has emerged as an even more compelling source of motive energy for the environmental movement.
This is not a new theme for McKibben. Al Gore employed the same "communitarian" trope in his first and most famous environmental book, Earth in the Balance (1992), where, in the course of arguing that the environment should be the "central organizing principle" of civilization, he suggested that the problem with individual liberty is that we have too much of it. This preference for soft despotism has become more concrete with the increasing panic over global warming in the past few years. Several environmental authors now argue openly that democracy itself is the obstacle and needs to be abandoned. A year ago a senior fellow emeritus at Britain's Policy Studies Institute, Mayer Hillman, author of How We Can Save the Planet, told a reporter, "When the chips are down I think democracy is a less important goal than is the protection of the planet from the death of life, the end of life on it. This [rationing] has got to be imposed on people whether they like it or not." (Hillman openly advocates resource rationing.) Another recent self-explanatory book is The Climate Change Challenge and the Failure of Democracy by Australians David Shearman and Joseph Wayne Smith. Shearman argued recently that
[l]iberal democracy is sweet and addictive and indeed in the most extreme case, the U.S.A., unbridled individual liberty overwhelms many of the collective needs of the citizens.... There must be open minds to look critically at liberal democracy. Reform must involve the adoption of structures to act quickly regardless of some perceived liberties.
Whom does Shearman admire as an example of environmental governance to be emulated? China, precisely because of its authoritarian government: "[T]he savvy Chinese rulers may be first out of the blocks to assuage greenhouse emissions and they will succeed by delivering orders.... We are going to have to look at how authoritarian decisions based on consensus science can be implemented to contain greenhouse emissions." Separately, Shearman has written:
To retain an inhabitable earth we may have to compromise the eternal vicissitudes of democracy for an informed leadership that directs. There are countries that fall within this requirement and we should use them to initiate more active mitigation.... The People's Republic of China may hold the key to innovative measures that can both arrest the expected surge in emissions from developing countries and provide developed nations with the means to alternative energy. China curbs individual freedom in favour of communal need. The State will implement those measures seen to be in the common good.
Perhaps the film version will be called An Inconvenient Democracy.
Academic political theorists who take up what might be called "green constitutionalism" understand that Lockean liberalism has to be overturned and replaced. In The Green State: Rethinking Democracy and Sovereignty, Australian political scientist Robyn Eckersley offers up an approach that, despite being swathed in postmodern jargon, is readily transparent. The "ecocentric," transnational "green state" Eckersley envisions is represented as an explicit alternative to "the classical liberal state, the indiscriminate growth-dependent welfare state, and the increasingly ascendant neoliberal competition state." Achieving a post-liberal state requires rethinking the entire Enlightenment project:
By framing the problem as one of rescuing and reinterpreting the Enlightenment goals of autonomy and critique, it is possible to identify what might be called a mutually informing set of "liberal dogmas" that have for too long been the subject of unthinking faith rather than critical scrutiny by liberals. The most significant of these dogmas are a muscular individualism and an understanding of the self-interested rational actor as natural and eternal; a dualistic conception of humanity and nature that denies human dependency on the biological world and gives rise to the notion of human exceptionalism from, and instrumentalism and chauvinism toward, the natural world; the sanctity of private property rights; the notion that freedom can only be acquired through material plenitude; and overconfidence in the rational mastery of nature through further scientific and technological progress.
Every traditional liberal or "progressive" understanding is up for grabs in this framework. This passage does not require much "parsing" to grasp its practical implications—the establishment of institutions and governing regimes that are not answerable to popular will, or that depend on transforming popular will in a specified direction. Eckersley makes this clear in a passage about the "social learning" function of "deliberative democracy," which she describes as "the requirement that participants be open and flexible in their thinking, that they enter a public dialogue with a preparedness to have their preferences transformed through reasoned argument." (Emphasis added.) In practice, of course, Eckersley's "reasoned argument" would resemble nothing so much as the infamous "ideology struggle" sessions of Mao's Cultural Revolution. This outlook gives new meaning to the old cliché about rulers selecting the people, rather than vice versa.
Yesterday's Crisis Mongers
Is there any respite from this dreary despotic nonsense? Here and there, a few authors of sufficient independence of mind can be found who have broken with green orthodoxy in significant ways. The first of note is Matthew Connelly of Columbia University, whose brilliant new history of the population control movement, Fatal Misconception: The Struggle to Control World Population, is useful not simply on its theme but for the light it sheds on the political corruption that inevitably accompanies these world-saving enthusiasms. The "population bomb" can be seen as a precursor to the global warming crisis of today: as far back as the early decades of the 20th century the population crisis was put forward as the justification for global governance and coercive, non-consensual rule.
Connelly recounts one of the first major international conferences on world population, held in Geneva in 1927, where Albert Thomas, a French trade unionist, asked, "Has the moment yet arrived for considering the possibility of establishing some sort of supreme supranational authority which would regulate the distribution of population on rational and impartial lines, by controlling and directing migration movements and deciding on the opening-up or closing of countries to particular streams of immigration?" Connelly also describes the 1974 World Population Conference, which "witnessed an epic battle between starkly different versions of history and the future: one premised on the preservation of order, if necessary by radical new forms of global governance; the other inspired by the pursuit of justice, beginning with unfettered sovereignty for newly independent nations." (Emphasis added.)
The Intergovernmental Panel on Climate Change (IPCC), the U.N.-sponsored body that is the juggernaut of today's climate campaign, finds its precedent in the International Union for the Scientific Investigation of Population Problems (IUSIPP), spawned at the 1927 World Population Conference. A bevy of NGOs, most prominently the International Planned Parenthood Federation (IPPF) and Zero Population Growth (ZPG), later sprang into being, working hand-in-glove with the same private foundations (especially Ford and Rockefeller) and global financial institutions, such as the World Bank, that today are in the forefront of the climate campaign.
As Connelly lays out in painstaking detail, population control programs, aimed chiefly at developing nations, proliferated despite clear human rights abuses and, more importantly, new data and information that called into question many of the fundamental assumptions of the crisis mongers. Connelly recalls computer projections and economic models that offered precise and "scientifically grounded" projections of future global ruin from population growth, all of which were quickly falsified. The mass famines and food riots that were predicted never occurred; fertility rates began to fall everywhere, even in nations that lacked "family planning" programs.
The coercive nature of the population control programs in the field was appalling. India, in particular, became "a vast laboratory for the ultimate population control campaign," the chilling practices of which Connelly recounts:
Sterilizations were performed on 80-year-old men, uncomprehending subjects with mental problems, and others who died from untreated complications. There was no incentive to follow up patients. The Planning Commission found that the quality of postoperative care was "the weakest link." In Maharashtra, 52 percent of men complained of pain, and 16 percent had sepsis or unhealed wounds. Over 40 percent were unable to see a doctor. Almost 58 percent of women surveyed experienced pain after IUD insertion, 24 percent severe pain, and 43 percent had severe and excessive bleeding. Considering that iron deficiency was endemic in India, one can only imagine the toll the IUD program took on the health of Indian women.
