Carbon Capture and a Green Future

This is slightly off topic, but the Economist contained another of those arguments on the effectiveness of green policy (in this case Carbon capture). Where you have a lot of people coming down on the side of how we should just all give up on such actions when we consider: how emerging nations are building and consuming at an increasing rate; the bureaucracy involved in the regulation and enforcement of such policies; and given the austerity that some are enduring at present (in a global recession) then many argue that such policies effect job creation.

This is a subject matter that I have some knowledge and experience of. During the 4 years of my Ph.D. I worked to develop methods to locate extremes in climate data (heat waves, mega tornadoes, etc), and I could put my hand on my heart and say there are some very disturbing things going on with the climate. Now before you colour me as some ultra left-wing socialist who spends his time split between climbing up trees and working for trade unions, I must say when I started the research I did not care about the climate, it was all just numbers to me, and I remain one of those people that prioritize humanity over climate, flora or fauna.

There have been a host of high profile people who have come out saying that they 100% believe in global warming. I'm willing to say that I'm far from 100% happy about the predictions and models used to aid these arguements. There is some evidence that the trending observed in global warming may be partially caused by the expansion of villages, towns, cities and the changes in farming practises over the last few centuries. I have also been privy to an excellent presentation by one Professor to some of the authors of the IPCC report and he demonstrated that models used to predict global warming were unable to predict Iceages. The standard way to test a premise is to see if that premise is able to explain things that you know and so if a model is unable to predict the past then how can it be expected to reliably predict the future?

What I would be 100% happy saying is that global minimium temperatures are increasing and that they are increasing by a non-trivial amount. This may sound far more innocuous than the planets temperature jumping by 6 degree, and who doesn't mind less chilling winters, but it has a dramatic effect on the occurence and recurrency of extremes. These slight changes in mean are demonstrated by Wiglely (Nature) to change a one in twentyfive year (extreme event) into once in five years and the once in a century becomes once in eleven years. Drought, floods and heat waves, all happening on at a much higher frequency and much higher severity, and it is this that provides a clear danger to people lives and well being in both the developing and developed world.

When a serious extreme climate event happens all we can normally do is pick up the pieces - such as famines in Africa or the communities and industries ruined by flooding in India. Planning for it can be attempted (ish) but facilities, protection or plans, for such extremes, have a habit of standing around for several years looking like white elephants and when they are called into action they tend to be inadequate as the extreme that they were designed for were milder than the one which occurred. As the UK encountered with Snow last Winter: a lost £13 billion in revenue and some life and limb.

Schemes, such as carbon capture, are cheap in comparison to the expense of allowing climate extremes to ravage our weakened economies and that's excluding the potential additional expenses caused by a significant increase in global temperatures. Even though there may be some short term hardships for pursuing green agendas, they must be pursued as there is no cheaper credible alternative.

From Wall Street to main Street

An interesting article appeared in the Wall Street Journal that increasing numbers of customers where switching their accounts from large high street banks (such as Chase) to much smaller credit unions. The article cites that a selection of the large banks were in the process of introducing charges to the savers accounts and it is that which motivated the customers to move.

The changes to how the banks conduct their business may well of been the stick to motivate swaps, but the carrot of the credit unions (CU) is something else. CU's lack of stock or debt makes them a much more durable option in the present climate. Also the deposits that the CU have at their disposal are likely to only be utilised for community or ethical international development, and are highly unlikely to be used to provide leverage for stocks, bonds or currency. 

It seems if Main street has found an effective way to remind Wall street that ultimately they, the depositors, are the ones in ultimate control.

The Euro issues are once more kicked into the long grass and investors lap it up

The Euro Zone (EZ) crisis, the longest and greatest financial soap opera ever (or Greek tragedy if you prefer), is to be brought to an end as Merkel announced that the EZ was heading towards fiscal unity. All rejoice the wicked witch of market meltdown is dead and we can go back to our normal lives: Britain’s FTSE 100 and Germany’s DAX jumped 1.8 percent; France’s CAC-40 climbed 2 percent; and U.S. stock futures rose 1 percent. Those long cold nights with Sarkozy appear to be worth it.

When will this happen? IF Merkel's words are correct then it will take years to achieve. A process of relocating powers from sovereign states to Euro institutions. A process that will more than likely involve years of horse trading between the more affluent north and comparatively poorer south. So that the south can build better economies at the cost of stronger controls over their budgets.

