Wednesday, December 31, 2008

I'd like to wish you a Happy New Year, but...

Everyone reading this is probably aware of the precarious position we're in. Global warming is proceeding faster than the worst projections, and it's not just a question of everyone feeling a little warmer. Small changes in climate can have dramatic effects on the worlds ecosystems that have already been fragilized to the breaking point by human use. Changes in weather patterns can change storm patterns, destroying not only human habitations (such as New Orleans), but also potentially devastating shallow-water ecosystems such as coral reefs that form a key component of the ocean life systems that we humans rely on for food. Similarly, as if the lungs of the Earth (the tropical rainforests) weren't already in enough peril from direct destruction by humans, human-induced climate change may well finish the job.

But we can solve this, right? If you look around at our modern marvels, it would appear that we humans can create anything that we can possibly imagine. Unfortunately, these miracles are built on more than just human ingenuity and the shoulders of giants -- they're also built on a gigantic trust fund of free energy that we happened to find buried in the Earth's crust. And at the rate we're going, we'll have it spent within a generation or so. World peak oil production is right around the corner (if we haven't already passed it), and worldwide demand for energy is going nowhere but up. We're nowhere near getting ourselves weaned off of fossil fuels, and -- given our society's dependence on energy-intensive activities such as agriculture and transportation of food and people -- it's not clear the Earth minus its oil reserves will be able to support our population of six billion (and growing).

Part of the problem is increased energy consumption in the "developing world." Naturally people want to emulate the (currently) rich countries, and unfortunately they're doing it by making the same mistakes. Developing countries will be in a better position in the long run if they can manage to skip the dead-end step of refitting their cities to be more "car-friendly." But moving towards sustainability will probably require widespread literacy and education, goals that can't be accomplished simply or overnight.

Even apparently sustainable activities like agriculture and drinking fresh water aren't as sustainable as you might hope. Irrigation-based farming can lower the (fresh) water table and affect the quality of the soil in just a few seasons. Overgrazing can harm plant life beyond its ability to recover, and the resulting erosion does the rest. Sure, with effort humans can make the desert bloom, but for how long? And what will it look like afterward? The deserts have spread and expanded over the past few millennia of human use, even without the current global warming catastrophe to speed things up. It's true that modern industrial farming techniques have changed all the rules about how much food humans can produce per acre, but unfortunately this technological miracle (not only in terms of machinery but also in terms of chemical fertilizers and pesticides) is largely based on inexpensive petroleum. (This is why I'm wary of "biofuels" as a solution to our energy problems -- a moment's reflection should make it clear that "biofuels" are nothing more than an incredibly inefficient and environmentally costly type of solar power.)

So are we capable of re-orienting our society towards something reasonably sustainable? I think we could if every human on the planet were to make sustainability a life-or-death priority. Yet -- while we humans are capable of surviving and adapting to amazing hardships when we have to -- it seems we're incapable of making even minor lifestyle changes for an intangible like "future generations."

Even if we see that investments in energy efficiency today can save us a lot in the long run, it's not clear we have the capacity to make any kind of real investments. People keep saying that Obama will have difficulties if the economy gets worse. I ask what do they mean "if"? Energy will become a lot more expensive, and we have no particular reason to project any respite. Meanwhile U.S.-style sprawl means that U.S. cities require several times as much energy per capita to run than their Asian and European counterparts. Then there's the economic crisis. The U.S. economy today is largely based on debt-fueled consumer spending, with an enormous trade deficit. I don't see how this can be viewed as a viable long-term economic strategy, yet the common wisdom still says that as long as we can keep "consumer confidence" (hence consumer spending) up, then everything will go back to normal, and the U.S. will continue to be an economic powerhouse indefinitely.

Your Libertarian friends will tell you that one of the mechanisms of the market is the fact that those who make bad investments go under, but the U.S. government has been cheating by habitually insuring the banking and financial industries. So investments are allowed to grow, but with a safety net that gets hoisted up higher as it goes, since it would be unthinkable for any wealth to disappear once it has been created, no matter how dubiously. But rather than escaping the discipline of the market, it looks like we've merely moved the risk up a level. The U.S. government (hence the American people) are now the ones who have made too many bad investments, and we're getting to the point where it's no longer realistic to suppose that the national debt can ever be paid off. The "almighty dollar" is barely holding its own against other foreign currencies, and (since the Saudi princes will no longer be motivated by helping their friend Mr. Bush) the dollar could take another hit if OPEC starts demanding payment in another currency. We could easily get to the point where the U.S. can no longer even "service" the debt (i.e. pay the interest). American common wisdom says that debt is not a problem because we can always grow the economy to dwarf it. I ask: grow it on what? More debt? Air? This is the economic strategy I like to call "patching Reagan's balloon" (a.k.a. "Voodoo economics"). We've just bought another 700 billion dollar patch that we can't afford -- do you think it will hold? Looking at this from the perspective of someone living outside the U.S., I'd say this bailout will provide the liquidity so that foreign interests can disentangle themselves from the U.S. financial industry as much as possible without losing their shirts. The shirt-losing will come later, to someone closer to your home.

