Clean Coal?

A company now plans to run nuclear power plants off the radioactive residue of coal ash.

Winning, David. 2009. "Out of the Ashes: A Small Mining Company Has Big Plans to Sell the Uranium Left Over When Coal Is Burned." Wall Street Journal (22 February): Journal Report.

Sparton Resources Inc., a small Toronto mining company, is betting that a global renaissance in nuclear power will create a market for an unlikely fuel source: waste coal ash. Natural coal contains trace amounts of uranium, and when it is burned to produce electricity, varying amounts of the radioactive element are left behind in the ash. Sparton has developed a method for recovering it and says a project under way at a coal-fired power station in southwestern China is yielding uranium that could be reused as a fuel for nuclear reactors.

The Ironies of Imperialism: Haiti vs. India

I first criticized the Green Revolution in

Perelman, Michael. 1971. "Second Thoughts on the Green Revolution." The New Republic, v. 165 (17 July): pp. 21-22; and then in a book, Farming for Profit in a Hungry World.

The Green Revolution was designed to promote capitalist development by changing class relationships in the countryside, making developing countries more dependent on imported inputs, while leaving the system susceptible to the environmental problems associated with intensive chemical agriculture.

The Wall Street Journal published an article describing the falling yields in India from the over-application of nitrogen fertilizer. A second article describes the heroic efforts of an agricultural operation funded in part by the wonderful Paul Farmer.

The articles offer a fascinating window into the contradictions of capitalist development, the unexplained damage done to Haiti by imperialism -- they do so without ever connecting the dots, but that is easy to do.

Anand, Geeta. 2010. "Green Revolution in India Wilts as Subsidies Backfire" Wall Street Journal (23 February): p. A 1.

"In the 1970s, India dramatically increased food production, finally allowing this giant country to feed itself. But government efforts to continue that miracle by encouraging farmers to use fertilizers have backfired, forcing the country to expand its reliance on imported food."

"India has been providing farmers with heavily subsidized fertilizer for more than three decades. The overuse of one type -- urea -- is so degrading the soil that yields on some crops are falling and import levels are rising. So are food prices, which jumped 19% last year. The country now produces less rice per hectare than its far poorer neighbors: Pakistan, Sri Lanka and Bangladesh."

"Agriculture's decline is emerging as one of the hottest political issues in the world's biggest democracy."

"On Thursday, Prime Minister Manmohan Singh's cabinet announced that India would adopt a new subsidy program in April, hoping to replenish the soil by giving farmers incentives to use a better mix of nutrients. But in a major compromise, the government left in place the old subsidy on urea -- meaning farmers will still have a big incentive to use too much of it."

"India spends almost twice as much on food imports today as it did in 2002, according to the Ministry of Agriculture. Wheat imports hit 1.7 million tons in 2008, up from about 1,300 tons in 2002. Food prices rose 19% last year. Mr. Singh's government, however, said it would continue to subsidize urea, although it would set the price 10% higher.
Mr. Awasti, the fertilizer cooperative head, says the continuing urea subsidy means that farmers likely will still use too much of it. "The government is opting, as with any very difficult change, to adopt it in phases," he says. He says he believes that the urea subsidy will be dropped altogether in a year."

Twenty-one percent of the urea, 67% of the phosphorus-based fertilizers and 100% of the potash-rich fertilizers sold in India in the fiscal year ended March 2009 were imported, according to a report this month from Fitch Ratings.

##

Dugan, Ianthe Jeanne. 2010. "Quake Has Haiti Relying on Agricultural Program in Countryside" Wall Street Journal (23 February): p. A 15.

"An agricultural program that helped inch people out of poverty and hunger in this village about 25 miles north of Port-au-Prince is racing to feed thousands who flocked here after the earthquake. The increased role of the program, called Zanmi Agrikol, shows the catastrophe's effects on the countryside, where an estimated half-million people fled from the capital. Since the mid-January disaster, the Haitian government has been trying to figure out how to provide food and jobs in rural areas neglected for decades. Zanmi Agrikol -- which means "Partners in Agriculture" in Creole -- is one model of how the agricultural industry and cottage businesses will help meet the challenge."

""Since this business started, we have been able to buy food and send our son to school," St. Jean Nadine Wadley said recently, as she walked home with her husband and son, after washing clothes and bathing in a nearby river. Through Zanmi Agrikol, the Wadleys and 240 other families receive seeds, farming equipment as well as trees for reforestation and food, including mango, citrus and banana trees. They are taught techniques such as planting, composting and terracing sloped yards. As a result, most families here are cultivating tiny plots of land at home, so they can grow their own food and sell a small surplus."

"Now, with refugees having more than doubled the size of the village, organizers and residents are racing to expand the program. "Now we have 10 new people in our house. And we don't have enough food," Mrs. Wadley says."

