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Congress getting in on Climategate...or a Partisan Gesture?
http://www.cbsnews.com/blogs/2009/11/24/taking_liberties/entry5761180.shtml
The leaked documents (see our previous coverage) come from the Climatic Research Unit of the University of East Anglia in eastern England. In global warming circles, the CRU wields outsize influence: it claims the world's largest temperature data set, and its work and mathematical models were incorporated into the United Nations Intergovernmental Panel on Climate Change's 2007 report. That report, in turn, is what the Environmental Protection Agency acknowledged it "relies on most heavily" when concluding that carbon dioxide emissions endanger public health and should be regulated.
I strongly suggest reading this article in entirety. It nicely sums up the plethora of ethics violations and scandalous behavior. It also references that the CRU's climate model software is basically a joke, a convoluted mess of code incapable of running without generating errors.
My Thoughts on Global Warming
When it comes to global warming, there are a few things I can say for certain.
1. The largest macro-trend in temperature right now is that there is indeed global warming. This being said, the planet has cooled slightly in the past 11 years. This is shown in both land-based and satellite-based temperature readings. Satellite-based readings are said to more accurately gage increases due to the greenhouse effect. Ironically, such readings are lagging rather than preceding land-based readings, suggesting warming may not be clearly due to the greenhouse effect.
2. Humans clearly contribute to global warming in two manners. First, we harness energy stored on Earth, thus releasing some energy as heat into our environment (entropy). Second, we release greenhouse gases into the environment, which prevents energy from leaving Earth's atmosphere into outer space. Both of these processes occur from our internal biology and in industry. Yet, with reason, we can attempt to limit or offset these practices.
3. Bureaucratic planning can never match the effectiveness of a market system of freely-formed prices. Regardless of whether the planet is warming or cooling or whatever, there is no means to discover whether such a change is beneficial or adverse without adjustments to prices and thus to individual behavior.
For instance, if carbon emissions are causing global warming which is melting ice caps which threaten coastal property, then coastal property owners should attempt to recoup their losses from carbon emitters (they should actually sue for larger than market value, because they were not willing to exchange at those values, nor did they willfully accept damages at market prices). The price of emitting carbon rises. If consumers accept a higher price level, they demonstrate as a whole a preference for their level of carbon emission over whatever damages it is causing.
If you don't believe such a method is reliable at accurately judging social preferences, consider the example that global warming causes $500,000 of damage to 500,000 beach houses (a fairly mild catastrophe compared to some forecasts). That's $250 billion in damages. Include punitive damages and above-market prices. Such would likely double gasoline prices. I think almost everyone would cut back to some degree if gas prices doubled.
4. There is no "tipping point". The Earth has faced higher concentrations of CO2 in the atmosphere and average temperatures. Then it cooled down. Even if we desired to do so, we could not turn the Earth into a permanent desert. There is no urgent need to "act now before it's too late," especially when such actions would likely reduce the production and distribution of food, electricity, heat, transportation, and other essential goods.
5. Man-made (especially industrial) carbon dioxide contributions to the atmosphere are minute compared to nature. Global warming alarmists believe that human contributions simply aren't natural and thus can't naturally be absorbed or offset by nature. They then say the only practical path is to reduce human emissions. What seems more practical/ideal: reduce emissions (and likely population) to "pre-industrial" levels, or make the planet marginally more capable of absorbing carbon dioxide? Or do nothing? Again, only a price system can demonstrate the value and feasibility of any level of carbon emissions.
6. Water vapor is a much larger (in volume and potency) greenhouse gas than carbon dioxide. This suggests that efforts to reduce CO2 emissions will have little effect, at least not for a long time, if at all.
7. No carbon capping or taxing schemes will work to improve general welfare. First, emissions cannot be simply reduced to an effective level to mitigate the damages of global warming. Second, where there are damages, the victims will not be "made whole". If their private property is damaged, they may get a public relief program, which will be inadequate and foster dependency. The taxes/fees carbon emitters are paying will go to funding general government, rather than directly compensating victims. Taxes and fees will result in less private production and a greater allocation of resources to government.
