• Climate disruption will disrupt volcanism too
• EPA Office of Inspector General finds standard gases not so standard after all
• Driest years in Pacific Northwest drier than expected
• Northeast Passage opened this year for commercial shipping
• 12% of the merchant marine fleet is idled
• Recycling used plastic into fuel
• US Chamber of Commerce and car dealer industry group fight California emissions waiver
• Slowing population growth more effective than renewables at slowing GHG emissions

Nature News reported last week that vulcanologists have concluded that climate disruption will increase the number of volcanic eruptions. According to the article, the reason is that climate disruption is expected to reduce the amount of ice present atop volcanoes and thus reduce the amount of material keeping volcanoes from erupting.

But there is definitely some evidence that less ice means more dramatic eruptions. “As thick ice is getting thinner, there may be an increase in the explosivity of eruptions,” says Hugh Tuffen from Lancaster University, UK.

As strange as this sounds, it’s well grounded in geologic sciences. For example, a paper published in 1999 found that there was a correlation between the eruptions of Pavlof Volcano on the Alaska Peninsula and the season (see the image above). Specifically, as a result of weather patterns in the region, the ocean gets slightly thicker in November, and the added weight is believed to be compressing the magma chamber that feeds Pavlof. As a result, small periodic eruptions at Pavlof tend to happen in November. And another paper in 2004 found that volcanoes tend to erupt globally during changes in the earth’s crust as a result of the water cycle – seasonal variations in ground and seawater. This paper studied a much larger number of volcanoes and found that volcanoes in different regions of the world respond to different changes, but the bulk of volcanic eruptions seemed to show some seasonal variation.

Other studies have found that there was an increase in volcanism as a direct result of climate change. This paper from 1999 found that there was a strong correlation (the chance of the correlation occurring by chance was less than 0.2%) between interglacial periods (like we’re in now) and increased volcanic activity in eastern California as a result of a number of possible factors, one of which is increased geologic stresses due to the weight of ice and glacial lakes.

What this means is that, as the Nature News article says, we can expect that disruption of the climate will in turn drive disruptions in how volcanoes erupt. Unfortunately, there’s very little data at this point about how climate will affect volcanism, and no modeling at all – the latest climate models all model how the climate responds to volcanism, but none of them presently model how volcanism will respond to the climate.

“The IPCC [Intergovernmental Panel on Climate Change] hasn’t addressed these kinds of hazard,” [Bill McGuire from the Aon Benfield UCL Hazard Research Centre at University College London] says. “You have a better chance of coping with any kind of hazard if you know it’s happening,” he adds. “Climate change is not just the atmosphere and hydrosphere; it’s the geosphere as well.”

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EPA Office of the Inspector General finds standard gases not so standard after all

Organizations that do pollutant monitoring rely on standard gases to ensure that their equipment functions properly. Each standard gas represents a specific amount of pollutant in a given volume of gas, measured in parts per million (ppm), parts per billion (ppb), or some other convenient measurement for the pollutant in question. The standard gas is then injected into monitoring equipment in order to calibrate the equipment to a known amount of pollutant. From that known amount, the equipment can then track how much pollutant is present in the test environment, either more or less than the calibrated level(s). But this process only works if the standard gases have very close to the amount of the pollutant that the gas is supposed to have.

For example, if a calibration gas used by a utility was certified to contain 100 parts per million (ppm) of SO₂, but only contained 96 ppm, the system operator would unknowingly calibrate the CEMS to read 96 ppm as 100 ppm. This would result in the CEMS overestimating emissions.

Last week, the EPA’s Office of the Inspector General found that approximately 11% of the standard gases for blends of SO₂, CO₂, and nitrous oxide (NO) they had purchased and had independently tested were different from the stated amount of gas by 3% or more when the acceptable range was within 2% of the stated amount. And in an example of the seemingly universal rule of “you get what you pay for,” all the failures were from vendors selling inexpensive standard gases, while all of the expensive gases were acceptable.

This is a severe problem because of the sheer number of things that standard gases are used for. The OIG report points out that accurate measurements are vital for the over $5.1 billion SO₂ trading market that has been responsible for a dramatic reduction in acid rain. Accuracy of measurements is similarly important for the $350 million NO_X trading market. And as for CO₂, the World Bank estimated that the global carbon market was $64 billion in 2007. And metropolitan areas are monitored by the EPA for air quality and are fined or forced to make changes to local utilities or transportation as a result of those air quality measurements – if the measurements are incorrect, then the EPA could be giving some cities a passing grade who actually fail air quality, or failing cities that should actually pass.

The OIG’s recommendation, which the EPA office responsible for standard gases agreed with, was for the EPA to implement a quality control process, something that the EPA does not currently have in place.

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Driest years in Pacific Northwest drier than expected

Climate models are always being improved with new understanding of how climate works (especially in two key areas, cloud and aerosol dynamics). But regional climate modeling is particularly difficult for two reasons: climate models are so processor intensive that they cannot yet model the Earth with high horizontal and vertical resolution, and scientists do not know all the regional changes that drive regional climate away from the global average. Put simply, scientists don’t know everything and can’t model in enough detail for accurate regional climate predictions.

Enter a new paper by two U.S. Forest Service scientists who have studied annual streamflow in the Pacific Northwest. They set out to determine if the annual streamflow (the amount of water flowing out of a watershed in a year) of the driest years was different than the annual streamflow of the average year or the wettest years. They used a statistical technique called “linear quantile regression” to detect any difference from the average change detected in other studies by use of another statistical technique known as “least-square regression.”

The scientists found that there was a greater reduction in annual streamflow in the driest years than the mean trend had detected. Climate models had previously predicted that there would be little overall change in the annual streamflow because the same amount of water would flow through watersheds, but at different times of the year. Instead, this study discovered that, while this was true for average and wet years, dry years were significantly dryer (in a statistical sense) as a result of changes in climate since 1949.

As a result, the authors expect that changes in water management throughout the Pacific Northwest may be necessary. The design of water storage reservoirs may need to change in order to hold multiple years worth of water. Reduced annual streamflow will have a significant impact on aquatic life living in streams that run much lower during dry years than they have in the past, and reduced streamflow will serve as a positive feedback with increased air temperature to increase the stream temperatures and possibly cause even greater reductions in fish populations. And while overall drying across multiple years already stresses forests, individual dry years can kill off large swaths of forest, lead to more forest fires, and slow the growth of surviving trees.

One of the more interesting points the authors made was that the dry years appear to be tightly correlated with El Niño/Southern Oscillation (ENSO) variation from year-to-year and with a yearly trend, but the correlation was significantly weaker when they included the cooling trend in the Pacific Decadal Oscillation. While the authors take pains to point out that this doesn’t conclusively say that the PDO isn’t affecting dry year annual streamflow, they do “favor” a model that doesn’t include the PDO as a driver of the annual streamflow. And they call for more analyses to better identify the causes of the observed dry year changes.

More sophisticated analyses considering other indices, temporal lags, and temporal autocorrelation of indices would likely elucidate more information and provide greater certainty, but this rough analysis presents interesting insights.”

I couldn’t agree more.

Thanks to the paper’s primary author, Dr. Luce, for providing a review copy of his paper.

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Northeast Passage opened this year for commercial shipping

Historically, Russia’s Arctic coast has been too iced-in for commercial vessels, most of which are designed for hauling their cargo in ice-free waters. But this year, according to a NYTimes article, two German vessels, the Beluga Fraternity and Beluga Foresight, steamed north from South Korea and transited the Northeast Passage, also known as the Northern Sea Route. This route was largely ice free this year, and the two ice-hardened specialty cargo vessels took advantage of the clear waters to cut thousands of miles off the southern route via the Suez Canal. According to the article, while the Beluga vessels were escorted by at least one nuclear powered Russian icebreaker the entire time, the icebreakers were not needed this year.

For the moment, the article points out that the Northeast Passage isn’t expected to be open regularly enough for large just-in-time (JIT) shippers like Maersk to use – schedule accuracy is more important to JIT shippers than fuel savings. But if the Arctic sea ice continues to thin and open up the shipping channel during late August and early September, then specialty shippers like Beluga could start making use of the shorter route in order to get their cargo to its destination cheaper and faster.

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12% of the merchant marine fleet is idled

According to an investigative report in the UK’s Daily Mail, there is a massive fleet of idled shipping vessels anchored off the coast of Singapore and southern Malaysia. These ships, and others taken out of service around the world, represent 12% of the the entire global merchant marine fleet, sitting idle. And yet shipyards are continuing to build enough new cargo vessels to increase the total number of vessels by 12% next year.

But according to the report, there are no new ship orders for after 2011, and shipping experts expect that the number of vessels idled by the recession will rise to 25% of the merchant marine fleet in the next two years.

Does this mean that the government’s claims that the recession is over are false? Maybe. I’ve read some discussion that the recent small recovery is a result of companies having to rebuild some inventory after having finally sold off the inventory they had stockpiled before the start of the recession. But that’s a one-time event, and restocking inventory isn’t going to do much for the economy as a whole. What all these ships represent is a lack of advance purchases, either due to a general unavailability of credit or due to companies not expecting enough growth to justify re-expanding their global supply line. In either case, it’s not good news for the global economy in general. Remember – 90% of all goods are shipped on vessels like this, so a 12% reduction shipping merchant marine shipping capacity could mean as much as an 11% reduction in overall international trade – in the last year.

However, this reduction in shipping is good news for global carbon emissions and reduced marine pollution. Oceanic shipping is estimated to produce between 3 and 5% of the world’s carbon emissions, so a 12% reduction in vessels will mean a reduction of between 0.3 and 0.6% of total carbon emissions this year. That represents a reduction in total emissions of at least 100 million metric tons off CO₂. That savings represents more than Romania’s entire national emissions (98 million metric tons in 2006).

And, fortunately or not, depending on your particular perspective, the longer the economy stays depressed, the slower carbon emissions will rebound to previous levels, giving human civilization an opportunity to clean up its energy production technologies some in the interim.

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Recycling used plastic into fuel

Nearly all plastic is made from either natural gas or petroleum feedstock. Most plastic is recyclable in some way, either by turning one bottle into another, or by turning bottles into clothing or by turning packing material into park benches. But this is simply reshaping the plastic. Now a company in Maryland has figured out how to turn plastic back into a fuel feedstock that can be blended with diesel or gasoline.

According to Green Inc article, the cost is about $10 per barrel, and the Maryland plant is large enough to convert one ton of plastic into between three and five barrels of oil. However, Environ estimates that nearly 50 million tons of plastic waste are created every year, so a plant that can only convert 6,000 tons per year is a drop in the proverbial bucket. Converting all of that waste back into fuel would take about 10,000 similarly sized conversion plants. Or a bunch of much larger plants. And the process itself is energy intensive – each barrel of fuel represents enough electricity to power 2-3 residences for a day.

So this isn’t a solution to the global plastic problem. And it certainly doesn’t help the U.S.’ oil addiction. But if it can be scaled up, then maybe it’s a step in the right direction. After all, there are more environmental problems than just climate disruption – clean water, air pollution, hazardous waste, and yes, even plastics.

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US Chamber of Commerce and car dealer industry group fight California emissions waiver

According to the NYTimes Wheels blog last week, the U.S. Chamber of Commerce and the National Automobile Dealers Association have asked the EPA to review a waiver it granted to the state of California in June. The waiver allows California to regulate vehicle emissions CO₂ independently and more tightly than national standards. A spokesman for the NADA, Sheldon Gilbert, was quoted in the Wheels blog as saying “That’s a fair description” when asked if the filing was a precursor to a court case.