A better investment would have been to spend the 700 billion on rebuilding America'a rail network, and getting it up to the technology level of Europe and the far east. Train travel is by far the most efficient type of travel, and (unlike planes, trucks, and automobiles) it's already largely electric, simplifying the transition off of fossil fuels. The more energy costs increase, the more you'll wish you had that efficient train network. Unfortunately, it would appear that the U.S. government is incapable of making intelligent investments. Uncle Sam can whip out the public credit card for some types of emergencies ("Oops! The banking industry royally screwed up!" or "Oops! That war we started cost way more than we ever expected!"), but can't seem to plan ahead. American common wisdom says that any investment that benefits the whole society is tyranny (socialism!). It's this same faulty common wisdom that causes Americans to think that somebody at the top (Greenspan, perhaps?) can just tweak a few variables and turn the right knobs to "fix" the economy without people having to make even the most obvious planning-ahead-type lifestyle changes (solar panels anyone? A smaller dwelling, closer to work, perhaps? A little less meat on that sandwich? A bicycle?).

Since Obama seems to have bought into this the-bailout-will-fix-everything common wisdom, you may be wondering why I campaigned for him so hard. It's simple. From reading his books, I gather that he has the clear head and leadership skills to unite the country and guide us (hopefully in the right direction) through the coming crisis. He's the one who seemed most likely to be able to avoid that other deadly-wrong bit of American common wisdom: that the solution to economic crisis is war. A President Palin would surely have "solved" our planet's problems by finding us an enemy to nuke. And while that solution may well benefit some species on Earth (by ridding the planet of its most destructive species), it won't help us much.

So, good luck! And happy 2009...


C. L. Hanson said...

p.s. Sorry to be MIA from the Internet lately! Our family has been doing some holiday travelling, including staying with relatives who (bizarrely enough) have no Internet access. Hard to believe, but true. So I've been squeezing in a minute of Internet time whenever I can find it.

MoHoHawaii said...

I nominate this essay as blog post of the year.

(Way back when I heard about corn ethanol as fuel my first reaction was "Brilliant idea-- burning the bread of the poor in the SUVs of the rich." That's pretty much how it played out as grain prices worldwide rose, partly due to increase corn demand as fuel.)

Anonymous said...

Sad to say, this post rings of too much truth for comfort.

C. L. Hanson said...

Thanks MoHoHawaii!!!

Yeah, I don't get why anyone thinks biofuels are a reasonable solution to our energy problems. It should be obvious that the "renewable" aspect is just the fact that plants are storing solar energy, but as solar energy collecting strategies go, raising crops just to burn them is shockingly inefficient. People like this idea only because it means we can continue using our carbon-burning machines such as cars without having to update our technology. It amounts to just what you say: burning the bread of the poor so that the rich can continue blythely tooling around in their giant SUVs without a second thought. Then, when I read some oil company's ad listing their "new ideas" for energy and saw that it included fuel from algae, I about had a heart attack. Yeah, that's what the planet needs -- further endangering the ocean ecosystems by burning up the base of much of the food chain.

But why not look to the future rather than waste time on the dead-end of trying to preserve our current-technology dinosaur machines? Just because it's easy for us to use (fossil) biofuels that were packed away in the Earth millions of years ago, that doesn't mean it's even remotely efficient for us to try to recreate this type of fuel ourselves. OTOH, if we were to put the effort and research into solar panel technology that we've been putting into computers and cell-phone technology, we could certainly come up with some impressively efficient new things.

Hey Chaplan!!!

Yeah, I'm sorry to be a downer. But I prefer to be the type of optimist that says we can tackle this if we work at it rather than the type of optimist that says that if we close our eyes and pretend the problem isn't there, maybe it will go away...

John Hamer said...

Yeah, you're a real negative nelly now that you're Swiss.

Anonymous said...