"An estimated 6,000 went to Grand-Anse. And at least 9,000 journeyed to the Central Plateau, where Corporant is located. This rare reverse urban migration is creating a crisis in rural areas that were relatively stable immediately after the earthquake. Many people are looking to agriculture to help solve the problem, though most caution that Haiti needs far more than agricultural programs to turn the country around."

"It's a very dangerous situation," says Johanna Mendelson Forman, a senior associate at the Center for Strategic and International Studies. "There is an urgency to take a serious look at expanding agricultural projects that had been in the works. The country needs to grow its own food. But it is not going to solve all the economic and socioeconomic issues." [She does not identify the "it."]

"Gillaine Warne, an Australian-born horticulturalist who runs Zanmi Agrikol.
Ms. Warne recently called an emergency meeting with 27 Haitians—agronomists, technicians, nursery men, tractor drivers, and gardeners—on the 80-acre farm where Zanmi Agrikol grows peanuts and other crops for a local nutrition program. They put together a long list of vegetables -- such as Haitian spinach, eggplant, sweet potatoes, beans, corn and peanuts -- that will grow quickly, between planting seasons, and can be harvested in three months."

"Ms. Warne, who started Zanmi Agrikol in 2004, splits her time between Haiti and Greenville, S.C. Funding for the program comes from Partners in Health, a Boston-based medical and social services organization that operates clinics and hospitals in Haiti, as well as from an Episcopal church in South Carolina and Rotary International."

"The goal is to make this region self-sufficient—"to move away from dependency on handouts," Ms. Warne said. "This is a rural country, and now it is coming back to its roots."

"Even before the earthquake, more than half of Haiti's population was undernourished. Now, food prices are too high for many people. For example, the price of a 55-pound bag of rice rose after the quake by roughly 40% to about $42, said Louise Ivers, a physician working for Partners in Health in Port-au-Prince."

"Haiti's agriculture sector accounts for 60% of the country's annual economic output, but is still sclerotic. Most land is broken into small and disorganized holdings. Haitian farmers have little access to capital, modern machinery, and marketing muscle. As a result, sectors such as the fruit industry have lagged behind those of the neighboring Dominican Republic."

Will The EPA Drop The Ball On Regulating Carbon Emissions?

Mark Thoma at Economist's View links to a set of comments by Frank Ackerman on proposed regulations by the EPA to limit carbon emissions. Central to those regs are estimates of the social costs of carbon emissions, and Ackerman accurately points out that EPA economists seem to be leaning to pricing those costs at around $5-6 a ton, which would translate into about a nickel for a gallon of gas, pretty inconsequential. It would appear that these low numbers are due to their only looking at peer-reviewed articles for sources and thus not the Stern Report, using Nordhaus's old DICE model, using ridiculously high discount rates of around 3-5%, and all but ignoring the problem of catastrophic risk of runaway warming as argued by Martin Weitzman. This becomes unpleasantly important as it seems increasingly unlikely that the Senate will pass any sort of cap and trade bill on carbon emissions (or anything else related to climate change), leaving this action by the EPA that was mandated by court rulings as about all that may be done any time soon by the US government about this issue. What an embarrassing scandal. One does not know whether to laugh or cry (probably both).

Should Greece Take A "Euro-Holiday"?

Longtime critic of the euro since before it was adopted, Martin Feldstein, has suggested that Greece should take a "euro-holiday" and temporarily revert to its old drachma with a devaluation of that as a way to deal with its current budget and debt crises. This is sharply criticized by Richard Baldwin and Charles Wyplosz in a posting at VOX. I agree with their arguments, including that such a holiday would not be a temporary matter, but a permanent one, with the Greeks probably pathetically repegging to the euro soon after, but not able to get back in once out, quite aside from the possible more general unraveling of the Eurozone itself that would likely follow, much to the delight of such anti-euro folks as Feldstein.

In any case, I think it is worth considering whether or not it is better to be inside or outside the euro in Europe. Most of those outside and wanting to stay so have been higher income countries, Norway and Iceland and Switzerland (not even in the EU, although now-collapsed Iceland wishes it was all the way in), Sweden and Denmark and feisty UK, all in the EU. On the other side it seems that most poorer countries in Europe want in to both the EU and then into the euro as well. Is this wise, given the Greek experience, apparently partly due to overborrowing on the low interest rates available to those in the Eurozone? Mostly I would say yes. If one looks at what happened in Europe last year, the worst performing countries in terms of GDP were two transition countries in the EU, but not in the Eurozone, Latvia and Lithuania, both with around 18% declines in their GDPs. The second and third best performing (former?) transition economies were the two in the Eurozone, Slovenia and Slovakia, both of which experienced minimal declines in GDP. Many of those hurting badly, including Hungary, had borrowed lots of foreign currencies and then got in trouble.

However, I must note the exception. That would be the best performing economy in all of Europe, the only one to show positive GDP growth, Poland, an EU member but not in the Eurozone. However, I confess that I do not know how they pulled it off, and suspect that the Latvian-Lithuanian-Hungarian experience is the more likely and common for those who might choose to exit the Eurozone, even on a "holiday."