Clearly, the EPA believes that it’s in accordance with the Clean Air Act, as does the California Air Resources Board, and the Center for Auto Safety’s Safe Climate Campaign. However, the president of Clean Air Watch, Frank O’Donnell, believes that this is just the beginning of carbon emissions lawsuits. He’s probably correct, even though there have been a few lawsuits already relating to climate. But with the courts now involved, it’s fair to say that Arctic communities will be suing energy companies, developing nations will be suing developed nations, and it’s all going to get a lot uglier before things improve. And at least one major insurer/reinsurer believes that a wave of litigation is inevitable.

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Slowing population growth more effective than renewables at slowing GHG emissions

There are few taboo subjects when it comes to climate disruption. Environmentalists and activists regularly discuss pollution, energy consumption, the benefits of eating local and seasonal, drinking reclaimed water, even composting human waste. But one thing that is generally considered off-limits is population growth. Given that human reproduction is considered a taboo subject by a large percentage of cultures and religions, this is perhaps unsurprising. But no discussion of humanity’s impact on climate could possibly be complete without occasionally discussing how the mere existence of more people creates climate pressure, taboo subject or not.

A new study by the London School of Economics and commissioned by the British group Optimum Population Trust (OPT) found that reducing the number of people on the planet via voluntary family planning and contraception was pretty cost effective. According to the study, it’s cheaper than all current CO₂ reduction technologies except for geothermal and sugar cane-derived ethanol (see the table above).

However, this conclusion has met with significant criticism from groups opposed to family planning, contraception, and the like. The San Francisco Chronicle’s blog The Mommy Files has a post on this study, and they point out that a British anti-abortion group has attacked the study as concluding “that fewer children and more abortions means a better environment.” As the Mommy Files points out, the OPT actual study says nothing about more abortions creating a better environment. Instead, the study has the following things to say about abortion:

A Washington Post article on the same study also pointed out that there was an Oregon State University (OSU) study that came to basically the same conclusions, but went a different direction. Instead of estimating the monetary savings/cost of reducing CO₂, the OSU study estimated now much CO₂ a baby born in a given country would add to the atmosphere:

In the United States, each baby results in 1,644 tons of carbon dioxide, five times more than a baby in China and 91 times more than an infant in Bangladesh, according to the Oregon State study. That is because Americans live relatively long, and live in a country whose long car commutes, coal-burning power plants and cathedral ceilings give it some of the highest per-capita emissions in the world.

Just because the estimated costs are lower for reducing CO₂ emissions via family planning doesn’t mean that this will be enough to keep cumulative emissions from exceeding what many scientists consider “acceptable.” Recent science suggests that global warming should be kept “acceptable” (< 2 °C global temperature rise) if total cumulative emissions are kept below an additional 1,000 billion tons of CO₂ over what we’ve already emitted. The OPT study found that the cumulative emissions savings from 2010 to 2050 was 34 billion metric tons. In 2050, the difference between the worst case and the best case IPCC emissions scenario is about 500 billion tons of CO₂, with the best case staying below the 1,000 billion tons of CO₂ limit and the worst-case exceeding it by 250%. The 34 billion tons saved via population reductions from family planning represents only 6.8% of that difference, and actual emissions are worse than the IPCC wost-case scenario.

Reducing population will help solve so many problems beyond climate disruption that it’s difficult to argue against it from anything other than religious grounds. But as cheap as it could be, it won’t be enough. We’ll still need increased energy efficiency and more renewable energy and maybe nuclear power and to shut down coal plants wherever possible and to quickly transition away from petroleum-powered transportation.

Solving climate disruption isn’t multiple choice, it’s “all of the above”
Image credits:
Birkhäuser
EPA OIG
NYTimes
Daily Mail/Richard Jones/Sinopix
Optimum Population Trust

From space, the road system around Shanghai must look like a bowl of Chinese noodles. But traveling on the roads themselves feels like traveling the straight and narrow. The long, straight parkways, well-manicured, roll out across the flat coastal plain that surrounds Shanghai.

Component await shipment at Cooper Industries
outside of Shanghai

The business of the day is business, so we’re visiting a number of manufacturing companies. The industrial parks we visit are laid out in grids that keep things well organized and makes it easy for delivery and cargo trucks to move about. It’s just the most visible indication of the careful planning the government has put into place to attract companies.

We tour a few American-based companies as well as a German-based one, although all are quick to characterize themselves as “global companies.” One company manufactures parts for electricity transmission; another manufactures parts for auto transmissions and brakes; another is an aerospace manufacturer; another specializes in urban development.

China represents a key market for each of them. Business here is booming.

And it’s hard to imagine what China has NOT done to encourage those companies to set up shop. For instance, we visit a special free-trade zone that facilitates the movement of raw materials and processed goods in and out of the country. “This allows us to avoid import and export duties,” an aerospace manager tells us. “It allows us to respond to customer needs faster, too. Instead of shipping something here from the U.S., we can already have it on site.”

A light-up map of the Suzhou Industrial Park

In the city of Suzhou, 80 kilometers northwest of Shanghai, the Chinese and Singapore governments have created a planned city, called the Suzhou Industrial Park, that provides huge tax breaks for businesses, social security incentives for workers, and a host of other enticements for a pro-business environment.

“We have to be careful about how we market our products,” one engineer tells me. “There’s a perception that ‘Made in China’ means something inferior even though that’s not the case.” One way the company gets around that perception is that it creates products in China, then ships them to Mexico for assembly before they’re sold in America. All that shipping still makes the products cheaper to produce than if they were made and assembled in America.

Near the heart of the Suzhou Industrial Park

China also offers other key advantages for businesses. The country’s location makes it an ideal platform for doing business with other Asian markets. The country’s size means virtually any natural resource and raw material is available without having to import it.

The biggest incentive, of course, is the cheap labor force. “In America, labor costs are the number one concern for a company,” the engineer tells me. “In China, businesses don’t even worry about their labor costs because it’s so inexpensive here.”

For some companies, labor costs are as much as thirty to forty percent cheaper in China than in the U.S. At one plant we visit, workers make the equivalent of around $200 a month. That’s $50 for a forty-hour work week.

“Here, the worker efficiency is much higher, and their productivity is higher,” one manager tells me. “And the product we produce meets the same quality standards that workers in the U.S. have to meet.”

At the German company, laborers work on a series of modern—but not cutting-edge —machines to make bearings for automobiles. “The machines we use in our German plants are more fully automated,” one of our guides says. “That allowed us to ship the older machines, which are more labor-intensive to use, to this location because the labor is so inexpensive.”

Mandatory retirement for unskilled workers is 55 for men and 50 for women; skilled males can work until 60 and females until 55. After retirement, workers get a small government pension.

“We have a free hand in who we hire,” a manager tells me. That’s a big change from the days when China told each citizen where he or she would work and how to make a living. “It’s a competitive work environment for skilled workers. They are always looking for opportunity. They don’t consider company loyalty, so it can be tough for us to keep workers.”

The workforce presents other challenges for American companies, too. “Innovation and creativity are not taught in the school systems,” the engineer explains. “In that respect, the engineers we hire out of college are quite raw.” The challenges of teaching them innovation represent a significant—but not insurmountable—cultural challenge.

While the Chinese don’t seem to excel at innovation, they demonstrate excellent adaptability. One reason China’s business climate and infrastructure are booming is that the country has been able to take advantage of the learning curve other countries have experienced.

“Our plants in America grew organically, which isn’t especially efficient,” the engineer tells me. “When we built this facility, we could build it specifically to suit our needs.” The growth of the plant in America gave them a clearer, more efficient idea of how to build the plant in China.

The same thing is happening with thousands of other companies.

Chinese adaptability also translates as an all-out assault on intellectual property rights. For instance, millions of Chinese smoke like chimneys, but I’ve seen far more Zippo knock-offs than Zippos. “We have to defend our intellectual property rights vigorously,” the engineer tells me. “But even still, Chinese companies are learning from us. After all, our suppliers don’t just supply to us. Our competitors benefit from the same high standards we demand from our suppliers. So, at some point in the future our competition will be competing at a level not much different from us.”

For the time being, though, China continues to depend on foreign companies to help fuel the country’s explosive growth.

“The investment market here is so large,” the engineer tells me. “But that doesn’t mean the Chinese are just spending. ‘Investing’ means they’re getting better.”

What follows is a series of key quotes from Gingrich’s prepared remarks that illustrate his deceptions.

Gingrich’s claimOur current energy import strategy is entirely a function of our own government’s anti- domestic energy policies. The United States government blocks the development of new energy sources and inhibits the use of existing energy and then explains that we will have a shortage of energy. It is an artificial, government imposed shortage not a naturally occurring phenomenon.

This is a gross distortion of reality. Our import strategy is mostly a function of the capitalistic nature of our oil industry, not of domestic energy policy. When oil prices were high, the oil industry lobbied hard (and largely successfully) for drilling subsidies and the opening of the outer continental shelf (OCS). But now that oil prices have fallen well off their peak, oil companies are stopping their domestic drilling in order to focus on more profitable foreign sources.

Put simply, oil companies and low oil prices are the reason that there’s not much domestic energy production.

Gingrich’s claim Make no mistake about it: This bill amounts to a $1-2 trillion energy tax levied on a struggling economy, which is destructive and wrong.

Carbon capitalism is not a tax. Gingrich is repeating a GOP talking-point that declares capitalism is taxation in the hopes of scaring people into believing that black is white and the sun rises in the west and sets in the east.

In addition, Gingrich didn’t even read the entire Waxman-Markey bill and admits to that fact before even starting to read his written testimony (The statement is at about 2 minutes in the CSpan video of Gingrich’s testimony. He stopped at around page 230 of a 600+ page legislative draft – when the portion about carbon capitalism starts on page 322.

Gingrich’s claim [E]xpect utility bill increases up to $3,128 per year per household.

This is a lie for a number of reasons. The most important is that the MIT study from which this wrong number was calculated was conducted in 2007, and paper author Dr. John Reilly has not updated the conclusions for the details of of the Waxman-Markey ACES draft legislation that Gingrich was testifying about. Furthermore, Dr. Reilly had the following to say at Climate Progress: “it is inappropriate to draw conclusions on the costs of Waxman-Markey.” After all, ACES has a number of cost-containment provisions specifically designed to prevent revenue gained from carbon capitalism such as offsets, public investment in energy efficiency, and an unreasonably low estimate of fuel prices for 2030 between $2.10 and $2.40, while the EIA estimated in it’s 2007 Annual Energy Outlook that gasoline prices would be $3.20 in 2030.

It also doesn’t help that the wrong GOP number would only be correct if you turned all that money into a giant bonfire.

Using an out-of-date study to tarnish current legislation is a misrepresentation of the MIT study at best, and an attempt to mislead Congress and the American people at worst.

Gingrich’s claim According to the Heritage Foundation, the cost of cap-and-trade, with even only a small percentage of allocations being auctioned, would be $1.9 trillion.

While Gingrich is accurately reporting what the Heritage Foundation’s study found, Heritage has a history of misrepresenting economic data and faulty logic as applied to climate, and as such their analysis cannot be trusted. The EPA has analyzed the carbon capitalism portions of the ACES draft and found that the total cost to the national economy is only $22 billion in 2015 and between $54 and $64 billion in 2030. The increase in household energy cost (excluding gasoline) over a reference projection for “business as usual” is 9%, or approximately $200 per year. In addition, the EPA analysis contains a literature review at the end that points out that the Heritage study doesn’t even define the baseline from which it projects the supposed $1.9 trillion, making the results of the analysis and the underlying assumptions impossible to verify.

Gingrich’s claim In a recent paper for the Tax Foundation, Andrew Chamberlain concludes that the costs of this energy tax would be “disproportionately borne by low-income households, those under age 25 and over 75 years, those in Southern states, and single parents with dependent children.”

