Infrastructure should be on top of the list when you talk about the fundamentals of any economy. It is not just the depth and the breath of the infrastructure that we should talk about but also the quality of the infrastructure that the country depends upon so much. Age of the infrastructure is very important when you talk about the physical infrastructure. The investments in the infrastructure not only create jobs and opportunities but are also a big factor in the fundamentals of a modern economy. When we talk about the infrastructure, we must talk about not just the physical infrastructure but also the soft infrastructure like knowledge, research and development, banking and finance and much more. I would go one step further and add political diplomacy as part of the intellectual infrastructure. Are you still with us Senator McCain?

Energy security is the next item on my list of fundamentals of a sound economy. We are not talking about the price of gas at the station, we are talking about the comprehensive energy policy! What is the size of domestic production of oil and gas compared to the risky and expensive imports? How many refineries have been built in the last 10 to 15 years? What is the share of nuclear power in the total energy mix? What has been the level of investment in alternative fuel technologies? What is the impact of current energy policy on the environment?

My friends, the next item on my list of fundamentals is the 'Food Security'. It is not just the availability of the food but the prices that are important to an average consumer. No country should ever be dependent on imports for its food requirements. But imports must be used to supplement the shortages and also encourage competition. Mechanization has greatly increased farm production but still farm labor is critical for the harvesting of crops and the total food supply chain. The cost of labor has a direct impact on food prices. Immigration of farm labor has always been a key component of any rural and agricultural economy. Sorry folks, the senator is sleeping!

The Strategic Petroleum Reserve (SPR) is an emergency storage facility of petroleum maintained by the United States Department of Energy. The SPR was created following the 1973 energy crisis. The Energy Policy and Conservation Act (EPCA) of December 22, 1975 made it a policy of the US Government to establish a reserve up to one billion barrels of petroleum. The US has the largest emergency supply in the world with the current capacity to hold up to 727 million barrels. It consumes 21 million barrels a day. This equates to 35 days of oil reserves. The total value of the crude in American SPR is approximately $85 billion.

India has also made a modest beginning by creating a strategic crude oil reserve of 37.5 million barrels. It consumes little less than 3 million barrels a day, making the reserves just enough for two weeks of consumption. The nation imports about three quarters of its oil from the Middle East and African countries. This makes India terribly vulnerable to any kind of instability in the Middle East or Africa. Besides, the country spends anywhere from $75 to $80 billion on the imports. It consumes a large portion of India's Foreign Exchange Reserves every year. This by no means is a comfortable situation. The recent break-through in Krishna Godavari basin by Reliance Petroleum is a good sign and as per the company's claim, could save India up to $20 billion a year by 2010. India is the fourth-largest consumer of oil in the world.

Petroleum stocks have been transferred from the Indian Oil Corporation to the Oil Industry Development Board (OIDB). The OIDB then created the Indian Strategic Petroleum Reserves Ltd (ISPRL) to serve as the controlling government agency for the strategic reserve. So far there are only three such facilities, located in Karnataka and Andhra Pradesh. A task force on the United States Energy Policy, constituted by President George Bush, has identified "India as one of the major energy markets" and, as a part of policy realignment, the U.S. Department of Energy has offered support to "any industry expertise required by India to create its own strategic reserves." India must set aside $1 billion a month towards the Strategic Oil Reserves so that by the year 2020, it will have very sizable reserves to sustain any oil-shocks in the future. It is a matter of our National Security.

Fast forward to 1996, when Stephane Dion transitions from university professor to minister of intergovernmental affairs.  One of his accomplishments was the “clarity bill” setting the conditions for Quebec referendum questions and separation negotiations in clear and unambiguous terms.    From 2004 to 2006, he was environment minister and from accounts of independent observers, did a credible job.    Recently, he became leader of the Liberal party.

The 2008 Liberal platform consists of some interesting energy commitments - to retrofit 50% of all homes by 2020 and 100% by 2030.  Provisions for doubling financial incentives and a zero interest $10,000 green mortgage for major energy improvements like geothermal and solar are all good steps.  They want higher energy standards for the National building code and for all appliances to ensure that “all new builds are green builds.”

A Stephane Dion government also proposes strong enforcement of the post 2010 fuel efficiency standards and improvements in car-scrapping programs to increase efficiency of existing cars.  $250 million is suggested for a Green fisheries and Transport fund encouraging public transport initiatives.  In addition, he proposes a 10% reduction in the carbon content of fuel by next generation bio-fuels.  Unfortunately, this part of the program to be weaker and less defined than I would have liked.

The amount of electricity generated by low impact renewables would rise from 5% to 10% by 2015 and to 15% by 2020 causing large investments and 10’s of thousands of green energy jobs.  But these items have not been getting as much attention in the media as the “greenshift”.

The leader of the Liberal party has suggested a remarkable change in the way that Canada views pollution. This is proposed by a reform of tax policy – increasing taxes on carbon energy sources and lowering income taxes.

In the past, companies have caused pollution without penalty or in the worst cases, were ordered to install pollution abatement equipment.  With this change, a stronger link is made between corporations and the environment.  Pollute with carbon energy and you will pay a fee.  The fee is then rebated to citizens and this makes alternative renewable energy more competitive.

The Conservatives have been accused of confusing Canadians about Stephane Dion’s “green shift” which transfers taxation from income to carbon.   The Tory “tax grab” attack seems unusual in light of the plan’s promise, “ putting it into law that every dollar raised in pollution taxes be returned to citizens in tax cuts.  The Auditor General will ensure the Green shift’s revenue neutrality.”

A second Tory theme, that the plan will destroy the economy, seems exaggerated as well. One blogger humorously notes that if the “greenshift” plan would destroy the economy, then the opposite, to raise income taxes and lower carbon taxes, should create a boom.

Lowering corporate and personal taxes, as the “greenshift” suggests, is similar to the Conservative mantra.   Taxes on fuel in Europe are $1 a liter higher than here without serious harm to the economy.  This plan leaves the gasoline tax without change.  Furnace oil would increase gradually and be a total of 8.5% higher by the fourth year. Diesel would increase 7 cents by the fourth year, a 5% increase.   Finally, it is likely that a world cap and trade system will eventually surface with all countries participating.  Trade sanctions will ensure that all play their part.