Armageddon, or not?

Martin Weiss has written an article this week entitled 'Armageddon' in which he half-describes the absolutely horrific scenario about to play out for Americans as a consequence of the harsh 'medicine' - imminent and 'unavoidable' interest rates hikes - to fix the disease of American debt.

"If you thought Wall Street’s debt crisis was traumatic, wait till you the see the consequences of Washington’s debt crisis! Never before in history has a world power like the U.S. been so utterly buried in debt! And never before has that debt been financed so massively by foreign investors![1]

This analysis strikes me as all very strange. Weiss treats America’s debt problem as if –in the most critical sense - it mostly lives in a vacuum. But this is clearly not the reality. We live in a ‘globalised’ world and globalization is, after all, the process of America’s cultural, political, and economic integration of nation states throughout the world. Those ‘foreign investors’ who Weiss claims funds the American debt may not be so ‘foreign’ at all.

Weiss' article is notable for what is missing. I therefore list a few of my own observations and questions related to America’s debt crisis:

(i) What constitutes a ‘foreign’ investor? It has never been so important to identify who these people are. Who precisely is America is indebted to! Have they been the very recipients of US taxpayer-funded bailouts over the last year and (in fact) decades? Are they, for instance, the propped-up foreign subsidiaries and/or American ‘foreign’ investors in Goldman Sachs, Citigroup, Bank of America and other gigantic money center banks? Or American citizens invested in the foreign subsidiaries of other receivers of American generosity such as General Electric, AIG, General Motors and many others?

(ii) This is a time of extraordinary inequality. A disastrous economic and social outcome – ‘armagedon’ – would certainly come if even further rewards are given to the very tiny minority of individuals who already hold the vast majority of America’s financial wealth. In September 2008 it was noted by Forbes Magazine that the richest 400 Americans had a combined net worth last year of $1.57 trillion. “Less than 10 percent of this vast fortune could resolve the combined budget deficits of 46 states” said Tom Eley [2]. He added, “None of the states are planning increases in taxes on the wealthy.”

(iii) It is quite arguable that the crisis itself came about in the first instance through the process of Governments actively choosing winners and losers in the economy. The US Government, through the Federal Reserve and other agencies, has never imposed its economic discipline equally on everyone. Poorer nations, labor and small enterprises have been consistently scapegoated in one economic crisis after another. This led to the predicament of ‘too big to fail’ and things have clearly fallen apart from there.

(iv) The US Government sets global interest rates by virtue of its hegemonic position [3]. A rise in interest rates in America portends a rise in global rates. Mobile capital will always seek the place of highest return. How can the rest of the world finally disengage from the American governments fiscal and budgetary irresponsibility?

Martin Weiss concludes by urging Americans to ‘bite the bullet’ and accept the ‘sacrifices’. “Ultimately, there is NO choice” he says.

“We must bite the bullet. We must make the sacrifices. Like California and Greece … like every household and any company … our government MUST cut back and accept the rest of the consequences.”

But there is a choice. America and the world can reform its monetary and economic system. It, and other governments, can stop picking the rich as the winners. Non-elected central banks and government agencies need to be required to work in the public and global interests. Elected representatives need to do their job and ensure that regulation and processes of accountability occur. This is a large topic. More on this later.

It is apt for governments to be required to enhance the economic prospects for the many rather than safeguard the accumulated wealth of a few.[4]

“The Roots of Violence:
Wealth without work,
Pleasure without conscience,
Knowledge without character,
Commerce without morality,
Science without humanity,
Worship without sacrifice,
Politics without principles.”

Mohandas K. Gandhi

REFERENCES:
[1] Armageddon by Martin D. Weiss, Ph.D. 02-22-10
http://www.moneyandmarkets.com/armageddon-10-37926

[2] US states’ budget crisis sets stage for new attack on the working class
By Tom Eley. last update 29/06/2009 15:50
http://uruknet.com/?p=m55537&hd=&size=1&l=e

[3] A position America gained through its Wall Street banking cartel, its reserve currency status and through general cultural and military infiltration around the globe. This situation is changing but American dominance around the world remains in place.

[4] And how has much of that wealth been accumulated to begin with? Naked Capitalism has a revealing article posted this week describing the financial vulture behaviour of Goldman Sachs and its link to the sovereign debt crisis of Greece:
Auerback/Wray: Memo to Greece: Make War, Not Love, With Goldman Sachs
Monday, February 22, 2010

http://www.nakedcapitalism.com/2010/02/auerbackwray-memo-to-greece-make-war-not-love-with-goldman-sachs.html

Virginia Delegate Marshall Completely Loses It

So, the process of cutting state budgets is going on in many places, and is especially grim here in Virginia, given that recently installed Governor Robert McDonnell has ruled out any tax increases to offset all the spending cuts, which are hitting hard in many areas, including education, social serives, and others, and federal stimulus funds for states look to be about to end. The legislature is not agreeing with all his proposals, but their proposed cuts are also deep into serious areas, and the pressure is bringing forth some strange comments.