The effects of energy price increases on struggling households would be a serious concern if it weren’t for one very important fact: everyone who studies carbon capitalism is aware of this problem and so writing legislation and/or regulations to correct for the disparity will actually be quite simple. In other words, this is a non-issue and an attempt at fear mongering.

Gingrich’s claim A recent estimate from the Tax Foundation shows that cap-and-trade could cost America 965,000 jobs, and reduce economic output by $136 billion per year.

This isn’t a false claim by Gingrich so much as it’s a false claim by the Tax Foundation repeated by Gingrich. However, economist Kristen Sheeran, Ph.D., of St. Mary’s College of Maryland, has addressed this directly: “[The Tax Foundation] report assumes that in a cap-and-trade system, there are no carbon revenues recycled back to households to offset the impacts of higher energy prices…. [A] cap-and-trade system where all permits are auctioned will generate a revenue stream that can be recycled back to households in these ways. This is well established in the literature, and the Tax Foundation report makes no reference to this literature at all.” (quote via 1Sky).

Gingrich’s claim The United States government failed to regulate Wall Street correctly, and the result has been trillions of dollars of taxpayer money to clean up the mess that politicians and bureaucrats created.

The U.S. government did fail to regulate Wall Street properly, but to claim that “politicians and bureaucrats” created the problem is a lie. In fact, a number of economists suggest that one of the men most directly responsible for regulatory failures of Wall Street was former GOP Senator Phil Gramm, author of the Gramm-Leach-Bliley Act of 1999 that overturned many of the financial regulations that had maintained financial stability since 1933.

Gingrich’s claim Fannie Mae and Freddie Mac were charged with managing mortgages, and in 2008 we saw a collapse of the United States housing market.

This is a lie that the GOP has stated repeatedly – and that S&R has exposed repeatedly. See the links for a more detailed deconstruction of the lie itself, but put simply, deregulation of the financial system was the cause of the housing market bubble and subsequent meltdown, not the number of mortgages insured by Fannie Mae and Freddie Mac, and economic data supports this conclusion.

Gingrich’s claim The first good thing in it is a provision that restricts the Environmental Protection Agency (EPA) from regulating carbon, which the EPA is currently positioning itself to do. This would be a power grab of staggering proportions….

This is a lie. The Supreme Court of the United States decided on April 2, 2007 in Massachussets et al v. Environmental Protection Agency et al that the “EPA has statutory authority to regulate emission of such gases” due to the the fact that the definition “includes ‘any air pollution agent … , including any physical, chemical, … substance … emitted into … the ambient air … ,’ §7602(g) (emphasis added)—embraces all airborne compounds of whatever stripe. Moreover, carbon dioxide and other greenhouse gases are undoubtedly ‘physical [and] chemical … substance[s].’”

In addition, the Supreme Court rejected the argument that the EPA could choose not to regulate: “Under the [Clean Air] Act’s clear terms, EPA can avoid promulgating regulations only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do.”

In other words, the EPA not only has the authority to regulate greenhouse gases (GHGs), the Clean Air Act requires that the EPA regulate GHGs if they’re a public health hazard via the effects of climate disruption. When Congress requires that the EPA act on a pollutant, then it’s false to claim that following the law is a “power grab of staggering proportions.”

Gingrich’s claim Before anyone gives the Department of Energy sweeping new powers they should consider the absolute failure of the Department of Energy to keep its 2003 commitment to build an innovative “green coal” pilot project [FutureGen] by 2008.

The FutureGen program was canceled in 2008 by the Department of Energy (DoE). However, it’s interesting to point out that the failure Gingrich is complaining about happened under President George W. Bush. Painting the Obama Administration’s DoE with the same brush as the Bush era DoE is inaccurate at best.

Newt Gingrich was also caught in a bind by Representative Inslee when the latter pointed out that only two years ago, Gingrich had been a strong proponent of cap-and-trade:

Media Matters also has some interesting quotes further supporting Inslee’s point.

In his testimony before Congress, Newt Gingrich did what he always does – distorted facts, manipulated data, proved himself a hypocrite, and outright lied. If this was the best that the minority of the House Energy and Commerce Committee – Subcommittee on Energy and the Environment could do, then the draft version of the American Clean Energy and Security Act of 2009 is well on its way to becoming part of the U.S. Code.

Markets don’t work for everything, however. The sulfur dioxide emissions market works because the effects are not hyper-localized – farmers in Kansas and Iowa won’t notice the difference between the emissions from coal plants in Denver, Boulder, or Fort Collins. However, in the case of mercury emissions from coal plants, an emissions market would be a very, very bad idea. Coal-produced mercury precipitates out of the air in a plume immediately downwind of the emissions source, and so there’s no way to fairly balance the increased emissions of one coal plant with the lower emissions of another. In this case, all the increased mercury emissions would to is poison more mothers and children.

But because markets work so well for so many things, the creation of a cap-and-trade market for carbon dioxide (CO₂) makes a lot of sense. In a similar fashion to sulfur dioxide and unlike mercury emissions, CO₂ emissions mix well with the atmosphere and so trading emission credits between one source and another is viable.

Add into the cap-and-trade equation so-called emissions banking (the ability to hold over CO₂ emissions credits from one year to a later year when meeting the cap could be more expensive) and other price control schemes and you’ve got the makings of a complete market and financial system based exclusively around trading CO₂ emissions credits. And that’s carbon capitalism.

But if cap-and-trade is really carbon capitalism, why do so many supposed capitalists hate the idea of a market in CO₂? Simply put, it’s politics. Supposedly John Boehner is a free-marketeer, yet he’s calling carbon capitalism a “code for increasing taxes.” Paul Chagon of OneNewsNow quotes Dan Simmons of the Institute for Energy Research as saying that carbon capitalism would be “the largest tax increase of all time of all American history and probably all world history.” The conservative, pro-business National Center for Policy Analysis called carbon capitalism a “$646 billion cap-and-trade tax.” And a short piece on the pro-business, libertarian website American Thinker says “Paying more for energy as a result of federal policies is not considered a “tax” because after all, it’s not going to be called that. It will be named “Cap and Trade” – but the effect will be exactly the same.”

Even the Wall Street Journal, that very bastion of business and capitalism, has called carbon capitalism Obama’s “carbon tax policies,” “a cap-and-trade tax,” and “cap-and-tax.” You’d think that, if anyone would understand the fundamentally capitalistic nature of cap-and-trade, the Wall Street Journal would.

In other words, politicians and partisans aren’t above hypocrisy or the abandonment of their supposedly treasured ideals for political advantage.

Carbon capitalism is just that – capitalism. It will increase the price of energy somewhat, but that happens any time a market externality is priced. Making something a valuable commodity also increases the price of products made with that commodity, but you don’t see corn or oil commodities traders shouting that we shouldn’t trade corn and oil just because the price of tortillas and plastic sometimes rises. All of that trade is capitalism in action – putting money to work for the nation’s and the world’s best interests. The only difference is that this time the government is creating the market because business won’t step up to the plate and discover the price of something that’s currently free.

The same thing happened with sulfur dioxide, and the utilities claimed then that the sulfur emissions cap-and-trade system would put them out of business. It didn’t. The utilities predicted skyrocketing energy prices. That didn’t happen either. What did happen is our air and rivers and lakes got a lot cleaner as a result. And now the American Coalition for Clean Coal Electricity touts the results of that government-required market as a reason that “coal is clean”:

Even as the use of coal for generating electricity has nearly tripled over the past 30 years, emissions from coal-based power plants have been dramatically reduced through the use of advanced technologies. Today’s coal-based electricity generating fleet is 70% cleaner than it was in 1970 (based upon emissions per unit of energy produced).

That’s the power of the cap-and-trade market for sulfur dioxide emission credits – it’s been so successful that even the coal industry front groups want to claim it as their own.

And just as the utilities and naysayers were wrong about the costs of the sulfur dioxide market, they’ll be wrong about the costs of the carbon market too.

It’s not a tax, it’s not even cap-and-trade – it’s carbon capitalism.

Unfortunately, the law of unintended consequences is working overtime on the CPSIA. A law intended to protect children from harmful products will do so partly by driving literally tens of thousands of small businesses and craftspeople out of business, and those businesses that survive will be saddled with tens of millions of dollars of unsellable inventory on their shelves and in their warehouses. Just as the U.S. needs an economic stimulus to create jobs, the CPSIA will add tens of thousands of people to the rolls of the unemployed.

The CPSIA is yet another example of a good idea – protecting children from toxic materials – gone horribly wrong.

The Consumer Product Safety Improvement Act of 2008

The CPSIA is divided into two sections, one concerning mandatory safety testing and certification of all children’s products and the other concerning regulatory reforms of the Consumer Product Safety Commission (CPSC). The first part (Title I) makes a a number of previously voluntary guidelines for the safety of children’s products mandatory and also requires testing and certification that the products are safe for children under 12. The maximum amount of lead in a children’s product is set to 600 parts per million (ppm) by weight and plasticizers known as phthalates are limited to 1000 ppm after not being regulated at all (CPSIA Section 101(a)(2) and Section 108(a)). The CPSIA does grant the CPSC authority to grant exemptions to products or components that are known to not carry lead (CPSIA Section 101(b)). For example, if natural fibers and if no known dies that could be used on the fibers contain lead, then there’s no reason to require textiles made from dyed natural fibers to be tested.

But it’s not that simple. The CPSIA requires that the mandatory safety standards for testing and certification go into effect 180 days after enactment. 180 days to certify that every component of every product manufactured by every manufacturer world wide that is sold in the United States is compliant with the new law. Furthermore, that 180 days also includes the time allotted to the CPSC to determine any and all exemptions, if there are any, and until those exemptions are defined, manufacturers won’t know if their products even need testing in the first place. Assuming 30 work days to determine that an exemption is warranted, 30-60 more work days for a mandatory comment period, another 30 work days to incorporate the comments into the final exemption, and 20 work days for it to become official in the Federal Register, that’s 110 to 140 work days, or between 154 and 196 calendar days. Per exemption.

180 days after enactment is February 10, 2009, leaving not nearly enough time for manufacturers to develop a testing and certification plan following any determination of non-exemption for their products.

In addition, while the CPSC may grant exemptions if it determines that an exemption is warranted, the CPSIA says that the new mandatory safety regulations go into effect for all products even if an exemption is pending (Section 101(e)). Failure to do so opens the manufacturer to both criminal and civil penalties. According to 15 USC 1264, breaking this law is a misdemeanor subject to a fine of $500 and/or up to 90 days in jail for the first offense and $3,000 and/or up to one year in prison for additional offenses (adjusted for inflation). Civil penalties could be much greater, however – $5,000 per violation and $5,000 per day per violation for on-going violations, up to a maximum of $1.25 million (also adjusted for inflation).

While the CPSC has granted a stay of enforcement of the testing and certification requirements for a year in order to give themselves and manufacturers more time to create the regulations and exemptions, the stay only affects some of the CPSIA’s requirements. Specifically, manufacturers and importers are no longer required to test and certify that their products are below 600 ppm lead by weight or 1000 ppm phthalates, but will still have to test and certify that any paint on the children’s product is lead-free, abide by the new crib and pacifier standards, certify and test that their products are free of any dangerous small parts that can cause a choking hazard, and test and certify that the metal components of children’s jewelry are below the 600 ppm lead limit.

And while testing and certification is no longer required, sales of products that exceed the lead and phthalates limits are still considered “banned hazardous substances,” and so the production, distribution, or sale of such product would still be illegal.

So while the CPSC has granted some relief to manufacturers of children’s products, the CPSIA remains a disaster scheduled for February 10. And the fallout will affect literally everyone in the supply chain.

