1983 'Ponzi Game' prediction

I'm reading William Greider's 1989 book 'The Secrets of the Temple - How the Federal Reserve Runs the Country' and came across the following acknowledgement and prediction of and for a global 'ponzi scheme' playing out to an ultimate crisis.

"A genuine solution, [US Federal Reserve governor] Philip Coldwell predicted, would not be acceptable, either to bankers or politicians, until the consequences of the LDC debt reached a sufficiently frightening level of crisis - when the "Ponzi game" broke down and everyone was forced to acknowledge it. Like all illusions, this one might continue for quite a long time, perhaps many years, but it could also collapse abruptly at any time shattered by random events.

"The way out of this thing is a shift in the way we treat the LDC debt," Coldwell argued. "The banks would have to take a big hit on their balance sheets, but then it's over. If you give them a definitive hit, then they could say it's behind us. If you get down to a crisis stage, the banks would accept that. They would have no choice."[1]

Looking at contemporary economic history it seems clear that the beginning of the current global financial crisis can be traced at least as far back to the Johnson administration in the early-mid 1960s. This is when inflation and accompanying inflationary expectations were set in concrete by huge military expenditures on the Vietnam War as well as through what is arguably, an accompanied global oil price hike that was deliberately manipulated to help pay for it.[2][3] It was also the time the evolution to bigness in capitalism made it possible for large firms to: (i)increase their prices as a response to a rise in inflation, (ii)increase their prices in response to a general drop in demand for their services and products, (iii) increase their prices in response to losses caused by speculative activities gone wrong, (iv) generate revenue from activities not linked to employment nor the creation of wealth.

Permanent recession and economic zero sum games played out as astounding levels of economic concentration became commonplace both in the industrialised nations and around the globe.

“Between 1950 and 1971 the 200 leading U.S. corporations increased their control of all U.S. manufacturing assets from 46 to 87 percent. By 1971 the assets of the top 100 equaled those of the other 194,000 corporations. [4]”

The US Federal Reserve - whose key staff are often former corporate CEOs - worked intimately with global transnational corporations (with the latter's origins based in the US).[5] From the mid 1960s to late 1979 the Fed's focus was on hitting its interest rates targets (the price of money) over and above controlling the quantity of money. [6] The resulting inflation foreshortened horizons in thinking and led to increases in debt and increases in long-term interest rates. Creditors received negative returns on loans that were contracted at times when inflation was lower. Corporations began to engage in much deeper levels of exploitation through globalisation where imprudent loans were pushed on third world nations to recycle the massive increase in excess US dollars resulting from the oil shocks of the 1970s.

By 1979 that game was up. By that time negative real interest rates couldn't be sustained. and the US dollar had come under severe speculative attack.

"The dollar-based monetary system was about to collapse. The core of the problem was that for the second time in a year corporations, banks, central banks and other investors (including moneyed Arab interests) had stopped accepting dollars as the universal currency. Instead, there was heavy dollar selling on a global scale and the proceeds were going into gold, silver, deutsche marks, Swiss francs and even art and real estate." [7].

The Carter administration instituted the Money Control Act of 1980, lifting controls of interest rates and making usury legal. The new Fed chairman Paul Volker took advantage of the ability of the US to freely decide the price of the world’s trading and reserve currency and increased global interest rates to levels that were unprecedented. Third World debt [8] had escalated already because of high oil prices and the extraordinary rise in the global interest rate (denominated in US dollars) became essentially unpayable for them.

This is the background to the Ponzi scheme described by Coldwell in 1983. It's ironic that in a time of such overproduction of money that a small minority of creditors took all the power and forced up interest rates across the world, permanently damaging their economies. Nothing much has changed since then. In the early 1980s:

"Volker and his international aides worked assiduously to protect the earnings of the banks, particularly the money-center banks which were most exposed [to third world nation default]. In the negotiations over new loans, Volcker usually supported the bankers in their persistent refusal to make any concessions on interest rates. The Fed also took care to instruct its bank examiners to treat the huge portfolios of questionable LDC loans with special solicitude. If the rules were applied to strictly, major banks might be confronted with huge loan write-offs that would wipe out their capital.