In particular, Delegate Robert Marshall of Manassas appears to have gone off the deep end and taken the Pat Robertson looney religious right cake with his latest, reported in the Staunton News Leader. The article's headline reads, "Legislator: Disabled kids are God's punishment," and Marshall in opposing state funds for Planned Parenthood is quoted as saying, "Having disabled children is God's punishment to women who have aborted their first pregnancy." I note that the state is probably going to freeze eligibility for new applicants for medicaid for disabled children, so Marshall's comments are really outrageous, far worse than the usual dreck these clowns produce.

I also note that my local paper, the Harrisonburg Daily News Record, seems to be in love with Marshall, regularly printing favorable stories about his various statements with large headlines. Will be curious to see if they do it for this one, although I would not be surprised if they approve, as the Editorial Page Editor, Cort Kirkwood, has publicly stated that the atrocities at Abu Ghraib were caused by the feminist movement. So, this stuff is probably right up his alley.

Is The Fed Tightening Or Not?

The announcement that the Fed is raising the discount rate from 1/2% to 3/4% triggered a reaction in the financial markets with bond traders apparently expecting further tightening in the form of rising interest rates. Various people ranging from Mark Thoma to Jim Hamilton declaring that this is not a tightening but an adjustment to other changes such as their raising the amount they plan to pay on reserves banks park at the Fed, which is arguably a sort of tightening.

I agree that the discount rate is not a tightening and is not in itself a sign of likely more tightening per se. However, it is a fact that the Fed is in a gradually tightening scenario that it has announced for some time. This involves removing itself from the many special credit facilities that it put into place in the immediate wake of the crisis, several of which shut down as of Feb. 1, including the very crucial swap arrangements with the ECB and some other foreign central banks. Probably the most important one is the gradual unwinding of Fed support for the housing mortgage market through purchasing MBSs, which is supposed to end on (or about) March 25. That looms as a crucial date regarding the still rather weak recovery. It is not clear if Fannie Mae or Freddie Mac or anybody else is going to really step in and support those markets, and if they do not, we shall probably be in for a double dip in this recession.

Health Care: Public Competition or Price Controls?

President Obama rolls out another idea to address the market power of the health insurance sector:

The plan conspicuously omits a government insurance plan sought by liberals and viewed as a non-starter by conservatives and some congressional moderates. It includes Senate-passed restrictions on federal funding for abortion adamantly opposed by abortion foes as well as abortion rights supporters. The new White House plan would give the federal government the power to regulate the health insurance industry much like a public utility. The Health and Human Services Department — in conjunction with state authorities — would be able to deny egregious premium increases, limit them or demand rebates for consumers.

In the face of monopoly power, standard economics tells us that price controls could actually increase output moving the market closer to what would have prevailed under competition. Conservative politicians, however, often scream about scarcity when liberals propose such ideas. One would think the conservatives would prefer more competition but as I seem to recall, they hated that public option idea that was all the rage in 2009.

You're on your own!

Quote of the week:

"...I talked about the hyperdeflation scenario. Brought about by the collapse of the Eu and European countries defaulting on their debt and the Unites States like california collapsing defaulting on their debt and a trillion dollars worth of mortgages that are going to reset over the next two years. Forcing housing crises ...as the homeowners walk away from those mortgages. Now yesterday China announced that they've decreased their treasuries that they're holding. Those treasuries were not sold in the open market. There was a conference call between China and the Federal Reserve saying that we're going to unload these treasuries. We don't want to sell them in the open market. That will destroy the price we'll get on these treasuries and the Federal Reserve calling Japan and asking them to buy those treasuries and I think the Federal Reserve printed the money for Japan to buy them. Essentially monetising the debt which is what they have done in the past through backdoor channels like this one. But it's still monetisation of the debt. We just saw the collapse of the Euro or at least their decline. As the Greek government started to collapse. And eventually those other countries are going to collapse as well over the next two years. Spain Ireland Greece and Portugal. All going to default. Here's what concerns me: I said we'd be on a rocky road of deflation followed by inflation. Hyperdeflation hyperinflation. This stuff is happening too fast. We've got the convergence of hyperdeflation and hyperinflation happening at the same time. That's like matter and anti-matter colliding. Now when that happens, folks, we implode and explode concurrently. Turning into a huge black hole. Frankly I don't know what to do. Do I buy the dollar or short the dollar. I don't know. I really don't know. I don't know what's going to happen to commodities in the crisis and I don't know what's going to happen to the stock market. Will interest rates go up or will they go down? I don't know folks. We've never been down this road before. I don't know what to tell you. You're on your own!" **

** http://eclipptv.com/viewVideo.php?video_id=10316
Viewed tonight (22nd February 2010). I don't know who this guy is but I like the way his face contorts!