The only case to be made for government spending in this manner is where it goes into funding renewable energy technologies. However, this can easily be over-stated. If government taxes on carbon emission outweigh actual damages, the value of such technology is already over-stated. It is also likely government research would simultaneously crowd out private investment while inflating costs. This can also lead to waste, with stubborn persistence towards supporting solutions that create bigger problems. Consider ethanol and methanol.
8. A warmer planet is more suited towards life, particularly human life. A hotter, wetter planet is more green. Again, a price system would help indicate whether a warmer planet is more or less desirable.
9. Most of the species that have ever existed on Earth have gone extinct. This process pre-dates the existence of man, particularly industrial man. Saving some dying species may be impossible, let alone undesirable. This does not mean conservation efforts should be avoided or prohibited, only that they do not receive government subsidies or legal advantages. The price system and the willingness of people to exchange their own property will determine whether some area of land is used for endangered species preservation or for oil excavation.
10. Political "solutions" are rife with perverse incentives. This is no recent trend. The big railroads lobbied for the ICC. Big banks lobbied for the Federal Reserve. Big business lobbies for regulations. Cap and trade has been shown to be a large-scale transfer of wealth from the poorest 80% of Americans to the richest 20%. The government is creating a market in carbon credits, which it creates from thin air. It awards some to politically-connected big business, like GE. They thus have a subsidized production cost, or can sell the credit to earn revenue, unlike their smaller competitors, who must buy said credits from the government, or insiders like GE.
One should smell the irony. Just a few years ago, GE was being publicly damned by environmentalists for their track record of negligence towards the environment and general safety, such as when it dumped millions of pounds of toxic chemicals into the Hudson River. It fought the law for decades to avoid liability and responsibility. I don't believe it has ever cleaned up any of its scandalous waste sites; however, it now claims to be a leading advocate of everything "green". Maybe they've really reformed over there. Or maybe they're just trying to advance an agenda that sends billions of dollars in government contracts and carbon credits to their doorstep.
ClimateGate Breaks: Global Warming Scientists Corrupt
Just in case you missed this bit of news (I doubt the mainstream media will dwell on this during "Green Week"), the merit of man-made global warming theories face new scrutiny. Some hackers stole a whole lot of documents and emails from East Anglia University's Climate Research Unit (CRU), whose researchers are major backers of anthropogenic global warming theories. The stolen materials are evidence of various unethical practices, obvious bias, and efforts to stifle honest debate. Such efforts go as far as refusing to share data with "dissenting" scientists, discussions of excluding "dissenting" publications from peer-reviewed journals, and falsifying data to fit their models.
This is already being referred to as Climategate, the largest scandal in modern science. For more details, see here.
Securitization in our Banking System
This article seems to clarify a bit about the process of securitization,
which surrounded the collapse of Bear Sterns and Lehman Bros. It can get
a bit dense, but the essential points are quite clear.
The author fails to mention one point I believe is very pertinent. Monetary inflation helps decrease the real cost of servicing debt by devaluing the monetary unit. Thus, a similar level of credit expansion without monetary inflation implies a higher level of credit risk.
Looking at true money supply figures, which exclude credit (M1, M', AMS, TMS) money supply growth seems to taper off in 2005, along with the growth rate of the monetary base. Yet, credit continues to expand at an even faster pace, pretty much until 2008.
This seems like an instance where securitization contradicts monetary policy. The FED rose rates and cut off liquidity. Yet this only fueled bank credit creation. Higher interest rates draw higher demand for securities. Yet the securities carried inherently larger risk given the size of the money supply needed to service them. Implicit government backing for a large portion of them, credit ratings, and insurance seemed to nullify or downplay such risks, where they were even recognized.
I think the most important thing to notice about this crisis is the size of the roles Fannie and Freddie played. By 2008, they owned or guaranteed about half of the entire $12 trillion U.S. mortgage market. Also, this doesn't mean the FED is exonerated. They played a large part of moral hazard, propping up failing firms, as well as using monetary policy to kick-start the boom. I know many government (status quo) apologists who believe it was all derivatives or subprime securities and all Wall Street that caused the problems. No, the problem is the system itself, not those who seek to take advantage of it. This is especially true if the system bestows enormous gains upon them while insulating them from calamity.
http://mises.org/daily/3820
"Securitization leads to excess liquidity and to improved compliance with capital provision regulations despite the fact that the central bank has not increased its total liabilities and additional savings have not been channeled into the banking industry."