The central bank, as regulator and protector, had worked itself into a compromising position. On the one hand, the Fed was trying to gradually extricate the largest banks from their overexposure and preaching sterner discipline for the future. On the other hand, the Fed was bending the banking standards and pressuring hundreds of other wary bankers to make new loans they regarded as dubious....when the [smaller regional] bankers balked at committing more money to the new loan packages, they were pressured by the major banks. If that didn't work, they received a friendly call from the president of the local Federal Reserve Bank, urging them to reconsider."

In most cases, William Greider takes care to point out, such successful persuasion "implied an unstated guarantee by the government."

This observation leads to yet another powerful phrophecy in Greider's book:

"The problem is that by the time the crisis ends, the regulatory authorities may be so deeply compromised by the concessions that they have made to the banks that there is no return."[9]

As we now see, the gambling in the world's financial markets went on and on and increased. It didn't ever stop because of government intervention. History shows, wrote Michael Moffit, that eventually the game will end. Vast abused freedom on the part of US government administrations - Democrat and Republican alike - and of that of global TNCs have shackled both them and us.

We are all among the losers now.

REFERENCES:
[1] William Greider. 'The Secrets of the Temple - How the Federal Reserve Runs the Country' Touchstone 1989. Page 549

[2] See William Endaghl 'The Fake Oil Crisis of 1973'
http://www.engdahl.oilgeopolitics.net/1973_Oil_Shock/1973_oil_shock.html

[3] The ex-ambassador to Saudi Arabia, James E. Akins… argued [around 1980] that Kissinger acquiesced in the Shah-led oil price hikes beginning in 1974 to provide Iran with the finances to help out ailing Northrup, McDonnell Douglas, General Dynamics, Boeing, Grumman and Litton Industries.
The Multinational Monitor
DECEMBER 1980 - VOLUME 1 - NUMBER 11
I R A N
Business In the Shah's Iran
by John Cavanagh
http://multinationalmonitor.org/hyper/issues/1980/12/cavanagh.html

[4] Quoted from: American Global Enterprise and Asia
Journal article by Mark Selden; Bulletin of Concerned Asian Scholars, Vol. 7, 1975

[5] In 1975 it was reported that "“A recent survey of 1,029 executives of leading U.S. global corporations, for example, found just 19 foreign citizens.”
American Global Enterprise and Asia
Journal article by Mark Selden; Bulletin of Concerned Asian Scholars, Vol. 7, 1975
http://www.questia.com/

[6] "the Fed [as a monopolist] cannot control both the price of money...and the quantity of money...at the same time."
Maxwell Newton 'The Fed - Inside the Federal Reserve, the Secret Power Center that Controls the American Economy' Times Books, 1983. Page 211

[7] Michael Moffit 'The World's Money' 1983. Page 196

[8] These were syndicated loans originating from the concentrated financial markets of Wall Street.

[9] Karen Lissakers 'Dateline Wall Street: Faustian Finance', Foreign Policy, Summer 1983.

Good News In The Muslim World

Juan Cole today http://www.juancole.com has posted ten items of good news from the Muslim world, which, with one exception, have been largely unreported in the media. I simply list them, although some might question whether they are all "good news."

10. Opening of first coeducational university in Saudi Arabia in 2009
9. GDP growth rate of 7.5% in Qatar (lots of natural gas)
8. US Muslims reasonably well integrated into society (in contrast with much of Europe)
7. rising use of internet in Arab world
6. Albania having 10% GDP growth rate, highest in Europe
5. increased democracy and womens' rights in Kuwait
4. Indonesia holding successful elections and increased support for moderate Islam, partly due to influence of former resident Obama
3. good economic performance in Turkey, not hit too hard by recession and growing at 5.8% GDP between 2002 and 2008
2. stabilization in Lebanon with peaceful elections in June without Syrian interference
1. anti-regime demonstrations in Iran (the one much-reported on item)

Happy New Year ... And Goodnight.

My posting has become less and less frequent over recent months because of heckling from one of my co-bloggers. A communal blog is sort of like shared accommodation. The repetitive sniping from one individual has made me feel like an unwelcome guest in my own home.

I have written a book, which I would have hoped to promote on EconoSpeak as it progresses toward publication. Much of the analysis originated here or at MaxSpeak over the last eight years. I'll probably start up a new blog sometime in the future. Send me a note at lumpoflabor at gmail dot com and I'll put you on the announcement list. In the meanwhile, thanks for listening!

