Coyote Blog

As mentioned in the updates to this earlier post, the Obama transition web site has, at least temporarily, purged out all the real content they had up about specific programs and legislative goals.  So, as a public service, I will help fill this information gap by re-posting an article I wrote about 9 months ago on the "Patriot Employer Act" sponsored by Barack Obama and likely a kernel for early 2009 legislative action:

Posted 2/13/2008:

It turns out, according to Barack Obama, (who hales from the party that doesn't believe in questioning anyone's patriotism) that I am not a "Patriot Employer." This is from the text of Senate Bill S. 1945 of which he is a co-sponsor (My snark is interspersed in italics): Patriot Employers are to be given tax breaks over unpatriotic employers (I presume this means that their tax rates will be raised less in an Obama presidency than those of other folks) with "patriot employers" defined as such:

(b) Patriot Employer- For purposes of subsection (a), the term`Patriot employer' means, with respect to any taxable year, any taxpayer which-

`(1) maintains its headquarters in the United States if the taxpayer has ever been headquartered in the United States,

OK, I guess I can comply with this. Though I am not sure the best way to begin an Obama "kindler gentler foreign policy" is to tell the nations of the world that we will be taxing their company's income in the US at a higher rate than our own companies.

`(2) pays at least 60 percent of each employee's health care premiums,

So the #1 determinant of patriotism is not commitment to individual rights but paying 60% of employee health care costs. I guess I am so unpatriotic

And, just from a practical standpoint, 90% of my employees are seasonal, hired for about 4 months of the year. To be patriotic, I have to pay their health care costs all year long? Also, since most of my employees are retired, they are on Medicare or an employee retirement medical plan. If they pay $0 in premiums and I pay $0 of that, do I get credit for 60%? Maybe the government can mandate a solution for zero divided by zero, like they did for the value of pi years ago

`(3) has in effect, and operates in accordance with, a policy requiring neutrality in employee organizing drives,

I presume neutrality means that in a hypothetical union drive, I do not express my opinion (and likely opposition) to said unionization drive? I am told that this also entails allowing card checks rather than hidden ballot voting. In other words, patriotism is being defined here as 1) giving up your free speech rights and 2) opposing hidden ballot voting. Uh, right. Besides, if a union organized our company, as unlikely as that would be, I would probably have to do a Francisco d'Anconia on the place.

`(4) if such taxpayer employs at least 50 employees on average during the taxable year-

`(A) maintains or increases the number of full-time workers in the United States relative to the number of full-time workers outside of the United States,

In other words, we don't want American companies growing overseas. This could also be called the "give up international market share act." This implies that it is unpatriotic for US-based Exxon to explore for oil in Asia and that it is more patriotic to let the Chinese national oil company do it. This implies that it is more patriotic for Coke to lose market share in Germany than to gain it. This means that it is more patriotic for Mattel to buy its toys in China from Chinese companies rather than run the factories themselves (and thereby be accountable themselves for product quality and working conditions).

This is beyond stupid. We LIKE to see US companies doing well overseas. If we have to import our raw materials, we feel more comfortable if it is US companies doing the extraction. Don't we? In the name of patriotism, do we really want to root for our domestic companies to fail in international markets?

`(B) compensates each employee of the taxpayer at an hourly rate (or equivalent thereof) not less than an amount equal to the Federal poverty level for a family of three for the calendar year in which the taxable year begins divided by 2,080,

90% of my workers are retired. They work for me to supplement their income, to live our in nature, and to stay busy. They need me to pay them based on the poverty line for a family of three, why? I will tell you right now that if I had to raise wages this much, most of my employees would quit. Many of them force me to give them fewer hours so they can stay under the social security limits for income. I discussed what rising minimum wages often force me to do here, but just as an illustration, a $1 an hour across the board wage increase would easily wipe out all the money I make in a year and put me into a loss position. In which case the lowered tax rate would not do me much good anyway.

`(C) provides either-

`(i) a defined contribution plan which for any plan year-

`(I) requires the employer to make nonelective contributions of at least 5 percent of compensation for each employee who is not a highly compensated employee, or

`(II) requires the employer to make matching contributions of 100 percent of the elective contributions of each employee who is not a highly compensated employee to the extent such contributions do not exceed the percentage specified by the plan (not less than 5 percent) of the employee's compensation, or

`(ii) a defined benefit plan which for any plan year requires the employer to make contributions on behalf of each employee who is not a highly compensated employee in an amount which will provide an accrued benefit under the plan for the plan year which is not less than 5 percent of the employee's compensation, and

Uh, I am not sure why it is unpatriotic for an employee to save for themselves, but I think 401k plans are a nice benefit. I would certainly offer one except for one tiny fact - ALL MY EMPLOYEES ARE ALREADY RETIRED!! They are over 65. They are drawing down on their retirement, not contributing to it.

This is at the heart of the problem with all US labor law. Folks up in Illinois write laws with a picture of a steel mill in mind, and forget that employment and employees have infinite variations in circumstances and goals.

So I am unpatriotic, huh. But if forcing companies to contribute to emplee retirement plans is patriotic, why is hiring folks once they are retired to give them extra income in retirement unpatriotic? In fact, maybe I could argue that 100% of the wages I pay go to retirement spending

`(D) provides full differential salary and insurance benefits for all National Guard and Reserve employees who are called for active duty, and

In other words, we of the government are not going to pay our employees (ie reservists on active duty) what they are worth and are not going to give them benefits, so to be patriotic you need to do it for us. We in Congress are not really very patriotic and don't support the troops, so you need to do it for us.

All kidding aside, I would do this in my company if it was applicable, but I really resent being piously told to do so by several Senators who don't really model this behavior themselves.

`(5) if such taxpayer employs less than 50 employees on average during the taxable year, either-...

blah, blah. Basically the same stuff repeated, though slightly less onerous.

Since when did patriotism equate to "rolling over to the latest AFL-CIO wish list?"

I am seeing an increasing number of articles of late about differential inflation rates, and how changes in income inequality may be overstated by using a single inflation rate for rich and poor.  The argument goes that lower income folks who spend a relatively high share of income on goods that Wal-Mart and China have made cheap are experiencing a lower inflation rate than wealthier folks who have seen huge price increases at their favorite Four Seasons resort.  Mark Perry has two interesting articles along these lines.

I am starting to discover that I am an exception in the blogosphere, which seems to turn its collective noses up at the Olympics.  Well, my family loves to watch the Olympics together, and it is a real event in our house these two weeks.

Anyway, I was watching Bob Costas interview President Bush last night, and he asked a question I would paraphrase as "how is the US going to exercise influence on China given China's increasing strength and all the problems we have in the US."

Now, I am the first one to criticize the US and its government on any number of dimensions, but when one pulls back to an international view, one has to have some perspective.  What are these overwhelming problems we face when compared to the struggle for freedom and/or economic sufficiency in much of the world?  The US media has developed a bedrock assumption that the US is some kind of wasteland in need of total overhaul, when in fact we are the example all the world emulates.  Just look at the images from China -- sure there are a lot of unique cultural differences, but in many ways you see a people trying to be like us.

We have rising oil prices and falling housing prices.  Mortgages are defaulting and stocks have been falling of late.  The dollar is in the tank.  But at the end of the day, the world still sees the US as the safest and most productive place to invest its money:

Its odd to me that from time to time we go through periods of angst (e.g. the late 1980s panic that the Japanese were "buying up America") about this effect, but we should instead be assured by this vote of confidence from the rest of the world.  One might argue that folks are simply buying US assets today because they are cheap, and certainly the dollar's fall makes US assets relatively less expensive.  But assets are cheap in Russia and Nigeria and Venezuela too, and you don't see the world rushing to invest a few trillion dollars in those locales. 