Lawl -- word to John Hamer. I think this post is awesome...and I want to off myself. ;-)

Happy New Year, Chanson and DH and boys!!

- wry

The Sinister Porpoise said...

I might be concerned, but I do not share your pessimism. Environmental disasters, although real, tend to be exaggerated by using yellow journalism techniques.

Economy cycles have been going on for centuries and this current downturn will end eventually.

The concern is good, but many of these things, too, shall pass.

Besides, if the ice caps does melt, I'm sure most of Switzerland will be high and dry. I for one, if I survive such catastrophes, will be looking forward to never experience winter again.

But if I'm wrong, you live in the place where the best chocolate in the world is made. Surely that should offer some consolation.

Eugene said...

Fear not. When scientists talk about "algae oil," they're referring to cultivated algae grown in facilities similar to photovoltaic farms with access to lots of carbon dioxide (i.e., power plants). Algae (like all green plants) operates in a carbon cycle that converts sunlight to stored energy, only more efficiently than grains.

Whether it can be made practical is another question. But these days, come up with a zero-emissions scheme or a solar energy scheme or a carbon-capture scheme, no matter how nutty, and the environmentalists will sanctify you and the DOE will throw money at you. (And you thought sub-prime loans were a scam!)

Anonymous said...

Liked the essay. I agree with the premise that we need to develop and utilize sustainable energy sources. I also agree with the need for more efficient forms of mass transit.

However, as one who lives in a very rural area, out here where the food is grown, our transportation needs are different for a variety of reasons. So, alternative energy forms are needed for use on a more individual level also. I drive a hybrid and hope a viable renewable fuel cell is fully developed soon.

On the economic front, I agree some redistribution is needed to balance the wealth in a more justifiable manner, some form of capitalist socialism. I think this is an area where America can experiment some, not just wholly follow already established models.

I sure hope another war isn't seen as the answer to our myriad array of problems, but I don't have as much faith in Obama administration avoiding that path as you seem to have. Going back to your 12/22/08 Santa Claus letter- you make such a good argument for why believing a story is true can actually thwart ones thinking. That is how I see the Obama story, as it has been presented to us. What we have been told and what is really true are probably two completely different stories. Given that he has been propped up by the very financial institutions that are now bankrupting us, I don't hold out much hope that things are going to get better anytime soon.

Anyhow, that's enough from me. I enjoy reading your letters and hearing a perspective from someone living abroad. Thank you.

AnnM said...

The sustainability of economic growth is an interesting question. Wish I had time to pursue it a bit. History is long and U.S. public debt as a percentage of gdp is still nowhere near WWII levels.

The $700 billion patch on the financial services industry is not intended to grow the economy. The fiscal stimulus package next year (and up to 5 years after that) are supposed to do that. Obama seems to have real vision with respect to what will fuel growth; we'll see how effective he is at getting it through the political process. But I think it's too early to suggest he lacks nuance in his approach.

I definitely would say that Bush has not done anything to address the financial and economic crises except toss in enough money to keep the economy from completely crashing before Obama takes office.

My main point, though, is that the financial services bailout package was/is critical, and cannot be compared with investments intended to stimulate growth. I think the best analogy is engine oil: you can argue about the design of the system, the size of a leak, the best choice of oil, but if you have no oil your engine is going to seize up and die. Financial liquidity is oil to the economy. The bailout package may be horribly inefficient and wasteful, but a tiny bit of it is getting through. We need to fix the financial markets, and we could do a better job pouring in liquidity as a short-term fix without spilling money all over the place. But we cannot afford to not have it. The cost of the bailout does not & likely will not compare to the cost of the economic contraction that would occur without it.

Sorry if I appear to be lecturing or harping on one point. You have a great talent for synthesizing ideas from diverse areas, and I think this would be a lot more fun to discuss over a bottle of wine. Someplace warm.

AnnM said...

& Happy New Year to you, too. ;)

C. L. Hanson said...

Hey John!!!

Yeah, it's terrible, isn't it? ;^)

Thanks Wry!!!

Happy New Year to you and your family too!!!

Hey Eugene!!!

That's a relief! Thanks for the info.

Hey Sinister Porpoise!!!

It's true that Switzerland of all places will probably not be harmed much by global warming. But the climate change can potentially do some major damage in a lot of places, especially in the developing world. Just because I'm not there doesn't mean I don't mind if the people there wash out to sea...

Hey Real Change!!!

It's true that rural areas have different transportation needs, and, for example, can't benefit much from public transportation. Looking at how much of our society relies on petroleum technology and can't easily be converted to something new, it becomes that much more frustrating to see people wasting fossil fuels in situations where they're not needed.