How the CPSIA affects manufacturers and component suppliers

Manufacturers of children’s products are going to be the most affected by the CPSIA. While enforcement of the testing and “general conformity certificate” requirements has been temporarily stayed by the CPSC, this only delays the economic pain felt by manufacturers of children’s products. Ultimately, manufacturers will have to have their products tested by a third party and then issue a certificate with every product that it’s safe. The certificate must include a detailed description of the product, a list of all the regulations it’s been tested to, the name and address of the importer or domestic manufacturer, the name and address of the third-party testing facility, and the date and city/country of manufacture.

This is data that all major manufacturers of childrens products should be able to produce easily, although not necessarily at a small cost. Every product sold in the U.S. is already stamped with a “Made in” identifier and most products have a serial number that can be tracked back to the location and date that the product was manufactured. But small businesses and hobbyists who create small numbers of products, or even unique products, may have a difficult time adapting to this requirement. Hand-made children’s clothing may need to be tested and certified as meeting the lead requirement (pending any exemptions for textiles) where previously such certification and associated labeling was voluntary.

Similarly, a hand-made wooden block set must now have a date, location, etc. permanently affixed to at least one block, and possibly to each individual block. In addition, every product manufactured by the small business or hobbyist will now need to be tracked by date of manufacture, location, testing facility, etc. when previously small businesses may have only tracked products for cost/payment accounting purposes. These requirements may add significant time to the creation of hand-made toys, and will add significant time in bookkeeping, and so, at a minimum, will raise the costs of the products (or lower profits) by some small amount.

It’s the testing itself, however, that may well drive many hobbyists and small businesspeople out of business, whether as of February 10, 2009, or
February 10, 2010. An article in the LA Times on the CPSIA on December 23, 2008, interviewed a number of small businesspeople about how much the testing will cost them:

The tests for each of [TAG Toys CEO Larry Mestyanek's] 175 toys run about $2,000, he said. That’s a $350,000 hit to his bottom line, or close to what he makes in annual profit….

[Nick Christensen, owner of Little Sapling Toys says] his wooden rattles and building blocks, which retail for $20 to $40, would cost at least $1,500 per model to test, he said. Because he makes 20 models, his testing bill would be at least $30,000….

Other manufacturers say they’ve been quoted testing prices of $24,000 for a telescope, $1,100 for a wooden wagon and $400 for cloth diapers, according to the [Handmade Toy Alliance].

At these high costs, it’s entirely likely that many manufacturers will be forced to go out of business rather than manufacture their products.

That said, however, the CPSC is permitted to grant exemptions to products (a stained wooden toy) and components of products (the wood, the stain used to color the wood, the lacquer used to give it a nice shine, etc.). And the CPSC is in the process of doing that, having solicited comment on granting exemptions to certain natural materials and held public hearings on exemptions for apparel (including doll clothing and cloth diapers) and books. Additionally, the CPSC is still looking into whether it will permit certification of all components of a product in lieu of the certification of the final product (ie whether certification of all the thread and fabric in a doll dress is good enough or if certification of the entire dress is required). The comment period for this rule ended on January 30, while the comment period for the natural materials exemption doesn’t end until a week after the lead ban was slated to go into effect.

The CPSC stay of enforcement gives itself time to work through all the exemptions and to clarify rules for testing and certification throughout the supply chain. The stay also gives manufacturers time to think through how they’ll comply with the CPSIA’s testing and certification requirements after the rules have been finalized. But barring a significant change in the overall nature of the requirements, or the development of a much less expensive testing system, the stay will only delay the inevitable business closures.

How the CPSIA affects wholesalers, retailers, and resellers

Once children’s products are declared “banned hazardous substances,” the sale of said products will become illegal in many cases. The federal law that regulates banned hazardous substances is the Federal Hazardous Substances Act (FHSA), and it technically applies only to products involved in interstate commerce and to U.S. protectorate areas (such as Puerto Rico and the District of Columbia). However, many states use the FHSA as the baseline for state law, so when a product becomes banned federally, the state bans that product as well. What this means for wholesalers and retailers is that any product on the shelves as of 11:59 PM, February 9, may be illegal to sell as of midnight, February 10.

According to a survey created by the webmaster of the product ban could result in the destruction of at least $72.4 million worth of existing inventory, along with the attendant loss of revenues for the retailers. However, this doesn’t include the fact that existing inventory also has to be treated as hazardous waste, and that it will cost the retailers money to properly dispose of the presumably hazardous inventory they’re destroying.

Stores who resell used children’s products are not required to certify their inventory, but could still be liable for criminal and/or civil penalties if they’re found to be selling used products with greater than 600 ppm by weight lead content. For this reason, the CPSC has published guidance for resellers that specifically warns them to “pay special attention to certain product categories,” specifically cribs and play yards, children’s jewelry and painted toys, toys that are easily breakable or that lack the mandatory age warnings, et al. However, one consignment business owner S&R talked to was still concerned for her business even after that release.

“That press release basically says nothing,” says Jennifer Upton, owner of Kentucky Kids Consignment Sales. “It says that resale entities do not have to test for lead, but they can still be fined $100,000 for selling items over the limit of 600 ppm. How can I know whether an item has 599 or 601 ppm lead without testing?” (emphasis original)

How the CPSIA affects other organizations in contact with children’s products

The CPSIA defines products that don’t meet the lead requirements to be a “banned hazardous substance”, as defined according to the Federal Hazardous Substances Act (FHSA). Among other things, banned hazardous substances may not be introduced or delivered for introduction into interstate commerce, nor be delivered for receipt from interstate commerce (15 USC 1263(a)). This puts shipping and delivery companies who ship interstate or who deliver products to be shipped between states into a similar bind as manufacturers of children’s products. Essentially, if a shipping company knowingly delivers a children’s product that doesn’t have a general conformity certification or that has a higher lead level than 600 ppm by weight, that company faces up to a $5,000 civil fine per violation. It’s possible that simply asking “does this package contain any hazardous substances” will immunize the shipping company from liability, and if so, the CPSIA will not significantly affect shipping and delivery. But if shipping companies have to verify that a general conformity certification exists for any children’s product they ship, then the CPSIA will likely drive up the cost of shipping for children’s products.

A likely unintended side effect of the CPSIA is that libraries who check out children’s books could be forced to remove children’s books from their shelves, at least temporarily until the CPSC releases new rules regarding books in libraries. While the American Library Association (ALA) has submitted comments requesting exemption from the CPSIA for libraries, a legal opinion regarding book publishers by the General Counsel suggests that at least several of the ALA’s arguments may not ultimately win the day.

The ALA makes a number of claims: books should be exempted since they’re not specifically mentioned in the CPSIA, books at libraries are not involved in commerce and so “distribution” and “production” doesn’t apply to library books, and retroactivity wasn’t specifically called out by Congress and so doesn’t apply. In several letters to the Association of American Publishers, General Counsel Cheryl A. Falvey has made it clear that it is her legal opinion that “without question, any chlidren’s book must comply with the new lead limits” and a prior opinion detailed the Counsel’s legal rationale for why Congress intended retroactivity – since Congress specifically made other requirements non-retroactive, any requirements not specifically exempted were assumed to be retroactive (the link above has references to federal judiciary precedents as well). Which leaves the “library books aren’t sold or distributed in commerce” argument as the only one of the three that is likely to stand up to legal scrutiny.

And finally, elementary and middle schools will also be affected by the CPSIA. Textbooks intended for students in 7^th grade and lower, blocks that teach elementary motor control to young children, child-sized tables and chairs used in elementary school classrooms, possibly even microscopes for use in middle school science classes stand to be declared “banned hazardous substances” as of February 10. If all these products have to be replaced, the costs to school districts nationwide will be significant. And many parents could elect to keep their children at home rather than risk exposing their children to lead in the classroom, regardless of the fact that the threat is no different on February 10 than it was on February 9.

The CPSIA and Congress – what should have happened, and what needs to happen now

I doubt there are many people in the U.S. who would argue that we shouldn’t protect our children from lead and other dangerous chemicals. The problem with the CPSIA is not that it’s trying to protect children, but rather the way that Congress tried to do it. Instead of carefully thinking through the ramifications of the CPSIA, Congress elected to act quickly and give the CPSC a great deal of flexibility to implement regulations and grant exemptions. This would have been fine if Congress had similarly granted enough time to the CPSC to actually research, gather comments, and then intelligently regulate all the products that will be affected by the CPSIA. But the CPSC claimed in their stay of enforcement:

Commission staff have been unable to respond… due to the press of its usual regulatory and compliance activities and the additional burdon of the very early, multiple statutory deadlines imposed on the Agency by the CPSIA, including those necessitating issuance of 14 proposed and final rules in the six months since CPSIA was signed into law on August 14, 2008.

It probably doesn’t help that the 2009 budget for the CPSC is the same as the 2008 budget even though the CPSC has three new major pieces of legislation that it must make rules for and enforce….

Congress should either have given the CPSC more time to intelligently write the new regulations or have taken more time itself in the writing of the CPSIA. Congress did neither, so the CPSC has been forced to take more time as best it can. However, there is always a chance that either Congress or a children’s product safety organization might take the CPSC to court to block the stay of enforcement.

The CPSIA will cause significant economic hardship nationwide as it is presently written, whether it goes into effect on February 10, 2009 or at some later date. The CPSC has done the right thing in staying the enforcement of the rules as they apply to manufacturers. Now the CPSC should do something similar and grant libraries, distributers, wholesalers, retailers, and resellers of used children’s products some level of immunity to the new standards, at least until such time as the rules have been finalized.

Image credits:
Woodtoyshop.com
Moonstonecrafts.com

The role of the United States in climate disruption is far greater than most people realize. Not only does the U.S. emit more carbon dioxide (CO₂) than any other nation besides China, not only does the U.S. have one the highest per-capita emissions in the world, but the U.S. economy also accounts for a massive amount of emissions released by the rest of the world too. S&R has investigated just how much CO₂ the United States economy is actually responsible for, and the results suggest the real emissions are 20% greater than official estimates.

Every product and service requires energy, and thus carbon. Commercial agriculture requires petroleum or natural gas-based fertilizers and diesel fuel for planting and harvesting. Manufacturing requires energy to extract raw materials, petroleum to transport those materials to a factory, energy to convert those materials into products, and yet more petroleum to transport the products to end users. Even services like housecleaning or website hosting have an energy cost, the former in the creation of the chemicals and electric cleaning tools and the latter for the server (a product with its associated energy cost of creation), the electricity used to run the computer, and the energy consumed in constructing the computer center that houses the server have energy costs. And in all cases, the energy cost to create the product or service creates carbon emissions.

Given this, the amount of CO₂ that a product or service indirectly emits in its creation, transport, and use can be estimated. And by extension the total amount of CO₂ produced by the combined products and services (gross domestic product, or GDP) of a nation can also be estimated. When the total CO₂ produced by a country by the country’s GDP, the amount of carbon emitted per unit of economic production can be determined. This is called “carbon intensity.”

The carbon intensity of the United States in 2006 was 0.52 metric tons of CO₂ emitted per thousand dollars (indexed for inflation to the value of the dollar in 2000). For comparison, the carbon intensity of Iceland in 2006 was 0.31 metric tons of CO₂ emitted per thousand dollars, and the carbon intensity of Russia was 4.54 metric tons of CO₂ emitted per thousand dollars.

The fact that carbon intensity varies from country to country is a function of the country’s energy mix and overall productivity – more coal or oil burned for electricity or heating produces higher carbon intensity, and lots of manual labor producing valuable products produces a higher carbon intensity too. Large amounts of manual labor producing inexpensive products produces an extremely low carbon intensity, as witnessed by the very low carbon intensity of 0.10 metric tons of CO₂ emitted per thousand dollars from Cambodia.