Postscript:  This foreign ownership of US assets also makes the world a more stable place.  I am always stunned when people argue that Chinese ownership of a trillion dollars of US debt securities gives them power over us.  Huh?  Since when does holding someone's debt give you power?  I don't think Countrywide Mortgage is feeling too powerful today.  The fact is that holding our debt and owning US assets gives China (and other nations) a huge shared interest in our stbility and continued prosperity.

I have often argued that environmental cleanliness and wealth tend to follow a U-shaped curve.  Early industrialization tends to make air and water quality worse, but increases in wealth and technology over time tend to lead to an improved environment.  For example, nearly every air and water quality metric in the US has improved substantially over the last 40 years. 

To this end, I saw this chart in another context (Dr. Pielke was discussing the effect of land-use on regional climate changes) but I thought it was an interesting one to illustrate this point, and perhaps start to convince all those 20-somethings of the Obama generation that the world is not, in fact, spiraling ever downwards into economic decay.  This is a map of leaf area, bascially an index of forestation, for the Eastern US over the last 400 years.  Note the trend reversal since 1920.

I have argued for a while that trying to slam a halt to China's development as part of some misguided environmental effort may in fact achieve the opposite effect, locking China into the low-point of the U-shaped curve just at the point when increasing wealth may be pushing them to start cleaning up.

Christian Boda, via Q&O, discusses inflation rates in the context of income (in)equality issues.  He offers this bit of information:

Inflation differentials between the rich and poor dramatically change
our view of the evolution of inequality in America. Inflation of the
richest 10 percent of American households has been 6 percentage points
higher than that of the poorest 10 percent over the period 1994 "“ 2005.
This means that real inequality in America, if you measure it
correctly, has been roughly unchanged.

This actually makes a ton of sense - Walmart helps hold down food and clothing costs for average folks while the rich pay ever increasing rates to stay at the Ritz at Laguna Niguel.  He argues that as a result, globalization and the growth of low-cost manufacturing in China tends to help rather than hurt the poor.

It also helps to answer a question I had yesterday -- why do metrics of median wage growth adjusted for inflation tend to look unexciting, while at the same time other metrics show the poor doing so much better materially.  This notion of a graduated inflation rate by income class would go a long way to explaining these paradoxes.  In short, we may be applying the wrong inflation rate to metrics of wage growth of various income groups in assessing their well-being (not to mention the usual failing of missing individual migration between income groups).

The NY Times reports, via Hit and Run, that judicial review of Gitmo detainees, which the Administration has steadfastly resisted, may be quite justified:

In the first case to review the government's secret
evidence for holding a detainee at Guantánamo Bay, Cuba, a federal
appeals court found that accusations against a Muslim from western
China held for more than six years were based on bare and unverifiable
claims. The unclassified parts of the decision were released on Monday.

With some derision for the Bush administration's arguments, a
three-judge panel said the government contended that its accusations
against the detainee should be accepted as true because they had been
repeated in at least three secret documents.

The court compared
that to the absurd declaration of a character in the Lewis Carroll poem
"The Hunting of the Snark": "I have said it thrice: What I tell you
three times is true."

"This comes perilously close to suggesting
that whatever the government says must be treated as true," said the
panel of the Court of Appeals for the District of Columbia Circuit.

The
unanimous panel overturned as invalid a Pentagon determination that the
detainee, Huzaifa Parhat, a member of the ethnic Uighur Muslim minority
in western China, was properly held as an enemy combatant.

The panel included one of the court's most conservative members, the chief judge, David B. Sentelle....

Pentagon officials have claimed that the Uighurs at Guantánamo were
"affiliated" with a Uighur resistance group, the East Turkestan Islamic
Movement, and that it, in turn, was "associated" with Al Qaeda and the Taliban.

Next up, the detainee whose mother's gynecologist's dog's veterinarian's great uncle once was friends with a Muslim guy.

The Administration now complains that there is nowhere that this man can be sent back to, and somehow this is supposed to validate his detainment?  He wouldn't have had to be sent back anywhere if he hadn't been snatched up in the first place.  I am willing to believe that this guy may be a bad buy, but we let lots of people we are pretty sure are bad guys walk the street, because for good and valid reasons we rank false detainment of the innocent as a greater harm than non-detainment of the guilty.  Anyone seen OJ lately?

A number of readers have written me, the gist of the emails being "you have written that X or Y is NOT causing higher oil prices -- what do you think IS causing high oil prices?"  Well, OK, I will take my shot at answering that question.  Note that I have a pretty good understanding of economics but I am not a trained economist, so what follows relates to hard-core economics in the same way pseudo-code relates to C++.

My first thought, even before getting into oil, is that commodity prices can be volatile and go through boom-bust periods.  Here, for example, is a price chart of London copper since 1998:

While oil prices have gone up by a factor of about four since 1998, copper has gone up by a factor of about 15!  But the media seldom writes about it, because while individual consumers are affected by copper prices, they don't buy the commodity directly, and don't have stores on every street corner with the prices posted on the street.

For a number of years, it is my sense that oil demand has risen faster than supply capacity.  This demand has come from all over -- China gets a lot of the press, but even Europe has seen increases in gasoline use.  Throughout the world, we are on the cusp of something amazing happening - a billion or more people in Asia and South America are emerging from millennia of poverty.  This is good news, but wealthier people use more energy, and thus oil demand has increased.

On the supply side, my sense is that the market has handled demand growth up to a point because for years there was some excess capacity in the system.  The most visible is that OPEC often has been producing below their capacity, with Saudi Arabia as the historic swing producer.  But even in smaller fields in the US, there are always day to day decisions that can affect production and capacity on a micro scale.

One thing that needs to be understood - for any individual field, it is not always accurate to talk about its capacity or even its "reserves" as some fixed number.  How much oil that can be pumped out on any given day, and how much total oil can be pumped out over time, depend a LOT on prices.  For example, well production falls over time as conditions down in the bottom of the hole deteriorate  (think of it like a dredged river getting silted up, though this is a simplification).  Wells need to be reworked over time, or their production will fall.  Just the decision on the timing of this rework can affect capacity in the short term.  Then, of course, there are numerous investments that can be made to extend the life of the field, from water flood to CO2 flood to other more exotic things.  So new capacity can be added in small increments in existing fields.  A great example is the area around Casper, Wyoming, where fields were practically all shut-in in the 1990's with $20 oil but now is booming again.

At some point, though, this capacity is soaked up.  It is at this point that prices can shoot up very rapidly, particularly in a commodity where both supply and demand are relatively inelastic in the short term.

Let's hypothesize that gas prices were to double this afternoon at 3:00PM from $4 to $8.  What happens in the near and long-term to supply and demand?

In the near term, say in a matter of days, little will change on the demand side.  Everyone who drove to work yesterday will probably drive today in the same car -- they have not had time to shop for a new car or investigate bus schedules.  Every merchandise shipper will still be trucking their product as before - after all, there are orders and commitments in place.  People will still be flying - after all, they don't care about fuel prices, they locked their ticket price in months ago. 

However, people who argue that oil and gas demand is inelastic in the medium to long term are just flat wrong.  Already, we are seeing substantial reductions in driving miles in this country due to gas price increases.  Demand for energy saving investments, from Prius's to solar panels, is way up as well, demonstrating that prices are now high enough to drive not only changed behaviors but new investments in energy efficiency.  And while I don't have the data, I am positive that manufacturers around the world have energy efficiency investments prioritized much higher today in their capital budgets.

There are some things that slow this demand response.  Certain investments can just take a long time to play out.  For example, if one were to decide to move closer to work to cut down on driving miles, the process of selling a house and buying a new one is lengthy, and is complicated by softness in the housing markets.  There are also second tier capacity issues that come into play.  Suddenly, for example, lots more people want to buy a Prius, but Toyota only has so much Prius manufacturing capacity.  It will take time for this capacity to increase.  In the mean time, sales growth for these cars may be slower and prices may be higher.  Ditto solar panels. 