These events Connelly describes took place in 1967, but instead of backing off, the Indian government—under constant pressure and lavish financial backing from the international population control organizations—intensified these coercive programs in the 1970s. Among other measures India required that families with three or more children had to be sterilized to be eligible for new housing (which the government, not the private market, controlled). "This war against the poor also swept across the countryside," Connelly notes:
In one case, the village of Uttawar in Haryana was surrounded by police, hundreds were taken into custody, and every eligible male was sterilized. Hearing what had happened, thousands gathered to defend another village named Pipli. Four were killed when police fired upon the crowd. Protesters gave up only when, according to one report, a senior government official threatened aerial bombardment. The director of family planning in Maharashtra, D.N. Pai, considered it a problem of "people pollution" and defended the government: "If some excesses appear, don't blame me.... You must consider it something like a war. There could be a certain amount of misfiring out of enthusiasm. There has been pressure to show results. Whether you like it or not, there will be a few dead people."
In all, over 8 million sterilizations, many of them forced, were conducted in India in 1976—"draconian population control," Connelly writes, "practiced on an unprecedented scale.... There is no way to count the number who were being hauled away to sterilization camps against their will." Nearly 2,000 died from botched surgical procedures. The people of India finally put the brakes on this coercive utopianism, at the ballot box: the Congress Party, which had championed the family planning program as one of its main policies, was swept from office in a landslide, losing 141 of 142 contested seats in the areas with the highest rate of sterilizations. At least the people of India had recourse to the ballot box; the new environmental constitutionalism will surely aim to eliminate this remedy.
A System without a Brain
One reason why enthusiasms and programs maintain their forward momentum in the face of changing facts and circumstances is the culture of corruption that inevitably comes to envelope self-selecting leadership groups organized around a crisis. Connelly ably captures this seamy side of the story:
Divided from within and besieged from without, leaders created a "system without a brain," setting in motion agencies and processes that could not be stopped. The idea of a "population crisis" provided the catalyst. But this was a system that ran on money. Earmarked appropriations greased the wheels of balky bureaucracies, and lavish funding was the fuel that drove it forward. But so much poured in so fast that spending became an end unto itself. The pressure to scale up and show results transformed organizations ostensibly dedicated to helping people plan their families into tools for social engineering.... Rather than accept constraints or accountability, they preferred to let population control go out of control. (Emphasis added.)
Corruption extended on a personal level to the New Class directing these world-saving crusades, what Connelly calls "the new jet set of population experts."
The lifestyle of the leaders of the population control establishment reflected the power of an idea whose time had come as well as the influence of the institutions that were now backing it.... Alan Guttmacher was in the habit of beginning letters to the Planned Parenthood membership with comments like "This is written 31,000 feet aloft as I fly from Rio to New York." He insisted on traveling with his wife, first class, with the IPPF picking up the tab. Ford [Foundation] officials flew first class with their spouses as a matter of policy. One wonders why Douglas Ensminger [the Ford Foundation's India officer] ever left his residence in Dehli—he was served by a household staff of nine, including maids, cooks, gardeners, and chauffeurs. He titled this part of his oral history "The ‘Little People' of India." Ensminger insisted on the need to pay top dollar and provide a plush lifestyle to attract the best talent, even if the consultants he recruited seemed preoccupied with their perks. One of these strivers ran his two-year old American sedan without oil just so that the Ford Foundation would have to replace it with the latest model....
For population experts this was the beginning of constantly expanding opportunities. The budgets, the staff, the access were all increasing even more quickly than the population growth their programs were meant to stop. There was "something in it for everyone," Population Association of America President John Kantner later recalled: "the activist, the scholar, the foundation officer, the globe-circling consultant, the wait-listed government official. World Conferences, a Population Year, commissions, select committees, new centers for research and training, a growing supply of experts, pronouncements by world leaders, and, most of all, money—lots of it."
Sounds rather like the moveable feast that is the IPCC's annual meetings, often held in hardship locales such as Bali, to press ahead with anti-global warming efforts. The magnitude of the traveling circus of the climate campaign has come to dwarf the population crusade. Prior to the arrival of climate change as a crisis issue, the largest single U.S. government science research project was the acid rain study of the 1980s (the National Acid Precipitation Assessment Project, or NAPAP for short), which cost about $500 million, and concluded that the acid rain problem had been vastly overestimated. (Public opinion polls in the late 1970s rated acid rain the most significant environmental problem of the time.) Today the U.S. government is spending multiple billions each year on climate research—so much through so many different agencies and budget sources that it is impossible to estimate the total reliably.
With so much money at stake, and with so many careers staked to the catastrophic climate scenario, one could predict that the entire apparatus would be resistant to new information and reasonable criticism. This is exactly what happened in the population crusade. When compelling critics of the population bomb thesis arose—people who might be called "skeptics," such as Julian Simon—the population campaign reacted by circling the wagons and demonizing its critics, just as global warming skeptics today are subjected to relentless ad hominem attacks. Connelly again:
Leaders of the population control movement responded...by defending their record and fighting back. They lined up heads of state, major corporations, and international organizations behind a global strategy to slow population growth. But they also worked more quietly to insulate their projects from political opposition by co-opting or marginalizing critics, strengthening transnational networks, and establishing more free-standing institutions exempt from normal government oversight.
This is exactly the playbook of the climate campaign today. Nevertheless, it is likely to follow the same trajectory as the population control movement—gradual decline in salience to the point that even the United Nations, in the early 1990s, officially downgraded the priority of the issue. This is likely to happen to climate change even if dramatic predictions of climate change turn out to be true.
Liberal Environmentalists
A few environmentalists on the left understand the profound defects of the radical green approach to politics, along with the conventional green approach to global warming. Ted Nordhaus and Michael Shellenberger, self-described "progressives" and authors of one of the most challenging recent books on the environment, Break Through: From the Death of Environmentalism to the Politics of Possibility, recognize and lament the authoritarianism of conventional environmentalism. "Environmental tales of tragedy begin with Nature in harmony and almost always end in quasi-authoritarian politics," Nordhaus and Shellenberger observe. While environmentalists like Eckersley embrace the postmodern language of "privilege" to denigrate traditional individual rights, Nordhaus and Shellenberger point up the obvious irony that it is environmentalism that is making the boldest claim to be given the most privileged position in politics: "The problem is not simply that it is difficult to answer the question ‘Who speaks for nature?' but rather that there is something profoundly wrong with the question itself. It rests on the premise that some people are better able to speak for nature, the environment, or a particular place than others. This assumption is profoundly authoritarian."
Above all, they reject the "limits to growth" mentality that has been near the center of environmental thought for two generations:
Environmentalists...have tended to view economic growth as the cause but not the solution to ecological crisis. Environmentalists like to emphasize the ways in which the economy depends on ecology, but they often miss the ways in which thinking ecologically depends on prospering economically.... Few things have hampered environmentalism more than its longstanding position that limits to growth are the remedy for ecological crises.
For this very reason, Nordhaus and Shellenberger insist that constraints on greenhouse gas emissions as contemplated by the Kyoto process will never work and should be abandoned. Instead they advocate massive research (with government paying for the largest share) into post-carbon energy systems. With due caveats about government-funded research, this seems a better approach than Gore's hair-shirt agenda. They may underestimate the sheer technical and economic difficulties of energy technology, but Break Through is not primarily a policy tome—it is intended to reorient our general thinking about the environment. In the second half of their book it becomes clear that Nordhaus and Shellenberger aren't just trying to save environmentalism; they are trying to save contemporary liberalism, which they regard as nearly as intellectually dead as environmentalism. "[E]nvironmentalism is hobbled by its resentment of human strength and our desire to control nature, and liberalism by its resentment of wealth and power," they write. This part of the book is less successful though no less serious and thoughtful. In arguing that liberals need to be more philosophical (hear, hear!), Nordhaus and Shellenberger deploy a number of philosophical categories that are problematic, at the very least, and embrace the core principles of postmodernism—though, happily, that overused term does not appear in their generally clear, direct prose. The duo are against Platonic essentialism when it comes to conceiving nature (including, it would seem, human nature), and for a revival of Deweyite pragmatism as well as empowering individual "authenticity." The reader gets dizzy at times following the back and forth between Richard Rorty, Thomas Kuhn, Francis Fukuyama, the "metaphysics of becoming," and more down-to-earth wonkish discussions of gas mileage standards for automobiles.