From carbon intensity, the amount of CO₂ produced in the process of creating the goods and services that the U.S. exports – and that other countries export to us – can be estimated as well. The result is the following graph:

Figure 1

Figure 1 shows the 15 nations who “export” the most CO₂ to the United States in goods and services that the U.S. use as part of our economy. In essence, anything the U.S buys that says “Made in China” is part of the U.S. economy, and so the carbon emitted in the creation of that product belongs to the U.S. economy as much as the carbon emitted in manufacturing a Ford Focus in Detroit. Figure 1 represents the balance of carbon, imported CO₂ from other nations to the U.S. minus the CO₂ the U.S. exports to them, as determined from the nations’ carbon intensity. It’s clear from the figure that China contributes by far the most CO₂ to U.S. carbon emissions.

In words, Figure 1 says that the U.S. exported over a billion metric tons of CO₂ to the rest of the world in 2006.

Figure 2 below illustrates data in a similar fashion, but as a percentage of total U.S. carbon emissions:

Figure 2

In this case, U.S.-generated emissions as a percentage of total emissions attributable to the U.S. economy have fallen steadily since 1985, from a high of 97.8% to 79.3%. This means that the U.S. economy has offshored 20.7% of our CO₂ emissions to the rest of the world at the same time the United States has offshored production, services, and jobs.

If the U.S. is no longer generating a significant amount of our CO₂ emissions, that means that the official carbon intensity of the Untied States (0.52 metric tons per thousand dollars) is actually much higher. And if this is the case, that means the reduction in carbon intensity that many people are pleased about is at least partly an illusion. Figure 3 below illustrates how much an illusion the regular improvements in U.S. carbon intensity actually is:

Figure 3

Figure 3 shows an unpleasant fact – as U.S. businesses have offshored more and more of the U.S. economy’s CO₂ emissions to parts of the world where the carbon intensity is higher but labor is cheaper, the economy’s real carbon intensity has actually worsened since it hit it’s all-time low in 2001.

Correction: Saint from the comments below indicated that I had made two errors. Saint’s first claim is that I forgot to add the monetary value of imports into GDP while adding the CO₂ value of imports. The second was that the trade values I was using are valued in current dollars rather than “real” dollars (indexed for inflation to the value of the dollar in the year 2000). I have not been able to verify Saint’s second claim since the link provided in the comment doesn’t point to anything that I can find saying “current” dollars, and I used the Census Bureau’s foreign trade data anyway, but did verify that I had made the first error. However, if I assume that I’ve made the second error that he claims and when I corrected the data for the first error, Figure 4 was the result:

Figure 4

Note that, even corrected for a possible error in using current vs. real dollars, the difference between the two graphs is a drop in carbon “offshored” in 2006 from 20.7% in the erroneous graph to 18.3% in the corrected graph. Not insignificant, but not enough to change the overall conclusions of this analysis.

Update

As a result of comments, I choose to run the numbers for the purchasing power parity (PPP) exchange rate as well as the market exchange rate (all the graphs above). The result is Figure 5 below.

Figure 5

Figure 5 was done under the same assumptions as the corrected Figure 4 above. Note that the official carbon intensity is actually worse than the actual carbon intensity until 2003 or 2004. In fact, in 1991 and 1992, the U.S. exported a small amount of CO₂ under this model. This graph shows two periods of significant offshored CO₂ growth – 1997 to 2000, and 2001 to 2006, with the latter far outweighing the former. The data file for both Figures 4 and 5 is here (zipped .xls).

These figures illustrate a vitally important conclusion – the U.S. economy demands a huge amount of CO₂ emissions beyond it’s borders. The U.S. has essentially offshored its GHG emission problem to the rest of the world, turning their economies into dumping grounds for our own air pollution. Yes, they’ve been paid well for it in U.S. dollars that helped raise the standards of living in the affected countries. But this also means the U.S. has a responsibility to help those countries clean their dirty energy houses.

After all, wouldn’t you want your neighbor to help rake up all the leaves he blew from his yard into yours?

Methodology

S&R acquired the US GDP data, carbon intensity data related to energy production and gas flaring, and U.S. imports and exports from the data repositories listed below in sources and then performed the calculations that resulted in the graphs above. The Excel file of these calculations is available here (zipped Excel file) for anyone wishing to verify the calculations.

The EIA data on carbon intensity is only from the consumption of fossil fuels and flaring of gas – it does not include agricultural emissions, for example. In addition, the calculations are for carbon dioxide alone, excluding methane, ozone, HCFCs and other long lived greenhouse gases.

This analysis assumes that all units of production for import and export are equivalent in terms of CO₂ emissions, while this is certainly untrue. However, given the large variety of imports and exports, and thus a large variety of CO₂ emission profiles, S&R believes that this assumption is reasonable.

The estimates of imported (and exported) CO₂ are equal the carbon intensity multiplied by the value of the imports, with the net amount of CO₂ generated by other nations on behalf of the U.S. defined as the CO₂ imports minus the exports.

Finally, all nations have data from 1992 until 2006, but only major trading partners have data from 1985 until 2006. This produces an error in the data from 1985 to 1992. Given that over 90% of all emissions are via major trading parters such as China and Canada, this error is believed to be relatively small.

Sources:
US GDP information (Excel file)
Energy related carbon intensity (Excel file)
Data on trade for all countries back to 1992, major trading partners back to 1985 (zipped Excel file)

Crossposted: SolveClimate.org, ClimateProgress

Executive Recycling and the GAO report

In August, the GAO released a report titled Electronic Waste: EPA Needs to Better Control Harmful U.S. Exports through Stronger Enforcement and More Comprehensive Regulation. The 62 page report described how the EPA is failing to enforce its own regulations regarding e-waste, especially former cathode-ray tube (CRT) television screens and computer monitors. The GAO monitored e-commerce websites for 3 months and found that “significant demand exists for used electronics from the United States, particularly in developing countries.” And when the GAO investigators posed as foreign CRT buyers from developing countries, the GAO netted 43 e-waste recyclers willing to export CRTs in “apparent violation” of EPA regulations.

Executive Recycling of Englewood, Colorado was one of those 43 companies.

While the GAO report doesn’t name the 43 companies publicly – the company names were submitted to the EPA for further investigation – a quote in the GAO report reveals the connection to ER.

The left image below (click for larger version) shows the quote in the context of the GAO report, page 28, with the quote highlighted. The right image shows the identical quote (also highlighted) from ER’s alternate website, executiverecycling.com.

A “WHOIS” search on “executiverecycle.com” and “executiverecycling.com” finds that both domains were registered and are owned by Brandon Richter, CEO of Executive Recycling.

The GAO report says that they requested that U.S. Customs and Border Protection detain a container filled with “hundreds of CRT computer monitors.” According to the GAO report, Hong Kong had rejected the container because “under Hong Kong regulations, it is illegal to import CRTs from the United States.” Here’s what the GAO said about that container:

We received photographic evidence showing that this illegal shipment of CRT monitors originated from the Denver metropolitan area. According to a third-party source, these monitors came from an electronics recycler in Colorado, which claims to hold 20 to 30 community recycling events each year for homeowners’ associations, city governments, and property managers.

Figure 5 of the GAO report is reproduced below. The figure shows that the description of the contents as “stacked haphazardly, some with cracked plastic cases and broken glass tubes” is accurate.

This container was tracked back to Executive Recycling.

The GAO contends that exporting CRTs to Hong Kong is illegal. Beyond that, they contend that exporting to developing nations is illegal. And the GAO report outright states that Executive Recycling’s containers were illegal. An S&R review of the EPA regulations that govern the processing and export of CRTs suggests that the EPA’s ongoing investigation, started in September, will find that the GAO is right.

The EPA CRT rule

The CRT rule describes how waste handlers and recyclers need to handle cathode-ray tubes. Until the CRT rule was produced, CRTs were treated as hazardous waste. The goal of the CRT rule was to change that:

The purpose of the proposed amendments was to encourage increased reuse, recycling, and better management of this growing wastestream, while maintaining necessary environmental protection. (pdf)

In order to accomplish this , the EPA started treating CRTs as valuable commodities instead of hazardous waste, but under strict storage, labeling, transportation, and export rules. However, the GAO found that the CRT rule was widely ignored since the EPA failed to enforce it.

The specific regulations ER is accused of violating are the export requirements for “used, broken CRTs and processed CRT glass undergoing recycling” (40 CFR Part 261.39). The basic export requirements are listed below:

• The EPA must be notified at least 60 days in advance of each export to a particular port, and while the notification may cover up to 12 months of exports to that port, it must have all points of entry and departure from each foreign country the CRTs will pass through, the name and address of the importing recycler, a description of how the CRTs will be recycled, and the exporter’s identification information.
• The export is held until after the EPA notifies the receiving country and all transit countries of the export. If the receiving country objects to the CRT shipment, it is illegal to export the CRTs to that country.

Another category of CRTs, “Used, intact CRTs exported for recycling” (40 CFR Part 261.40), have similar requirements to used, broken CRTs, specifically notification of the EPA and the consent of the receiving country. Only “Used, intact CRTs exported for reuse” (40 CFR Part 261.41) have less stringent requirements on transport, etc. But even CRTs for reuse require EPA notification.

The Denver Business Journal asked EPA investigator Eric Johnson of the Denver regional office if there were any reuse export notifications from Executive Recycling as required. According to the article, Johnson said that “no CRT re-use export notifications from Executive Recycling” have been found as of November 21, the date of the article.

Executive Recycling claims to be a victim of forged documentation

ER has been trying to build a case that they’re innocent because they didn’t know that their wholesaler was shipping CRTs overseas to Hong Kong. ER’s latest press release in response to the 60 Minutes story that sparked this particular firestorm says, in part:

ER has supplied sufficient documentation regarding the shipment published on 60 Minutes that was not aired during the segment.

• ER published the forged packing list from wholesale buyer supplied by the port authorities
• ER published the freight/shipping order that was ordered by the wholesale buyer and not ER

[Ed. Note: ER has removed two of their previous press releases on this subject. The complete press release is reproduced below in the Appendix in case ER removes this press release as well.]

ER CEO Brandon Richter said as much in an interview for the Denver Business Journal article mentioned above, and the local Denver CBS affiliate quotes ER as blaming this on a “Canadian-based wholesale buyer.”

However, Jim Puckett, founder of BAN and the source for much of the information in the GAO report, doesn’t believe Richter:

It is highly improbable that ER was not aware of either what was in the container, or that it was going offshore. The notion that an exporter or broker, broke the seal and reloaded the container with other equipment is highly improbable. A recycler that is legitimate will demand to know the final disposition of all of their wastes to make sure they do not face liabilities and legal actions. All generators of CRT waste are responsible for its final disposition. Seagoing containers normally are destined to go offshore otherwise they are not used but rather trucks are used.

According to the Denver Business Journal article, Richter believed that the Canadian company’s container was “going to Canada or just to be sold here in the United States.” And in a response to the 60 Minutes story that has been removed from the ER website, ER published a brief email exchange between Brandon Richter and Tere Blake of shipping company Overseas Container Forwarding, Inc. that suggested Karen Zhang and her employer, Electronics Recycling of Vancouver, British Columbia, Canada, were responsible. Another ER press release that has also been removed from the website (both are available here) claimed that:

These buyers apparently sought to hide their own misconduct by leaving the impression that their shipment was the responsibility of our company. We have discovered that forged documents (provided by the port authorities) were used to improperly shift blame to us when ER sold the tested working units to a Canadian wholesale buyer. We are currently seeking legal actions against this one wholesale buyer in regards to this report.

According to an investigation by the CBC that was similar to the 60 Minutes piece, Electronics Recycling of Vancouver ships significant amounts of e-waste to Hong Kong out of the port of Vancouver. For this reason, ER’s claim that Electronics Recycling was breaking the law is reasonable, but it’s unknown if ER knew that they were making a safe claim or not – ER didn’t respond to a request for comment on ER’s relationship to Electronics Recycling. However, the CBC report ran on October 22 while the 60 Minutes piece ran on November 9, two and a half weeks later.