Also, there is an interesting issue that many consumers are not yet seeing the full price effects of higher oil and gas prices,and so do not yet have the price incentive to switch behavior.  One example is in air travel.  Airlines are hedged, at least this year, against much of the fuel price increase they have seen.  They are desperately trying not to drive people out of air travel (though DHS is doing its best) and so air fares have not fully reflected fuel price increases.  And since many people buy their tickets in advance, even a fare increase today would not affect flying volumes for a little while.

Another such example that is probably even more important are countries where consumers do not pay world market prices for gas and oil, with prices subsidized by the government (this is mostly true in oil producing countries, where the subsidy is not a cash subsidy but an opportunity cost in terms of lost revenue potential).  China is perhaps the most important example.  As we mentioned earlier, Chinese demand increases have been a large impact on world demand, as illustrated below:

All of these new consumers, though, are not paying the world market price for gasoline:

While consumers in much of the world have been reeling from spiraling
fuel costs, the Chinese government has kept the retail price of
gasoline at about $2.60 a gallon, up just 9% from January 2007.

During that same period, average gas prices in the U.S. have surged
nearly 80%, to about $4 a gallon. China's price control is great for
people like Tang, who drives long distances in his gas-guzzling Great
Wall sports utility vehicle.

But
Tang and millions of other Chinese are bracing for a big jump in pump
prices. The day of reckoning? Everybody believes it's coming right
after the Summer Olympics in Beijing conclude in late August.

Demand, of course, is going to appear inelastic to price increases if a large number of consumers are not having to pay the price increases.

Similarly, there are factors on the supply side that make response to large price increases relatively slow.  We've already discussed that there are numerous relatively quick investments that can be made to increase oil production from a field, but my sense is that most of these easy things have been done.  Further increases require development of whole new fields or major tertiary recovery investments in existing fields that take time.  Further, we run up against second order capacity issues much like we discussed above with the Prius's.  Currently, just about every offshore rig that could be used for development and exploration is being used, with a backlog of demand.  To some extent, the exploration and development business has to wait for the rig manufacturing business to catch up and increase the total rig capacity.

There are also, of course, structural issues limiting increases in oil supply.  In the west, increases in oil supply are at the mercy of governments that are schizophrenic.  They know their constituents are screaming about high oil prices, but they have committed themselves to CO2 reductions.  They know that their CO2 plans actually require higher, not lower, gas prices, but they don't want the public to understand that.  So they demagogue oil companies for high gas prices, while at the same time restricting increases in oil supply.  As a result, huge oil reserves in the US are off-limits to development, and both the US and Canada are putting up roadblocks to the development of our vast reserves of shale oil.

Outside of the west, most of the oil is controlled by government oil companies that are dominated by incompetence and corruption.  For years, companies like Pemex have been under-investing in their reserves, diverting cash out of the oil fields into social programs to prop up their governments.  The result is capacity that has not been well-developed and institutions that have only limited capability to ramp up the development of their reserves.

One of the questions I get asked a lot is, "Isn't there a good reason for suppliers to hold oil off the market to sustain higher prices?"  Well, let's think about that.

Let's begin with an analogy.  Why wouldn't Wal-mart start to hold certain items off the market to get higher prices?  Because they would be slaughtered, of course.  Many others would step in and fill the void, happy to sell folks whatever they need and taking market share from Wal-mart in the process.  I think we understand this better because we know the players and their motivations better in retail than we do in oil.  But the fact is that Wal-mart arguably has more market power, and in the US, more market share than any individual oil producer has worldwide.  Oil producers have seen boom and bust cycles in oil prices for over a hundred years.  They know from experience that $130 oil today may be $60 oil a year from now.  And thus holding one's oil off the market to try to sustain prices only serves to miss the opportunity to get $130 for one's oil for a while.  People tend to assume that the selfish play is to hold oil off the market to increase prices, but in fact it is just the opposite.  The player who takes this strategy reduces his/her own profit in order to help everyone else. 

This is a classic prisoner's dilemma game.  Let's consider for a moment that we are a large producer with some ability to move prices with our actions but still a minority of the market.  Consider a game with two players, us and everyone else.  Each player can produce 80% of their capacity or 100%.  A grid showing reasonable oil price outcomes from these strategies is shown below:

Reductions in our production from 100% to80% of capacity increases market prices, but not by as much as would reductions in production by other producers, who in total have more capacity than we.  Based on these prices, and assuming we have a million barrels a day of production capacity, the total revenue outcomes for us of these four combinations are shown below, in millions of dollars (in each case multiplying the price times 1 million barrels times the percent production of capacity, either 80 or 100%):

We don't know how other producers will behave, but we do know that whatever strategy they take, it is better for us to produce at 100%.  If we really could believe that everyone else will toe the line, then everyone at 80% is better for us than everyone at 100% -- but players do not toe the line, because their individual incentive is always to go to 100% production.  For smaller players who do not have enough volume to move the market individually (but who make up, in total, a lot of the total production) the incentive is even more dramatically skewed to producing the maximum amount.

The net result of all this is that forces are at work to bring down demand and bring supply up, they just take time.  I do think that at some point oil prices will fall back out of the hundreds.  Might this reckoning be pushed backwards a bit by bubble-type speculation?  Sure.  People have an incredible ability to assume that current conditions will last forever.  When oil prices were at $20 for a decade or so, people began acting like they would stay low forever.  With prices rising rapidly, people begin acting like they will continue rising forever.  Its an odd human trait, but a potentially lucrative one for contrarians who have the resources and cojones to bet against the masses and stick with their bet despite the fact that bubbles sometimes keep going up before they come back down.   

I don't have the economic tools to say if such bubble speculation is going on, or what a clearing price for oil might be once demand and supply adjustments really kick in.  I do have history as an imperfect guide.  In 1972 and later in 1978 we had some serious price shocks in oil:

Depending on if you date the last run-up in prices from '72 or '78, it took 5-10 years for supply and demand to sort themselves out (including the change in some structural factors, like US pricing regulations) before prices started falling.  We are currently about 6 years into the current oil price run-up, so I think it is reasonable to expect a correction in the next 2-3 years of fairly substantial magnitude. 

Postscript:  I have left out any discussion of the dollar, which has to play into this strongly, because what I understand about monetary policy and currencies wouldn't fill a thimble.  Suffice it to say that a fall in value of the dollar will certainly raise the price, to the US, of oil, but at the same time rising prices of imported oil tends to make the dollar weaker.  I don't know enough to sort out the chicken from the egg here,

Frequent readers will know that I have little love for our self-aggrandizing, civil rights violating Sheriff Joe Arpaio.  A recent Arizona Republic article wrote:

A veteran Republican lawmaker wants to know why a high-level chief for
the Maricopa County Sheriff has made recent trips to China.

Because China is Sheriff Joe's role model!  It's telling that our sheriff sends his deputies on fact-finding missions to Latin American countries and China to learn new policing techniques.  Also, the article gets into some of the increasingly weird dealings in the Sheriff Joe's infatuation with facial recognition software.

Several companies have been discovered to have benefited from what is in effect slave labor in certain countries.  I have never had a problem with folks in poor countries freely opting to take jobs at factories for less money than our privileged middle class attitudes think to be "fair."  But there have been examples of governments using their coercive power in a cozy relationship with certain companies, forcing people to provide their labor to companies for wages below what they would freely accept.   It is an obscene form of modern slavery.

Today's example, though, does not come from Myanmar or China, but from San Francisco, California, USA, where the government is forcing its citizens to work for free to benefit itself and a few favored corporations to produce products for export.