Canadians seem to want leadership to reduce global warming and to adjust to higher energy prices as peak oil arrives.  But is reality different from the perception?  The Liberal plan is actually quite modest in comparison to the size of the economy or the government’s operating budget.  Are Canadians ready to accept real change, however gentle it may be?  Stephane Dion has proposed wide-ranging solutions that rate a “B” on my energy scale.  The plan is incomplete in terms of national energy security, but it is courageous and forward-looking.

There are real differences being offered to Canadians this election.  Voters can easily compare the platform of all parties directly off the Internet and should do so.  Stephane Dion’s clarity in energy policy is one of his advantages in this campaign.

His refusal to follow Harper’s lead and spend huge sums on Arctic patrol vessels is an example of the different thought process among leaders.  As he noted “We can’t win against the Americans, we can’t win against the Russians, and we’re too civilized to shoot the Danes.”

Prior to George W. Bush’s tenure, the United Nations was the primary arena for discussion or international arbitration of differences.  When common sense returns, the UN will regain an important role in meeting the challenges to come.  World co-operation on adapting to declining energy supplies and carbon reduction steps are the answer.

I have expressed my doubts about CCS in previous posts and some great recent articles have confirmed my skepticism.

At the Gristmill blog, Joseph Romm (who in the nineties worked for the energy department of the Clinton administration) has produced one of the best overviews of critical voices on CCS ("Coal in question. Is coal with carbon capture and storage a core climate solution?). Citing several recent studies, Romm concludes:

"The bottom line is that we should continue to pursue CCS research, development, and demonstration in a serious effort to turn this long-term strategy into a medium-term one. But efficiency, wind, solar PV, and baseload solar are where we should be placing the big deployment dollars right now."

On the Post-Carbon Institute blog, Richard Heinberg is even more critical. His article "Delay and Fail" cites energy guru Vaclav Smil (for me the most brilliant energy expert in the world - read his "Energy at the Crossroads"):

"The technology exists only in the sense that its components have been demonstrated on a small scale. Deploying it broadly would require the development of an infrastructure that would require trillions of dollars of investment and decades of work. According to Vaclav Smil of the University of Manitoba, in a recent letter to Nature, we would need to handle a volume of CO2 twice as large as the world’s crude oil flows just to sequester one quarter of carbon dioxide emitted in 2005 by large stationary sources".

Heinberg's conclusion:

"CCS is essentially a “delay and fail” strategy by the coal industry. By selling the idea of “clean coal,” the industry delays an energy transition away from fossil fuels, while setting itself up for an eventual failure of the entire CCS project. By the time that the failure is clear and obvious, there will be no alternative: the coal plants will have been built, the money invested. We’ll burn more coal, and to hell with the climate. "

Eric Farnsworth, Vice President of the Council of the Americas, has produced a special report for the October issue of Poder Magazine called Brazil Rising. In it Farnsworth says that the next US administration should necessarily work with the South American nation on matters such as trade negotiations, energy security and even Iran's nuclear program.

“Virtually all the economic news coming out of Brazil these days is positive, and Brazil’s global weight has dramatically increased as a result. The largest economy in South America and now the world’s 10th largest, Brazil’s emergence as a middle-income BRIC nation, with powerful growth rates driven by the global commodities boom, have repositioned Brazil as a global actor”, he said. Here is a recent clip he also produced talking about Brazil:

As a resident of Atlanta, this weekend I got a foreshadowing what could be soon to come with respect to petroleum shortages - and it wasn't pretty. The refineries on the Gulf Coast that service this area were shut down for the back-to-back hurricanes Gustav and the aptly named Ike (for the singer who put a beating on Tina Turner or, if you prefer, the General who put a beating on the Nazi's), and supply is only slowly getting back up to normal. (Estimates put complete return of supplies to normal levels a couple weeks out.) 

A large number of people spent their Sunday leisurely enjoying the inside of their car as they waited in incredibly long lines to buy fuel. These were lines the likes of which I had previously only seen in photos from the 1970's.  I'm not certain if this behavior was driven by panic or the need to save a few cents a gallon because often I would see gas stations with only one or two people waiting per pump down the street from one of these colossal lines. (I filled up this morning at 6:35am and only had to wait three minutes for a guy to finish topping off his tank. It was busier than usual at that time of morning, but not vastly so. Of course, as I drove off, two people simultaneously went for the pump that I had vacated, and got into a shouting match. I feared that someone would go on a shooting rampage after being in one of these lines for a couple hours only to get up to the pump to find that that their predecessor pumped the last gallon from the tank. There has been some surreal behavior. The news reported that people were forming lines at empty stations in hope that a truck would arrive. It also struck me that the lines were tight, which means that most of these people waiting in line were probably keeping their engine running (possibly with their AC operating.)

When I say that I think we can expect a lot more of this, I don't mean to imply that I think we are anywhere near running out of oil. While it is true that the more we pump out of the ground the closer we come to the days when we get to the oil that is really expensive to get out of the ground and into condition for use, but I don't believe shortage is imminent. Rather there are any number of vulnerabilities that could lead to shortages. Limited refining capacity and refinery positioning in locations vulnerable to weather is among the most immediate of these vulnerabilities. The risks to the crude supply have been well documented. Iran has threatened to shut down the Strait of Hormuz in response to an attack against it, and much of the world's oil travels either on tankers through choke-points or along pipelines through unstable territory. Furthermore, our relations with one of the few major oil exporters that we had good relations with, Russia, have soured severely as of late.

It will be interesting to see if, and how, firms decide to adjust. Apparently, some already have. The station that I filled up at is one of a chain that has developed a plan for refinery shut downs. They have set up "regions" or "districts" inside which they make sure at least one station recieves incoming stocks of gas. I don't know if it is economically feasible to stockpile in hurricane-free areas as a hedge against the weather. While I suspect people are in favor of adding refinery capacity in other people's neighborhood, few are willing to accept them in their own area.