On Syllabic Efficiency --- "Twenty Ten" Or "Two Thousand Ten"?

So, for something light on the last day of the decade during which we have said "two thousand one" and "two thousand nine" and so on, even though we say "ten sixty six" when referring to the date of the Norman conquest of England. Allow me to define "syllabic efficiency" as saying something with the fewest syllables.

During this still nameless decade it has been of equal syllabic efficiency to say "two thousand one" versus "twenty oh one," which was the alternative nobody ever did, probably because since 1968, if not earlier, we had been saying "Two Thousand One: A Space Odyssey" for the book/movie by Arthur C. Clarke, which put us into a path dependence favoring saying "two thousand." Now we are at the potential switch point where it would be more syllabically efficient from tomorrow on to say "twenty..." rather than "two thousand..." by one syllable, because there is no more need to say that "oh" that nobody said anyway. In listening I have heard a split in speaking of next year, with some people saying "twenty ten" and some saying "two thousand ten." Which will it be, folks? Will syllabic efficiency (and the practice prior to this century) win out, or will be stuck with syllabic inefficiency due to a path dependence that Arthur C. Clarke bequeathed to us?

Robert J. Gordon is TRULY a Buffoon

In his closing remarks in The Economist debate on European vacations, Professor Robert J. Gordon once again invoked the bogus lump-of-labour fallacy but not before himself committing the "fixed-amount-of-this-that-and-the-other-thing fallacy" oh, about four or five times in a "calculation" of how much income Europeans would take home if they worked as many hours as Americans.

Let us figure out how much Europeans pay for shorter annual hours of work in general and their longer days of vacation in particular. International data comparing Europe and the United States in dollars of equivalent purchasing power show that the ratio of Europe to the United States is 90% for output per hour, 68% for output per person and 75% for hours of work per person. Converting these ratios to real GDP per household (using 2.5 people per household, the US figure for 2004) yields a US GDP per household of $120,000 compared with a European value of $81,600.

But Europeans are not allowed to keep this amount, because OECD data show that they pay 39.15 of GDP in taxes, compared with 25% in the United States. This brings European take-home pay down to $49,700 compared with $90,000 in the United States, or 55% as much. If Europeans worked as many annual hours as Americans, their per-household GDP would be 90% as high (the remaining difference is due to lower productivity) and their take-home pay would leap to $76,100, an increase of 53%. The disproportionate impact on take-home pay occurs because total government tax revenue stays the same, greatly reducing the share of taxes in GDP due to spreading the costs of European government across many more hours of work. Given the large discrepancy in GDP per head, the lower American tax rates generate almost as much tax revenue as the higher European rates: $30,000 compared with $31,900.

This multiplier effect, that raising European hours of work by 32% would raise take-home pay by 53%, carries over to the portion of shorter European hours attributable to longer vacations. So the proper question Mr de Graaf should be asking Europeans is not whether they like their long vacations or would like to enjoy longer ones. Rather, he should be asking whether lengthening their vacations by one more week, five out of the 365 days in the year, or 1.4%, would be worth giving up an extra 4.4% ($2,200) in take-home pay.

Unfortunately, Europeans have not been asked to vote on this question, nor on the question of whether the alternative of working American hours per year (including lower unemployment, higher labour force participation, shorter vacations and a higher age of retirement) would be worth an extra 53% ($26,400 per household) higher take-home pay. Politicians and union leaders have been taken in by the "lump of labour" fallacy and have spun a web of employment protection regulations, restrictions on hours, early retirement and high taxes, in the mistaken belief forcing people to work less creates new jobs for others. Most Europeans would be surprised to learn how much real money they have sacrificed at the altar of this fallacy.

Three Different Paths On Ashura

Monday was the 10th of Muharram in the lunar Islamic calendar, which slides by 10-11 days per Gregorian solar year, which is celebrated by Shi'i Muslims as Ashura, their holiest sectarian day, the anniversary of the martyrdom at the hands of Sunni Muslims commanded by Caliph Yezid of the grandson of the Prophet Muhammed, Hussein, now buried in Karbala, Iraq. Traditionally, devout Shi'a march in the streets flagellating themselves in his memory and honor. This year there was violence in three neighboring countries on this day, Iraq, Iran, and Pakistan, but for different reasons in each case.