But despite these flaws, Break Through is still a refreshing departure from most environmental discourse, and the young authors probably aren't done, either, rethinking fundamental aspects of political life and man's relation to nature. Their rude treatment from fellow "progressives" (the American Prospect dismissed the book as containing "a lot of wasted ink") will surely encourage more reflection.
A Green Reformation?
Even in academia there are a few lonely voices who've noticed that the conventional green outlook is badly defective and in need of revision. Seymour Garte, professor of environmental and occupational health at the University of Pittsburgh's School of Public Health, makes his bid to become the next "skeptical environmentalist" (after Bjorn Lomborg) with his book Where We Stand: A Surprising Look at the Real State of Our Planet. Garte recalls his surprise, and the surprise of fellow experts attending a professional conference in Europe, when presented with data from a speaker showing steadily declining air pollution trends along with the claim, "everyone knows that air pollution levels are continually decreasing everywhere." "I looked around the room," Garte writes:
I was not the only nonexpert there. Most of my other colleagues were also not atmospheric or air pollution scientists. Later I asked one of them, a close friend, if he had known that air pollution levels were constantly decreasing throughout Europe and the United States on a yearly basis. "I had no idea," he said. It was certainly news to me. Even though I was a professor of environmental health and had been actively involved in many aspects of pollution research for many years, that simple fact had somehow escaped me.... I had certainly never seen it published in the media.
Garte goes on to argue that excessive pessimism about the environment undermines good scientific investigation and distorts our understanding of important environmental challenges. He displays the frequent naïveté of a scientist observing the political world: "I have never understood why pessimism has for so long been associated with a liberal or progressive political world view." He criticizes anti-technological biases prevalent among environmentalists, but is also skeptical that market forces alone will suffice to continue our environmental progress in the future. He is guardedly optimistic that the creativity and adaptability of the human species will enable us to confront surprises and new problems. "We should pay attention to our successes as much as to our failures," Garte writes, "because in order to know where to go next, it is just as important to know where (and how) we went right as it is to know where we have gone wrong."
One of the persistent problems with environmentalism is its bait-and-switch character. The essentially political character of the movement cloaks itself with the seemingly objective authority of modern science, as though science were immune from politicization, or led to self-evident political or policy conclusions. Laying aside the value-laden premises of the ways science is used and misused in environmental controversies, it is startling to discover how limited our scientific grasp of many environmental conditions really is. The worst abuse of science comes in the almost daily predictions of future environmental conditions based on sophisticated computer models that often lack a solid empirical grounding for their assumptions and are seldom validated or back-tested with any rigor. Orrin Pilkey of Duke University and his daughter Linda Pilkey-Jarvis, a government geologist, note these failings in Useless Arithmetic: Why
Environmental Scientists Can't Predict the Future.
The most famous prediction racket these days is climate modeling, but Useless Arithmetic mostly avoids the Super Bowl of enviro-modeling in favor of tackling more limited prediction modeling exercises, such as fishery management or forecasting coastal erosion, invasive species, and nuclear waste at Yucca Mountain. Environmental forecasting is a classic case of being hoist by one's own petard. The inherent weakness of most exercises stems precisely from the core principle of modern pop environmentalism—that everything is connected to everything else. As the Pilkeys point out,
[p]erhaps the single most important reason that quantitative predictive mathematical models of natural processes on earth don't work and can't work has to do with ordering complexity. Interactions among the numerous components of a complex system occur in unpredictable and unexpected sequences.
Contrary to the usual process of science in which defects and errors become the platform for refinement and new approaches to the problem, environmental science finds itself caught in the grip of "politically correct modeling" (the authors' emphasis) in which there is enormous pressure on scientists, many of whom discover "that modeling results are easier to live with if they follow preconceived or politically correct notions." The models take on a life of their own, and become obstacles to conducting serious field studies that might strengthen our empirical grasp of ecosystem dynamics. "Applied mathematical modeling has become a science that has advanced without the usual broad-based, vigorous debate, criticism, and constant attempts at falsification that characterize good science," the Pilkeys conclude.
Neither Garte nor the Pilkeys are full-blown green skeptics; to the contrary—they are global warming believers who lean slightly left-of-center in their politics. But they represent a gathering backlash among academic scientists against the straightjacket of orthodox environmentalism. There are a number of others like them whose names never appear in the media or before congressional hearings. The prospect that a new generation of environmentalists such as Nordhaus and Shellenberger, along with academic dissenters such as Garte and the Pilkeys, can work a reformation of the movement may not seem very bright. But such voices were virtually unheard of even ten years ago. Stay tuned: a new shade of green might yet emerge.
This essay is part of the Taube American Values Series, made possible by the Taube Family Foundation.
Claremont Review of Books, Winter 2008
http://www.claremont.org/publications/crb/id.1588/article_detail.asp
Full article w/correct format here.
Books discussed in this essay:
The World Without Us, by Alan Weisman
American Earth: Environmental Writing Since Thoreau, edited by Bill McKibben, Foreword by Al Gore
How We Can Save the Planet: Preventing Global Climate Catastrophe, by Mayer Hillman, Tina Fawcett, and Sudhir Chella Rajan
The Climate Change Challenge and the Failure of Democracy, by David Shearman and Joseph Wayne Smith
The Green State: Rethinking Democracy and Sovereignty, by Robyn Eckersley
Fatal Misconception: The Struggle to Control World Population, by Matthew Connelly
Break Through: From the Death of Environmentalism to the Politics of Possibility, by Ted Nordhaus and Michael Shellenberger
Where We Stand: A Surprising Look at the Real State of Our Planet, by Seymour Garte
Useless Arithmetic: Why Environmental Scientists Can't Predict the Future, by Orrin H. Pilkey and Linda Pilkey-Jarvis
"On what principle is it," wondered Thomas Babington Macaulay in 1830, "that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?" Environmentalism didn't exist in its current form in Macaulay's time, or he would easily have discerned its essential pessimism bordering at times on a loathing of humanity. A trip down the environment and earth sciences aisle of any larger bookstore is usually a tour of titles that cover the narrow range from dismay to despair.
On the surface this is not exceptional. Titles predicting decline, decay, and disaster are just as numerous in the real estate, economics, and social science shelves, though, ironically, not so much in the religion book racks, where one would expect to find apocalypticism well represented. This is an important distinction: unlike the eschatology of all major religions, the eco-apocalypse is utterly without hope of redemption for man or nature. The greens turn purple at the suggestion that most environmental conditions in rich nations are actually improving, and they bemoan the lack of "progress" toward the transformation of the human soul that is thought necessary for the planet's salvation. Yet some cracks are starting to appear in their dreary and repetitive story line. Although extreme green ideology won't go away any time soon—the political and legal institutions of the environmental movement are too well established—there are signs that the public and a few next-generation environmentalists are ready to say goodbye to all that. There are even some liberal authors with environmentalist sympathies who are turning against the environmental establishment. But it is necessary to claw our way through the deepening slough of green despondency to see this potential turning point.