"Ignoring liquidity outflows driven by a higher demand for banknotes and by purchases abroad, it is straightforward that banks can grant as much new loans as credits have been securitized. Then the process can be repeated again and again, as long as there is demand for asset-backed securities, without ever returning to the central bank for refinancing."
"As a matter of fact, banks create both the object to be sold (credits) and the means by which it can be purchased (deposits). It is this aspect of FRBs that makes their use of securitization special."
"Therefore, it hides the reverse side of bank credit—the increase in the money supply, i.e., inflation. It makes the economic environment appear less inflationary than it should be, given individuals' growing indebtedness to banks. Securitization portrays a bank-credit driven boom as noninflationary, savings driven growth. It contributes to the widespread illusion that more factors of production are available than in reality, and becomes thereby a factor in the generation of the error-induced boom-bust cycle."
"the assets-backed securities allow investors to obtain the same risk-revenue exposure as the one they would have obtained if investing in the banks and if banks have kept the loans on their books. It is therefore not clear in what sense there are new investment opportunities offered on the market."
"The crucial point, from bankers' points of view, is to create a demand for part of their loans, repackaged as structured securities. It follows that securitization relies critically on the ABSs' quality as perceived by investors."
"Three illusion-creating institutions can be identified: government, rating agencies, and credit default insurers. All three contribute, in different ways, to change investors' perceptions of the ABSs' risk-return profile. Government, which was historically related to the modern inception of securitization in the United States, was providing an implicit guarantee of refinancing Fannie Mae and Freddie Mac. Rating agencies grant quality labels to privately issued ABSs. Credit insurers help enhance these labels through promises, namely to pay for defaulted creditors, that objectively cannot be carried out in the event of a systemic crisis. All three contribute to an over-valuation of ABSs relatively to other financial assets."
The author fails to mention one point I believe is very pertinent. Monetary inflation helps decrease the real cost of servicing debt by devaluing the monetary unit. Thus, a similar level of credit expansion without monetary inflation implies a higher level of credit risk.
Looking at true money supply figures, which exclude credit (M1, M', AMS, TMS) money supply growth seems to taper off in 2005, along with the growth rate of the monetary base. Yet, credit continues to expand at an even faster pace, pretty much until 2008.
This seems like an instance where securitization contradicts monetary policy. The FED rose rates and cut off liquidity. Yet this only fueled bank credit creation. Higher interest rates draw higher demand for securities. Yet the securities carried inherently larger risk given the size of the money supply needed to service them. Implicit government backing for a large portion of them, credit ratings, and insurance seemed to nullify or downplay such risks, where they were even recognized.
I think the most important thing to notice about this crisis is the size of the roles Fannie and Freddie played. By 2008, they owned or guaranteed about half of the entire $12 trillion U.S. mortgage market. Also, this doesn't mean the FED is exonerated. They played a large part of moral hazard, propping up failing firms, as well as using monetary policy to kick-start the boom. I know many government (status quo) apologists who believe it was all derivatives or subprime securities and all Wall Street that caused the problems. No, the problem is the system itself, not those who seek to take advantage of it. This is especially true if the system bestows enormous gains upon them while insulating them from calamity.
http://mises.org/daily/3820
"Securitization leads to excess liquidity and to improved compliance with capital provision regulations despite the fact that the central bank has not increased its total liabilities and additional savings have not been channeled into the banking industry."
"Ignoring liquidity outflows driven by a higher demand for banknotes and by purchases abroad, it is straightforward that banks can grant as much new loans as credits have been securitized. Then the process can be repeated again and again, as long as there is demand for asset-backed securities, without ever returning to the central bank for refinancing."
"As a matter of fact, banks create both the object to be sold (credits) and the means by which it can be purchased (deposits). It is this aspect of FRBs that makes their use of securitization special."
"Therefore, it hides the reverse side of bank credit—the increase in the money supply, i.e., inflation. It makes the economic environment appear less inflationary than it should be, given individuals' growing indebtedness to banks. Securitization portrays a bank-credit driven boom as noninflationary, savings driven growth. It contributes to the widespread illusion that more factors of production are available than in reality, and becomes thereby a factor in the generation of the error-induced boom-bust cycle."