Two quotes from the excellent article:

The bailout is necessary, says Friedman, but "we don’t just need a bailout. We need a buildup. We need to get back to making stuff, based on real engineering not just financial engineering. We need to get back to a world where people are able to realize the American Dream — a house with a yard — because they have built something with their hands, not because they got a “liar loan” from an underregulated bank with no money down and nothing to pay for two years."

"... when this bailout is over, we need the next president — this one is wasted — to launch an E.T., energy technology, revolution with the same urgency as this bailout. Otherwise, all we will have done is bought ourselves a respite, but not a future. The exciting thing about the energy technology revolution is that it spans the whole economy — from green-collar construction jobs to high-tech solar panel designing jobs. It could lift so many boats."

But let’s look at energy policies.  What are the leaders of each party thinking about?

Stephen Harper is a master tactician of the political game.  Some say he’s got control issues or perhaps he just uses “enhanced management tools.”  He spots weakness and dive-bombs the opposition with attack ads, campaign or no campaign.  Take no prisoners is a description that comes to mind.  Hey, who knew that Karl Rove lived at 24 Sussex Drive? But you can’t argue with success.  He’s had the opposition on the run for some time.

Energy costs are the sword of Damocles hanging by a horsehair, and will have serious consequences for each of us.  However, this is not apparent when viewing the Conservative website. Of the eight key priorities on the Conservative website, energy doesn’t make the list.

Our PM has been using short-term tactics and guerilla warfare to build support and destroy enemies.  His long-term vision is less clear.  One of his greatest successes has been the fee on gas-guzzlers and the ecoAuto rebate.  The rebate was cancelled after the 2008 model year.  The relatively low program cost of $150 million couldn’t have been the cause of its demise.  Was it GM unfriendly and had to go?  Luckily, he retained the fee on gas-guzzlers.

His need to retain or increase his power will always trump good policy. The diesel tax cut is a good example.  Stephen is an economist and knows that lowering the price of a product encourages the use of it.  Two cents will lower the cost of fuel by 1.5%.  Since fuel is only one third of transportation cost, the actual reduction in product cost will be ½ of 1% if it’s passed on to consumers.  Since most food comes from the US, this only affects transport within Canada.  So, there’s virtually no effect on your head of lettuce from California.

If you own a diesel car, it will save you $24 a year. This policy will cost the treasury $600 million a year, have questionable results, but it will buy votes.

The National Energy Board recognizes that conventional oil is declining in Canada and that imported LNG will have to take the place of domestic natural gas production in coming years.  Export applications do not have to consider whether Canada has adequate natural gas reserves, as was the case before 1985. Only tar sand development, which has a low net energy output, is on the rise.  Should we be proud of the ecological fallout in Alberta?  Will other countries eventually ban the import of these products or penalize us for carbon output?

Does Stephen still believe that Canada is an energy superpower? What was his purpose to promoting this view of Canada’s energy resources?  Should Canada have a national security policy on energy with actual physical reserves?  Should there be an east-west pipeline through Canada?  What about an east west DC electric transmission line?

An important question remains unanswered: How will we heat our homes in the future at reasonable prices? Those with oil heat in the Atlantic Provinces are in for a rude awakening.  Quebec has cheap electricity and Ontario has natural gas, for the moment.  The votes of Atlantic Canada make little impact on the national scene.

Although the price of oil is now lower than its peak in June, it will rise again in the near future as world production starts a decline in roughly 2010.  The investments required to meet the energy challenges of the 21st century will take a significant number of years to achieve.  We should have started decades ago.

How will we get around as fuel becomes very expensive and is rationed?  How will our economy and jobs survive the shock of energy shortages and prices?  How does Stephen feel about conservation of energy?  Ignoring the problem of peak oil doesn’t make it go away.

My rating given to Stephen Harper for a lackluster energy policy – F.    His lack of attention and understanding of important energy issues is counterbalanced by his desire to spend money on boondoggles like patrol vessels for the arctic.  And $490 billion over the next twenty years for the military to participate in overseas adventures with the US.

H.R. 6899: Comprehensive American Energy Security and Consumer Protection Act

To advance the national security interests of the United States by reducing its dependency on oil through renewable and clean, alternative fuel technologies while building a bridge to the future through expanded access to Federal oil and natural gas resources, revising the relationship between the oil and gas industry and the consumers who own those resources and deserve a fair return from the development of publicly owned oil and gas, ending tax subsidies for large oil and gas companies, and facilitating energy efficiencies in the building, housing, and transportation sectors, and for other purposes.

You can check who has voted against this already here.

Sources:

H.R. 6899: Comprehensive American Energy Security and Consumer Protection Act
Rep. Nick Rahall [D-WV], Govtrack.us, Sep 15, 2008
http://www.govtrack.us/congress/bill.xpd?bill=h110-6899

House Vote On Passage: H.R. 6899: Comprehensive American Energy Security and Consumer Protection Act
Govtrack.us, Sep 16, 2008
http://www.govtrack.us/congress/vote.xpd?vote=h2008-599

The first class session of almost any introductory economics class is spent in contemplation and elaboration of the three word mantra of the discipline: "RESOURCES ARE SCARCE." From this readily understood concept follows the idea of opportunity cost, which is the inescapable truth that every decision to consume is also a decision to forgo something else. In short, we cannot have it all. And so it goes; all of economics, from the simple idea that increasing the supply of a good decreases its price to complex constrained optimization models, follows from that core truth that resources are scarce.

This being said, we, particularly in the developed world, have done a miraculous job of reducing the sting of scarcity by increasing the size of our proverbial pie in leaps and bounds. We have achieved this through a number of channels that mostly come down to increasing our productivity. We can have more stuff because we earn more money because we are more productive, and, because we are more productive, there is more stuff out there to have. While you would never know it because we are amid a political season in which both candidates are trying to convince middle-class America that they understand how tough we have it as a means to persuade us about how many chickens they, as President, could personally put into our figurative pots, the standard of living and quality of life in America (and the developed world more broadly) is, by both historical and global standards, phenomenal. In fact, by a whole range of measures, we've got it better than ever (well, maybe not better than say a few months ago.) I encourage people to read Moore and Simons' "It's Getting Better All the Time" (http://www.catostore.org/index.asp?fa=ProductDetails&method=&pid=ELEC-0064). While I would not deny that the book does occasionally engage in dubious uses of statistics, the authors' general thesis that, across a wide range of criteria, our quality of life has been rising is indisputable in most of the examples presented.