More than 30 years ago political scientist Anthony Downs wrote in the Public Interest of a five-step "issue-attention cycle" through which public enthusiasm for an issue gradually diminishes as we come to recognize the high cost of drastic action, and that the nature of the problem was exaggerated or misconceived. The environment, he wrote, would have a longer cycle than most issues because of its diffuse nature, but it appears that the public is finally arriving at the late stages of Downs's cycle. Opinion surveys show that the public isn't jumping on the global warming bandwagon despite a multi-million dollar marketing campaign and full-scale media hysteria. More broadly there are signs that "green fatigue" is setting in. Magazine publishers recently reported that their special Earth Day "green" issues generated the lowest newsstand sales of all issues published in 2008. "Suddenly Being Green Is Not Cool Any More," read a London Times headline in August.
This has been building for a long time. Three years ago New York Times green-leaning columnist Nicholas Kristof lamented that the environmental movement was losing credibility because of its doomsaying monomania, with the result that "environmental alarms have been screeching for so long that, like car alarms, they are now just an irritating background noise." Environmental leaders did not take well to his wandering from the reservation. In response to the popular indifference to green alarms, conventional environmentalists have ratcheted up their level of vitriol against humanity and democratic institutions. One of the most popular books of 2007 among environmentalists was The World Without Us by Alan Weisman, which projects a "thought experiment" about what would occur if human beings were suddenly removed entirely from the planet. Answer: nature would reassert herself, and ultimately remove nearly all traces of human civilization within several millennia—a mere blink of an eye in the planetary timescale. Environmentalists cheered Weisman's vivid depiction of the resilience of nature, but what thrilled them was the scenario of a humanless earth. Weisman made sure to stroke his audience's self-loathing with plenty of boilerplate about resource exhaustion and overpopulation. The book rocketed up the best-seller list, the latest in a familiar genre stretching back at least to Fairfield Osborn's Our Plundered Planet in 1948, arguably the first neo-Malthusian doomsday tract of modern environmentalism. Time magazine named The World Without Us the number one non-fiction book of 2007.
Rethinking Democracy
The same view of environmentalism is on display in the Library of America's American Earth: Environmental Writing Since Thoreau. This collection, though worthy in some respects, has to be judged a disappointment compared to many other fine Library of America offerings—a shortcoming entirely attributable to the selection of Bill McKibben as editor. (The easier clue is the Foreword by Al Gore.) McKibben is another in the sad line of environmentalists who became bores by endlessly reprising the one-hit wonders of their youth (in McKibben's case, his mildly interesting 1989 book, The End of Nature). He begins and ends with Henry David Thoreau—"a Buddha with a receipt from the hardware store"—because he thinks environmental writing is to be distinguished from nature writing. Environmental writing, McKibben explains, "takes as its subject the collision between people and the rest of the world."
It was probably too much to expect that McKibben would balance the usual suspects such as Rachel Carson, Lynn White, Paul Ehrlich, and Garrett Hardin with such intelligent dissenters as Julian Simon, Terry Anderson, Frederick Jackson Turner, and R.J. Smith. But McKibben's adherence to environmental correctness is so narrowly conceived that he excludes a number of American authors who offer worthy reflections on man and nature. His tacit premise that man is not part of nature, or is opposed to the rest of nature, necessarily constricts the range of perspectives that can be brought to bear on the broad idea of "the environment." So though his collection includes Theodore Roosevelt, by representing American environmental writing as beginning with Thoreau, it excludes worthy earlier reflections such as Thomas Jefferson's Notes on the State of Virginia (or any of Jefferson's other agrarian reflections that can be read as precursors to Wendell Berry, who is included in McKibben's reader), or Tocqueville's prescient observations on American wilderness, our emerging attitudes toward it, and its relation to our democratic character.
McKibben and many other environmental writers affect an indifference toward, or transcendence of, politics in the ordinary sense, but ultimately cannot conceal their rejection of the liberal tradition. Here we observe the irony of modern environmentalism: the concern for the preservation of unchanged nature has grown in tandem with the steady erosion in our belief in unchanging human nature; the concern for the "rights of nature" has come to embrace a rejection of natural rights for humans. McKibben is one of many current voices (Gore is another) who like to express their environmentalism by decrying "individualism" (McKibben calls it "hyperindividualism"). Finding that individualism is "the sole ideology of a continent," he explains:
Fighting the ideology that was laying waste to so much of the planet demanded going beyond that individualism. Many found the means to do that in the notion of ‘community'—a word almost as fuzzy and hard to pin down as ‘wild,' but one that has emerged as an even more compelling source of motive energy for the environmental movement.
This is not a new theme for McKibben. Al Gore employed the same "communitarian" trope in his first and most famous environmental book, Earth in the Balance (1992), where, in the course of arguing that the environment should be the "central organizing principle" of civilization, he suggested that the problem with individual liberty is that we have too much of it. This preference for soft despotism has become more concrete with the increasing panic over global warming in the past few years. Several environmental authors now argue openly that democracy itself is the obstacle and needs to be abandoned. A year ago a senior fellow emeritus at Britain's Policy Studies Institute, Mayer Hillman, author of How We Can Save the Planet, told a reporter, "When the chips are down I think democracy is a less important goal than is the protection of the planet from the death of life, the end of life on it. This [rationing] has got to be imposed on people whether they like it or not." (Hillman openly advocates resource rationing.) Another recent self-explanatory book is The Climate Change Challenge and the Failure of Democracy by Australians David Shearman and Joseph Wayne Smith. Shearman argued recently that
[l]iberal democracy is sweet and addictive and indeed in the most extreme case, the U.S.A., unbridled individual liberty overwhelms many of the collective needs of the citizens.... There must be open minds to look critically at liberal democracy. Reform must involve the adoption of structures to act quickly regardless of some perceived liberties.
Whom does Shearman admire as an example of environmental governance to be emulated? China, precisely because of its authoritarian government: "[T]he savvy Chinese rulers may be first out of the blocks to assuage greenhouse emissions and they will succeed by delivering orders.... We are going to have to look at how authoritarian decisions based on consensus science can be implemented to contain greenhouse emissions." Separately, Shearman has written:
To retain an inhabitable earth we may have to compromise the eternal vicissitudes of democracy for an informed leadership that directs. There are countries that fall within this requirement and we should use them to initiate more active mitigation.... The People's Republic of China may hold the key to innovative measures that can both arrest the expected surge in emissions from developing countries and provide developed nations with the means to alternative energy. China curbs individual freedom in favour of communal need. The State will implement those measures seen to be in the common good.
Perhaps the film version will be called An Inconvenient Democracy.
Academic political theorists who take up what might be called "green constitutionalism" understand that Lockean liberalism has to be overturned and replaced. In The Green State: Rethinking Democracy and Sovereignty, Australian political scientist Robyn Eckersley offers up an approach that, despite being swathed in postmodern jargon, is readily transparent. The "ecocentric," transnational "green state" Eckersley envisions is represented as an explicit alternative to "the classical liberal state, the indiscriminate growth-dependent welfare state, and the increasingly ascendant neoliberal competition state." Achieving a post-liberal state requires rethinking the entire Enlightenment project:
By framing the problem as one of rescuing and reinterpreting the Enlightenment goals of autonomy and critique, it is possible to identify what might be called a mutually informing set of "liberal dogmas" that have for too long been the subject of unthinking faith rather than critical scrutiny by liberals. The most significant of these dogmas are a muscular individualism and an understanding of the self-interested rational actor as natural and eternal; a dualistic conception of humanity and nature that denies human dependency on the biological world and gives rise to the notion of human exceptionalism from, and instrumentalism and chauvinism toward, the natural world; the sanctity of private property rights; the notion that freedom can only be acquired through material plenitude; and overconfidence in the rational mastery of nature through further scientific and technological progress.