In majority Shi'i Iraq celebrating Ashura used to be banned under Sadaam Hussein. After his overthrow it was joyously celebrated and was supported by the new regime. For the first time this year many of those celebrating manifested anti-government slogans and speeches, mostly accusing the al-Maliki government of corruption. The violence erupted when a Sunni radical suicide bombed some marchers, killing six and setting off riots.

Much more publicity has attended to majority Shi'i Iran, where both the government and the opposition support celebrating it, and there were some pro-government groups who celebrated it in the usual fashion, without incident. However, opposition groups used it to criticize the anti-democratic and repressive regime, with this bolstered by demonstrations following the death seven days earlier of the most prominent anti-regime Grand Ayatollah, Hossein Ali Montazeri. The new demonstations included for the first time open criticism of Supreme Jurisprudent, Ali Khamene'i, as well as attacks on Basiji (private militia) outposts, and some security people refusing to fire on the crowds. Ashura is traditionally supposed to be a time of peace and truces, and the government is in total violation of this, along with the latest report that they are holding the bodies of five people killed to avoid demonstrations at their funerals, one of those being the nephew of the main opponent of Ahmadinejad in the June presidential election, Moussavi.

Pakistan is majority Sunni, with about 20% of the population Shi'a. Ashura is often accompanied by riots there whenever Sunnis mock the marching Shi'a. Last year 40 died when a Sunni attacked the Shi'a in the Hongu, which was under strict curfew this year. This year only 30 died in a suicide bomb attack by a radical Sunni in Karachi, the country's largest city, which, big surprise, triggered rioting by Shi'a in that city.

550,000 Names

So a member in good standing of the Nigerian economic and political elite contacts the US embassy in Yemen. He says his son has gone off the deep end, fallen in with radical jihadis, and has traveled to Yemen to link up with fellow combatants.

And what does the embassy do? They put the son’s name on a list with 550,000 others—people who have attracted suspicion for any reason and no reason, intellectuals or just ordinary people who have expressed ideas evoking the disapproval of US officials (think of Tariq Ramadan), and untold numbers whose names were flagged purely by profiling.

Of course, a list of 550,000 names is no list at all. You are not going to do expanded searches on all of them in airport security lines, nor run all their luggage past canine noses. No, they will just board the airplane, and you must hope for the best.

Welcome to the Third World, Tasmania

The first decade of the New Millenium saw the state of Tasmania, Australia reach third world status.

Hundreds of thousands of hectares of native forest, much of it pristine old-growth and rare temperate rainforest, were converted to a vast gigantic monoculture. A single species of tree in neat rows now spans almost the entire north of the state from the West Coast to the East Coast in a land the size of Ireland.[1]

Environment, land-occupancy, planning and zoning laws were changed to facilitate the takeover of family farms by a privileged network of heavily-taxpayer-subsidised agribusiness corporations. Bands of former Australian politicians soon joined the staff of these new 'enterprises' to share in the extraordinary windfall profits that flowed from this stepped-up rape and pillage. Annual reports and meetings included assurances to global investors that there were no serious impediments to profit-taking by way of environmental laws or considerations for conservation.

In a mere decade common and iconic animals such as the Tasmanian devil, the bandicoot [2] the Tasmanian quoll and four species of burrowing crayfish[3] became an endangered species. The wedge-tailed eagle is "under threat from all fronts" [4] while the local platypus were reported to display a "unique sensitivity to developing chronic skin ulcers ... whereas the disease is not seen in mainland platypus" [5]. State and Federal Governments deliberately failed to incorporate scientific evidence into government decision making. [6] Nor did the Government provide adequate protection plans for these animals. [7] The abuse and neglect of our wildlife and flora was further reinforced when the Federal Environment Protection and Biodiversity Conservation Act was amended to accommodate trumped-up government notions of what constituted 'protection'. [8]

After ten years water courses used for irrigation and domestic water supplies began to dry up[9] and became repeatedly contaminated by pesticides [10]. These chemicals have been long banned in other nations because of their toxicity and ease of movement in the environment. So, it was no surprise to read that in this state, where residents are forced to live in what amounts to a giant agribusiness industrial zone, that Tasmanians have significantly 'poorer health outcomes compared to other Australians" [11] . In fact, three out of every four Tasmanians suffer from a chronic health condition which often "renders them unable to hold down a job and sees them struggle with simple daily tasks." [12] Given the sheer scale of environmental and health degradation the Tasmanian Government has clearly found it a much more lucrative proposition to protect themselves over and above their constituency. Epidemiological and public health research outcomes remain long suppressed [13] as are the spray drift models for current 'forestry' aerial spray practices, for instance.[14]