So how are we more productive? Technological advances are a patently evident cause of increasing productivity. Concepts like Moore's "Law", which states that the number of transistors on a microchip will double every two years or so, demonstrate an almost inexorable march of technological progress. The vast number technological improvements involving such areas as transportation, communications, medicine, and even the streamlining of processes by which we make things or provide services have had a major influence on the size of our expanding pie.

The gains of specialization, also the subject of early economics lectures that usually somehow involve Robinson Crusoe, are also a source of increased productivity. We have been riding such gains at ever diminishing levels of granularity throughout the course of our history as a species. In the move from hunter-gatherers to farmers, a few were able to make the food for many. This freed up the many to do other things, and allowed them band together in villages and cities. The process of urbanization led to synergies and efficiencies that further filled our coffers with wealth. We are still taking advantage of specialization, now on a global scale. There are people whose understanding of a infinitesimally small piece of the universe is vast. Some such people derive their entire income, often times a lucrative income at that, from expertise in the minutiae of a thing that can only seen through the eyepiece of a microscope, and whose implications are both narrow but still vastly wealth producing.

Unfortunately, not all of our means to become unshackled of the burden of scarcity are so virtuous as technology development, specialization, or collaboration. In America, we have also increased the pie by spending more than we have earned. The government, of course, has set an incredibly bad example by divorcing its decisions about how much to spend from trivial considerations such as how much revenue they accrue. As a nation, we run deficits with the rest of the world by buying far more from abroad than we earn by selling abroad. Through the "miracle" of credit, many individual households have also managed to follow the example set by the government's lead, and spend substantially more than they earn. Of course, individuals can't do this for anywhere near as long as the government can, and eventually something gives. When it gives, it does not necessarily do so in isolation, because lenders see defaults and panic (often justifiably) that they will be the next to be burned. Of course, there is nothing inherently wrong with credit, but, the unwise us of it appears to be addictive.

The point of this essay is that it is unclear how long the pie can be expanded, and, if it isn't indefinitely, then we need to be ready for a new paradigm of economic life. In the long long-run, I don't know the answer to this question. The universe is a vast (and presently expanding) place, and it seems that other consumers of its resources are, at a minimum, rare- if not altogether non-existent. Of course, we will be shackled to this planet by the limits of our technology for the foreseeable future, and the physical limitations of overcoming the vastness of space in a manner that is both cost- and time- effective may be forever insurmountable.

In the shorter-run, however, we can expect that we will bounce up against our limitation to expand the pie now and again. In fact, our current financial predicament can be seen as a hang up in one sector's attempts to expand their pie. One of the few inevitable truths in life is that all progress produces not only winners but also losers. As Ralph Waldo Emerson observed: "Society never advances. It recedes as fast on one side as it gains on the other."

The present story goes like this. Wall Street was hurting because everybody had begun to use automated brokerage systems and did not need to pay full-service brokers big commissions. The financial people looked around for a way to make money. They saw an ideal solution in an apparently robust housing market. They figured they could borrow money and then buy up these mortgages for houses that were steadily gaining value. But loan originators on Main Street as well as those on Wall Street saw the potential for greater gains to be made by selling more homes. So they started to make loans that were less and less sound. This culminated in the ultimate act of stupidity, the NINJA (No Income, No Job or Assets) mortgage. Of course, the inevitable chain of defaults began. All these mortgages were bundled into tradable instruments whose value, because of dubious rating practices, were completely opaque in there aggregated form. There was a period of hot-potato that ultimately resulted, like a game of musical chairs, with a series of firms caught in a vulnerable position. Currently, the government is proposing to buy these bad debt instruments because no one trusts the financial system. People don't want to buy stock or bonds, and a few are probably considering stuffing their money into a mattress for fear that their bank will go belly up.

I suspect that the next couple decades will be interesting times. We will continue to try to reduce the effects of scarcity, while it remains our ever-present nemesis. We will want more, but we are likely to run up against some major barriers due to resource limitations, technical constraints, and the impact of the emerging economies' development. 

In essence, we are a greedy and materialistic species, but I don't mean that necessarily in the pejorative sense with which it comes across. The world as we know it is the result of our desire to have more and to live more comfortably. What would a world look like in which people were largely non-materialistic? It would probably look like some aboriginal societies that are still living what we might consider a pre-historic existence, and which too many of us feel we must bring indoor plumbing and electricity immediately. (By Emerson's formulation, these people may not have advanced, but neither have they receded. I think it might behoove us to show a little respect, as the majority of our healthy and well-educated society couldn't survive a month living as these people do - as masters of fire, water, food, and shelter.) Alternatively, such a society might look like Tibet before the Chinese invaded, which, by the way, probably looked a lot like Tibet 100 years before, and, had the Chinese not barged in, would probably look the same today. I am neither saying such people got it wrong because they are not as technologically advanced as the Western world, nor that the developed world is inherently evil because it has operated from a striving for ever more.  I am saying that, while materialism has a bad name, advances in health-care, science, philanthropy, technology, and our society, itself, are integrally linked to it. To decry materialism while advocating the need to spread modernity to the far flung reaches of the world is inherently nonsensical in my quasi-humble opinion.

So what of our next couple decades? We may experience distopia or utopia depending upon how events unfold. I believe the answer will hinge upon how we handle a number of problems for which we have only just begun to experience pain, but which could become much worse if managed poorly. First, we need to produce enough energy to meet world demand, but we cannot do it in just any old fashion. I don't know to what degree global climate disruption truly exists or is a threat to humanity, but it does seem to me that, if there is even a low but significant probability of a catastrophic planetary disruption, that we would want to play it on the safe side and find a path forward that reduces carbon emissions.