Every traditional liberal or "progressive" understanding is up for grabs in this framework. This passage does not require much "parsing" to grasp its practical implications—the establishment of institutions and governing regimes that are not answerable to popular will, or that depend on transforming popular will in a specified direction. Eckersley makes this clear in a passage about the "social learning" function of "deliberative democracy," which she describes as "the requirement that participants be open and flexible in their thinking, that they enter a public dialogue with a preparedness to have their preferences transformed through reasoned argument." (Emphasis added.) In practice, of course, Eckersley's "reasoned argument" would resemble nothing so much as the infamous "ideology struggle" sessions of Mao's Cultural Revolution. This outlook gives new meaning to the old cliché about rulers selecting the people, rather than vice versa.
Yesterday's Crisis Mongers
Is there any respite from this dreary despotic nonsense? Here and there, a few authors of sufficient independence of mind can be found who have broken with green orthodoxy in significant ways. The first of note is Matthew Connelly of Columbia University, whose brilliant new history of the population control movement, Fatal Misconception: The Struggle to Control World Population, is useful not simply on its theme but for the light it sheds on the political corruption that inevitably accompanies these world-saving enthusiasms. The "population bomb" can be seen as a precursor to the global warming crisis of today: as far back as the early decades of the 20th century the population crisis was put forward as the justification for global governance and coercive, non-consensual rule.
Connelly recounts one of the first major international conferences on world population, held in Geneva in 1927, where Albert Thomas, a French trade unionist, asked, "Has the moment yet arrived for considering the possibility of establishing some sort of supreme supranational authority which would regulate the distribution of population on rational and impartial lines, by controlling and directing migration movements and deciding on the opening-up or closing of countries to particular streams of immigration?" Connelly also describes the 1974 World Population Conference, which "witnessed an epic battle between starkly different versions of history and the future: one premised on the preservation of order, if necessary by radical new forms of global governance; the other inspired by the pursuit of justice, beginning with unfettered sovereignty for newly independent nations." (Emphasis added.)
The Intergovernmental Panel on Climate Change (IPCC), the U.N.-sponsored body that is the juggernaut of today's climate campaign, finds its precedent in the International Union for the Scientific Investigation of Population Problems (IUSIPP), spawned at the 1927 World Population Conference. A bevy of NGOs, most prominently the International Planned Parenthood Federation (IPPF) and Zero Population Growth (ZPG), later sprang into being, working hand-in-glove with the same private foundations (especially Ford and Rockefeller) and global financial institutions, such as the World Bank, that today are in the forefront of the climate campaign.
As Connelly lays out in painstaking detail, population control programs, aimed chiefly at developing nations, proliferated despite clear human rights abuses and, more importantly, new data and information that called into question many of the fundamental assumptions of the crisis mongers. Connelly recalls computer projections and economic models that offered precise and "scientifically grounded" projections of future global ruin from population growth, all of which were quickly falsified. The mass famines and food riots that were predicted never occurred; fertility rates began to fall everywhere, even in nations that lacked "family planning" programs.
The coercive nature of the population control programs in the field was appalling. India, in particular, became "a vast laboratory for the ultimate population control campaign," the chilling practices of which Connelly recounts:
Sterilizations were performed on 80-year-old men, uncomprehending subjects with mental problems, and others who died from untreated complications. There was no incentive to follow up patients. The Planning Commission found that the quality of postoperative care was "the weakest link." In Maharashtra, 52 percent of men complained of pain, and 16 percent had sepsis or unhealed wounds. Over 40 percent were unable to see a doctor. Almost 58 percent of women surveyed experienced pain after IUD insertion, 24 percent severe pain, and 43 percent had severe and excessive bleeding. Considering that iron deficiency was endemic in India, one can only imagine the toll the IUD program took on the health of Indian women.
These events Connelly describes took place in 1967, but instead of backing off, the Indian government—under constant pressure and lavish financial backing from the international population control organizations—intensified these coercive programs in the 1970s. Among other measures India required that families with three or more children had to be sterilized to be eligible for new housing (which the government, not the private market, controlled). "This war against the poor also swept across the countryside," Connelly notes:
In one case, the village of Uttawar in Haryana was surrounded by police, hundreds were taken into custody, and every eligible male was sterilized. Hearing what had happened, thousands gathered to defend another village named Pipli. Four were killed when police fired upon the crowd. Protesters gave up only when, according to one report, a senior government official threatened aerial bombardment. The director of family planning in Maharashtra, D.N. Pai, considered it a problem of "people pollution" and defended the government: "If some excesses appear, don't blame me.... You must consider it something like a war. There could be a certain amount of misfiring out of enthusiasm. There has been pressure to show results. Whether you like it or not, there will be a few dead people."
In all, over 8 million sterilizations, many of them forced, were conducted in India in 1976—"draconian population control," Connelly writes, "practiced on an unprecedented scale.... There is no way to count the number who were being hauled away to sterilization camps against their will." Nearly 2,000 died from botched surgical procedures. The people of India finally put the brakes on this coercive utopianism, at the ballot box: the Congress Party, which had championed the family planning program as one of its main policies, was swept from office in a landslide, losing 141 of 142 contested seats in the areas with the highest rate of sterilizations. At least the people of India had recourse to the ballot box; the new environmental constitutionalism will surely aim to eliminate this remedy.
A System without a Brain
One reason why enthusiasms and programs maintain their forward momentum in the face of changing facts and circumstances is the culture of corruption that inevitably comes to envelope self-selecting leadership groups organized around a crisis. Connelly ably captures this seamy side of the story:
Divided from within and besieged from without, leaders created a "system without a brain," setting in motion agencies and processes that could not be stopped. The idea of a "population crisis" provided the catalyst. But this was a system that ran on money. Earmarked appropriations greased the wheels of balky bureaucracies, and lavish funding was the fuel that drove it forward. But so much poured in so fast that spending became an end unto itself. The pressure to scale up and show results transformed organizations ostensibly dedicated to helping people plan their families into tools for social engineering.... Rather than accept constraints or accountability, they preferred to let population control go out of control. (Emphasis added.)
Corruption extended on a personal level to the New Class directing these world-saving crusades, what Connelly calls "the new jet set of population experts."
The lifestyle of the leaders of the population control establishment reflected the power of an idea whose time had come as well as the influence of the institutions that were now backing it.... Alan Guttmacher was in the habit of beginning letters to the Planned Parenthood membership with comments like "This is written 31,000 feet aloft as I fly from Rio to New York." He insisted on traveling with his wife, first class, with the IPPF picking up the tab. Ford [Foundation] officials flew first class with their spouses as a matter of policy. One wonders why Douglas Ensminger [the Ford Foundation's India officer] ever left his residence in Dehli—he was served by a household staff of nine, including maids, cooks, gardeners, and chauffeurs. He titled this part of his oral history "The ‘Little People' of India." Ensminger insisted on the need to pay top dollar and provide a plush lifestyle to attract the best talent, even if the consultants he recruited seemed preoccupied with their perks. One of these strivers ran his two-year old American sedan without oil just so that the Ford Foundation would have to replace it with the latest model....