Globally, it is hard to calculate exactly how huge the Tasmanian 'forest' industry's contribution is to global warming. It must be massive, however. Hundreds of giant infernos are now lit with napalm; deliberately and routinely each year across the state as well as over the nation as a whole. Hundred of years of biomass in old growth forests have been put to the match, ancient stumps turned to charcoal and soils baked to a brick red. Now the plantations that have replaced these destroyed forests provide perfect fuel for much bigger wild fires that have begun to rage out of control with the advent of a dryer and hotter climate in South East Australia. [15]

Tasmania's communities are struggling like they never have before. The state's economy is quickly coming to a standstill with the biggest woodchipper, Gunns Ltd, now unable (at least for the time being) to find sufficient buyers for it 'product'. But the story of Tasmania's precipitous decline was foretold by many ordinary people whose clarity of thought was not polluted by heedless self-interest and bad morals. To see now that the dirty invisible hands of unfettered markets have spread their grasp into the first world makes me wonder just how little there must now be left to plunder in third world nations.

After all this, though, I can see that our forests and habitats in Tasmania have been killed - not by an enemy separate from ourselves - but by the aggregate consumption habits of a billion people on earth today. This is h-u-g-e and nothing more nor less than the enigma of people limited irrevocably to thoughts of childhood self-gratification. The state, says Tocqueville has prompted us to "dream of nothing other than being happy."

I want to dream of a future; to dream of downed-wallets and powered-down lives. Maintenance of the huge possibility of continued human life on the planet requires our urgent change, now.

[1] “Tasmania ran up the country’s largest area of new plantation in 2008, with 27% of the total from slightly less than 0.9 of Australia’s land area”. This was all proudly reported by the Bureau of Rural Science in Tasmania’s Examiner newspaper on 23rd April 2009, notwithstanding the announced collapse of MIS giant Timbercorp, also reported on this day.
Comment by Tasmanian resident John Hayward
http://tasmaniantimes.com/index.php?/weblog/comments/mckim/

[2] http://www.dpiw.tas.gov.au/inter.nsf/WebPages/SJON-58K8WK?open
http://www.tct.org.au/1080d.htm#Tasmanian

[3] Tasmania’s Freshwater Burrowing Crayfish (Engaeus sp.)
and the Mainland Yabby: Dispelling myths and informing
Students, Landowners, Fisheries Inspectors, Parks and
Wildlife Officers and Police
BUSHWATCH: 1800 00 5555
The Launceston Environment Centre: (03) 6331 8406
Threatened Species Unit at the Department of Primary
Industries, Water and Environment: (03) 62336556
Inland Fisheries Services: Launceston (03) 63365231
Hobart (03) 6233 4140

[4] *Rare eagles diving toward extinction*
By SIMON BEVILACQUA
14may06

[5] Failures in endangered species management. 10th March 2009
http://tasmaniantimes.com/index.php?/weblog/article/failures-in-endangered-species-management/

[6] The insidious invasion of Bioterror
http://tasmaniantimes.com/index.php/weblog/comments/the-insidious-invasion-of-bioterror/
David Obendorf and Joanne Connolly

[7] Quoll management plan released too late, trust says
http://www.abc.net.au/news/items/200509/1458178.htm?northtas
Monday, 12 September 2005. 11:34 (AEST)Monday, 12 September 2005. 11:34

[8] Protection of the environment was converted in meaning to a mere presumption of law that cannot be rebutted by evidence and must be taken to be the case whatever the evidence to the contrary. See the history of Brown v Forestry Tasmania [The Wielangta Case]

[9] "After about 10 years' growth under intensive plantations, about one-in-eight of the streams that were in the areas that we studied had no flow for a year or more, and overall there was a 50 per cent reduction in stream flow,"
As quoted in: Plantations may do more harm than good, says CSIRO
Last Update: Sunday, January 1, 2006. 9:10am (AEDT)
http://www.abc.net.au/news/newsitems/200601/s1540198.htm