Second, there are a number of huge nations that are in the process of becoming huge economies with all of the environmental and resource consumption ramifacations that arrive of that fact. The impact of Chinese and Indian demand on global petroleum prices has been frequently discussed, but it is not the sum total of the effect which these economies' growth will have on the world. Of course, they will be increasing the global productive capacity and making consumers with the financial resources to consume, but it is in those areas in which resources are not easily substitutable and for which supplies are limited that the pinch will be felt.

Of course, there are countervailing forces as well. As emerging economies become more developed and urbanized, we can expect birth rates to drop. Thus, these societies will make gains from bringing their population growth rates down. However, the time scale over which that has a significant impact is not immediate. There may be other feedback cycles that will also have a positive influence, but the problems they must overcome are substantial.

A lot is riding on technology development and sound public policy (which does not necessarily mean painless public policy.) If we cannot keep expanding the global economy like a balloon, which only breifly and occasionally recedes in a recession, then we need to change our way of looking at the economy. We must realize that there are inevitable opportunity costs. For example, we cannot reduce global poverty without increasing energy  and other resource consumption. If we want electrification rates to be 100% globally and all the world to be linked into a global information infrastructure, we cannot ignore that there will be a trade off in resource consumption and waste production. If we are so constrained, we must not only think of expanding the pie, but of making each morsel count, to curb our averice, and to be innovative in how we think about development. If we can outpace such developments through technological development and favorable happenstance such as declining population growth rates, we still need to think about how to proceed in the immediate future.

b gourley

"The new low in the financial crisis, which has prompted comparisons with the 1929 Wall Street crash, is the fruit of a pattern of dishonesty on the part of financial institutions, and incompetence on the part of policymakers.

We had become accustomed to the hypocrisy. The banks reject any suggestion they should face regulation, rebuff any move towards anti-trust measures - yet when trouble strikes, all of a sudden they demand state intervention: they must be bailed out; they are too big, too important to be allowed to fail.

...

It was all done in the name of innovation, and any regulatory initiative was fought away with claims that it would suppress that innovation. They were innovating, all right, but not in ways that made the economy stronger. Some of America's best and brightest were devoting their talents to getting around standards and regulations designed to ensure the efficiency of the economy and the safety of the banking system. Unfortunately, they were far too successful, and we are all - homeowners, workers, investors, taxpayers - paying the price".

There are a few lessons to be learned from this financial crisis.

To start with, it is time to leave the neo-liberal deregulation religion behind us. The belief that "the market" (whatever that is) will solve all problems (including climate change, the "biggest market failure ever") has been enough discredited after 25 years. Yes, it has created enormous wealth for the wealthy (who now own their own private islands and jets and have magazines on "how to spend it"), but the average citizen has not become more happy and extreme poverty still rules this world. And the price of this deregulation capitalism has been the collapse of the fragile ecosystems that make our life on this earth überhaupt possible and the greedy over-consumption of essential finite energy sources and raw materials.

After this collapse of wild-west Wall Street capitalism, It might be time again for a period of strong governmental intervention but without resorting to the old social-democrat neo-Keynesian remedies or authoritarian solutions (. What we need is smarter regulation (not Verheugen's "less red tape" disguised as "better regulation"). Unfortunately, we might need a new generation of smarter policymakers to make this happen. The politics of media spinners and one-liner champions is not going to bring us this smarter regulation. So we are in a bit of a mess here.

One of the first smart moves policymakers should make in this crisis is to establish a worldwide floor price for oil. Indeed, one of the biggest victims of the current market meltdown could be the new "green energy" wave. Whatever the economic crisis, the climate/energy crisis will not go away but might disappear of the short-term political agenda. Therefore, we need incentives to keep the flight out of fossil fuels and into renewable and energy savings solutions for our future economies alive. Let's not make the same huge mistake as we made after the 70s oil crisis.

We have just entered the difficult transition tunnel to a new sustainable world. There will be many more shocks on the way and our democratic systems will be heavily tested over the next 15-20 years. Energy wars and further globalisation setbacks will not be avoided. The faster we start finding the new political generation which can give us the new smarter regulation, the quicker we will see the end of the tunnel.

Gas gouging again?

Chicago's worst rain in 137 years. Since records began, Chicago hasn't seen as much rain in one 24-hour period as they did Saturday. Severe weather events like this have been predicted as a result of global warming. Strong tropical systems will continue to inundate inland regions hundreds of miles away from the ocean. Records will continue to fall.

Action item: forward the video.

What would have happened if Bush and Republican John McCain had successfully shifted Social Security to the stock market? And how has McCain's campaign responded? They're still calling everybody a bunch of whiners!

Sarah Palin lies again. She wants to work on energy security and government reform, citing her record as a preview. Let's see - record fossil fuel drilling in Alaska under her watch. She killed a wind farm project. Twice. She has appointed her unqualified high school friends into agency leadership posts. She vetoed a government transparency project. America, pay attention. This is the version of energy security and government reform that Republicans Sarah Palin and John McCain would bring to the executive office. They've proved Republicans can't govern. Don't give them a bigger stage on which to show those skills.

Sarah Palin thinks she is better than the rest of us. And ends up looking guiltier because of it. If there really wasn't any ethical lapses involved with her firing of the public safety commissioner, she should cooperate fully with the investigation. That has bipartisan support: Democrats and Republicans came together to figure out what happened. (By a unanimous 12-0 vote). But Sarah Palin doesn't want to answer to her constituents until after the November election, despite promising Alaskans that she was running on an accountability and transparency platform.

Representative Christine Scanlan and the interim wildfire committee has released 11 ideas for legislation in next year's Colorado Legislature dealing with the lodgepole pine beetles. I'll have more on these in the future.

ohwilleke has a very good write-up about Troy Eid's snide attack on bloggers. Quick, convene the blogger ethics panel!

Sarah Palin said she will provide renewed attention to kids with special needs. I hope it's not the kind of attention she paid them in Alaska, where Sarah Palin cut the Special Olympics budget in half. I can't wait for the wing-nuts to tell me cutting the budget really isn't cutting the budget again.

