Category Archives: Perspectives

Agriculture will be the most pressing issue of our time

Below is a great TED talk that brings some awareness to what seems will be the most pressing issue of our time (in 10-30 years) as it is the prime contributor to our rapid resource depletion and increased risk of cataclysmic climate change.

I feel that economics is best for sorting out this problem. How best to get others to eat less in the more developed nations when high food costs prohibit people’s decision to over-consume. The same could be said of high costs of oil and decreased driving habits. Many pricing distortions that the modern economies experience directly impact the relatively cheap pricing of food; specifically water, fuel, and choice of production. (corn subsidies)

Although as much as economics has a benefit, there is a cost. Producers will be focused on maximizing gains by irrationally increasing output. (a la tragedy of the commons) This will drive already poorly productive agricultural producers to expand their output into valuable biodiversity resources such as the rain-forest.

The best solution IMO, would be to end the developed worlds price distortions in combination with aggressive conservation policies for the developing world that would limit our total % of land used for agriculture and offer appropriate support to help current fertile land gains to reach 90-100% of its maximum productive capacity.

The two should limit over-consumption while also promoting increased productivity.

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On Freedom in China

They seemed genuinely baffled by my insistence that the ultimate freedom is the freedom to throw out the people in power if you don’t like them.

“You do that in your country all the time,” one of them pointed out to me, “and it doesn’t seem, to make much difference. What we want is stability – and that’s what we’ve got.”

You can find more of that and the change in China over the course of 30 years, here.

Why can’t economic forecasters act like weather forecasters?

If economic forecasting is more akin to weather forecasting, (in accuracy) why wouldn’t economic forecasters practice the same presentation styles as weather forecasters? That is, given any usual business news (or even national and local news), economic forecasters present economic forecasts that resemble the presentation styles of weather forecasters.  It would include clear and concise explanations from a relatively attractive, well-spoken  person (don’t think actual economists like that exist) who can dictate changes in forecast trends for the economy who is aided by a green screen, supplying graphical information to aide in making their point. I could see this being viable on a business news network, where viewers are more economically literate.

How much credence would viewers give towards economic forecasters than weather forecasters? Much like climatologists who are a huge step away from meteorologists, are traditional economists a huge step away from forecasting economists? Both disciplines may be a few and far between in practice, but actual consumers of forecasts don’t let the difference phase them. As much as most still watch the weather, many still pay attention to economic forecasts. (For one, clients pay attention to mine.)

Would this ruin the perceived legitimacy of economic forecasting? In other words, is the ramification of being wrong more costly? Betting on good weather may result in the unfortunate situation in which one is with wet clothes, but much like the housing crisis, betting on economic forecasts may leave one underwater.

HT: Chartporn (for Picture above)

Unemployment Insurance Claims Not Letting Up

From Calculated Risk, a graph including today’s release of unemployment insurance claims:

Everyone thinks that this is terrible news, that unemployment insurance claims are not letting up. But take a look back during the tech boom recession, claims didn’t let up for a long time either. Given the severe magnitude of this recession, we won’t see any easing of unemployment insurance claims back to pre-recession levels for a very long time. Some structural employment issues at play may even cause claims to bottom out much higher than had previously in the boom times. A more dynamic labor market may be in order if hiring rates peak at a point that would offset claims, and that would mean that with a little more context, the issue isn’t as bad as we see it. Ups and downs should be expected.  This is really an issue of scale, and the severity of our recession has skewed our benchmark.

Seeing the Positives from the European Debacle

What happened in the stock market two weeks ago was scary: the Dow dropped 1,000 points in a matter of minutes.  Greece was on the brink of defaulting on it’s debt; a country I might add, that has it’s currency denominated in Euros.   Investors were worried that if Greece went down, it might drag down the Euro with it.  Luckily, the EU finally pushed politics aside and realized that in order to keep the EU from causing a European Lehman chain reaction, they had to bail out Greece.  If Greece went, so the saying goes, the rest of Portugal, Italy and Spain would go with it.  As the bail out was announced, U.S. stocks surged.  But the damage was done.

Stocks are still up since a year ago, but a lot of that equity was lost.  Some say it was a much needed market correction.  In a way, I agree.  Investors started to feel that they were being left out of the party (considering that stocks rallied considerably since March 2009) and wanted to get into the action, driving up valuations.    The market correction has left some worried that the lost momentum from the stock market and the teetering European situation means that the U.S. is going to lose steam in it’s recovery.  But it won’t; it will only make our recovery stronger.  There are several positive indications that Europe’s struggle is in America’s benefit.

  1. A stronger dollar against the Euro should help bring in an influx of investment.  While a weaker dollar sent investors over seas, most wealth generated outside of the U.S. will start seeking to invest here.*
  2. The Fed funds rate is still around 0% to .25%.  Inflation hawks are going to have to start rethinking their position as deflationary pressures continue to rear its ugly head.  Mean trimmed CPI is on a downward trend, and with energy and commodity prices pointing lower, it will only continue to send overall prices downward.   This type of environment will keep the Fed from raising rates, making borrowing cheap.  With mortgage rates continuing to be low, buying a house is still attractive.
  3. The potential benefit for having low interest rates is that foreign investors looking for returns will look towards equity markets.  This means more potential growth for U.S. companies and the stock market.
  4. The stock market wasn’t the only thing that experienced slides.  So did commodity prices, especially oil.  Oil was moving up to around $90 a barrel until the market correction happened.  Now, oil prices are down to $75 a barrel.   Any increase in gas prices is taxing on consumers, but so far, gas prices have stagnated and won’t be increasing any longer.  The cost of inputs are now lower across the board thanks to declines in commodity prices, providing cushy margins for companies that lowers the pressure to raise prices, resulting in an absence of pain for the consumer.