The resale of recycled materials is apparently big business for a few government contractors:

"When we look at garbage, we don't see garbage, O.K.?" said Robert
Reed, a spokesman for Norcal Waste Systems, the parent company of
Sunset Scavenger and Golden Gate Disposal and Recycling Company, the
main garbage collectors in the city. "We see food, we see paper, we see
metal, we see glass."...

Jared Blumenfeld, the director of the city's environmental programs,
addressed one of the main reasons the city keeps up the pressure to
recycle. "The No. 1 export for the West Coast of the United States is
scrap paper," Mr. Blumenfeld said, explaining that the paper is sent to
China and returns as packaging that holds the sneakers, electronics and
toys sold in big-box stores.

This "No. 1 export product" is wholly a product of major government subsidies.  Reading the article, you get a sense for the enormous amount of extra capital and operating expenses the city pours into the recycling program.  Here is just one example:

San Francisco can charge more for its scrap paper, he said, because of
its low levels of glass contamination. That is because about 15 percent
of the city's 1,200 garbage trucks have two compartments, one for
recyclables. That side has a compactor that can compress mixed loads of
paper, cans and bottles without breaking the bottles. (These specially
designed trucks, which run on biodiesel, cost about $300,000 apiece, at
least $25,000 more than a standard truck, said Benny Anselmo, who
manages the fleet for Norcal.)

Anyone really think they are making enough extra money on scrap paper to cover this (at least) $4.5 million incremental investment  ($25k x 15% x 1200)?   Suspiciously absent from the article is any mention of costs or budgets.  City recycling guys have given up trying to defend recycling on the basis of it being cheaper than just burying the material.  The city is subsidizing this material a lot.

But it's not enough.  Even with these enormous subsidies, the city is not producing as much recycled materials to meet its goals.  So it is going to make its citizenry provide it more labor.  For free.

...the city wants more.

So Mr. Newsom will soon be sending the
city's Board of Supervisors a proposal that would make the recycling of
cans, bottles, paper, yard waste and food scraps mandatory instead of
voluntary, on the pain of having garbage pickups suspended.

The city is going to coerce every single resident to labor for them each week, just so San Francisco and Norcal Waste Systems can have more scrap paper for export.  This is a labor tax of immense proportions.  I know, whenever I make this point about recycling, everyone wants to poo-poo it.  "Oh, its not much time, really."  Really?  Lets use the following numbers:  Five minutes per day of labor.  One million residents.  $20 per hour labor value (low in San Francisco).  That is $608 million if forced labor.  I'm not sure even Nike has been accused of using this much forced labor.

Anticipated Rejoinder: Yeah, I know, the response will be "It's not for the exports, it's to save the environment."  OK, here is my counter:

1. Nowhere in the article does it really say how this program, or going from 70 to 75% recycling, is specifically going to help the environment.  I took the article at its face value, where it justifies the program on the basis of exports and hitting an arbitrary numerical target and beating out San Jose.  I am tired of unthinking acceptance of recycling as a net benefit.  Every study has shown that aluminum recycling creates a net energy benefit, but every other material represents a net loss.  It makes us feel good, though, I guess.
2. Should proponents support the direct subsidy by government and the labor tax, there is still some burden to show that this is the best possible environmental use of 30 million San Francisco man-hours of coerced labor in the course of a year.
3. For those really worked up about CO2, explain to me why we shouldn't bury every scrap of waste paper as a carbon sink.
4. The last time I visited, San Francisco was one of the grubbier US cities I have seen of late, with trash everywhere on the streets and sidewalks.  It may just have been a bad data point, but are residents really happy the city trash department focusing on scrap paper pricing yield rather than picking up the trash?
5. I class battery and motor oil recycling programs differently.  These substances have unique disposal needs and high costs of incorrect disposal.

Of late, I have been getting the strongest sense that the global warming hysteria is sucking all the oxygen out of the rest of the environmental movement.  Quick, what is the last environment-related article you read that didn't mention global warming?

Here is an example:  I give a lot of my charity money to groups like The Nature Conservancy, because I personally value preservation of unique areas and habitats and I don't sit around waiting for the government to do it for me.  But it has become almost impossible of late to drum up enthusiasm from contributors for such causes, unless the land can be labeled a carbon-sink or something.  In fact, the global warming hysteria has really been a disaster for private land conservation because it has caused politicians to subsidize ethanol.  This subsidy is bringing much more wild land into cultivation in this country and has been the single biggest driver for deforestation in the Amazon over the last decade. 

Or take China.  China's cities are an unhealthy mess.  But focus on global warming has led environmentalists to take the position with China they have to stop coal combustion and growth in auto-miles entirely.  This is a non-starter.  There is no WAY they are going to do this.  But it is much more achievable to start getting China focused on a Clean-Air-Act type of attack on vehicle and coal plant emissions of real pollutants like SO2.   China could be made much more healthy, as the US has done over the last 30-60 years, but instead of working with China to get healthier, the focus is on getting them to shut down their growth altogether.

The UPI published a survey of people's environmental priorities:

1. drinking water
2. pollution of rivers, lakes, and ecosystems
3. smog
4. forest preservation
5. acid rain
6. tropical rain forests
7. national parks
8. greenhouse emissions
9. ozone layer
10. nature around "my" home
11. urban sprawl
12. extinction.

I feel like #1 is overblown based on a lot of media scare stories, but most of the top 6 or 7 would all be things I would rank well above global warming fears as well.  There are still real issues to be dealt with in these areas which can have far more of a positive impact on health and quality of living than CO2 abatement, but they are being suffocated by global warming hype.

I am on the road this week, and still do not have time to write the post I want to write about Obama demagoguing against oil companies.  Fortunately, I do not have to, because Q&O has this post.

Here is the short answer:  companies like ExxonMobil, even in the best of times (or most rapacious, as your perspective might be), makes 9-10% pre-tax profit on sales.  They make something like 5-6% when things are not so good.  This means that if gas prices are $3, when you take out the 45 cents or so of tax, Exxon is making between 13 and 25 cents a gallon profit.  Call it 20 cents on average.  So, wiping out profits completely with various ill-advised taxes or regulations would achieve the substantial goal of ... cutting about twenty cents off the price of gas, or about $2.50 off the price of a fill-up.  Of course, that is at the cost of eliminating all investment incentives in the world's most capital intensive resource extraction business.  Which in turn will mean that that price cut will last for about 2 years, and then be swamped by price increases from disappearing gas supplies  (exactly what happened in the late 1970s). 

Part of the problem is that most people do not understand the supply chain in crude oil.  It would seem logical that if the price of oil rises form $30 to $100, then all that $70 price increase is pure profit to Exxon.  That would have been true in 1905, but is not true today.  Exxon, even when it does the exploration and drilling, gets its oil via complicated agreements with state-owned corporations which in the main are structured so that the country in question, and not Exxon, gets windfall.  This means that if Obama wants to tax windfall profits, he needs to seek out Venezuela and China and Saudi Arabia.

The article covers all this and more.

Cuba, Castro, Che Guevara, etc all suck.  It is ridiculous to even have to keep making this point against folks who are trying to sanctify them.

That being said, it is way past time to open up Cuba to US trade.  When will we learn that we are doing the Castros work for them?

• If the US did not go out of its way to limit contact with Cuba, the Castros would have to try to do it.  We are just playing into their hands.  Totalitarian governments have a very dicey time in this era of free communications.  China interacts with the west, and is improving.  North Korea blocks all contact and is not.
• The economic boycott gives the Castros a fig leaf to hide behind as their entire population wallows in poverty.  Yes, they are poor, and they are poor because of communism, but the Castros are able to blame the failure of their country on the US embargo.

But they have free health care!  They get all the leeches they want.