Foreclosures are setting records, inflation is high, unemployment is rising, real income has been stagnant for seven years. Taxpayers have bailed out one investment firm. Another was left to fail. Merill Lynch has been bought out. The biggest insurance firm in the nation is begging for cash. American automakers want a taxpayer bailout. But Republican John McCain continues to say the fundamentals of the economy are strong. McCain was correct back in January when he said he didn't understand economics as well as he should. Of course, none of his seven houses are under threat of foreclosure. And he still has his job. For now.

Republicans think you're on your own:

The prevailing view in Washington argued against bailing out homeowners who made bad financial decisions, buying houses they couldn’t afford, or the lenders who wrote those loans.

Republicans removed responsible oversight from lenders and now the economy is in a tail-spin. Republican John McCain wants to continue this disastrous economic policy.

Q1.  Afghan officials have charged that some elements of the Pakistani government are seeking to undermine their country by giving sanctuary to Taliban and Qaeda groups that cross the border to attack Afghanistan.  Would you launch large-scale armed attacks against terrorists in Pakistan if the new government is unwilling – or unable – to suppress these groups and refuses to give United States forces permission to act?  Or are you willing to put the Afghan regime at risk in order to play for time in Pakistan, hoping that a more successful government will emerge in Islamabad, and fearing that any attempt to use force there will result in a nuclear-armed anti-Western state?

A1. I would not launch large-scale attacks on the Tribal Areas of Pakistan, because I would not like to start a war with Pakistan.  However, I would launch small-scale attacks on the Tribal Areas, in order to put pressure on the government in Islamabad to act to suppress the Taliban and Al Qaeda in the Tribal Areas.  No government should allow a military force on its territory that attacks a neighbor.

Q2.  For some year now, the world has watched while ethnic cleansing – even genocide – has gripped Darfur.  Are you prepared to announce the rules for American intervention for humanitarian purposes and, if so, what would those rules be?  Would you be willing to organize a coalition of states to intervene?  Or should the United States defer to the United Nations or regional organizations – even when they are deadlocked and unable to act?

A2. I would not act in Darfur, because it has no strategic interests for the United States.  I would investigate providing military assistance to Darfurian and South Sudanese rebel groups, because the Islamist government of the Sudan is not a US friend.

Q3.  It has been more than five years since the United States-led coalition removed Saddam Hussein from power.  How long should American troops remain in Iraq if American commanders on the ground state that withdrawal would lead to chaos?  That is, should the United States withdraw according toa predetermined timetable, even if the consequences appear dire for Iraq?  Or should troops remain indefinitely until their withdrawal can be assured to leave behind a stable Iraq?

A3.  I would withdraw as many troops as the Iraqi government would allow.  If our military said that further withdrawals would jeopardize stability, I would halt withdrawals.  Our military presence help justify the rebels, and removing it reduces some of the insurgency’s justification.  Certain kinds of chaos are different from others.  For example, a Sunni insurgency with Al Qaeda leadership clearly had to be opposed with all of our might, but a Shiite attack on the Kurds over Kirkuk should lead us to seek to separate the warring sides.

Q4.  Would you authorize the use of force by the United States – or collaborate with Israel – to prevent Iran from developing nuclear weapons if it appears that diplomatic efforts are failing to bring about substantial progress in the regard?  If not, what further incentive would you offer Iran to end its nuclear programs?  For example, would you be willing to press Israel to do away with its own nuclear weapons as part of a region-wide denuclearization?  What incentives would you be prepared to offer Israel to desist from a pre-emptive attack?  Would you be willing, for instance, to give Israel a place under the United States nuclear umbrella?

A4.  If Iran seems to be about to produce an atomic device, not just enrich uranium, I would seek a military means for stopping them.  I suspect that no military means exists for destroying an atomic device, so I would support conventional attacks, including sanctions and blockages.  I would use deadly force to maintain shipping in the oil lanes.  I would press Israel to abandon its nuclear deterrent, if necessary, and would put Israel under our atomic shield.  I would not ask Israel to contribute to any conventional war against Iran, because its contribution would inflame our other allies.

Q5.  The Supreme Court recently held that prisoners taken in the war against terror are entitled to habeas corpus review in the federal courts.  Is it sensible to speak of a “war” on terror, or is this a struggle that should be principally handled by law enforcement?  Should suspected terrorist be given the same protections as ordinary criminals – like the right to confront their accusers and the right not to be tried by illegally obtained evidence?  Or should there be special rules for the trial of terror suspects, or even a special court that would hold secret trials?

A5. It is sensible to speak of war, but it is a different kind of war than any other; we must prevent attacks, rather than punish those that occur.  The United States should treat persons captured on US territory as criminals, but treat persons captured on the field of battle as prisoners of war.  As these persons are co-mingled in Guantanamo, habeus corpus is needed to sort out the different categories.  Prisoners of war who have committed war crimes should be prosecuted.  Since this war with Al Qaeda does not have the foreseeable end of an “ordinary” war, we need special courts for considering the situation of normal prisoners of war; these courts should release prisoners with reasonable assurance that they will not re-enter combat.  These courts would have different rules, including secrecy.

Q6. In light of United States Security Council inaction in Bosnia, Cambodia, Rwanda, Zimbabwe and elsewhere, critics have said that the United Nations is not an effective instrument for confronting rogue states, terror and genocide.  Do you favor expanding NATO, or using it as a model for creating an alliance of democracies?  If you do, would such an alliance require unanimity of its members for action?  Or, if you oppose creating such a group, how should the Untied States confront crises when the council is paralyzed.

A6.  I would not use NATO out of its agreed field of action, as in Zimbabwe, Rwanda and Cambodia.  NATO was used appropriately in Bosnia, though its actions there were shameful.  NATO is too fragile to be used as a world police force.  I would not support creating an alliance of democracies; the moment it attacked a state, it would lose its moral justification, negating its reason for existence.  We should raise ad hoc groups for each situation; if we cannot raise an ad hoc group, as in Darfur, we should not act.