The problem with things taking years to achieve is that, in politics, even a week is a long time, and any all people involved could, and mostly likely will, change. Just look at the Finns, they are getting all anti-Europe and starting to have some robust views on how other economies should be run. When treaties need to be signed by all member states then individual countries, who are less then happy about footing the bill for other poorer or badly managed states, are unlikely to sign without some significant concessions. Concessions which simply have no place when you are attempting to build towards a singular fiscal policy.

This also assumes that the Euro will still be in one piece in a few years time. At present a lot of people, myself included, are more than a little surprised at how robust the Euro appears in the face of some absolutely cataclysmic news doing the rounds (if you are not bearish by now then you must be an eternal optimist). Various member nations regularly teeter on the brink of financial ruin as their debts and borrowing escalate to gargantuan levels and threaten to bring down the state and any neighbouring banks who happened to have lent them a Euro. This, if anything, was what Merkel's speech was aimed at (with a little political ideological opportunism thrown in). The German chancellor is attempting to get the market to go long on the idea that eventually the Euro will work out.

I don't think the Euro experiment can work with all states presently signed up: Italy and Ireland are fine; Greece and Portugal not fine; and Spain will need a more detailed look. Although if it can survive the breakdown of a couple of its members, then maybe Merkel is correct and that we should look to long term process rather than the short term turmoil.

Additional resources -

BBC

New York Times

Washington Post

The Globe and Mail

The Guardian

Aljazeera

Oiling the Wheels

"Heading for a credit crunch" is one of those sayings that I find very strange. It gives the impression of financial institutions driving towards each other at high speed and we, the markets, tax payers and politicians, must leap in at the last second to stop them destroying each other, blowing up and ruining all our lives. What is ultimately frustrating about the crunch is that it arises from a basic business premise - risk vs reward. The institutions involved are bad risks with low rewards, and hence sensible businesses do not invest in them.

So, like some short term amnesiac, we are back to like we were a couple of years ago where everyone gripped tight to their dollars and those without them suddenly found they were unable to conduct their daily business. This time though the FED and Central banks dipped into their pockets early in an attempt to avoid the banks slipping under. By now everyone understands, or should know, that many institutions are tied up to their rivals and so when one slips under then multiple follow suit. The additional liquidity buoyed the market and the exchanges, although it will only be a short term resolution as the problem isn't the credit, the problem is bad risk. 

 

More on the liquidity issue -

The Guardian

Yahoo 

Tax'ing times

For a truly emotive subject you have to look no further than Taxes. Who pays them?, how much? and how fair is to redistribute wealth from one group to another? From an economic perspective governments can take revenue from its people and use that revenue to raise the countries GDP in both the short and long term (such as improving logistics and funding research), although it is no always the case that the people who have the money (taken away from them in taxes) are the same people that benefit from the increases in economic growth.

What is the immediate important? On the 31 of December American Payroll tax raises from 4.2 to 6.2 percent (roughly $1000 extra dollars a year per person), and with the payroll report out on Friday (jobs growth), presidential relections and the small matter of $15 trillion debt, then a 2 percent rise is very significant.

If the rise goes through then it's bound to be unpopular, lets be honest here no one likes tax raises and no politician likes people feeling bad at re-election time (Obama). If the payroll report shows that jobs growth is slowing (due out later this week) then the rising taxes is also bad, people having money to spend is what fuels the economy and suddenly making all your average tax payers poorer will put the dampers on any growth.

To keep the lower tax rates requires the tax revenues to be raised from non-average earners, already sunk by the Republicans as they consider the highest earners the only way to grow jobs, or to add a little more onto the deficit (approximately $120 billion), which would only increase the stress on the already nervous markets. If it wasn't for the absolutely shocking state of the global economy, then borrowing more would likely be punished by the markets. Yep you read that right, a bad global economy is good for the greenback as it benefits from its position as a safe-haven and therefore releases of new currency tend to get snapped up.

What's appears the best course of action? From a domestic point of view it would probably be to borrow more from the markets and ensure that the U.S. economy can keep growing. As long as Euro doesn't fall over and die, then (in the long term) the lead in productivity should offset the short term pain for yet more borrowing. From an international point of view letting the payroll tax increase would improve confidence in the dollar, draw in more external investment and is likely to further reduce the deficit by improved borrowing rates.

Is Obama likely to let taxes raise in such a way? Unlikely, after all he's after another term of office.