Electronics Recycling has partners in the United States, including one in Colorado: Electronics Recycling of Denver, Colorado. However, Executive Recycling is not listed as one of Electronics Recycling’s U.S. partners.

The CRT rule is not entirely clear on the matter of export responsibility. The export rules apply specifically to “exporters of used, broken CRTs”, exporters of “used, intact CRTs exported for recycling”, and “persons who export used, intact CRTs for reuse” (40 CFR 261.39(a)(5), 261.40, and 261.41(a) respectively). So the question of whether ER has broken the CRT rules may be determined by how the EPA categorizes the exported CRTs.

When asked about the issue of responsibility, Jim Puckett of BAN said:

However, the EPA is adamant about the fact that the generator of the waste, and not the broker, is responsible for ensuring the material does not end up being exported against the CRT rule.”

And Bob Tonetti, an EPA official who helped write the CRT rule and who was interviewed for the Denver Business Journal, is quoted as saying “[e]xport requires notification. It’s not an excuse to say I didn’t make that decision.”

Further complicating the issue of liability is is the section of the Federal Register publication discussing interstate transport. According to Section V, subsection C, the “initiating facility” is responsible for writing completing a manifest if the CRTs are traveling through states that consider CRTs a solid or universal waste product. The EPA transportation regulations require that a waste “generator” create the manifest for transportation, with a generator defined as follows:

Generator means any person, by site, whose act or process produces hazardous waste identified or listed in part 261 of this chapter or whose act first causes a hazardous waste to become subject to regulation. (40 CFR 260.10)

In addition, international transporters are forbidden from accepting shipping containers containing hazardous waste for export if the transporter knows that the required EPA Acknowledgment of Consent (by the the importing country) is wrong or missing (40 CFR 263.20(a)(2)). Again, though, the question becomes whether this specific requirement applies in the case of the shipment that the GOA opened. Only the EPA knows for certain, and they’re not commenting on the investigation.

Executive Recycling connected to multiple e-waste exports

If the one container tied to ER that the GAO opened was the only container, that would be one level of violation. But it wasn’t. The GAO found that the Hong Kong port authorities have returned 26 containers of “waste” CRTs from the United States since the CRT rule went into effect in January, 2007. According to BAN, six or seven of those returned containers are known to be connected to ER in some way, and they were all returned over a four month period from November, 2007 to March, 2008. In the same time period, BAN claims to have tracked between 20 or 21 containers of unknown electronics “waste” from ER to other countries around the world, 19 or 20 of which were bound for developing nations. The exact numbers provided by BAN have varied slightly depending on when they were presented:

• Denver Business Journal: 21 containers shipped overseas, eight that were deemed illegal by the receiving country – one to Peru, seven to Hong Kong
• S&R’s initial interview with BAN’s Jim Puckett: 20 containers overseas, 19 to developing countries, eight that were deemed illegal by the receiving country
• S&R’s followup with Puckett: seven containers that were deemed illegal by the receiving country, six to Hong Kong

While the discrepancy is curious, BAN’s information was accurate enough that the GAO used it as one basis of their investigation, and an EPA investigation into ER’s export practices is ongoing.

Even if the seven or eight returned containers are found by the EPA to be in violation of the CRT rule’s export provisions, the other containers may have been legal exports. And if the six or seven containers rejected by Hong Kong are all found to be illegal exports, then ER would be known to be responsible for between 23% and 27% of all the returned containers since the CRT rule went into effect. Over a four month period out of the 18 months between the start of the rule and the GAO report’s publication.

BAN and its affiliates figure prominently in the investigations

The Basel Action Network has played a prominent role in this entire process – Puckett traveled with 60 Minutes to China, he agreed to be interviewed for this post, he was interviewed for the Denver Business Journal story, and BAN provided much of the background information used in both the GAO report and the CBC news report. BAN also runs a program called the e-Steward program. According to the e-Steward website, e-Stewards have undergone certification as “upholding the highest standard of environmental and social responsibility.” In fact, one of ER’s competitors, Guaranteed Recycling Experts (GRX), is an e-Steward. GRX and ER compete in two markets – Denver and Salt Lake City – and ER had initially beat out GRX for the city of Denver e-waste recycling contract. According to a Rocky Mountain News article, ER lost the contract following a September audit by the city of Denver recycling organization, Denver Recycles – and GRX was awarded the contract for this year. In addition, the creation of the e-Steward program was announced on November 10, the day after the 60 Minutes program ran and three months after the GAO report was published.

According to the CBS affiliate article:

[Executive Recycling] called the negative publicity “a smear campaign led by competitors” like Denver-based Guaranteed Recycling Experts (GRX).

GRX denies it is involved.

In response to all of the negative publicity, ER claims on their website that “ER has requested to be audited by the BAN to become an E-Steward.” Jim Puckett of BAN confirmed that ER had requested e-Steward certification, but that ER’s application had been rejected for the time being:

[W]e have a prerequisite requirement of transparency and honesty with regard to current and past operations before we can enter into good-faith negotiations on qualifications of e-Stewards. We have told ER’s executive [Brandon Richter] that they currently fail to meet that standard and until they do we will not consider their application.

Executive Recycling did not respond to repeated requests for comment or an interview.

EPA penalties could put ER out of business

If ER is found in violation of the CRT rule, it could be devastating to the company. The financial penalties could be significant, although they’re difficult to estimate due to the significant discretion the EPA has when it comes to assigning penalties. The EPA may assign financial penalties ranging from as little as $129 for minor violations to as much as $32,500 for the most severe violations, plus up to $6,448 per day per violation for multiple severe violations, plus a variable amount based on the “economic benefit of non-compliance” (RCRA Civil Penalty Policy). Or the EPA may seek to suspend or revoke ER’s waste handling permit. It’s also unclear whether each shipment qualifies as a violation or whether each individual CRT in a shipment qualify. And would the per-day penalty be applied for the complete shipping cycle from ER in Denver to Hong Kong and back to the U.S. (20-30 days)? If so, the financial penalties alone could be more than enough to put ER out of business even without the EPA directly revoking ER’s waste handling permit.

S&R’s investigation into Executive Recycling’s allegedly illegal activities has uncovered a number of questions that remain unanswered. On one hand are a number of potential conflicts of interest. The Basel Action Network was the source for much of the GAO’s information, but BAN stood to benefit from the release of the GAO report and the subsequent 60 Minutes story. And one of BAN’s e-Stewards, Guaranteed Recycling Experts, stood to gain financially from the allegations against its competitor Executive Recycling. On the other hand, Executive Recycling’s claims of victimization by a wholesaler/broker and innocence of breaking the CRT rule ring hollow given the GAO sting operation and the rejected shipping container that the GAO seized and opened in the course of its investigation. However, the appearance of conflicts of interest by BAN and GRX does not automatically damn them any more than the alleged CRT rule violations automatically damn Executive Recycling.

The EPA will publish the results of its investigation, and ER’s fate may be decided, sometime in February, 2009.

Image Credits:
GAO website
GAO report, page 28
Executiverecycling.com website
Labelmaster website
National Geographic
AFP, via ABC.com.au website
EPA
Hong Kong customs
e-stewards.org website
executiverecycle.com website

Appendix: Executive Recycling’s third response to the 60 Minutes program on e-waste

Additional Follow Up to 60 Minutes Segment

ER has been working to provide our customers and the community updates on the segment completed by 60 Minutes regarding E-Waste and ER practices.

ER has supplied sufficient documentation regarding the shipment published on 60 Minutes that was not aired during the segment

• ER published the forged packing list from wholesale buyer supplied by the port authorities
• ER published the freight/shipping order that was ordered by the wholesale buyer and not ER

ER is working on our website to add a “Process” tab which will list in detail our process from inventory, sorting, decommission, testing and refurbishing of electronic materials

ER has stopped all orders from any buyer for scrap material or wholesale items until they can provide the following information:

1. Vendor contacting EPA once a year for any tested working units any buyer plans to ship out of country
2. Provide all necessary documentation of final destination of their facilities and processes
3. Require downstream sites for scrap material to be ISO Certified and provide all licenses and certifications
4. Vendor sign contract with ER that states completing all the necessary action items set by ER for the purchase of all materials

ER is using all US downstream vendors for our scrap material (metal, aluminum, wire, circuit boards, batteries, plastic, etc) until any international buyer can supply necessary documentation (certification and licenses) of end of life for all materials

ER has requested to be audited by the BAN to become an E-Steward

ER was audited in September 2008 by the Colorado Department of Public Health and Environment and received the audit results which indicate ER is in full compliance for all local and state regulations

For ER’s other two responses to the 60 Minute program, see this prior post at S&R.

E.R. Response to 60 Minutes Report November 2008

Executive Recycling is a respected and law abiding business that recycles computers and electronic parts in a responsible and lawful way. Our company has reviewed the recent report of the Government Accountability Office (GAO) and the 60 Minutes story on E-Waste and we agree on the dangers of unregulated disposal of electronic and computer waste.

Executive Recycling is well aware of every applicable environmental and export standard and has complied throughout its history with such laws, rules and regulations. Our company takes in tons of computer and electronic products and disposes of them responsibly. Many such items are refurbished and resold. Executive Recycling would not sell anything to any purchaser if it had knowledge that said buyer planned to break the law. However, no business can be responsible for the subsequent improper actions of others who lawfully purchase products from them and hide their intentions to engage in misconduct.

Sadly, Executive Recycling appears now to be the victim of others who have obtained electronic and computer products from our company and then acted irresponsibly. These buyers apparently sought to hide their own misconduct by leaving the impression that their shipment was the responsibility of our company. We have discovered that forged documents (provided by the port authorities) were used to improperly shift blame to us when ER sold the tested working units to a Canadian wholesale buyer. We are currently seeking legal actions against this one wholesale buyer in regards to this report.

Executive Recycling urges the Environmental Protection Agency and the government of the United States and other civilized societies to prepare and enact further laws and regulations to make sure that no individuals or environments are damaged through irresponsible disposal of computer or electronic products. Executive Recycling has cooperated with the Environmental Protection Agency in the past and will continue to do so in an effort to see that humans and the environment are protected. (Source, for however long Google will keep it cached)

It is my suspicion that this was likely removed on the recommendation of ER’s lawyers, but in this day and age of distributed caching of websites, simply removing the post from your own doesn’t actually remove much.

Yesterday, ER released two emails on their site as a further followup to the 60 Minutes piece. I’ve reproduced those emails below as well, in case ER chooses to take down this press release as well:

From: Tere Blake [mailto:tere@ocf.ca]
Sent: Monday, November 17, 2008 4:54 PM
To: Brandon Richter
Cc: tolson@executiverecycle.com; Peter Hilton
Subject: RE: Booking # 877033521

Hi Brandon

Yes we saw the 60 minutes segment. We were surprised they did not delve into who actually arranged the shipment of the container. They did not contact us which is surprising as we were named on the B/L as the notify party.

BC Ltd have simply ceased operations and its principals are untraceable.

Attached is the booking confirmation sent to Karen Zhang . According to our records we had no communications with Executive Recycling prior to the container being loaded. As such we would not have been in a position to advise you that the container was destined for Hong Kong.

I hope this assists,
Rgds Tere Blake
OCF Vancouver

From: Brandon Richter [mailto:brandon_richter@executiverecycle.com]
Sent: Monday, November 17, 2008 3:35 PM
To: Tere Blake
Cc: tolson@executiverecycle.com
Subject: Booking # 877033521

Tere,

I wanted to find out if there was anything you could send me on email that shows Executive Recycling did not order the transportation for this booking. Not sure if you saw the 60 minutes segment on E-waste but they tracked this container from Karen Zhang into Hong Kong, and they are saying that we exported this material to Hong Kong without giving proper notification to the Honk Kong government. I’m trying to provide the media, and businesses with information that will clear our name from doing this export.