More Hysteria On Iran About Nukes

OK, so I am not happy about the recent reports out of the IAEA that the Iranians are not cooperating with them and are clearly making efforts towards having the capability to move towards having a nuclear weapons capability. However, the Obama administration on this matter seems to have been taken over by Hillary Clinton, who was more hawkish than on Iran than Obama in the primary campaign, and who now has managed a historic reversal wherein the US State Department is now the most hawkish department on a matter of national security while the DOD and the intel establishment are less so.

While I am not happy about this latest development, it should be kept in mind that the main new report is that the Iranians have refined a small amount of uranium to the 19.5% level. This is allowed under the treaty agreements that they have signed and is the level for use in the medical facilities for which they have long and publicly been planning to use their uranium, besides for supplying electricity. For all the talk that they are "working on a nuclear warhead," there remains no evidence of this. That would require a much higher level of refinement than this recently reported level, and their supreme leader and commander-in-chief, Vilayat-el-faqih Ali Khamene'i continues to maintain his fatwa against acquiring nuclear weapons.

Does Rubinomics Apply to the UK?

With hat tip to Paul Krugman, ponder the following from a few prominent economists:

IT IS now clear that the UK economy entered the recession with a large structural budget deficit. As a result the UK’s budget deficit is now the largest in our peacetime history and among the largest in the developed world. In these circumstances a credible medium-term fiscal consolidation plan would make a sustainable recovery more likely. In the absence of a credible plan, there is a risk that a loss of confidence in the UK’s economic policy framework will contribute to higher long-term interest rates and/or currency instability, which could undermine the recovery.

Paul tackles what he calls a “UK version of 21st century Hooverism” thusly:

As you might guess, I’m very much in agreement with the second group. It’s important to be clear that the call for immediate austerity isn’t grounded in unarguable economics; in fact, the arithmetic tells you that what Britain does in the next year or two is virtually irrelevant to its long-run solvency. Instead, the call for immediate austerity is based on an appeal to “credibility”, which is very much in the eye of the beholder. So for Britain’s sake, I hope that the UK version of 21st century Hooverism doesn’t prevail.

This notion of these prominent economists that medium fiscal restraint could aid recovery via lower long-term interest rates used to be called Rubinomics during the Clinton years. But then the U.S. had higher interest rates than we do now. Currently, short-term interest rates in the U.S. are near zero while the interest rate on 20-year government bonds averaged about 4.5% last month. So how does the UK situation compare? Well, their short-term interest rates are only slightly higher while the interest rate for their 20-year government bonds averaged about 4.4% last month.

Record Snowfall In Harrisonburg: Is Global Warming Dead?

With our added snowfall yesterday here in Harrisonburg, Virginia, apparently this winter has set an all time record for snowfall of 53.26 inches, with winter not even over yet. In Washington, where they are also apparently setting a record, we have numerous politicians ridiculing Al Gore and declaring that cap and trade legislation is dead. The online London Times reports that "World May Not Be Warming Say Scientists," with most of these being usual suspects, although now with the addition of John Christy of the University of Alabama-Huntsville, a former lead author of the IPCC reports, now emphasizing the already well-known "urban heating" effect on long term surface recordging sites, on top of the revelations of errors by the IPCC on Himalayan glaciers and other matters.

Well, as those noticing the too-warm weather affecting the Winter Olympics in Vancouver might suspect, all this may be premature. There may be record snowfall in the mid-Atlantic states of the US, with its disproportionate effect on the political climate, but according to http://www.droyspencer.com/latest-global-temperatures, the average global temperature in January 2010 was 0.72 above average, the highest monthly such anomaly since the El Nino year of 1998. Oooops! Also, Arctic sea ice seems to continue to be decreasing. It reached a low point for a January reading in 2006, which was followed by increases in the succeeding three Januaries, but this January is back down below the 2007 level, with only 2006 lower by about 69,000 square kilometers. The recent reading has the total at 13.76 square kilometers, which is about 1.06 million below the average for January of the 1979-2000 period, and as noted, the second lowest on record, http://hside.org/arcticseaicenews. So, it may be cold and snowy in Washington (and Harrisonburg), but it is plenty warm in many other places. Global warming appears to be on track still.

Sex, Lies, and Economics: The Amazing Story of Economics and Economists Before Adam Smith

I am getting ready to send out my proposal for my new book. If anyone has any comments on this, I would be most appreciative.


http://michaelperelman.files.wordpress.com/2010/02/proposal.pdf

Governor Robert McDonnell Of Virginia Is A Homophobic Bigot

Not very southern gentlemanly of me, but we are really getting past the time when anybody should tolerate or pull punches on what the recently installed (Jan. 15) governor of Virginia, Robert McDonnell, has pulled. Since the late 1960s, every new incoming governor of Virginia has issued within 24 hours a proclamation outlawing discrimination in hiring in state government offices. Initially triggered by the issue of racial discrimination, the list of reasons for which discrimination in employment by the Commonwealth has expanded to include gender, religion, ethnicity, political opinion, and disability not related to job performance, if I have not left something out. The two most recent governors added "sexual orientation" to this list.