For population experts this was the beginning of constantly expanding opportunities. The budgets, the staff, the access were all increasing even more quickly than the population growth their programs were meant to stop. There was "something in it for everyone," Population Association of America President John Kantner later recalled: "the activist, the scholar, the foundation officer, the globe-circling consultant, the wait-listed government official. World Conferences, a Population Year, commissions, select committees, new centers for research and training, a growing supply of experts, pronouncements by world leaders, and, most of all, money—lots of it."
Sounds rather like the moveable feast that is the IPCC's annual meetings, often held in hardship locales such as Bali, to press ahead with anti-global warming efforts. The magnitude of the traveling circus of the climate campaign has come to dwarf the population crusade. Prior to the arrival of climate change as a crisis issue, the largest single U.S. government science research project was the acid rain study of the 1980s (the National Acid Precipitation Assessment Project, or NAPAP for short), which cost about $500 million, and concluded that the acid rain problem had been vastly overestimated. (Public opinion polls in the late 1970s rated acid rain the most significant environmental problem of the time.) Today the U.S. government is spending multiple billions each year on climate research—so much through so many different agencies and budget sources that it is impossible to estimate the total reliably.
With so much money at stake, and with so many careers staked to the catastrophic climate scenario, one could predict that the entire apparatus would be resistant to new information and reasonable criticism. This is exactly what happened in the population crusade. When compelling critics of the population bomb thesis arose—people who might be called "skeptics," such as Julian Simon—the population campaign reacted by circling the wagons and demonizing its critics, just as global warming skeptics today are subjected to relentless ad hominem attacks. Connelly again:
Leaders of the population control movement responded...by defending their record and fighting back. They lined up heads of state, major corporations, and international organizations behind a global strategy to slow population growth. But they also worked more quietly to insulate their projects from political opposition by co-opting or marginalizing critics, strengthening transnational networks, and establishing more free-standing institutions exempt from normal government oversight.
This is exactly the playbook of the climate campaign today. Nevertheless, it is likely to follow the same trajectory as the population control movement—gradual decline in salience to the point that even the United Nations, in the early 1990s, officially downgraded the priority of the issue. This is likely to happen to climate change even if dramatic predictions of climate change turn out to be true.
Liberal Environmentalists
A few environmentalists on the left understand the profound defects of the radical green approach to politics, along with the conventional green approach to global warming. Ted Nordhaus and Michael Shellenberger, self-described "progressives" and authors of one of the most challenging recent books on the environment, Break Through: From the Death of Environmentalism to the Politics of Possibility, recognize and lament the authoritarianism of conventional environmentalism. "Environmental tales of tragedy begin with Nature in harmony and almost always end in quasi-authoritarian politics," Nordhaus and Shellenberger observe. While environmentalists like Eckersley embrace the postmodern language of "privilege" to denigrate traditional individual rights, Nordhaus and Shellenberger point up the obvious irony that it is environmentalism that is making the boldest claim to be given the most privileged position in politics: "The problem is not simply that it is difficult to answer the question ‘Who speaks for nature?' but rather that there is something profoundly wrong with the question itself. It rests on the premise that some people are better able to speak for nature, the environment, or a particular place than others. This assumption is profoundly authoritarian."
Above all, they reject the "limits to growth" mentality that has been near the center of environmental thought for two generations:
Environmentalists...have tended to view economic growth as the cause but not the solution to ecological crisis. Environmentalists like to emphasize the ways in which the economy depends on ecology, but they often miss the ways in which thinking ecologically depends on prospering economically.... Few things have hampered environmentalism more than its longstanding position that limits to growth are the remedy for ecological crises.
For this very reason, Nordhaus and Shellenberger insist that constraints on greenhouse gas emissions as contemplated by the Kyoto process will never work and should be abandoned. Instead they advocate massive research (with government paying for the largest share) into post-carbon energy systems. With due caveats about government-funded research, this seems a better approach than Gore's hair-shirt agenda. They may underestimate the sheer technical and economic difficulties of energy technology, but Break Through is not primarily a policy tome—it is intended to reorient our general thinking about the environment. In the second half of their book it becomes clear that Nordhaus and Shellenberger aren't just trying to save environmentalism; they are trying to save contemporary liberalism, which they regard as nearly as intellectually dead as environmentalism. "[E]nvironmentalism is hobbled by its resentment of human strength and our desire to control nature, and liberalism by its resentment of wealth and power," they write. This part of the book is less successful though no less serious and thoughtful. In arguing that liberals need to be more philosophical (hear, hear!), Nordhaus and Shellenberger deploy a number of philosophical categories that are problematic, at the very least, and embrace the core principles of postmodernism—though, happily, that overused term does not appear in their generally clear, direct prose. The duo are against Platonic essentialism when it comes to conceiving nature (including, it would seem, human nature), and for a revival of Deweyite pragmatism as well as empowering individual "authenticity." The reader gets dizzy at times following the back and forth between Richard Rorty, Thomas Kuhn, Francis Fukuyama, the "metaphysics of becoming," and more down-to-earth wonkish discussions of gas mileage standards for automobiles.
But despite these flaws, Break Through is still a refreshing departure from most environmental discourse, and the young authors probably aren't done, either, rethinking fundamental aspects of political life and man's relation to nature. Their rude treatment from fellow "progressives" (the American Prospect dismissed the book as containing "a lot of wasted ink") will surely encourage more reflection.
A Green Reformation?
Even in academia there are a few lonely voices who've noticed that the conventional green outlook is badly defective and in need of revision. Seymour Garte, professor of environmental and occupational health at the University of Pittsburgh's School of Public Health, makes his bid to become the next "skeptical environmentalist" (after Bjorn Lomborg) with his book Where We Stand: A Surprising Look at the Real State of Our Planet. Garte recalls his surprise, and the surprise of fellow experts attending a professional conference in Europe, when presented with data from a speaker showing steadily declining air pollution trends along with the claim, "everyone knows that air pollution levels are continually decreasing everywhere." "I looked around the room," Garte writes:
I was not the only nonexpert there. Most of my other colleagues were also not atmospheric or air pollution scientists. Later I asked one of them, a close friend, if he had known that air pollution levels were constantly decreasing throughout Europe and the United States on a yearly basis. "I had no idea," he said. It was certainly news to me. Even though I was a professor of environmental health and had been actively involved in many aspects of pollution research for many years, that simple fact had somehow escaped me.... I had certainly never seen it published in the media.
Garte goes on to argue that excessive pessimism about the environment undermines good scientific investigation and distorts our understanding of important environmental challenges. He displays the frequent naïveté of a scientist observing the political world: "I have never understood why pessimism has for so long been associated with a liberal or progressive political world view." He criticizes anti-technological biases prevalent among environmentalists, but is also skeptical that market forces alone will suffice to continue our environmental progress in the future. He is guardedly optimistic that the creativity and adaptability of the human species will enable us to confront surprises and new problems. "We should pay attention to our successes as much as to our failures," Garte writes, "because in order to know where to go next, it is just as important to know where (and how) we went right as it is to know where we have gone wrong."