Our (mostly free) society has survived many challenges.  But will it be able to withstand gentlemen like this waving around immensely flawed climate science:

Liberal democracy is sweet and addictive and indeed in the most
extreme case, the USA, unbridled individual liberty overwhelms many of
the collective needs of the citizens. The subject is almost sacrosanct
and those who indulge in criticism are labeled as Marxists, socialists,
fundamentalists and worse. These labels are used because alternatives
to democracy cannot be perceived! Support for Western democracy is
messianic as proselytised by a President leading a flawed democracy

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. ...

We are going to have to look how authoritarian decisions
based on consensus science can be implemented to contain greenhouse
emissions. It is not that we do not tolerate such decisions in the very
heart of our society, in wide range of enterprises from corporate
empires to emergency and intensive care units. If we do not act
urgently we may find we have chosen total liberty rather than life.

He has great admiration for how China does things

The [plastic shopping bag] ban in China will save importation and use of five million tons of
oil used in plastic bag manufacture, only a drop in the ocean of the
world oil well. But the importance in the decision lies in the fact
that China can do it by edict and close the factories. They don't have
to worry about loss of political donations or temporarily unemployed
workers. They have made a judgment that their action favours the needs
of Chinese society as a whole.

Don't say I didn't warn you.

By the way, here is a little "tip."  The author says this:

Unfortunately it seems increasingly likely that the IPCC underestimated
the speed of climate change and failed to recognise the likely effect
of a range of tipping points which may now be acting in concert.

I believe that man is having a warming effect on the earth, but that effect is small and non-catastrophic.  There are reasons I may be wrong.  BUT, you should immediately laugh out of the room anyone who talk about "a range of tipping points" in a system like the earth's climate that has been reasonably stable for tens of millions of years.  When used by climate catastrophists, the word "tipping point" means:  Yeah, we are kind of upset the world is not warming nearly as fast as our computer models say it should, so we will build an inflection point about 10 years out into the forecast where the slope of change really ramps up and we will call it a "tipping point" because, um, that is kindof a cool hip phrase right now and make us sound sophisticated and stuff.

Postscript:  Anyone who makes this statement is WELL grounded in reality:

All this suggests that the savvy Chinese rulers may be first out of the blocks to assuage greenhouse emissions

LOLOLOL.  They are building a new coal plant, what, every three days or so in China?

Postscript #2: Quiz for older folks out there:  How long ago was it that environmentalists were encouraging us to use plastic bags over paper because it saved a tree?

HT:  Tom Nelson

Via the New York Times:

Prime Minister Wen Jiabao
responded Wednesday to growing public anxiety about inflation by
announcing that China would freeze energy prices in the near term, even
as international crude oil futures have continued to surge....

Last November, China raised gasoline and diesel prices by almost 10
percent, partly to appease officials at state-owned refineries.
Refiners had complained that price controls were forcing them to
swallow the difference between higher prices for crude oil on the world
market and regulated consumer prices at home for refined products. So
refineries cut back production of gasoline and particularly diesel,
causing long lines at fuel stations around the country.

More on past Chinese problems from gas price caps.  Here is a picture of one such past gas line in China. 

    I got my driver's license in 1978, just in time to spend the first few months of my driving life sitting in gas lines with the family car, a result of a series of market distorting actions by the US government.

Meanwhile, I presume the French and Germans will see no problem with this approach:

The Economist says,
of the state of economics education in France and Germany, "I
desperately hope it's not really this bad." Unfortunately, I think it's
really that bad. When the 35 hour work week was proposed, I was talking
to someone in the French consulate who did economics and trade. "Aren't
you worried that this will raise employer's costs and lead to business
failures or higher unemployment?" I asked.

"That's just Anglo-saxon economics" was his rather stunning reply.  Apparently, in France, demand curves do not slope downwards.

This is a story that most people who care for humanity would consider good news:

After years of secret preparation, the world's cheapest car will be unveiled in Delhi this week...At 100,000 rupees (£1,290), the People's Car, designed and
manufactured by Tata, is being marketed as a safer way of travelling
for those who until now have had to transport their families balanced
on the back of their motorbikes.

Ratan Tata, 70, chairman of the
family-run business, who has spearheaded the race for a cut-price car,
wrote on the company website: 'That's what drove me - a man on a
two-wheeler with a child standing in front, his wife sitting behind,
add to that the wet roads - a family in potential danger.'

But Tata hopes also to create a 'new market for cars which does not
exist', making them accessible to India's booming middle classes made
recently rich by an economy growing at around 9 per cent a year. ...

Last
year just over one million cars and seven million motorbikes were sold
in India. Tata wants to transform some of those motorbike buyers into
car owners and believes that the company can eventually sell up to a
million People's Cars a year. Analysts say the project could
revolutionise car prices, not just in India, but globally. Several
other manufacturers have similar products in the pipeline.

Awesome.  This is a story about three quarters of a billion people who have lived in poverty, well, forever, starting to join the middle class.

But many environmentalists, about 100% of whom I would venture to say own a car themselves, oppose this transition to prosperity:

'There is this mad rush towards lowering the prices to achieve mass
affordability,' said Anumita Roychoudhury, of the Centre for Science
and Environment in Delhi. 'If vehicle ownership increases very rapidly,
we'll have a time bomb ticking away. When you lower the price that
drastically, how will you be able to meet the safety and emissions
standards? There are no clear answers yet.'

I would challenge this person to design a car that doesn't crash test better than a motorbike.  This is just incredible arrogance, attempting to deny millions of people the prosperity which western environmentalists already share.  (via Maggies Farm)

Postscript: The fact is that environmental quality in every developing nation tends to follow a J-curve.  Early stage development tends to muck things up a bit (think air quality in 1018th century Pittsburg or in China today) but things improve as people get wealthier.  Places like China and India are in some of the lowest reaches of that J-curve.  Attempting to freeze their development in place not only arrogantly denies these folks prosperity, but also cuts off future environmental gains that come with wealth.

From the NY Times:

Bowing to American pressure on the eve of high-level talks to reduce
economic tensions, China agreed Thursday to terminate a dozen different
subsidies and tax rebates that promote its own exports and discourage
imports of steel, wood products, information technology and other goods.

Thanks a lot.  The Bush Administration crows that:

This outcome represents a victory for U.S. manufacturers and their workers

Um, not if they are consumers too, as they all are.  And not if their company buys any inputs from Chinese manufacturers.

Napoleon said to never interrupt an enemy when he was making a mistake.   I don't consider China an enemy, but it just flabbergasts me that the Chinese taxpayers and consumers see fit to subsidize lower prices for our consumers, and we feel the need to stop them.   More here and here.

Via Tyler Cowen:

The Asian
Development Bank presented official survey results indicating China's
economy is smaller and poorer than established estimates say. The
announcement cited the first authoritative measure of China's size
using purchasing power parity methods. The results tell us that when
the World Bank announces its expected PPP data revisions later this
year, China's economy will turn out to be 40 per cent smaller than
previously stated......The number of people in China living below the
World Bank's dollar-a-day poverty line is 300m - three times larger
than currently estimated.

Well, this is a bit sad, as I would hope everyone likes seeing people emerge from poverty**.  But it is really not surprising.  Strongly state-run economies are notoriously hard to measure from the outside, and westerners systematically overestimated the size of the economy of the old Soviet Union.

**  I make this statement because I am an optimistic guy full of confidence in the generally good intentions of mankind.  Because if I were not such a person, and actually judged people by their actions, I would come to the conclusion that a lot of people DO NOT want people in countries like China to emerge form poverty.  Trade protectionism, apologias for looting dictators like Castro or Chavez, anti-globalization riots, anti-growth initiatives, and calls for rollbacks in fossil fuel consumption all share in common a shocking disregard for people trying to emerge from poverty -- often from folks on the left who purport to be the great defenders of the poor.  I tried to explain the phenomenon before, at least among self-styled "progressives':

Progressives do not like American factories appearing in third world
countries, paying locals wages progressives feel are too low, and
disrupting agrarian economies with which progressives were more
comfortable.  But these changes are all the sum of actions by
individuals, so it is illustrative to think about what is going on in
these countries at the individual level. 