[10] Editorial: Not weak on water, 4th August 2009
www.themercury.com.au/article/2009/08/04/33155_editorial.html

[11] Lara Giddings, MP, Deputy Premier and Minister for Health and Human Services
Thursday, 29 May 2008
State of Public Health Report 2008
http://www.media.tas.gov.au/release.php?id=23855

[12] Plan to fight chronic disease. DAMIEN BROWN
December 07, 2009 09:13am
http://tasmaniantimes.com/index.php?/weblog/article/plan-to-fight-chronic-disease/
The Mercury link: http://www.themercury.com.au/article/2009/12/07/114171_lifestyle.html

[13] Medical researchers angered by Govt suppression
By PM's David Mark
http://www.abc.net.au/news/stories/2008/03/01/2177010.htm?section=justin

[14] The Australian Pesticides and Veterinary Medicines Authority (APVMA) had repeatedly failed to provide the aerial spray drift model outcomes requested by Brenda Rosser (moderator, Tasmanian Clean Water Network) for years now.

[15] The record bushfires of Victoria in February 2009 bear witness to this new and frightening development:
(i)Fire/land tenure map of the Murrindindi fire that burnt through Marysville overlaid onto the latest NASA satellite Infrared Image.25/02/2009 8:46 am
http://www.myenvironment.net.au/index.php/me/resources/bush_fire/research/fire_land_tenure_map_of_the_murrindindi_fire_that_burnt_through_marysville_overlaid_onto_the_latest_nasa_satellite_infrared_image

(ii) Links between bush fire and logging coupes
08/03/2009 1:24 pm
http://www.myenvironment.net.au/index.php/me/resources/bush_fire/research/links_between_bush_fire_and_logging_coupes
“….a logging map created from the DSEs forest explorer interactive maps. It may be more than a coincidence that the fire pattern just happens to follow coups logged over the last 30 years - hence lots of regen/regrowth, thirstier young trees, dryer undergrowth etc etc....

(iii) http://www.hancock.forests.org.au/docs/09feb.htm
Churchill Bushfire/plantation fire Feb 7 2009.

(iv) Feb 15 2009: Strzelecki Ranges/Jeeralang Creek West Branch from Jeeralang West Road. Plantations still smouldering but Hancock leave this unattended.
http://www.hancock.forests.org.au/docs/09feb.htm

Etc

The Danger of Overcapacity

While the US frittered away much of the stimulus on throwing money at banks, the Chinese actually created much more capacity. Business Week used to do a good job of understanding real issues. Here the new Bloomberg magazine notes that the extra capacity poses a risk to the West because China will now have to export more, creating a different sort of imbalance.

Roberts, Dexter. 2009. "China's 'Made in China' Problem: The Downside to Beijing's Huge Stimulus is a Glut of Factories and Output That May Spur Trade Frictions." Business Week (21 December): pp. 20-21.

While Beijing's $586 billion stimulus package has helped the mainland navigate the global financial crisis, there's a downside. Fixed asset investment -- money spent on factories, highways, and other big-ticket projects -- soared 40% in the first half and accounted for nearly all of the country's growth.

A Reply to the Union of Concerned Scientists

I have to begin by saying that I appreciate the very civil tone adopted by Rachel Cleetus and UCS. It almost doesn’t feel like the internet.

Now on to the disagreements.

1. I stand by my claim that the least significant part of any climate bill is what it says it will do in 2020 or 2050. In a few more days, 2020 will still be a decade away. A decade ago Alan Greenspan was getting nervous that federal government would retire its bonds, become a net creditor and start buying up financial assets. OK, he gets credit for one out of three. Seriously, we will change our targets for carbon reduction over the next ten years, probably several times. If Rachel wants to put more stress on immediate action, that would make sense, but 2020? As for a science review process, fine, but it’s naive to think that any such mechanism will generate automatic revisions in such a crucial policy variable as cuts in carbon consumption. It will be political every time.

2. The statement that “tropical forests....are a source of 15% of global emissions” is simply wrong. Climate change is not a carbon emissions problem, it’s a carbon cycle problem. We are better off with more forests than less because they buy us some precious time, but in the end it’s about the extraction and combustion of fossil fuels. This is an important distinction to make because there are powerful financial interests that want to convince us we can get to a stable climate by shelling out money for forests rather than cutting deeply into our fuel consumption. No.