Any help you can provide on this would be great. Thank you, Brandon Richter

S&R received leaked copies of these emails but were unable to verify that they were accurate at the time and so chose not to release them publicly.

These emails are proof of neither guilt nor innocence on the part of Executive Recycling. The emails are circumstantial evidence at best and are almost certainly an attempt by ER’s public relations department to partially mitigate the legal and PR nightmare that the 60 Minutes piece has certainly become for them.

ER’s best hope in this situation is probably to ride it out and assist the EPA’s investigation, as well as any other investigations into illegal dumping that appears to implicate them, as much as possible. The only thing that will clean up their public image is a finding that they are not, in fact, responsible for the shipping container mentioned in 60 Minutes, or any other containers either. If ER is found not to have broken any laws, I will certainly report so on this website, just as I will report it if they’re brought up on charges as a result of any ongoing investigations.

Thank you to the multiple individuals who have kept me up to date on developments in this story. If anyone has additional information, please feel free to post it in the comments below or to submit it to S&R via the “Contact Us” link in the nav bar above. S&R has very limited resources to verify the accuracy of anonymous or apparently leaked information, and we prefer to err on the side of caution in such situations by not posting or releasing it. If you have such information, please provide a way to someone here at S&R verify it’s accuracy as well.

It’s illegal to dump electronic waste on developing nations. But it still happens. And sometimes it turns out to be a hometown company that’s “recycling” lead-filled TV tubes and printed circuit boards in China, probably against the law. 60 Minutes ran this story on Executive Recycling (ER), of Englewood, Colorado, and the company that my hometown uses for e-waste recycling twice a year.

Watch CBS Videos Online

Interestingly enough, ER had a response to the 60 Minutes piece for a while, but it’s vanished from off the ER website. If anyone has an archived copy of the page, or could point me to where I can find one, I’d love to post it or link to it. Use “Contact Us” above.

A year ago, I recycled an old, busted television. I hope it was recycled properly, not shipped overseas to a town where a gang is willing to kill kids with lead poisoning for a few yuan.

I hope the feds charge Executive Recycling with export violations and, if ER’s guilty, the company gets shut down and the executives responsible for this get locked up for a long time.

I’d prefer that they be forced to endure the conditions that the “recyclers” do in China, but that would probably qualify as “cruel and unusual punishment”.

When you pay for groceries with a credit card, you are making such a promise. You are declaring that, through the power of your effort, you will create sufficient value during the month ahead to earn an income. You do not earn your salary merely by showing up at a place of work. You earn it by applying your skill and time to performing a task that creates value. The more of the intellect and learning you bring to bear on that task, then (hopefully) the greater that pay-check.

Only once you have earned that money can you pay off the debts — the promissory notes — that you incurred. You, through your behaviour, have brought new value and new cash into the world.

Only with this ability to borrow money that does not yet exist can we overcome the inertia of needing cash to create new value. Without being able to borrow we are limited by what we already have. Debt creates real opportunities for equality.

Without debt, the impoverished could not better themselves. The only educated people would be those who are fortunate enough to have parents with sufficient cash to pay for their educations. Students who borrow money in order to improve their skills through an education are doing so in the knowledge that the value of their future work will be so much greater than the value of their current work that it will pay for both the debt, and their future lifestyle.

The average person would never be able to afford their own home without the opportunities that debt offers them. There are few who could afford, from a monthly salary, to pay for both a large rent and sufficient savings to eventually buy a house for cash. A loan allows you to live in the house you don’t yet own on the promise that you will eventually pay off the debt required to buy it.

When an individual consistently fails to pay back their debts — the promises they made about the value of their work — then they will lose the confidence of lenders and will be denied future opportunities to borrow.

When a lender consistently fails to make wise decisions about who may borrow then they lose the confidence of those who, in turn, have pooled their cash to lend to the lender to lend to another. Then all those promises — the confidence in the value of the future — collapses in one terrible mess.

Cash doesn’t require much from people who exchange it for goods. No one will question the authenticity of the motives behind a person with physical cash in hand. Dictators and tyrants go on shopping trips with as much aplomb as saints and benefactors.

Debt is different. It requires a moral code between the lender and the borrower. There has to be a degree of trust and honesty between them. If the borrower genuinely intends to fulfil on their promise, if the lender genuinely believes that the loan is within the grasp of the borrower to repay, then there can be a transaction. If the borrower suffers a misfortune then such a relationship must be renegotiated. The process of borrowing is founded on the honesty and integrity of the parties to the transaction.

The credit crunch was caused by a weakening of that morality; of lenders and borrowers who assumed that rapidly rising house prices would keep rocketing effortlessly upwards without any effort of their own. Lenders failed to check the abilities of borrowers to repay if the markets turned. Borrowers failed to remember that they will have to repay if the rising market does not.

Whatever else may come of the disasters playing out in the credit markets today, future value, and opportunities for the poor to invest in themselves and create meaningful wealth, will only come about from a robust and healthy credit market.

The Moral Bankruptcy of the Pope

Pope Benedict XVI has already declared where he stands in the world of sophisticated financial instruments. “The pursuit of money and success is pointless,” he said at a meeting of bishops in Rome at the beginning of October. “The word of God,” he said, “is the foundation of everything, it is true reality. And in order to be realists, we must count on this reality. We must change our ideas that the material, solid things, that which can be touched, is the more solid and more secure reality. … We see this today in the collapse of the major banks: this money is disappearing, it is nothing. … Only the word of God is the foundation of all reality, enduring like the sky, and even more than the sky, is reality. We must therefore change our concept of realism. The realist is the one who recognizes in the Word of God, in this apparently feeble reality, the foundation of everything. The realist is the one who builds his life on this foundation that remains forever.”

Those of us who are realists find this overt distortion of the definitions of reality disturbing. The claim that the immeasurable, improvable and unexplainable is a solid foundation for proof and reality is a step towards superstition and the tyranny of those who claim to have some special connection to the unreal over those who do not.

The Catholic Church has been rocked by its own scandals before. In 1498, the pope was Rodrigo Borgia, reigning as Pope Alexander VI. He had various children by various mistresses, including Cesare who was the model for Machiavelli’s The Prince, and a daughter, Lucrezia. And Lucrezia had a child. In 1501, the Pope acknowledged paternity of what would be known as the Infans Romanus. However, Lucrezia was never sure which of her various lovers had sired the child. Lovers who included both her father and her brother, Cesare.

This had little impact on the moral authority of the pope to dispense his version of justice, and to demand that those accused of infractions buy forgiveness from the church.

Psalm 104:5 says, “the Lord set the earth on its foundations; it can never be moved.”

“Eppur si muove,” said Galileo after his trial. “And yet it moves.” In 1633, over 100 years after Magellan had proven decisively that the earth was indeed round (despite papal assurances to the contrary), Galileo stood trial for promoting the theories of Copernicus, that the earth moved as part of a larger universe of which it was not the solid centre.

On 31 October 1992, Pope John Paul II formally recanted Galileo’s finding of guilt by the church and recognised that the earth does, indeed, move.

Despite all this collectivised and organised ignorance, the Catholic Church has not voted itself out of existence or been disgraced beyond return. Even the very real sex abuse cases levied against the organisation has done little to discredit the pope’s continual determination to act as an arbiter of morality.

Yet, that moral authority is supposedly sufficient for the pope to declare that it is satisfactory to stop making money.

If we do so, how else are we to improve the lives of the poor? Oh, that’s right, the meek shall inherit the world and so it is sufficient to keep the poor as submissive slaves to the awfulness of their lives, as long as it also keeps them submissive to the will of the church.

The requirement of Reason over Faith

Democracy, too, has had its share of abuses. Tyrants from Mussolini to Mugabe have traded slim parliamentary majorities into de facto rights to rule indefinitely. Military leaders, as occasionally the only possessors of guns, often trade this asymmetry into a snatch at power during political uncertainty. Pakistan, Thailand, Burma and even tiny Fiji are all dominated by their armies.

Across the world people continue to protest and die for the right to self-determination and self-expression. Even an experience of imperfect democracies, as in much of Africa, does not seem to put people off demanding democracy.

This too is the battle of reason over faith.

The belief that a single leader can have both the knowledge and moral authority to know and determine everything that every individual may need requires a concerted act of faith. It requires faith to believe that a central collective can manage the diverse and complex network of interrelationships between individuals and production. It requires that a leader who, after making a call to unreality, be trusted because of this call for faith rather than because he has reasoned his actions.

But democracy means that people approach each other as equals, with reason determining a mechanism for interacting and settling disagreements.

Capitalism is also an act of reason. All collective organisations require that one have faith in the leadership who claim to represent that collective. That they do not need to be directly answerable through voting or purchasing behaviour but that we take on faith our ability to trust them, because they act in the collective’s name.

Capitalism says that I buy the things I want; that I trade value for value. If you defraud me in some way, I make a call to reason through courts that are themselves independent and reasonable. And the act of offering credit within a capitalist system offers the ability for those who do not yet have cash and wealth and prestige to earn their way into it by leaping ahead of their immediate means.

Ending poverty through mechanisms other than free trade and debt instruments requires an act of faith. Where will the wealth come from to end starvation and deprivation? Trust me.

So even though credit is now difficult to come by; even though trust between institutions and individuals has weakened, there is still only one reasonable way for us to create a just and equitable economic system.

Credit must again provide an opportunity where a moral promise about the future becomes a valid and valued present benefit.

Periander, however, understood Thrasybulus’ actions. He realised that he had been advising him to kill outstanding citizens, and from then on he treated his people with unremitting brutality.

Herodotus, Histories

What Herodotus knew in 440BC, some 2,500 years ago, was this: opportunity is set on the margin. It is the historical power to choose either astonishing innovation, or “unremitting brutality”.

Consider the power of the margin. Say the average inter-city passenger airplane can carry a maximum of 150 passengers. Now, they may fly full at peak times, but they don’t at others, so the airline will set themselves a target of 85% occupancy. Plus, they’ll want a 15% profit (at least) on their capital.

This means that the airline doesn’t begin to make a profit until the 109th person gets on board. Everyone is important, but a plane that flies with only 108 people on board runs at a loss.

These subtle marginal effects can rock markets, bankrupt companies, and destroy nations.

The inequality of nations

Governments have fixed costs for fulfilling their obligations for all the things they promise to do. Unlike businesses, they don’t charge directly for their services. You don’t pay a road surcharge to drive in your area, any more than you pay a monthly subscription to the local police.

The reason for this is one of “fairness”; everyone benefits from these services, but not everyone can afford to pay for them. So governments have introduced a system of charges known as regressive taxation. This means that the wealthiest are charged more, and the poorest are charged less.

The balance of where to place taxes, and how to weight the different groups’ obligations, is the source of much debate and political intrigue.

Consider: rich people spend a smaller proportion of their money on food and clothing, but more of their money on big houses, flashy cars and other obvious markers of wealth. You could tax everyone the same proportion of their incomes and then charge targeted consumption taxes on specific products.

But consumption taxes are unpopular, difficult to enforce and can result in peculiar avoidance behaviour.

In 1662 Charles II, king of England, imposed a hearth tax on his island nation. Henceforth every household would have to pay two shillings per year, per chimney. It was designed to be fair, in that the wealthy had more chimneys and should, therefore, pay more.

It was an extremely unpopular tax, not least because tax inspectors had to come into people’s homes to inspect. Almost immediately people began to avoid the tax by bricking up their chimneys. In 1684 a fire broke out, destroying 20 houses and killing four people in Oxfordshire, after a baker broke through from her stove into a neighbour’s chimney in order to avoid the tax.