One of the persistent problems with environmentalism is its bait-and-switch character. The essentially political character of the movement cloaks itself with the seemingly objective authority of modern science, as though science were immune from politicization, or led to self-evident political or policy conclusions. Laying aside the value-laden premises of the ways science is used and misused in environmental controversies, it is startling to discover how limited our scientific grasp of many environmental conditions really is. The worst abuse of science comes in the almost daily predictions of future environmental conditions based on sophisticated computer models that often lack a solid empirical grounding for their assumptions and are seldom validated or back-tested with any rigor. Orrin Pilkey of Duke University and his daughter Linda Pilkey-Jarvis, a government geologist, note these failings in Useless Arithmetic: Why
Environmental Scientists Can't Predict the Future.
The most famous prediction racket these days is climate modeling, but Useless Arithmetic mostly avoids the Super Bowl of enviro-modeling in favor of tackling more limited prediction modeling exercises, such as fishery management or forecasting coastal erosion, invasive species, and nuclear waste at Yucca Mountain. Environmental forecasting is a classic case of being hoist by one's own petard. The inherent weakness of most exercises stems precisely from the core principle of modern pop environmentalism—that everything is connected to everything else. As the Pilkeys point out,
[p]erhaps the single most important reason that quantitative predictive mathematical models of natural processes on earth don't work and can't work has to do with ordering complexity. Interactions among the numerous components of a complex system occur in unpredictable and unexpected sequences.
Contrary to the usual process of science in which defects and errors become the platform for refinement and new approaches to the problem, environmental science finds itself caught in the grip of "politically correct modeling" (the authors' emphasis) in which there is enormous pressure on scientists, many of whom discover "that modeling results are easier to live with if they follow preconceived or politically correct notions." The models take on a life of their own, and become obstacles to conducting serious field studies that might strengthen our empirical grasp of ecosystem dynamics. "Applied mathematical modeling has become a science that has advanced without the usual broad-based, vigorous debate, criticism, and constant attempts at falsification that characterize good science," the Pilkeys conclude.
Neither Garte nor the Pilkeys are full-blown green skeptics; to the contrary—they are global warming believers who lean slightly left-of-center in their politics. But they represent a gathering backlash among academic scientists against the straightjacket of orthodox environmentalism. There are a number of others like them whose names never appear in the media or before congressional hearings. The prospect that a new generation of environmentalists such as Nordhaus and Shellenberger, along with academic dissenters such as Garte and the Pilkeys, can work a reformation of the movement may not seem very bright. But such voices were virtually unheard of even ten years ago. Stay tuned: a new shade of green might yet emerge.
This essay is part of the Taube American Values Series, made possible by the Taube Family Foundation.
20th Anniversary of the Alar Scare
20th Anniversary of the (Scientifically Baseless) Alar Scare
The American Council on Science and Health, February 25, 2009
Twenty years ago tomorrow, a combination of environmentalists, public interest lawyers, publicists, and members of the news media foisted a bogus health scare on the American public -- the fear that apples being sprayed with Alar were exposing children to a cancer-causing chemical. The Great Apple Scare: Alar 20 Years Later , a new publication by the American Council on Science and Health (ACSH), depicts how this plant growth-regulating chemical was successfully demonized and provides a template for the many baseless health scares that followed.
Authored by William P. Kucewicz, formerly on the editorial board of the Wall Street Journal, The Great Apple Scare provides a succinct history of Alar's use, as well as the generation of anxiety and fear among American consumers. "Of course, those most concerned were parents of young children," notes Dr. Elizabeth Whelan, ACSH president. "One woman became so anxious that she chased a school bus in order to remove the apple from her child's lunchbox."
In 1968 the Food and Drug Administration (FDA) approved the use of Alar on apples after two years of carcinogenicity testing had shown it was safe. Additional studies were conducted after that approval. While the great majority also found no problems with Alar, studies done by one researcher supposedly did not. Evaluation by numerous experts found many scientific problems with this research.
But before this welcome news could be publicized, the CBS show "60 Minutes" termed Alar one of the most dangerous chemicals in the American food supply. Subsequently, actress Meryl Streep donned a toxicologist's mantle and helped spread the accusations against Alar.
Unfortunately, science was no match for the fear trumped up by environmental activists and associated public relations firm Fenton Communications, and in 1989 Alar was removed from the market."
The Alar saga provided a roadmap for activists to attack numerous other chemicals that never harmed anyone," stated ACSH medical director Dr. Gilbert Ross. "It should leave readers with some understanding of how baseless most of these health scares really are," he continued.
See a video commentary about the Alar scare by ACSH's Dr. Whelan here.
The American Council on Science and Health, February 25, 2009
Twenty years ago tomorrow, a combination of environmentalists, public interest lawyers, publicists, and members of the news media foisted a bogus health scare on the American public -- the fear that apples being sprayed with Alar were exposing children to a cancer-causing chemical. The Great Apple Scare: Alar 20 Years Later , a new publication by the American Council on Science and Health (ACSH), depicts how this plant growth-regulating chemical was successfully demonized and provides a template for the many baseless health scares that followed.
Authored by William P. Kucewicz, formerly on the editorial board of the Wall Street Journal, The Great Apple Scare provides a succinct history of Alar's use, as well as the generation of anxiety and fear among American consumers. "Of course, those most concerned were parents of young children," notes Dr. Elizabeth Whelan, ACSH president. "One woman became so anxious that she chased a school bus in order to remove the apple from her child's lunchbox."
In 1968 the Food and Drug Administration (FDA) approved the use of Alar on apples after two years of carcinogenicity testing had shown it was safe. Additional studies were conducted after that approval. While the great majority also found no problems with Alar, studies done by one researcher supposedly did not. Evaluation by numerous experts found many scientific problems with this research.
But before this welcome news could be publicized, the CBS show "60 Minutes" termed Alar one of the most dangerous chemicals in the American food supply. Subsequently, actress Meryl Streep donned a toxicologist's mantle and helped spread the accusations against Alar.
Unfortunately, science was no match for the fear trumped up by environmental activists and associated public relations firm Fenton Communications, and in 1989 Alar was removed from the market."
The Alar saga provided a roadmap for activists to attack numerous other chemicals that never harmed anyone," stated ACSH medical director Dr. Gilbert Ross. "It should leave readers with some understanding of how baseless most of these health scares really are," he continued.
See a video commentary about the Alar scare by ACSH's Dr. Whelan here.
Obama’s Oddly Conservative Codas
Obama’s Oddly Conservative Codas. By Matthew Rothschild
The Progressive, February 25, 2009
Did Obama really have to say that he didn’t believe in bigger government? He’s in the midst of a tough ideological battle with the Republicans, and he just surrendered an enormous amount of territory.
I watched Obama’s speech, and I was impressed with his performance and his command, and with some—but only some—of what he had to say.
I liked his call to bold action, but his defense of government intervention in the economy was neither as fulsome nor as persuasive as the one offered at his first press conference.
In his speech, he gave a quick tour of previous positive public interventions, and concluded, “Government didn’t supplant private enterprise; it catalyzed private enterprise.”
Well, that’s not exactly true. During World War II, it basically ran the economy. And, anyway, should government’s only role be to catalyze capitalism?
Plus, did Obama really have to say that he didn’t believe in bigger government?
He’s in the midst of a tough ideological battle with the Republicans, and he just surrendered an enormous amount of territory.
Likewise, he didn’t need to propose, in his recovery plan, and then stress, in his speech, that 90 percent of the jobs he creates will be “in the private sector.” Those will be largely nonunion jobs, and less secure ones, at that.