Q7.  What if anything should the Untied States do to further trade negotiations after the collapse of the Doha round ini Geneva?  Should the United States try to revive multi-lateral talks; if so, how?  Do you support bilateral trade agreements with Colombia, South Korea and Panama?  Should the United States abrogate NAFTA if Canada and Mexico will not revise the agreement to our liking?

A7. The United States should seek to create a free trade zone in the Americas.  Failing that, we should pursue bilateral free trade agreements.  I don’t know enough about problems with NAFTA to comment.

Q8.  Russia’s invasion of Georgia followed Georgia’s attack on the separatist region of South Ossetia; it was also an expression of Russian resentment over former Warsaw Pact states becoming members of NATO and hosting proposed American missile defense systems.  Would you try to restore Georgian sovereignty of South Ossetia and Abkhazia?  If so, how – by offering United States security guarantees to Georgia, expelling Russia from the Group of Eight, withholding membership in the World Trade Organization?  Or would you attempt to calm Russian sensibilities by renouncing, at least for the time being, Georgian and Ukrainian candidacies for NATO membership, and putting Polish and Czech missile defense deployments on hold?

A8.  I would not try to re-establish Georgian sovereignty over Abkhazia or South Ossetia; that battle was lost.  I would negotiate to make South and North Ossetia a single country, knowing that Russia would never release North Ossetia.  I would not encourage Georgia’s entry into NATO for several reasons.  First, the NATO charter requires that all entrants have resolved all border issues.  Second, Georgia is not contiguous with any other NATO country, so defense of Georgia would be extremely difficult.  I would support and befriend Georgia, but would not offer NATO protection.  In sanctioning Russia, I would try to find a middle line.  I would not prevent Russia from joining the WTO and would not expel it from the G8, but would hold some G7 meetings without it.  I would not put Polish and Czech missile defense on hold.  I would not encourage Ukrainian NATO membership, until the country itself clearly chooses that direction; the Ukraine itself is too divided.  I would suggest a deal that the Crimea be ceded to Russia in exchange for Ukrainian NATO membership.

Q9.  Both of you have talked about global partnerships to address problems as varies as climate change, weapons proliferation and terror.  What specific incentive can you offer potential allies to create such partnership?  Why do you believe these incentives will be more likely to succeed that those offered by the Bush and Clinton administrations?

A9. The question is too broad to answer.  The form of partnership and incentives would vary from problem to problem.

Q10. Political instability in the Middle East underscored the need for Western energy security.  At the same time, the Group of Eight has set a goal of bringing global carbon dioxide emissions down to half of their 1990n level by 2050.  Realistically, there is little chance of achieving this target, nor of achieving real energy security, without drastically new technologies.  What, if anything, should government do to increase domestic production of oil and gas, to expand the use of nuclear energy and to encourage energy conservation and new technologies?  Which technologies do you favor and how should government promote them – or with high oil prices, would you leave this job to the market? 

A10. I think the market has the best answers for energy security, though government regulation and tax policy has a clear place.  So I would not mandate ethanol content, but would raise the mileage goals for US autos.  I remain troubled about nuclear power, and would require high level of safety, but would not oppose plants; I would make nuclear power producers pay for disposing of the waste safely.  Oil and gas are clearly needed in the short term, and I would seek to make drilling easier without reducing environment safeguards.  I would also seek to make alternative energies easier, through tax policy but not through subsidizing research.  I would encourage conservation.

Q11. Rising food prices and population growth raise the specter of widespread starvation in Africa.  The overseas aid budgets of most countries, including the United States, are far below the United Nations Millennium Development Goals’ target of .7 of gross domestic product.  Would you favor greatly increasing this aid to meet those levels or would you, instead, try to wan Africa off direct aid in favor of using these funds to spur investment in this area.

A11. I think Africa is too far gone to save from its overpopulation crises, though the situation varies widely from country to country.  I do not think that continual direct food aid is useful, though famine aid is still essential.  I think that the best approach is to develop industry, though I believe that China may be better positioned to do this that the United States.  I prefer small scale approaches – bringing clean water to villages rather than building dams and roads.  I support the World Bank’s focus on governance and the elimination of corruption; direct aid to corrupt governments is counterproductive.  I would strongly support all contraception programs.

Q12.  What do you see as the principal difference between you and your opponent in your fundamental approach to the national security problems facing the United States?

A12. I feel that I try to find the middle road.  I feel that Obama has the intellectual capability of finding the middle road and holding to it.  I feel that McCain has good instincts, but does not have the character or capability to find the middle road.

In yesterday's Guardian, emeritus professor John Gray dismisses the idea of a new cold war and exposes the "folly of the progressive fairytale":

"... Nothing is more misguided than talk of a new cold war. What we are seeing is the end of the post cold war era, and a renewal of geopolitical conflicts of the sort that occurred during the late 19th century. Their minds befogged by fashionable nonsense about globalisation, western leaders believe liberal democracy is spreading unstoppably. The reality is continuing political diversity. Republics, empires, liberal and illiberal democracies, and a wide variety of authoritarian regimes will be with us for the foreseeable future. Globalisation is nothing more than the industrialisation of the planet, and increasing resource nationalism is an integral part of the process. (So is accelerating climate change, but that's another story.) As industrialisation spreads, countries that control natural resources use these resources to advance their strategic objectives. In deploying energy as a weapon Russia is not resisting globalisation but exploiting its contradictions".

To understand the real reasons behind the Cold War fever following the August war, one can find no better article than Michael Klare's essay "Putin's ruthless gambit". In this detailed analysis of the background of the conflict, energy and security expert Klare writes the following:

"To fully grasp the recent upheavals in the Caucasus, it is necessary to view the conflict as but a minor skirmish in a far more significant geopolitical struggle between Moscow and Washington over the energy riches of the Caspian Sea basin -- with former Russian President (now Prime Minister) Vladimir Putin emerging as the reigning Grand Master of geostrategic chess and the Bush team turning out to be middling amateurs, at best.