One morning, a rice farmer in southeast Asia might faces a choice.
He can continue a life of brutal, back-breaking labor from dawn to dusk
for what is essentially subsistence earnings.  He can continue to see a
large number of his children die young from malnutrition and disease.
He can continue a lifestyle so static, so devoid of opportunity for
advancement, that it is nearly identical to the life led by his
ancestors in the same spot a thousand years ago.

Or, he can go to the local Nike factory, work long hours (but
certainly no longer than he worked in the field) for low pay (but
certainly more than he was making subsistence farming) and take a shot
at changing his life.  And you know what, many men (and women) in his
position choose the Nike factory.  And progressives hate this.  They
distrust this choice.  They distrust the change.  And, at its heart,
that is what the opposition to globalization is all about - a deep
seated conservatism that distrusts the decision-making of individuals
and fears change, change that ironically might finally pull people out
of untold generations of utter poverty.

Several readers have asked for my comment.  This is what I posted over at Climate Skeptic:

This
morning I was all fired up to write something petty, like "Al Gore now
has made the same contributions to peace as have previous winners
Yassir Arafat and Henry Kissinger."  Later, I considered a long and
drawn out post on the inaccuracies of "An Inconvinient Truth", but I
really have already done that in long form here and in short form here.
In truth, the Peace prize process has for years been about a group of
leftish statists making a statement, and often it has been about
tweaking the US, rather than a dispassionate analysis of true
contributions to peace made with the benefit of some historic distance
(as is done with the scientific prizes).  Further, most folks I argue
with don't really care about the specific inacuracies in Gore's movie,
their response typically being something in the "fake but accurate"
line of reasoning.

So instead I will say what I told a reader by email a few hours
ago.  I tend to be optimistic about the world, and believe that we are
approaching a high water mark (so to speak) for the climate
catastrophists, where we will look back and see their influence peak
and start unwinding under the presure of science and the reality of the
enormous cost to abate CO2.  Gore's Peace prize, in the same year as
his Oscar and that global warming music festival no one can even
remember the name of 3 months later, feels to me like it may be that
high water mark.   The Peace Prize certainly was the high water mark
for Jimmy Carter's credibility, not to mention that of Henry Kissinger
and a myriad of others.  Think of it this way -- if the guys who made
the peace prize decisions were investors, and you knew what they were
investing in, you would sell short.  Seriously, just look at the
group.  Well, they just invested in Al Gore.

Update:  One thing many commenters have not pointed
out is that Al Gore is really manuevering the US and China and India
(and the rest of the developping world) into a position that, if he has
his way, conflict is going to occur over who gets to grow and develop,
and who does not.  CO2 catastrophism has the ablility to be the single
most destabalizing issue of the 21st century. This is peace?

I haven't really blogged about the Chinese toy recalls, not knowing much about them.  However, my first thought on hearing the problems described was, "aren't those design defects, not manufacturing issues?"  I had a strong sense that populist distrust of trade with China was being used as a fig leaf to cover Mattel's screw-ups.  Several of the recalls were for parts such as magnets that were small and could be swallowed.  There was no implication that the magnets fell off because they were attached or manufactured poorly, they were just a bad design.

I have worked in a number of large manufacturing companies that have plants and suppliers in China.  It was out responsibility to make sure the product that got to the customer was correct.  There is no way we would source a product from an independent foreign company, and have the product delivered straight to stores without inspection, unless we were absolutely damn certain about the company's processes, up to and including having full-time manufacturing people at their plant.

Well, I might have been on to something (WSJ$)

Toymaker Mattel
issued an extraordinary apology to China on Friday over the recall of
Chinese-made toys, saying most of the items were defective because of
Mattel's design flaws rather than faulty manufacturing. The company
added that it had recalled more lead-tainted Chinese toys than was
justified....

Mattel ordered three high-profile recalls this summer
of millions of Chinese-made toys, including Barbie doll accessories and
toy cars, because of concerns about lead paint and tiny magnets that
could be swallowed. The "vast majority of those products that were
recalled were the result of a design flaw in Mattel's design, not
through a manufacturing flaw in China's manufacturers," Mr. Debrowski
said. Lead-tainted toys accounted for only a small percentage of all
toys recalled, he said. "We understand and appreciate deeply the issues
that this has caused for the reputation of Chinese manufacturers," he
said.

Mattel said in a statement its lead-related recalls
were "overly inclusive, including toys that may not have had lead in
paint in excess of the U.S. standards. The follow-up inspections also
confirmed that part of the recalled toys complied with the U.S.
standards."

The other interesting thing here is just how important Mattel's relationship with China is, to have even issued this apology at all.  For such a massive and high-profile recall, Mattel came off very well through the succesful strategy of blaming China.  I know that parents I have heard talk about the recall blame China and have increased fear of Chinese products.  So it is interesting to see that Mattel feels the need to abandon this so far winning PR strategy.

Apparently leading technocrat and Mussolini-style-economic-dictator Robert Reich is at it again, arguing the path to freedom requires more government coercion.  Ronald Bailey reminds us that Reich was the one who advocated the US adopt Japanese MITI-style economic management, just before the American economy took off for 25 years and Japan's spiraled into stagnation.  Now, he is arguing that capitalism is the enemy of democracy:

As Freedom House points out the number of countries that qualify as free rose from just 44 in 1972 to 89 in 2005,
even as capitalism expanded around the globe. It has been hypothesized
that as incomes increase in a country (rise of a middle class), the
demand for democratic governance becomes irresistible. This seems to
have been the pattern in South Korea, Chile, and Taiwan. Will the same
thing happen in China? As a negative leading indicator---whatever Reich
predicts, the opposite occurs-don't be surprised if China becomes a
democracy in the next decade.

I heard Obama get asked a question at the AFL-CIO yesterday whether he thought China was a competitor or an enemy.  I am not very good at parsing politician-speak, but he seemed to answer "both." 

How about neither?  Let's try "partner in the worldwide division of labor" or maybe "home of a billion people who would like to trade with us 300 million individuals to our mutual self interest."   Or maybe "One reason we have full employment AND low prices."

Our trade with Canada is 60% higher than with China.  Does that make them an enemy?  Yes, for some of the Democratic candidates.

It is always dangerous to argue with the insane, but I am actually willing to answer Lou Dobbs question:

And what I can't quite figure out amongst these geniuses who are
so-called free traders is, why do they think that about a 35 percent to
40 percent undervaluation of the Chinese yuan to the dollar is free
trade? Why do they think 25 percent duties in tariffs on American
products entering China is free trade?

I will leave aside the question of how he or anybody else knows the yuan is undervalued by this much.  I will accept his premise on the basis that we know the Chinese government spends money to keep the yuan lower than it might be otherwise.  Here is my answer:

Yes, it is not perfectly free trade.  But we let it continue because the freaking Chinese government, its consumers, and its taxpayers are subsidizing Americans.  The Chinese government is making all of its consumers pay higher prices and higher taxes just so American consumers can have lower prices.  Napoleon advised that one never should interrupt an enemy when he is making a mistake -- after all, this same strategy managed to earn Japan a decade and a half long recession.  Our correct response is not tariffs, it is to say, "gee, thanks."  This is for the Chinese people to stop, not our government. 

Why is China doing this?  Because it government is using monetary policy to help out a few favored exporters who have political influence at the expense of all of their consumers and exporters.  And Lou Dobbs wants the US to respond exactly the same way, to punish our consumers to favor some of our favored politically-connected exporters so the Chinese consumers can have lower prices.  Great plan.  Is Lou Dobbs an Chinese agent?