Nor did he have to reiterate his pledge to cut the deficit in half by the end of his first term. That’s precisely the wrong thing to do in the Great Recession. He will either accomplish this goal and kill off the recovery, or fail to meet the goal he foolishly set for himself.
And while he had the cutting knife in his hand, he menaced Social Security with it.
He sang some populist notes, like talking tough with bankers, though he didn’t propose the obvious solution, nationalization. How could he, with his paeans to the private sector?
He also put as much blame on the American people for overspending and overbuying, as he did on the banks for swindling them and then gambling on their securitized mortgages.
He played to the stands when he repeated his lecture to parents to turn off the TV and read to their children. In a line that Ronald Reagan could have uttered, he said, “There is no program or policy that can substitute for a mother or father” who is involved with their kids.
Though his agenda was liberal and ambitious in some places, his coda was too often oddly conservative.
The Progressive, February 25, 2009
Did Obama really have to say that he didn’t believe in bigger government? He’s in the midst of a tough ideological battle with the Republicans, and he just surrendered an enormous amount of territory.
I watched Obama’s speech, and I was impressed with his performance and his command, and with some—but only some—of what he had to say.
I liked his call to bold action, but his defense of government intervention in the economy was neither as fulsome nor as persuasive as the one offered at his first press conference.
In his speech, he gave a quick tour of previous positive public interventions, and concluded, “Government didn’t supplant private enterprise; it catalyzed private enterprise.”
Well, that’s not exactly true. During World War II, it basically ran the economy. And, anyway, should government’s only role be to catalyze capitalism?
Plus, did Obama really have to say that he didn’t believe in bigger government?
He’s in the midst of a tough ideological battle with the Republicans, and he just surrendered an enormous amount of territory.
Likewise, he didn’t need to propose, in his recovery plan, and then stress, in his speech, that 90 percent of the jobs he creates will be “in the private sector.” Those will be largely nonunion jobs, and less secure ones, at that.
Nor did he have to reiterate his pledge to cut the deficit in half by the end of his first term. That’s precisely the wrong thing to do in the Great Recession. He will either accomplish this goal and kill off the recovery, or fail to meet the goal he foolishly set for himself.
And while he had the cutting knife in his hand, he menaced Social Security with it.
He sang some populist notes, like talking tough with bankers, though he didn’t propose the obvious solution, nationalization. How could he, with his paeans to the private sector?
He also put as much blame on the American people for overspending and overbuying, as he did on the banks for swindling them and then gambling on their securitized mortgages.
He played to the stands when he repeated his lecture to parents to turn off the TV and read to their children. In a line that Ronald Reagan could have uttered, he said, “There is no program or policy that can substitute for a mother or father” who is involved with their kids.
Though his agenda was liberal and ambitious in some places, his coda was too often oddly conservative.
US Energy Dept Project Promotes Low-Impact Drilling
DOE Project Leads to New Alliance to Promote Low-Impact Drilling
Alliance to Fund, Transfer Technologies to Minimize Environmental Impact of Drilling for Oil and Natural Gas
Washington, DC — A project supported by the Office of Fossil Energy’s National Energy Technology Laboratory (NETL) has given rise to a major new research consortium to promote advanced technology for low-impact oil and gas drilling. Announced earlier this month by the Houston Advanced Research Center (HARC) and Texas A&M University, the University/National Laboratory Alliance will fund and transfer advanced technologies to accelerate development of domestic oil and natural gas resources with minimal environmental impact.
The alliance has its roots in a project funded through the Office of Fossil Energy’s Oil and Natural Gas Environmental Program. The goal of the 3½-year project, which is drawing to a close, has been to identify and develop low-impact drilling systems for use in environmentally sensitive areas such as desert ecosystems and coastal margins. Among other accomplishments, the project has led to the creation of the Environmentally Friendly Drilling Program (EFD), which will continue with support from the energy industry and other government organizations after NETL sponsorship ends on March 31, 2009. The new alliance is part of the EFD.
"This is an excellent example of how the government’s investment in advanced, environmentally friendly technologies to develop domestic energy resources has encouraged industry interest and leveraged the taxpayer dollar," said Victor Der, Principal Deputy Assistant Secretary for Fossil Energy. "Technology advancement is the key to simultaneously addressing issues of energy security, supply, affordability, and environmental quality."
According to Rich Haut, manager of the new alliance, its goal is "to fund the development of low-impact systems that can be used in environmentally sensitive regions and share the latest research findings concerning these systems with leaders of energy, academia, environmental organizations, and government. . . . We will consider all aspects of energy resource recovery, not only traditional oil and natural gas production methods but also unconventional production, such as natural gas from shale or coal-bed methane."
In addition to HARC and Texas A&M, founding members of the alliance include:
Alliance to Fund, Transfer Technologies to Minimize Environmental Impact of Drilling for Oil and Natural Gas
Washington, DC — A project supported by the Office of Fossil Energy’s National Energy Technology Laboratory (NETL) has given rise to a major new research consortium to promote advanced technology for low-impact oil and gas drilling. Announced earlier this month by the Houston Advanced Research Center (HARC) and Texas A&M University, the University/National Laboratory Alliance will fund and transfer advanced technologies to accelerate development of domestic oil and natural gas resources with minimal environmental impact.
The alliance has its roots in a project funded through the Office of Fossil Energy’s Oil and Natural Gas Environmental Program. The goal of the 3½-year project, which is drawing to a close, has been to identify and develop low-impact drilling systems for use in environmentally sensitive areas such as desert ecosystems and coastal margins. Among other accomplishments, the project has led to the creation of the Environmentally Friendly Drilling Program (EFD), which will continue with support from the energy industry and other government organizations after NETL sponsorship ends on March 31, 2009. The new alliance is part of the EFD.
"This is an excellent example of how the government’s investment in advanced, environmentally friendly technologies to develop domestic energy resources has encouraged industry interest and leveraged the taxpayer dollar," said Victor Der, Principal Deputy Assistant Secretary for Fossil Energy. "Technology advancement is the key to simultaneously addressing issues of energy security, supply, affordability, and environmental quality."
According to Rich Haut, manager of the new alliance, its goal is "to fund the development of low-impact systems that can be used in environmentally sensitive regions and share the latest research findings concerning these systems with leaders of energy, academia, environmental organizations, and government. . . . We will consider all aspects of energy resource recovery, not only traditional oil and natural gas production methods but also unconventional production, such as natural gas from shale or coal-bed methane."
In addition to HARC and Texas A&M, founding members of the alliance include:
- Argonne National Laboratory
- Los Alamos National Laboratory
- Sam Houston State University
- The University of Arkansas
- The University of Colorado
- The University of Wyoming
- Utah State University
- West Virginia University
- Identifying more than 90 specific technologies related to the footprint of oil and natural gas operations that, if widely commercialized and applied, could help industry achieve more than a 90 percent reduction in environmental impact.
- Creating more than 20 jobs that lasted for the duration of the project, and contributing to future job growth by developing technologies to make oil and gas resources that are environmentally restricted today producible tomorrow.
- Establishing an Oil & Gas Desert Test Center near Pecos, Texas, on the edge of the Chihuahua desert, to evaluate low-impact drilling technology in desert ecosystems such as those found in the Western United States.
- Establishing a systems approach to optimize drilling decisions and ensure that the activities selected satisfy chosen criteria; the approach has been successfully used in the EFD program to determine the optimum system for a given site.
- Developing a small footprint, low-impact process based on sound engineering and biological principles to convert drilling wastes to a useable product.
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