The ultimate prize in this contest is control over the flow of oil and natural gas from the energy-rich Caspian basin to eager markets in Europe and Asia. According to the most recent tally by oil giant BP, the Caspian's leading energy producers, all former "socialist republics" of the Soviet Union -- notably Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan -- together possess approximately 48 billion barrels in proven oil reserves (roughly equivalent to those left in the U.S. and Canada) and 268 trillion cubic feet of natural gas (essentially equivalent to what Saudi Arabia possesses)."

Since then, there have been many major world events affecting the US, but none that threatened to fundamentally alter the geopoliticallandscape. 9-11 was quite traumatic and has had a long-term, and arguably continuing, impact on the US worldview, but it didn't change anybodies perception of the global order. True enough, by my definition of terrorism, which is the use of fear-inspiring tactics in order to have an impact beyond that which would be possible for the perpetrator using conventional means(diplomacy, military operations, "soft power" actions, etc.), these attacks succeeded spectacularly. However, if we keep things in perspective, it is clear that those attacks were not world-changing events.

There are alot of intriguing events afoot these days. They may turn out to be nothing, but they may also be the dawn of changing times. One sign of change can be seen in the apparent expansion of the number of states with blue water navies, or the expanded operations of those that already had them. The high seas are where great powers can figuratively, but possibly literally, bump up against each other.

Russia is trying to reassert its former glory. This can not only be seen in the actions to build a buffer by acquiring some of Georgia's disgruntled territories, but can also be seen in recent naval activities. The Japanese Ministry of Defense (MoD) released a white paper this week that gave extensive mention to Russia's resumption of submarine patrols in the waters near Japan. Also, Russia has apparently stepped up putting its ships in port in various locations within the Mediterranean, including the presence of the carrier Admiral Kuznetsov docked in Tartous, Syria. Russia has apparently conducted naval exercises in the North Atlantic this year. While this does not yet present a global projection of power, there is certainly a desire to show a widening area of operations. Russia's planting of a flag below the North Pole in an attempt to stake a claim resources there provides an example of how expanding power projection can lead to disputed claims over resources. The US and an others have denied the validity of the Russian claim, but the point here is that if we do see an expansion in the number, and operational areas, of blue water navies, we may well see  cases in which states with newly found capacity to defend their controversial claims over research rich areas become entangled. Competition for scarce energy resources is likely to become only more intense in the foreseeable future.

The Chinese are also expanding their naval capabilities considerably. The aforementioned white paper by Japan's MoD, expressed a great deal of concern about China's actions to further its operating capabilities, and, in particular, to developa nuclear powered submarine capable of delivering heavily loaded Submarine Launched Ballistic Missiles. The 2007 Department of Defense (DoD) report to Congress on the status of China's military capabilities and doctrine devotes extensive discussion to naval capacity expansion- in addition to other developments deemed troubling such as Anti-Satellite (ASAT) capabilities and cyber attack units. While the Chinese may have to settle for a landlocked concrete carrier for the time being (photo to right), there has been discussion of developing an actual carrier group. Such a development would definitely signal a change in intention from the often stated limited objectives of the Chinese government (e.g. preventing Taiwanese independence.) However, it seems likely that as China's role in the world expands, so will it want to increase its ability to project power so as to defend its interests. China has been, and continues to be, largely on the receiving end of Foreign Direct Investment (FDI), but it is becoming a progressively bigger player in global economics and over a bigger area with investments in Africa and Latin America. Also, he People's Liberation Army's (PLA's) Navy has been actively involved in exercises to develop the capacity to reduce piracy in the Strait of Malacca, and has a great interest in the unfettered operations of the shipping lanes that service Chinese industry.

Much of the US defense establishment seems to be concerned about whether China is simply following a normal evolutionary path of a state transitioning global roles, or whether they are following Deng Xiaoping's advice to "hide our capacities and bide our time."  It is not necessary to resort to paranoid conspiracy theories. Afterall, as many a Chinese nationalist is want to point out bitterly, the Chinese have done more than their part to build a bigger US military by buying up our government bonds. Of course, without doing this the dollar would have weakened against the Yuan, and the Chinese export position would have been diminished. (I am told that Chinese growth is not as export dependent as we tend to think. Yet, there is little arguing that the Chinese economy does better if they keep the dollar strong relative to the Yuan; and this is facilitated by buying up US bonds.) If the Chinese were hatching some plot, they might be less likely to underwrite US government spending, which includes military spending. This being said, objectives can migrate as a state's position in the world changes. Even if China is true to its word with respect to limited regional ambitions, this may change as its role expands. 

This post will not even go into India, which is also developing a more substantial naval capability. There are also troubling issues such as the acquisition of submarines by states, such as Iran, that might be able to enhance their potential for mischief with such implements. The point here is that we are leaving an era in which few states had a capacity for global power projection- and no one else did it on the scale of the US- to one in which more states will have the capacity to stake claims and try to enforce them, and this will occur at the same time that the US is facing persistent economic vulnerabilities and other states are on the rise.   

This quote, a bit unrelated from the core of the story, was the more interesting to me:

"Mr. Cheney’s first meetings here in Baku were with representatives of two international oil companies: William Schrader of BP Azerbaijan and Robert Dastmalchi of Chevron"

I actually hold the opinion that a nation can only be expected to have its energy demands at heart in foreign policy.  I don't think I would go as far as saying war for oil is right, but I do understand why a nation would choose to acquire access to rich energy sources through military means.  I think what bothers me most is that in a purportedly Democratic nation, we are told absolute bullshit about wanting to spread democracy rather than just being told we are going to war to support our energy security, which in turns supports our national security, our military might, the success of our economy, and the very underpinnings of American life. I actually believe the level of support would be the same based on either rationalization, only there would be less backslapping if we admitted to our entirely selfish reasons for war.

Every now and then, information like the one above comes to light without the furtiveness I've grown to expect and I have to question how duplicitous the Bush administration has become.  It seems more likely that we're just not paying attention.

Note: I am not saying oil is the only reason for our misadventure in Iraq, however it is a much larger reason that the Bush administration seems interested in having us believe.

... and the cow goes moo