"the assets-backed securities allow investors to obtain the same risk-revenue exposure as the one they would have obtained if investing in the banks and if banks have kept the loans on their books. It is therefore not clear in what sense there are new investment opportunities offered on the market."
"The crucial point, from bankers' points of view, is to create a demand for part of their loans, repackaged as structured securities. It follows that securitization relies critically on the ABSs' quality as perceived by investors."
"Three illusion-creating institutions can be identified: government, rating agencies, and credit default insurers. All three contribute, in different ways, to change investors' perceptions of the ABSs' risk-return profile. Government, which was historically related to the modern inception of securitization in the United States, was providing an implicit guarantee of refinancing Fannie Mae and Freddie Mac. Rating agencies grant quality labels to privately issued ABSs. Credit insurers help enhance these labels through promises, namely to pay for defaulted creditors, that objectively cannot be carried out in the event of a systemic crisis. All three contribute to an over-valuation of ABSs relatively to other financial assets."
Who’s Responsible for Job Growth?
Today I saw a post in Market Watch about the U.S. government being responsible for job growth. It brought to mind several realizations I’ve personally had over the past year.
When I applied for and won my current job, some people questioned the rationale behind accepting a position in the software industry. A small company? How many people work there? Are you crazy? What makes you think software will be any more viable than anything else – and what about benefits?
I suppose I took a chance when taking this position, but in doing so, while cutting my previous salary nearly in half, I’m able to work from home five days a week; I’ve taken my child out of pre-school and hired a nanny to come in a few days a week. I no longer sit in rush hour traffic every day (a mental-health savings right there); I save on gasoline and wear and tear on my car.
It has taken some getting used to; I’m a quite social person, so not being around colleagues every day was something I was kind of dreading. However, I can work in my pajamas if I want to so there goes thirty or forty minutes of getting “ready” each work day. I don’t miss being around people that annoy or anger me; I don’t have to deal with them face-to-face – usually a big fat plus. I have to discipline myself nearly every day because the tv is tempting, as well as the books on my bedside table. But I overcame these hurdles and am productively happy.
So what does this have to do with job growth? Well, my employer – maybe one of the smartest men I know – decided a few years ago, when the money was rolling in, not to expand with more employees. Instead, he developed better software, and because of that, there is a sign on the back of the office door and – pardon my French here – it says “Screw the Recession.” To really bring the point home, there’s a small screw taped to it.
We don’t believe in panic, we don’t believe in fear, but we do believe in smart growth. Smart growth is not wasting money and smart growth is not bad profits. Smart growth is hiring only as many people as you need, training those employees you have on teamwork and enthusiasm for what you are selling more than anything else – which you can do if you hire the right people to begin with – and smart growth is focusing on good profits. See The Ultimate Question by Fred Riechheld for more information on that.
I know I’ve said before that I don’t like people who put forth a problem without putting forth a viable solution. So let’s see what we’re dealing with – if you drive by a strip mall on a given day across this country, you’ll see at least five or six stores that have gone out of business. But it’s ok – wait a mile or two and you’ll see the exact same stores in the next strip mall. Was building all these businesses so close together about convenience? Absolutely not! It was about the right to own your own business. That’s wonderful, but at what expense? I’m not an environmentalist freak but I am sick of the needless destruction of our God-given landscape so the next budding entrepreneur can make his or her fortune. And good luck with that – since probably 50% of you have lost your business anyway.
What’s the solution? Well, don’t call yourself an educated man or woman and expect the government to create jobs for you. Since when did that work out well? We don’t trust the government to run anything – why should we trust it to create sustainable job growth?
I have a few ideas on how to do just that. Let's take a look:
- If you have a viable business you are planning to start, hire the bare minimum of employees needed to get it off the ground and running. If that means you, the owner, have to work late a few nights a week, so be it. When the economy gets better, hire more people. Don’t go on a hiring spree and have to fire two or three people in a few months. If you’re a large corporation, lay off who you have to but be careful of salaries and hiring numbers in the near future.
- We have enough candy stores, bakeries, etc. If you are going to start a business, figure out what people need, not just what they want. Getting what we want is how we got into this mess in the first place. If you don’t know how to do something people need, figure it out and then open your business.