3. At the risk of dragging the tone of this discussion into the gutter, I will say that Rachel is being disingenuous when she writes that support for tropical forests, clean development in low-income countries etc. is “not about offsets”, when clearly it is. The bill she prefers, Kerry-Boxer, is loaded with them. She is right to say that this falls within the current UN framework, but if you think, as I do, that offsets are the wrong way to go, you have a problem with that framework as well. The Copenhagen fiasco tells me the time is right to change it.

4. As I’ve written on several other occasions in this blog, it is delusional for environmental groups to allocate in their imaginations the billions and billions from carbon offsets to all their favorite causes, from energy conservation to R&D to generous support for the victims of climate change around the world. It’s not that we don’t need all those things. There are just two problems: (1) If there are to be such massive auctions, the income they generate will be taken out of the hide of consumers—it will be a mega sales tax. Such taxes are very regressive. It is very bad social justice to advocate a radical shift in public finance from moderately progressive income taxes to radically regressive sales taxes. And, no, Kerry-Boxer will not protect consumers from these price hikes. If they did we would have paralyzing energy shortages, worse than we had in the 1970s when oil prices were capped. (2) But we won’t have these lovely auction revenues to allocate in the first place. No government that has to face democratic elections will enact carbon restrictions that eviscerate the household budgets of its citizens. Despite all the rhetoric it hasn’t happened yet, and it won’t happen, ever. The only way to get the tight carbon caps we need is to give the money back, and to hard wire that promise into the legislation itself. If the commitment isn’t credible, the politicians will always run for cover when the chips are down. There’s no guarantee that rebating carbon revenues will be sufficient, but it’s a sine qua non. If the Europeans, who are much better informed and more supportive of action on carbon mitigation than we are, won’t tax themselves sufficiently for the cause, why do you expect this of Americans?

5. I agree that in a perfect world we would start by investing in energy efficiency and green R&D. I will support any bill that UCS writes that allocates money from the general budget for this purpose. Sign me up. But: (1) if the money comes at the expense of rebating skyrocketing energy costs it will render politically unattainable the overall cap that has to be the centerpiece of our policy, and (2) as a practical matter, the public will not support a big shift in spending toward these programs until after they see their energy costs go way up. I have put my name on every petition for mass transit and similar causes for 40 years and have seen almost every struggle go down to defeat. In a world of cheap gas, people don’t have to invest in alternatives, so they don’t. I’m afraid that, to quote someone who is not supposed to be quoted any more, when it comes to this topic, it is not people’s consciousness that governs their material conditions, but their material conditions that govern their consciousness.

6. To briefly reprise my previous post: one of the mistakes of the Kyoto-Copenhagen framework was to tie together mitigation and adaptation—to hold joint action on minimizing climate change hostage to arrangements to compensate the victims. I’m certainly for compensating the victims—and more—but not if it leads to gridlock. Fortunately, there is a gathering international consensus that the time has come for global financial mechanisms to address global concerns, like massive, extreme poverty, illiteracy, disease—and adaptation to climate change. Every other developed country except this one has joined the Leading Group and is discussing which financing mechanisms to put in place. The first of these, an airline ticket tax that pays for life-saving pharmaceuticals in the poorest countries, has already been implemented by eleven countries. If UCS wants the US to stand up to its international obligations, a good place to start would be getting the US into the Leading Group and supporting the fundamental reform of international finance. Crippling essential action on climate change by threatening to bleed households and then earmarking a fraction for Good Works Far Away is not a wise alternative.

Aughties, Noughties, Or Just Naughties? The Ten Worst Of The Bush Decade

Some say one reason we are seeing so little commentary on the end of the decade is that nobody knows what to call it. Is it the Aughties, the Noughties, or maybe just the Naughties? Some (the crowd over at Marginal Revolution) argues that much went well in places like China and India, where living standards for millions clearly rose. Cannot disagree. However, most think things not so hot (or maybe too hot) here in the US. Yesterday, Juan Cole at http://www.juancole.com gave a list of the Ten Worst Things for the US in the Bush Decade, which I repeat here without further comment, although he provides more.