And I completely agree about the need for finding a variety of new energy sources and about not limiting ourselves to traditional economic models. We shouldn't get locked into the old-fashioned cold war mindset that there's marxism on one end and Ayn Rand libertarianism on the other, and the only choices fall on a linear spectrum between them. We can learn from which parts of the various models have worked in various situations and use that knowledge to find new solutions.

Hey Sam-I-Am!!!

It's good to have the perspective of a real economist here. I understand that this bailout provides necessary liquidity to keep the economy going and that without it the economy will seize up and crash hard more-or-less immediately.

However, I feel like a lot of people misunderstand and think that the bailout will "fix" the economy so that it will somehow "recover" and just keep growing indefinitely, with U.S. economic prominence intact (because no one in the U.S. can imagine things any other way). I may be wrong on this, but just looking at structural factors, I would guess that the economy is going to get a whole lot worse before it gets better, and the bailout is largely a question of how dramatically it hits and when. One could argue that this bailout is buying us a little bit of time and false hope (to keep comforatbly going a little further in the wrong direction) and that the time we've bought will be costly in the long run. Whereas a harsh dose of bitter medecine could potentially convince people to make big changes that would be beneficial in the long run. Of course we'll never know since it won't happen...

And Happy New Year!!!

AnnM said...

My sense is that Obama's economic team understands the importance of big changes in financial market regulations, as well as restructuring the bailout to ensure it actually improves liquidity. I don't think it warrants a sense of hopelessness because they aren't in charge yet.

I'm not sure who thinks America will retain its sense of pre-eminence, culturally or economically, only because that's not been my point of view for so long! My dh and I have been discussing the end of the empire for the past 8 years. When we lived in Singapore we looked around and saw the face of the future, economically and culturally.

But Obama has a good economic team, and is preparing a wide variety of strategies, both short-term cash infusions that will include a lot of lard, and long-term investments that are meant to fuel economic growth (education, infrastructure, energy revolution). I've never been more hopeful.

Anonymous said...

A slogan for 2009, as it appeared on a Greek rioter's sign:

"Merry Crisis, and a Happy New Fear!"

Th. said...


I can't believe we're going to let a little thing like the end of the world prevent us from having a happy new year....

C. L. Hanson said...

Hey Sam-I-Am!!!

I hope you're right about Obama having a great economic team with a variety of short and long-term solutions. I'm still a little skeptical about the bailout being a good or necessary step, as opposed to being an unfortunate political move.

Granting your contention that the economy needs a seven hundred billion dollar lube job, I don't think we should necessarily jump to the conclusion that insuring/bailing out the financial industry is the only way to do it. I think that habitually using public debt to back up virtual wealth is a big part of how we got into this mess. (By "virtual wealth" I mean things like tallying up the value of all of the houses in the U.S. according their value during the housing bubble as being the value of America's housing infrastructure).

Handing the bailout money straight to the people who screwed up in the first place may represent artificially propping up parts of the economy that deserve to shrink, even if it hurts at the time.

Here's what I mean by the "bitter medicine" analogy: Shielding people from the cost of gasoline (by keeping the price articially low through military adventures in oil producing countries, etc.) encourages people to make bad decisions based on their skewed perception of the costs. Allowing the price to go up may hurt a lot in the short term, however it will inspire people to make better long-term decisions (eg. when the price inevitably does go up, you'll be glad you bought that economy car instead of that monster truck). It's about long-term thinking vs. short-term. It could easily happen that this bailout keeps the economy lubed-up and running business-as-usual for another year, and then at the end of the year we discover that the economy needs another expensive lube job -- but now we no longer have the credit to do it, and all we have to show for the seven hundred billion dollars we spent was that one year of comfortable stability before the crash hits in earnest.

Regarding the popular belief that WWII cured the depression, there's probably some truth to it. But it wasn't because there's something magically economically stimulating about killing people. It's because a world war is a big enough emergency that people were willing to question the common wisdom of the time about economics (try some radical ideas) and to make radical changes in lifestyle. A dose of "this is a serious situation -- we can't expect business-as-usual" thinking would probably help right now, and I think the bailout encourages the opposite: "let the guys at the top handle it" complacency.

Hey Anonymous!!!

Yeah, that's about it. I'm not trying to spread fear and panic, but I think people would do well to prepare to make some serious changes.

Hey Th!!!

Sorry about that. Happy New Year! :D