However, Governor McDonnell took nearly a month to issue his proclamation, and it removes this last item from the list. I see no justification under any grounds for such discrimination, none, meaning that this unpleasant label of homophobic bigot applies to this politician. Clearly it is him returning to his roots at Regent University, founded by the Pat Robertson, who blamed 9/11 on the US tolerating gays and lesbians, and the earthquake in Haiti on their supposed love of voodoo. Yes, it says in the Old Testament that gays should be stoned to death, but it also says the same thing about disobedient children and married couples who have sex while the wife is having a period. Furthermore, the Bible clearly tolerates slavery and the oppression of women, and if one accepts the argument that Africans are the descendants of Ham, then their enslavement, a point emphasized by many Protestant preachers in the US South when slavery was prevalent there. The Bible is no excuse for denigrating human beings and unfairly discriminating against them in employment. This despicable conduct should be labeled what it is: immoral bigotry.

A New Moment For Institutionalist Economics?

Two evenings ago I had dinner in Madison, Wisconsin with Daniel Bromley, editor since 1974 of Land Economics, who retired in December from the UW Dept. of Agricultural and Applied Economics, agreeing that he is "the last living embodiment of the Wisconsin Old Institutionalist Tradition," which dates back in a line through John R. Commons to Richard Ely in the late 1800s, who founded both the Economics Dept. at UW and the Ameican Economic Association. Institutionalists were largely replaced in the regular econ dept. by the 1970s, with policy-oriented econometricians led by the late Arthur Goldberger taking over (and such an orientation can be seen as an extension of the empirically based policy orientation of the old institutionalists and the empirical fixations of their predecessors in the German Historical School).

It has been usually argued that the New Institutional Economics applies neoclassical optimization theory by emphasizing the Coasean idea of the minimization of transactions costs as the central key to determining institutional forms and structures, with Oliver Williamson famously arguing for this view, also supported by fellow Nobelist, Douglass North. However, Bromley and I agreed that we may be a point where a new synthesis between the two branches may be at hand. This is symbolized by the work of Williamson's co-recipient this past fall, Elinor Ostrom. She does not dismiss the matter of transactions costs, but she does not emphasize it, and focuses more on how groups can arrange themselves to cooperate, which may involve matters of trust and so on that may not be so easily covered by a pure transactions cost approach. She also slides between the competing older biases of favoring government or favoring privately owned management of the economy by urging for local community group control of activities.

Washington Blizzards A Libertarian Paradise?

The editorial page cartoon in today's Washington Post by Toles shows a TV newsperson reporting from piles of snow that "Washington is a frozen block of ice, and nothing is happening, moving forward, or advancing." A balloon from the Capitol building says, "Now we have an excuse!" and down in the lower corner it says, "Every day is a snow day in Washington." In any case, I often see or hear libertarians declaring the virtues of "Washington doing nothing," although presumably they might prefer that Washington acted to shut itself down permanently.

Global Trade Imbalances as a Statistical Artifact

Today, the latest spin that purports to describe the still unfolding global economic crisis is that of 'global trade imbalance', with particular attention being focussed on the US and China.

The US, we are told, has a huge trade deficit and China is conveniently blamed for this. "They say China's currency manipulation hurts the U.S. economy" [1] making China's goods much too cheap relative to those produced in America.

This tale does not reflect the contemporary reality and it is all the stranger because, on the other hand, it's never been a secret about the manner in which the large global corporation has evolved its operations over the last 4 decades. These huge networked businesses now have production systems that most often span a large number of countries at the one time. That means, in effect, that world trade is now mostly defined by the nature and extent of the global corporation and its networks. The nation is no longer the core economic entity.

In 2006 Samuel J. Palmisano, Chair of the Board, President, and Chief
Executive Officer of IBM described the evolution that has occurred in the nature and function of the international corporation.[2]Since the early 1970s economic nationalism has abated, Palmisano says. Trade and investment barriers consequently receded. A revolution in information technology also occurred and this development improved the quality and cut the cost of global communications and business operations "by several orders of magnitude". The large transnational corporation was then much more able to standardise technologies as well as its business operations all over the world. This, in turn, led to the interlinking and facilitation of work both within and among companies.

"New perceptions emerged as to what was possible and permissible.... The focus shifted from products to production." State borders defined less and less "the boundaries in corporate thinking and practice…."

More ominously, as we now see with the global fad for deregulation, Palmisano eulogises

"the growth of horizontal, intergovernmental networks among the world’s regulators and legislators [that are] built on shared professional standards and relationships among cross-national communities of experts."