Via the Washington Post:

It has become a Capitol Hill ritual: A few senators, always including the New York Democrat Charles E. Schumer, introduce a bill to punish China
if its leaders do not raise the value of the nation's currency. Photos
are taken, news releases are issued, but nothing really happens.

This
year, the atmosphere on the Hill is markedly different. Powerful
senators from both sides of the aisle, Schumer among them, are pushing
two bills that threaten retaliatory action if China does not budge. For
the first time, the idea is gaining broad support. The bills are moving
swiftly through the Senate, and many analysts expect one will pass.

If the bill's authors are successful, the effect at a minimum will be to raise consumer prices in the United States and lower them for Chinese citizens.  So we are going to "punish" China by making our own citizens pay higher prices.  How does this make any sense?  Also, in the process, let's make sure we reduce the capacity of China to buy US government debt, which to this point has been reducing the cost of the Federal budget deficit.

Tyler Cowen argues this is the best we can expect -- the worst is a substantial debalization in the Chinese economy... and ours.  I wrote much more on continuing to allow the Chinese government to subsidize American consumers here.

The table of contents for the rest of this paper, . 4A Layman's Guide to Anthropogenic Global Warming (AGW) is here.  Free pdf of this Climate Skepticism paper is here and print version is sold at cost here

Kyoto Treaty

In the mid-1990's, a number of western nations crafted a CO2-reduction
treated named Kyoto for the city in which the key conference was held.
The treaty called for signatory nations to roll back their CO2 emissions to
below 1990 levels by a target date of 2012.  Japan, Russia, and many
European nations signed the treaty; the United States did not.  In fact,
the pact was ratified by 141 nations, but only calls for CO2 limits in 35 of
these (so the other 106 were really going out on a limb signing it).
China, India, Brazil and most of the third world are exempt from its limits.

We will discuss the costs and benefits of CO2 reduction a bit later.
However, it is instructive to look at why Kyoto was crafted the way it was, and
why the United States refused to sign, even when Al Gore was vice-president.

The most obvious flaw is that the entire developing world, including China,
SE Asia, and India, are exempt. These countries account for 80% of the world's
population and the great majority of growth in CO2 emissions over the next few
decades, and they are not even included. If you doubt this at all, just look at
what the economic recovery in China over the past months has done to oil
prices. China's growth in
hydrocarbon consumption will skyrocket over the coming years, and China is
predicted to have higher CO2 production than the United States by 2009.

The second major flaw with the treaty is that European nations cleverly
crafted the treaty so that the targets were relatively easy for them to make,
and very difficult for the United States to meet.  Rather than freezing
emissions at current levels at the time of the treaty, or limiting carbon
emission growth rates, the treaty called for emissions to be rolled back to
below 1990 levels. Why 1990? Well, a couple of important things have happened
since 1990, including:

a. European (and Japanese) economic growth has stagnated since 1990, while
the US economy has grown like crazy. By setting the target date back to 1990,
rather than just starting from day the treaty was signed, the treaty
effectively called for a roll-back of economic growth in the US that other
major world economies did not enjoy.

b. In 1990, Germany was reunified, and Germany inherited a whole country
full of polluting inefficient factories from the old Soviet days. Most of the
dirty and inefficient Soviet-era factories have been closed since 1990, giving
Germany an instant one-time leg up in meeting the treaty targets, but only if
the date was set back to 1990, rather than starting at the time of treaty
signing.

c. Since 1990, the British have had a similar effect from the closing of a
number of old dirty Midlands coal mines and switching fuels from very dirty
coal burned inefficiently to more modern gas and oil furnaces and nuclear
power.

d. Since 1990, the Russians have an even greater such effect, given low
economic growth and the closure of thousands of atrociously inefficient
communist-era industries.

It is flabbergasting that US representatives could allow the US to get so
thoroughly out-manuevered in these negotiations. Does anyone in the US really
want to roll back the economic gains of the nineties, while giving the rest of
the world a free pass? Anyway, as a result of these flaws, and again having
little to do with the global warming argument itself, the Senate
voted 95-0 in 1997 not to sign or ratify the treaty unless these flaws (which
still exist in the treaty) were fixed.  Then-Vice-President Al Gore
agreed that the treaty should not be signed without modifications, which were
never made and which Europeans were never going to make.

By the way, enough time has elapsed that we have data on the
progress of various countries in meeting these targets.  And if you leave
out various accounting games with offsets of dubious value, most all the
European nations, despite all the advantages described above, are still missing
their targets.  The political will simply does not exist to hamstring
their economies to the extent necessary to roll back CO2 growth.  Actual
growth rates for CO2 emissions have been (source UN):

You can see that the Europeans positioned themselves well in
the 1990's to make their targets.  Realize that as the treaty was negotiated,
they already had a good idea of these numbers for 1990-1995 and even a few
years beyond.  They knew that by selecting a 1990 baseline, they were
already on target to meet the goals and the US would be far behind.
Again, realize that the 1990-2000 EU performance on CO2 production had nothing
to do with post-Kyoto regulatory responses and everything to do with the
economic fundamentals we outlined above that would have existed with or without
the treaty.

Since 2000, however, it has been a different story.
European emissions have increased as their economies have recovered, at the
same time the US experienced a post-9/11 slowdown.

By the way, the US is generally the great Satan in AGW
circles because its per capita CO2 production is the highest in the
world.  But this is in part because our economic output per capita is
close to the highest in the world.  The US is about in
the middle of the pack in efficiency, though behind many European countries
which have much higher fuel taxes and heavier nuclear investments.

As an interesting side note, the US per capita CO2
emissions, as show below, have actually been flat to down since the early
1970's.  To the extent that Europe is doing better at CO2 reduction than
the US, it may actually be more of an artifact of their declining populations
vs. America's continued growth.

Finally, if you get really tired of the US-bashing, you can
take some comfort that though the US is the #1 per capita producer of CO2, of
which we are uncertain is even harmful, we have done a fabulous job reducing
many other pollutants we are much more certain are harmful.  For example,
the US has much lower SO2
production than most European nations and the
water quality is better.  One could argue that the US has spent its
abatement dollars on things that really matter.

Cost of the
Solutions vs. the Benefits:  Why Warmer but Richer may be Better than
Colder and Poorer

If you get beyond the hard core of near religious believers in the massive
warming scenarios, the average global warming supporter would answer this paper
by saying: "Yes there is a lot of uncertainty, but though the doomsday
warming scenarios via runaway positive feedback in the climate can't be proven,
they are so bad that we need to cut back on CO2 production just to be on the
safe side."

This would be a perfectly reasonable approach if cutting back on CO2
production was nearly cost-free.  But it is not.  The burning of
hydrocarbons that create CO2 is an entrenched part of our lives and our
economies. Forty years ago we might have had an easier time of it, as we were
on a path to dramatically cut back on CO2 production via what is still the only
viable technology to massively replace fossil fuel consumption -- nuclear
power.  Ironically, it was environmentalists that shut down this effort,
and power industries around the world replaced capacity that would have gone
nuclear mostly with coal, the worst fossil fuel in terms of CO2 production (per
BTU of power, Nuclear and hydrogen produce no CO2, natural gas produces some,
gasoline produces more, and coal produces the most).

Just halting CO2 production at current levels (not even rolling it back)
would knock several points off of world economic growth.  Every point of
economic growth you knock off guarantees you that you will get more poverty,
more disease, more early death.  If you could, politically, even make such
a freeze stick, you would lock China and India, nearly 2 billion people, into
continued poverty just when they were about to escape it.  You would in
the process make the world less secure, because growing wealth is always the
best way to maintain peace.  Right now, China can become wealthier from
peaceful internal growth than it can from trying to loot its neighbors.
But in a zero sum world created by a CO2 freeze, countries like China would
have much more incentive to create trouble outside its borders.  This
tradeoff is often referred to as a cooler but poorer world vs. a richer but
warmer world.  Its not at all clear which is better. 