- Instead of spending a fortune developing something new, spend a bit now to perfect what you’ve already developed. That might mean hiring a consultant of some sort – hey, that’s a job! When existing and potential customers see how great your product is, they’ll be very interested in the next generation. Now that’s smart growth.
- Practice fair business. If it’s slimy, don’t do it. Here’s an example of slimy – if you want to keep your salary but would lose some of it if you fired an employee, cut your salary and keep that employee. The payback of good karma is endless here.
- Be a sponge of information on best business practices. There are ways to save money every month/year that you might not even realize.
- For those of you on the job hunt, who hasn’t had to take a job for less pay and, well, just less anything – than they wanted? Living off unemployment for two years is ridiculous. If you have two hands, go dig a ditch if that means a paycheck. Just get out there and work hard.
- And finally – have faith. Hang in there. This will pass. It might not pass fast enough to suit our needs – well, we already know it won’t – but it will pass. In the meantime, tighten your belts, spend wisely, work hard, play fair, and give anything you can to someone in need.
Government Wetland Project Raises Questions
On October 29, 2009, the Montgomery Advertiser ran a story about Lowndes County residents receiving unfair land values from a federal government program vowing to protect wetlands. After doing a little digging, I was still confused. At face value, it appeared to be one of those situations where the U.S. government assumed because a farmer lives in a historically income-reduced part of Alabama, he wouldn't notice a disparity in land value.
But I am learning not to accept much at face value, because I do turn out to be wrong every once in a while.
The Wetlands Reserve Program, also known as the Natural Resources Conservation Service, is a federal government program that protects a riparian zone for its biodiversity. A riparian zone provides protection against erosion, aquatic life in the area, etc. By selling their wetland property to the federal government, landowners receive what should be a fair price. And some landowners in Lowndes County were getting a bad deal. This came to the attention of farmers there when they discovered that landowners in Wilcox County, one of its neighbors, were receiving a bit more. And Lowndes County residents wondered why.
I do, too. And then I wondered why the government would be buying all that property anyway. I'm sure it's all complicated and even over my head, but I'd be asking two questions - why wouldn't they pay the same amount to everyone, and what is it they hope to gain from the amalgamation of all that real estate all over the country? It could be that the value of wetlands in Lowndes County is less than that of Wilcox. It could be that Bobby Bright decided to up the ante on bipartisan politicking.
But the greater question is what is the U.S. government going to do with all that land? I'm not sure how the rest of the country plays out, but being born and raised not far from Lowndes County, I happen to know from experience that there aren't a lot of rich farmers there. It's not like they're running Con-Agra or anything! So what does the government want? I'm not at all implying anything sinister, just curious. It's worth checking out a little further, but I suspect we'll have a better answer in ten to twenty years.
But I am learning not to accept much at face value, because I do turn out to be wrong every once in a while.
The Wetlands Reserve Program, also known as the Natural Resources Conservation Service, is a federal government program that protects a riparian zone for its biodiversity. A riparian zone provides protection against erosion, aquatic life in the area, etc. By selling their wetland property to the federal government, landowners receive what should be a fair price. And some landowners in Lowndes County were getting a bad deal. This came to the attention of farmers there when they discovered that landowners in Wilcox County, one of its neighbors, were receiving a bit more. And Lowndes County residents wondered why.
I do, too. And then I wondered why the government would be buying all that property anyway. I'm sure it's all complicated and even over my head, but I'd be asking two questions - why wouldn't they pay the same amount to everyone, and what is it they hope to gain from the amalgamation of all that real estate all over the country? It could be that the value of wetlands in Lowndes County is less than that of Wilcox. It could be that Bobby Bright decided to up the ante on bipartisan politicking.
But the greater question is what is the U.S. government going to do with all that land? I'm not sure how the rest of the country plays out, but being born and raised not far from Lowndes County, I happen to know from experience that there aren't a lot of rich farmers there. It's not like they're running Con-Agra or anything! So what does the government want? I'm not at all implying anything sinister, just curious. It's worth checking out a little further, but I suspect we'll have a better answer in ten to twenty years.