Almost anyone with more than a fleeting interest in economics understands this new reality. The most dominant global enterprises have embedded themselves in one nation after another and most of those businesses are US and European in origin. The economic reasons for these entities doing so appear quite obvious. Labour is cheaper in Asia. Corporations find it much easier to avoid tax and engage in transfer pricing to maximise profits, and so forth.

So, it's not surprising, and somewhat belated, to find a 2007 paper published by the Asian Shadow Financial Regulatory Committee that finally raises the very serious issue of false accounting in international trade by governments around the globe. Quote:

"MNC affiliate sales within their host countries are not included in trade balances, but are counted in host country GDP. MNC affiliate sales from the host country to other countries are counted as exports of the host country. This accounting practice overstates the current account surplus of a country like China with heavy inward foreign direct investment (FDI). This surplus would be reduced if sales outside China by affiliates of foreign-owned MNCs were excluded from its exports and sales within China by affiliates of foreign-owned MNCs were included in its imports. The trade accounting system overstates the current account deficit of a country like the US, with heavy outward FDI. This deficit would be greatly reduced if sales outside the US of overseas affiliates of US MNCs were included in US exports and sales back to the US of overseas affiliates of US MNCs were excluded from US imports." [3]

For all the huge trade surplus that China is purportedly 'enjoying' it turns out that little benefit is being derived from it. Over 50% of China's exports are produced by foreign corporations. Walmart, for instance, has 700 factories in China. And 'China' (whatever accounting entity this word constitutes) has 'trade deficits' with "the rest of Asia".

"In effect, China aggregates the trade surplus of East Asia with the U.S. and Western Europe, takes the political heat, but captures relatively little of the value that it adds to final products."

We need to know more than just the fragments of data that government bureaucracies, mainstream professions and the media serve out. A true understanding of the nature of the crises now confronting us is absolutely essential, and yet deliberate obfuscation is occuring as to the cause and nature of our collective dilemma.

"Were it part of our everyday education and comment that the corporation is an instrument for the exercise of power, that it belongs to the process by which we are governed, there would then be debate on how that power is used and how it might be made subordinate to the public will and need. This debate is avoided by propagating the myth that the power does not exist."

John Kenneth Galbraith, The Age of Uncertainty, 1977

[1] Q&A: How China's Currency Policy Affects You
by Adam Davidson
text sizeAAA
April 20, 2006
http://www.npr.org/templates/story/story.php?storyId=5353313

[2] "The Globally integrated Enterprise" Samuel Palmisano, ceo and chair of the board of ibm, Foreign Affairs
http://www.ibm.com/ibm/governmentalprograms/samforeignaffairs.pdf

[3] Asian Shadow Financial Regulatory Committee
A New Perspective on Global Imbalances: the Role of MNCs
Statement No. 8
Hong Kong, July 5, 2007
www2.hawaii.edu/~fima/ASFRC/HK_Statement.pdf

What Was Wrong With The Clinton Tax Code?

Arguably that it was insufficiently progressive. Of course, that is not what one heard during the Bush presidency when that tax code was made both more regressive as well as less able to collect revenues, playing a non-trivial role in turning a US budget surplus into a massive deficit, now being used by Republicans in the US Senate to push for cuts in all kinds of social safety net programs. Because of their firm opposition there will be no going back to it, and when Clinton got it put in place in the early 90s, they totally opposed it, forecasting it would lead to a massive recession. It did not, but they took control of the Congress on such claims.

I note for anybody who thinks that the Clinton code was some sort of "anti-rich" pile of socialistic redistributionism that the top marginal income tax rate in it was still well below what was in place after the first round of Reagan tax cuts in the early 1980s, when that rate was still at 50%. The really sharp cut in the top rate only came in 1986 with the tax simplification.

Remembering the 1970s' Energy Crisis

This week I discovered an interesting International Monetary Fund webpage that provided a brief history of the oil crisis of the early 1970s. I quote from one of their pages:

"The fourth Arab-Israeli conflict broke out in October 1973. Over the next three months, the price of crude oil shot up 300%! Global energy and financial crises ensued." [1]

It was all very simple, according to the IMF. Anger towards the Netherlands and the Unites States because of their judged undue level of sympathy for Israel and also (as mentioned later) because the price of oil had not risen in line with other world commodities at the time.

This version is somewhat at odds with actual events, however. I was aware in the '70s that Western governments (in particular) justified the then huge spikes in the price of oil by repeatedly making the claim that world oil shortages existed and we'd all better get used to it.

Decades of wasteful energy consumption follwed. There was almost a complete lack of effort by government and industry to limit the public's consumption of oil. I was left a permanent skeptic.

Many other people were suspicious of events even at the time.