10) stagnating worker wages and emergence of new monied aristocracy
9) greater health and food insecurity for Americans
8) environment more polluted
7) imperial presidency ensconced
6) Katrina destruction of African-American neighborhoods in New Orleans
5) mishandling of Afghanistan
4) Iraq war
3) $12 trillion Bank Robbery associated with deregulation
2) 9/11 attack, with Bush laughing at CIA warning on 8/6/01
1) stolen 2000 presidential election.

Happy holidays everybody!

Watching Sausage Being Made - Health Care "Reform"

There is an old saying that there are two things one should not look too closely at: the making of sausages and the passing of laws. In the case of what is left of health care "reform" after all the purging and paying off, which may be passed tomorrow by the Senate, this is the case more than usual. It is not a change of system, but at best an extension of the existing system, even though Obama said he would change it, and many among the Dems in Congress have pushed for more serious systemic change. As it is, I see six different possible systems broadly:

1) pure laissez faire, done in the US in the past, but no longer in place in any high income country, 2) the US system of for-profit private insurance with some state provision (medicare, medicaid), 3) a universal system of non-profit private insurance, what is in place in the Netherlands and Switzerland, 4) a universal coverage system of private-non-profit coverage through employment and a public option for rest, found in Germany and France (whose system has been rated the world's best by the WHO), 5) a single payer public system, with healthcare workers self-employed, Canada an example, and 6) a fully socialized system with healthcare workers state employees as in the UK and the former Soviet Union. I think that Obama was pushing for something like the French system, although keeping our useless for-profit insurance companies, but, well, not only sausage in the making, but pretty smelly sausage coming out the other end...

A Primitive Answer to High Tuition

Given the anti-intellectualism of today, maybe this is the answer for high tuition.

Mill, John Stuart. 1848. Principles of Political Economy with some of their Applications to Social Philosophy, John Robson, ed., Vols. 2 and 3 of The Collected Works of John Stuart Mill (Toronto: University of Toronto Press, 1965- ).

391: "Before the invention of the art of printing, a scholar and a beggar seem to have been terms very nearly synonymous. The different governors of the universities before that time appear to have often granted licences to their scholars to beg."

Copenhagen: Wall Street Journal vs New York Times

WSJ: "The two-week Copenhagen conference appeared set to end with no agreement at all, until last-minute bargaining among leaders from the U.S., China, Brazil, India and South Africa produced a final statement. A handful of countries, including Sudan, Venezuela and Bolivia, declined to endorse the 11th-hour deal."

NY Times: Andreas Carlgren, the environment minister of Sweden, the country holding the rotating E.U. presidency, said that the summit meeting had been a “great failure” partly because other nations had rejected targets and a timetable for the rest of the world to sign on to binding emissions reductions .... It was obvious that the United States and China didn’t want more than we achieved at Copenhagen,” Mr. Carlgren said at a news conference in Brussels. The obstacles created by those countries were “part of what we regretted,” he said."

Robert J. Gordon is a Buffoon

Gordon: "To engage in this debate in December 2009 requires that we play a fantasy game..."

It is fitting that Professor Gordon admits he is playing a fantasy game. To equate unemployment with vacation is a bizarre and callous fantasy. To equate market income per capita with standard of living is a strange and fantastic category mistake that could only be made by someone for whom "money is reality, while leisure is an empty spot in time devoid of wealth-producing activities."

But Professor Gordon crosses over the line from fantasy into delusion when he invokes the so-called "lump of labor fallacy" to disparage policies that encourage shorter hours of work. The fallacy claim is a weird concoction that many economists fancy to be their "knockout punch" against work time reduction. It consists of the bogus claim that advocates of shorter hours assume there is "a fixed amount of work to be done" regardless of labor costs, work arrangements, demographic trends or consumer demand. Advocates of work time reduction assume no such thing.

Policies to encourage shorter hours do not rely on any such ridiculous assumption. No economist has ever produced a coherent argument or substantive evidence to show that advocates assume a fixed amount of work or that policies rely upon such an assumption. All economists have done is repeat the assertion ad nauseum. Repetition doesn't make it so.

The lump of labor fallacy amounts to little more than schoolyard name-calling. But – and this is a crucial point – it is name calling with a long and very peculiar history that has nothing to do with economic analysis and everything to do with reactionary ideology and polemics. Professor Gordon is sadly unaware that this curious history of the lump-of-labor fallacy claim has been painstakingly documented (see "Why Economists Dislike a Lump of Labor" ).