As you can see, there is upside to the European situation.  I agree that it is still a gloomy situation for Europe in general.  Greece (and the like) face long-term structural issues that will make resolving their situation an incredibly hard task and I won’t be surprised if in 6 months Greece begins to default on its debt again.  But will it really drag down the EU? The rest of the countries such as Portugal, Spain and Italy should benefit from a lower Euro, helping wages that outpace productivity come to parity.  So should Germany and the rest of Europe, as a lower Euro will stimulate exports.  What needed to happen was a devaluation of the Euro  to a value more inline of what it is worth.  Yes, it is unfortunate that these irresponsible countries are essentially a drag on the EU, but that doesn’t mean the U.S. will have to suffer for it.

While the EU is a major trading partner to the U.S., I doubt there will be significant drops in demand for U.S. goods. There are more, higher growth areas for the U.S. to consider.  In terms of the U.S. recovery, if exports were the upside to the U.S. downturn, then U.S. exports to Europe is going to be the downside to the U.S. recovery.  But there is going to be a recovery nonetheless.

*And in minutes, this pops into my RSS reader: China boosts holdings of US Treasury debt by 2 pct

Where every science fiction story went wrong

Well, most of them anyways.  OK, specifically only those of the militaristic variety.  Boeing just announced its new unmanned jet figher titled the Phantom Ray.

The full press release from Boeing can be found here.

Most science fiction I have read (and watched) always had manned fighters, whether in the realm of space, air, sea or land.  Why didn’t they think of this? Most likely because the story would lose its emotional, character driven element.

There is one science fiction story that reigns as the greatest of them all. (#1 in this list)  Before you click the link, do you know what it is?

Yep, Ender’s Game by Orson Scott Card.  I don’t want to spoil anything if you haven’t read the book but Mr. Card’s science fiction story is the greatest of all time for a reason; he was the most accurate when it came to predicting our military future.

HT: Engadget

The End of Cheap Coal

One of the reasons why the push for Cap and Trade was a good idea was it would not only internalize the cost of carbon emissions, but it would also raise the price of energy created from coal.   With higher prices for kilowatt per hour from coal energy, cleaner energy sources would become competitive.  Currently, cleaner energy sources can barely compete with coal, with exceptions of course.  But if legislation wasn’t going to push up the price of burning coal, then in the long-term, rising international demand would.  That time is now.

In 2009, China has ceased to export coal and has now began to import it.  According to the financial times, in 1993 the same happened to oil.  China’s oil imports exceeded what was being imported and the consequence was a climb in the average oil price, all too well known thanks to oil spiking at $150 a barrel in 2008.  China had been using more oil than it could produce in order to fuel its large amount of economic growth, and oil wasn’t the only commodity.

China isn’t the only player.  India as well as the emerging markets have offered its heavy share of the demand, tipping trade balances toward imports and helping to drive up commodity prices for oil and building materials.   The same is expected for coal.

This is good news for America, which contains the largest coal reserves in the world.  This is also good news for the coal industry, as it will be able to profit from an uptick in prices.

This is not so good for the coal power industry, especially in America.  While the coal industry will benefit in developing nations who have already increased the capacity to burn coal for energy and produce steel from coke, the developed world already faces pressures for pursuing greener technologies instead of burning coal.  And the coal power industry should be scared: the only thing keeping them from not succumbing to the powers of green energy is price, which is now soon to change.  With coal prices higher translating into higher per kilowatt hour energy costs that begin to be on par with greener technologies, the coal power industry will have a tough fight.

Green technologies already have the leg up of being green and renewable.  Obama’s recent moves to push for nuclear energy, which would already be competitive given Obama’s plan, and the ARRA’s subsidizing of renewable resources like wind and solar significantly put the government against the coal power industry.

The government’s backing of renewable energy certainly distorts what the market wants when providing energy, but a needed distortion nonetheless.  The only hope for the coal industry is to level the playing field by either removing green energy subsidies (not likely) or becoming green it self.  The industry’s only hope is going for clean coal. And now, it doesn’t have the luxury of waiting anymore.

Before one says that clean coal isn’t viable, I disagree.  It is possible, given recent developments in innvoation.  I blogged recently about Thomas Friedman’s catch about clean coal:

If you combine CO2 with seawater, or any kind of briny water, you produce CaCO3, calcium carbonate. That is not only the stuff of corals. It is also the same white, pasty goop that appears on your shower head from hard (calcium-rich) water. At its demonstration plant near Santa Cruz, Calif., Calera has developed a process that takes CO2 emissions from a coal- or gas-fired power plant and sprays seawater into it and naturally converts most of the CO2 into calcium carbonate, which is then spray-dried into cement or shaped into little pellets that can be used as concrete aggregates for building walls or highways — instead of letting the CO2 emissions go into the atmosphere and produce climate change.

If this can scale, it would eliminate the need for expensive carbon-sequestration facilities planned to be built alongside coal-fired power plants — and it might actually make the heretofore specious notion of “clean coal” a possibility.

With coal prices expected to rise, you can bet this will scale. With clean coal on the horizon, subsidizing greener technologies won’t be needed anymore or vice versa, coal won’t be dirty anymore. Either way, whether a Cap and Trade bill , favorable legislation towards green technologies or the sheer power of the market was going to force it, switching towards less CO2 intensive energy was inevitable. Now, about those mountain tops…