What impact, warming?

We've already discussed just how much the popular media has overblown the
effect of warming.  Sea levels may rise, but only by 15 inches in one
hundred years, and even that based on arguably over-inflated IPCC models.
There is no evidence that weather patterns will be more severe, or that
diseases will spread, or that species will be threatened by warming.  And,
since most of the warming has been and will be concentrated in winter and
nights, we will see rising temperatures more in a narrowing of temperature
variability rather than a drastic increase in summer high temperatures.
Growing seasons, in turn, will be longer and deaths from cold, which tend to
outnumber heat-related deaths, will decline. 

What impact, Intervention?

While the Kyoto treaty was a massively-flawed document, with current
technologies a Kyoto type cap and trade approach is about the only way we have
available to slow or halt CO2 emissions.  And, unlike the impact of
warming on the world, the impact of such a intervention is very well understood
by the world's economists and seldom in fact disputed by global warming
advocates.  Capping world CO2 production would by definition cap world
economic growth at the rate of energy efficiency growth, a number at least two
points below projected real economic growth.  In addition, investment
would shift from microprocessors and consumer products and new drug research
and even other types of pollution control to energy. The effects of two points
or more lower economic growth over 50-100 years can be devastating:

• Remember the power of compounded growth rates we discussed earlier.  A world real economic growth rate of 4% yields income fifty times higher in a hundred years.  A world real economic growth rate two points lower yields income only 7 times higher in 100 years.  So a two point reduction in growth rates reduces incomes in 100 years by a factor of seven!  This is enormous.  It means, literally, that on average everyone in a cooler world would make 1/7 what they would make in a warmer world.
• Currently, there are perhaps a billion people, mostly in Asia, poised to exit millennia of subsistence poverty and reach the middle class.  Global warming intervention will likely consign these folks to continued poverty.  Does anyone remember that old ethics problem, the one about having a button that every time you pushed it, you got a thousand dollars but someone in China died.  Global warming intervention strikes me as a similar issue - intellectuals in the west
       feel better about man being in harmony with the Earth but a billion Asians get locked into poverty.
• Lower world economic growth will in turn considerably
  shorten the lives of billions of the world's poor
• A poorer
  world is more vulnerable to natural disasters.  While AGW
  advocates worry (needlessly) about hurricanes and tornados in a warmer
  world, what we can be certain of is that these storms will be more devastating and kill more people in a poorer world than a richer one.
• The unprecedented progress the world is experiencing in
  slowing birth rates, due entirely to rising wealth, will likely be
  reversed.  A cooler world will not only be poorer, but likely more populous as well.  It will also be a hungrier world, particularly if
  a cooler world does indeed result in lower food production than a warmer
  world
• A transformation to a prosperous middle class in Asia will
  make the world a much safer and more stable place, particularly vs. a cooler world with a billion Asian poor people who know that their march to progress was halted by western meddling.
• A cooler world would ironically likely be an
  environmentally messier world.  While anti-growth folks blame all
  environmental messes on progress, the fact is that environmental impact is
       a sort of inverted parabola when plotted against growth.  Early
  industrial growth tends to pollute things up, but further growth and
  wealth provides the resources and technology to clean things up.  The
       US was a cleaner place in 1970 than in 1900, and a cleaner place today
  than in 1970.  Stopping or drastically slowing worldwide growth would
  lock much of the developing world, countries like Brazil and China and
  Indonesia, into the top end of the parabola.  Is Brazil, for example, more likely to burn up its rain forest if it is poor or rich?

The Commons Blog
links to this
study by Indur Goklany on just this topic:

If global warming is real and its effects will one
day be as devastating as some believe is likely, then greater economic growth
would, by increasing greenhouse gas (GHG) emissions, sooner or later lead to
greater damages from climate change. On the other hand, by increasing wealth,
technological development and human capital, economic growth would broadly
increase human well-being, and society's capacity to reduce climate change
damages via adaptation or mitigation. Hence, the conundrum: at what point in
the future would the benefits of a richer and more technologically advanced
world be canceled out by the costs of a warmer world?

Indur Goklany attempted to shed light on this
conundrum in a recent paper presented at the 25th Annual North American
Conference of the US Association for Energy Economics, in Denver (Sept. 21,
2005). His paper "” "Is a
richer-but-warmer world better than poorer-but-cooler worlds?" "” which can
be found here,
draws upon the results of a series of UK Government-sponsored studies which
employed the IPCC's emissions scenarios to project future climate change
between 1990 and 2100 and its global impacts on various climate-sensitive
determinants of human and environmental well-being (such as malaria, hunger,
water shortage, coastal flooding, and habitat loss). The results indicate that
notwithstanding climate change, through much of this century, human well-being
is likely to be highest in the richest-but-warmest world and lower in
poorer-but-cooler worlds. With respect to environmental well-being, matters may
be best under the former world for some critical environmental indicators through
2085-2100, but not necessarily for others.

This conclusion casts doubt on a key premise
implicit in all calls to take actions now that would go beyond "no-regret"
policies in order to reduce GHG emissions in the near term, namely, a
richer-but-warmer world will, before too long, necessarily be worse for the
globe than a poorer-but-cooler world. But the above analysis suggests this is
unlikely to happen, at least until after the 2085-2100 period.

Policy Alternatives

Above, we looked at the effect of a cap and trade scheme, which would have
about the same effect as some type of carbon tax.  This is the best
possible approach, if an interventionist approach is taken.  Any other is
worse.

The primary other alternative bandied about by scientists is some type of
alternative energy Manhattan project.  This can only be a disaster.
Many scientists are technocratic
fascists at heart, and are convinced that if only they could run the
economy or some part of it, instead of relying on this messy bottom-up
spontaneous order we call the marketplace, things, well, would be better.
The problem is that scientists, no
matter how smart they are, miss with their bets because the economy, and
thus the lowest cost approach to less CO2 production, is too complicated for
anyone to understand or manage.  And even if the scientists stumbled on
the right approaches, the political process would just screw the solution
up.  Probably the number one alternative energy program in the US is
ethanol subsidies, which are scientifically insane since ethanol
actually increases rather than reduces fossil fuel consumption.
Political subsidies almost always lead to investments tailored just to capture
the subsidy, that do little to solve the underlying problem.  In Arizona,
we have thousands of cars with subsidized conversions to engines that burn
multiple fuels but never burn anything but gasoline.  In California, there
are hundreds of massive windmills that never turn, having already served their
purpose to capture a subsidy.  In California, the state bent over
backwards to encourage electric cars, but in fact a different technology, the
hybrid, has taken off.

Besides, when has this government led technology revolution approach ever
worked?  I would say twice - once for the Atomic bomb and the second time
to get to the moon.  And what did either get us?  The first got us
something I am not sure we even should want, with very little carryover into
the civilian world.  The second got us a big scientific dead end, and
probably set back our space efforts by getting us to the moon 30 years or so
before we were really ready to do something about it or follow up the efforts.

If we must intervene to limit CO2, we should jack up the price of fossil
fuels with taxes, or institute a cap and trade scheme which will result in
about the same price increase, and the market through millions of individual
efforts will find the lowest cost net way to reach whatever energy consumption
level you want with the least possible cost.  (The only real current
alternative that is rapidly deploy-able to reduce CO2 emissions anyway is nuclear
power, which could be a solution but was killed by...the very people now
wailing about global warming.)

The table of contents for the rest of this paper, . 4A Layman's Guide to Anthropogenic Global Warming (AGW) is here.  Free pdf of this Climate Skepticism paper is here and print version is sold at cost here

The open comment thread for this paper can be found here.