Florida's Public Homeowner's Insurance Option
Here is a good description of how "public options" work in respect to the competitive private marketplace. For those who don't like reading, let me be brief. The public option becomes the dominant option, then the only option. It uses taxes on its competition to fund itself, but still comes up short. When a crisis hits, it will seek a government bailout. Like most politics, it can be relied upon to garner votes in the next election but represents a fiscal cancer that will eventually leave its beneficiaries out to dry.
Quick Health Care Numbers
Here's some quick numbers for those who still believe our health care industry is an evil bastion of unfettered capitalism, or that private profits are the cause of rising costs.
- 88% of all medical costs are paid by a third party. The insurance industry in health care is much different than all other forms, and it also happens to be the most regulated by government.
- 48% of medical costs are paid by the government. If we actually had a free market, this amount would be 0%.
- The cumulative price increases in medical care since the creation of Medicare and Medicaid are nearly 1000% larger than the increases in total CPI (Consumer Price Index) over the same period.
- Between 1970 and 2002 health expenditures per capita grew at almost twice the rate of gross domestic product (GDP) per capita in 10 countries studied: Australia, Austria, Canada, Germany, Japan, Norway, Spain, Sweden, the United Kingdom and the United States.
What to make of the power of TEA
I talked to a friend today. This friend is highly involved in the tea party movement around Montgomery. He was telling me about how he and his TEA party peeps were involving themselves in New York's special election for the 23rd district. For those unfamiliar with that race, it involved GOP candidate Dede Scozzafava, Conservative party candidate Doug Hoffman, and Democrat candidate Bill Owens. A major push was put into effect, some say by Glenn Beck and Sean Hannity, that caused Scozzafava to drop out so Hallman could gain more traction. What has surprised many is that Scozzafava then endorsed Owens for the spot.
Read more about the Scozzafava Effect at the Hill blog.
I asked my friend to tell me a little more about their involvement. Apparently, Beck and Hannity are utilizing the TEA party movements as an arm for change. My friend explained to me that he and his group spent a lot of time burning up the phones calling New York and garnering support for Hallman. This effect all across the country made waves apparently and caused Scozzafava to drop out of the race. Headlines over the weekend though point to a major schism being created in the GOP in hopes of bolstering third party candidates. My friend told me that local radio personalities and journalists have been chastising him and his group for becoming involved in these out of state elections. Are these type of things none of the business of out of towners? It has caused me to wonder.
The Note's Rick Klein has written that this is the first of many GOP classic candidates that will feel the sting of groups like the Tea parties. So what does this say, are politics becoming no longer local. If a group of tea party members from Alabama can become somewhat influential for races in New York, are we heading into the nationalization of even Congressional elections? Is this the wedge that can take down the two party system?
Read more about the Scozzafava Effect at the Hill blog.
I asked my friend to tell me a little more about their involvement. Apparently, Beck and Hannity are utilizing the TEA party movements as an arm for change. My friend explained to me that he and his group spent a lot of time burning up the phones calling New York and garnering support for Hallman. This effect all across the country made waves apparently and caused Scozzafava to drop out of the race. Headlines over the weekend though point to a major schism being created in the GOP in hopes of bolstering third party candidates. My friend told me that local radio personalities and journalists have been chastising him and his group for becoming involved in these out of state elections. Are these type of things none of the business of out of towners? It has caused me to wonder.
The Note's Rick Klein has written that this is the first of many GOP classic candidates that will feel the sting of groups like the Tea parties. So what does this say, are politics becoming no longer local. If a group of tea party members from Alabama can become somewhat influential for races in New York, are we heading into the nationalization of even Congressional elections? Is this the wedge that can take down the two party system?
Pelosi vs Vending Machines
For those of you who might cheer regulation and the nanny-state, consider this. Yes, the 1,900+ page health care bill regulates food labeling. Can you imagine the total number of man hours it would take to make sure every eligible restaurant or vending machine in America abides by these regulations? Surely enough to open 100 small businesses, at least.
Well, don't food nutrition guidelines improve health? Does this not make sense in the context of this bill? Unfortunately, food labeling has no discernible effect on nutrition choice. Thus, every dollar spent on enforcing this provision is nothing more than waste. Does anyone REALLY wonder where depressions come from?
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