Richard J Barnett and Ronald E Muller, writing in 1974 said:

“Between 1970 and 1973, even before the Arab boycott and the official proclamation of the Energy Crisis, the price for crude rose 72%. In some cases the price of natural gas has risen 200% since 1970….Although consumption in the United States has been cut back by government programs, blackouts, brownouts, service-station shutdowns, winter school closings, and rationing, demand, both US and worldwide, far outpaces available supply. This situation is a direct consequence of some of the structural changes in the world economy to which we have alluded. The decisions about production, pricing, research and development, and distribution in the energy field have been substantially in the hands of the global energy companies, the “seven sisters” – British Petroleum, Gulf, Mobil, Shell, Texaco, Exxon, and Chevron (Standard Oil of California). (Purely domestic energy companies account for approximately one-third of annual US energy consumption.) For many years Exxon and other global energy companies have been earning substantially higher profits abroad than in the United States. Because 300 billion barrels of the proved 500-billion barrel world oil reserves are in the Arab countries of the Middle East, the companies have been concentrating their development activities there. Because of their oligopolistic control over the world energy market, they have held the commanding power to decide how much oil is produced, where it shall go, the price to be charged, and where, through transfer pricing techniques, to declare their profits. The power of the global energy companies in the US economy is based on a combination of special privileges, uniquely favourable oil concessions in foreign countries backed by the power of the US government in the name of “national security.”….[The major oil companies – the “seven sisters” have] near monopoly control of oil reserves, transportation, refining and marketing facilities…..Despite recent nationalizations and the rise of a few European and Japanese companies, 8 global companies, 5 of them US-based, still control 48 percent of world production and a degree of vertical integration and market sharing permitted no other industry. Immunity from antitrust prosecution has been justified on “national security” grounds….Because the petroleum companies have had near-monopoly power over production and distribution, they have, for much of the last generation, been able to set world prices at will. This explains, in part, their extraordinary profits….the annual rate of return on fixed assets invested in the Middle East rose from 61 percent in the 1948-1949 period to 72 percent a decade later….costs are much lower in the Middle East…..Because the information about oil reserves, real costs of drilling and distribution, and their own long-range strategies is in the exclusive hands of the companies, it is impossible to know the extent to which the celebrated Energy Crisis that began in 1973 is real or manipulated. There is considerable evidence, as committees of Congress began to discover in 1974, that available supplies are far more ample than the long lines at gas stations and “crisis messages” from the White House would suggest. Indeed, fuel stocks in the US were at an all-time high in 1974….Some knowledgeable students of the petroleum industry such as former Occidental executive Christopher Rand and MIT professor Morris Adelman offer impressive evidence that there is no shortage of fossil fuels in the ground and that indeed, in Rand’s words, “the inventories of the world’s available fuel have been increasing rather than diminishing, even when measured against the annual rise in the rate of the world’s consumption.” The suddenness with which lines at gas stations appeared and disappeared, the puzzling display of sudden anger and sudden friendship from the Arab boycotters, and the quick jump in gas prices and oil-company profits all within a few short winter months in 1974 aroused widespread public suspicion that the Energy Crisis was stage-managed….The extent to which the crisis was the result of conspiracy may not be known until historians are given access to the oil companies’ equivalent of the Pentagon Papers….The worldwide energy crisis is not a problem of absolute shortages of energy sources. It is a political crisis over who shall control these resources; who shall decide where, when, and how they are to be distributed; and who shall share in the enormous revenues….as Professor Adelman and other petroleum experts [argue] that there is no worldwide shortage of recoverable oil in the ground, but it is an academic point if those who control the reserves will not permit them to be exploited fast enough to meet rising demand. While the US-based oil companies now issue standard warnings about the Energy Crisis, they are engaged…”in a massive exercise in picking the pocket of the American consumer to the tune of billions a year.”[2]

In somewhat of an understatement Barnet and Muller observe that these extreme hikes in the price of oil had created a dollar glut. They say that this, "no less than the [so-called] scarcity of oil threatens the stability of the international structures for the creation and maintenance of wealth." [3] Poor and oil-dependent countries - the first 'subprimers' were pushed into extraordinary levels of unsustainable debt in order to recycle this artificial liquidity glut of petrodollars. They defaulted in quick succession, more dollars were lent back to them and the global Ponzi game continued to our current financial and ecological breaking point.

Governments around the world became dependent upon another global cartel to be able to continue to pay for expensive oil. The bankers of Wall Street were the second powerful oligopoly exacerbating global imbalance. As Grazia Ietto-Gillies once stated, these “Multinationals are [and were] everywhere except in economic theories and economics departments.”

[1] Reinventing the System (1972-1981)
https://www.imf.org/external/np/exr/center/mm/eng/mm_rs_01.htm
OPEC Takes Center Stage

[2] Richard J Barnet and Ronald E Muller, ‘Global Reach – the Power of the Multinational Corporations’ Simon and Schuster, 1974. Pages 218 – 224.

[3] Richard J Barnet and Ronald E Muller, ‘Global Reach – the Power of the Multinational Corporations’ Simon and Schuster, 1974. Page 226.