In 1689 the tax was repealed and replaced with one that was even sillier; a window tax. People avoided it by, as expected, bricking up their windows. It was even more unpopular being seen as a tax on “light and air”. It may, or may not, have been the origin of the phrase “daylight robbery”.

The point is that people are not mindless automatons. They will react to protect themselves from silly and victimising pieces of legislation.

A careful politician may consider it an equitable tax, but, if it is at all targeted, then those within the target zone will try to avoid it.

Tax one, tax all

When you select against a particular group, then the most ambitious and creative people within that group move. Sometimes they hide out within society by simply quashing the thing that makes them a target. Sometimes they go somewhere else where they feel more accepted.

So, we punish murderers, not to redress the harm they have done, but to frighten other potential murderers into thinking a bit more deeply before committing a murder. And Gary Glitter, a paedophile convicted in the UK, goes to Vietnam in the hopes that he won’t be prosecuted there.

But say you started punishing people for things that are not necessarily harmful, perhaps even beneficial? Racial, religious, gender or sexual orientation laws also act to select for, or against particular groups.

South Africa’s Apartheid laws denied dark-skinned citizens not only the right to vote, but also to work. This allowed the minority of light-skinned South Africans to dominate and control a majority of dark-skinned fellow citizens. Following Thrasybulus’ instructions, the minority leadership sought out and punished outstanding individuals from amongst the dark-skinned citizens. But this also meant that talented doctors, engineers and scientists – who just happened to be dark-skinned – either didn’t work at all, or emigrated and made their skills available to other nations.

Promoting people based on their skin-colour also meant that those in the most responsible positions frequently lacked the ability to perform their jobs. Inadequacy became the expected performance level.

When South Africa eventually discarded Apartheid, the economy was shattered and dominated by idiots.

Any type of bias levied against a particular segment of the population goes on to affect the entire population. In the case of preventing murderers and rapists from being able to operate, this is a bias that society is probably very happy with. In the case of preventing talented surgeons from pursuing their craft because they happen to be female, then the whole of society may not be so happy with the arrangement.

A bias is a form of tax. Some taxes we’re happy to pay; other taxes may please a particular subgroup, but leave the whole of society worse off.

Now consider how much excluding outstanding individuals can hurt a society when marginal effects come into play.

Marginal bias, general effect

Say that a country is able to manage its health needs if it has more than 1.40 doctors per 1,000 people in its population. Turkey has 1.37, about 116,000 doctors. Many of these are women, and many of these women are devout Muslims. At present, wearing a head-scarf, a traditional sign of piety amongst Muslim women, is illegal. So, some women who are pious and doctors made a choice to remove their scarves in order to continue working, some stopped working altogether, and some emigrated to countries where they can be doctors and wear a scarf.

It is the same situation as the airline. All the doctors are equally important, but only a small number need to stop working for all the rest to be unable to meet the demand. In other words, a discriminatory law punishes a small number of people for their beliefs but denies an entire nation good healthcare.

This can work the other way round as well. The Cuban dictator, Fidel Castro, was determined that his small island nation would excel at something. He chose public health and subsidised the training of a vast number of doctors. There are now almost six doctors per 1,000 people in Cuba.

This may sound like a good thing but, if you’re a doctor, it’s a bit of a disaster. A society may suffer if it has too few doctors but, once it hits the appropriate level, any extra doctors merely increase supply without adding to demand. The only way doctors can get sufficient business is to discount their prices. In Cuba, doctors are plentiful but poorly paid.

Cuba, poor in so much, has resolved this conflict by becoming probably the only nation to deliberately export doctors on work contracts to other nations in order to purchase foreign currency.

Perverse, too, is promoting individuals based on characteristics that have nothing to do with their performance. You lower the standard for everyone, as in South Africa under Apartheid where people were hired on the basis of being light-skinned and male.

Sometimes the desire to extend a product or service beyond reason results in harm to all. Sub-prime lending is just such an example. It seemed like a reasonable set of assumptions. Most people don’t default on their loans, no matter how onerous they may be. Insurance works on a similar principle; I don’t know which person is going to have their car stolen, but most people manage to get through a year without incident. Work out the base probability of disaster and charge everyone sufficient to cover the disaster, plus a bit extra for your trouble. Hence, insurance.

Very smart people built mathematical models to calculate the cost of sub-prime default, given certain assumptions. Loans were bundled together, discounted for the expected defaults, and sold to hedge funds who would carry the risk of failure if the assumptions were wrong.

This was quite a bit of money and so the hedge funds borrowed the money they used to buy the sub-prime bundles. They borrowed this from banks who, themselves, were selling sub-prime bundles. Everything relied on those assumptions.

It didn’t need everyone to bail on paying their mortgages back, it just needed to happen on the margin. And then all hell broke loose.

The balancing act and the perversity of incentives

So, here we are, trying to design an equitable society that gives those who lack ostensible advantages a shot at improving themselves, while tapping those who got a lot more advantages to pay for it.

Marginal effects mean that, if we don’t allow the most disadvantaged a shot at success, they may take their potential talents elsewhere as economic migrants. Or, some may decide that, since society has failed them, society owes them, and steal what they want.

On the other end, though, if we tax the wealthy too much, they could simply take their cash and go elsewhere, as tax exiles. Or, they may decide not to produce any more wealth than they have to for themselves.

The balance is critical. Get the balance wrong and you introduce asymmetries.

For instance, when the US Forest Service manages an area of environmental value purely for recreational purposes, they have to send that money directly to the Treasury. When they licence an area for logging, they get to keep a portion of that revenue, plus they get cash from Congress to manage the land afterwards.

If the US Forest Service wants to make enough money to carry out its functions, it can only do so by logging the forests it is supposed to be looking after.

This is a perverse incentive. There are lots of them in the average economy.

Consider autoworkers. The rise of manufacturing in Eastern Europe and Asia Pacific has resulted in a falling cost of motor vehicles as companies locate their factories in low-cost production centres. The prices of cars are falling and old manufacturing hubs in the US, Germany and the UK are feeling the pressure.

Both workers and investors stand to lose what they have, their livelihoods. Arguably, it is the owners of these businesses fault. They should have invested in more efficient, lean manufacturing systems, designed more interesting vehicles, or come up with a better strategy.

That shareholders should lose their investments is just-desserts and a powerful part of the capitalist system which ensures that cash should follow value. However, it’s pretty unfair on the workers, who were just doing what they were told.

There are many ways you could help these workers. The most common is to raise tariffs on imports and to pass a subsidy to the manufacturer to allow them to improve their profits without raising their prices too much.

However, this is a distortion. There are plenty of people who work in the auto industry who don’t actually make cars. There are people who import them, have showrooms, service and repair them, or simply write about them. None of these people are affected in any way by the collapse of local manufacturing. However, all of them and every car buyer, is affected by higher prices.

Plus, a company that is protected from competition is also protected from innovation. Forget fuel efficiency or environmental compliance.

In exchange for protecting a handful of jobs, the entire nation has to suffer.

Worse, the benefit doesn’t even go to the workers, who merely get to keep their jobs. Tax money is channelled directly to shareholders who no longer have to work for their money.

A far better response is to admit that the industry is no longer competitive, tell the shareholders to get shafted, and bail out the employees through income support and reskilling.

The marginal effects also come into play. The protection of a small number of businesses deprives the state of using that revenue to pay for other things that may have a significant return on investment. It deprives investors in other industries of a level competitive environment and so denies citizens of their opportunity to benefit from innovation and price drops.

Protecting a few hurts a lot of people and also chases the other few innovators out of the market, since there is no place for them.

The leverage of innovators

Ever wondered what would have happened if Bill Gates had decided to set up in Canada instead of the US? Or if Russia had tried informed capitalism instead of Communism?

When the Berlin Wall came down, the real cost of “from each according to his ability, to each according to his needs” became apparent. Those with the most ability left, leaving everyone getting only as they could produce. The society balanced. You really can only consume as much as you can produce. Any extra comes from the margins.

As with all marginal effects, any society needs a certain number of innovators just to break even. The variance triggers booms or busts.

Innovators have no more votes than does anyone else in their nations, yet they have disproportionate impacts on their societies. Countries that can attract the best and the brightest do better than those who chase them away.

Subsidies and tariffs aimed at the few distort markets in outlandish ways. Subsidies to oil producers push entire economies to rely on cheap oil at the expense of, seemingly, more expensive alternatives. Not costing in the impact of pollution leads to more pollution.

The next time a politician promises you a benefit that you don’t have to pay for, ask yourself who it is costing and how they may react. And not just now, but into the future. No matter how much benefit you may feel that you will derive, you have to remember that the others who must pay for it are not slaves. They may shut-down or go elsewhere.

In the case of murderers, that may make you quite happy. But it if it results in services denied, jobs not created, opportunities foregone, or a future that never happens, then that sounds like a costly bargain.

The Olympics Games have always been one of the largest possible megaphones for espousing a cause — either political or commercial. Terrorists have used it. Athletes have used it. Host nations have used it. And certainly, sellers of goods and services have used it. Be it boycott, black power or big business, the Olympics offers maximum volume for any message.

This year the early gold medal of the Politicize-the-Games Sweepstakes has gone to the Free Tibet sloganeers, although their gamesmanship was hardly challenged. The Olympic torch relay made an exceptionally easy — and highly visible through media — target for protesters. Much of the pre-Games press has focused on how well or poorly host nation China will bury pro-Tibet protests or encourage pro-China, home-team support.

But there’s far more at issue regarding speech in Beijing than proclamations for or against Tibet.

If you’re an Olympic athlete, you do not have freedom of speech at the Games, declarations by the International Olympic Committee notwithstanding. You’re bound by a mandate in the Olympic Charter. Rule 51(3) states, “No kind of demonstration or political, religious or racial propaganda is permitted in any Olympic sites, venues or other areas.” [emphasis added]

You need not be an Olympic athlete — or even leave the United States — to be affected by Rule 51(3). Fans at the U.S. Olympic Track & Field Trials in Eugene, Ore., were greeted by these words: “Spectators may not wear or bring political, religious, race-related, advertising or promotional items to the venue.”

The Olympic committee of Britain tried even more draconian measures to limit athletes’ speech. In February, public outrage forced the Brits to back down on requiring its Olympic athletes to sign a 32-page contract containing this clause: “[Athletes] are not to comment on any politically sensitive issues.”

British Olympic Association chief executive Simon Clegg said: “There are all sorts of organisations who would like athletes to use the Olympic Games as a vehicle to publicise their causes. As a team we are ambassadors of the country and we have to conform to an appropriate code of conduct.”

Other national committees did not follow Britain’s example. Australian Olympic Committee president John Coates said, “What we will be saying to the athletes is that it’s best to concentrate on your competitions. But they’re entitled to have their opinions and express them. They’re free to speak.” And from Finland’s Jouko Purontakanen, secretary general of the Finnish Olympic Committee: “The freedom of expression is a basic right that cannot be limited.”

American athletes will be cautioned to limit their protests to “appropriate’ settings, according to U.S. Olympic spokesman Darryl Seibel. “We will not prohibit free speech,” Seibel said, “but in speaking with our athletes, most seem to feel it would be highly inappropriate to use the Games as a forum to make a political statement.”

But don’t hang a Tibetan flag in your room in the Olympic Village, because the IOC would consider that a breach of Rule 51(3). Says IOC chief Jacques Rogge: “Freedom of expression is absolutely a human right but there are small limitations. We are a movement of 205 nations, many of whom are in conflict, and the Games are not the place to take political or religious stances.” [emphasis added]

Really? At the 2000 Sydney Games, officials allowed 400-meter winner Cathy Freeman to use the Aboriginal flag for a victory lap. Other non-official “political or religious stances” include Irish athletes boycotting the 1908 London Games, an Italian giving a fascist salute at the 1932 Los Angeles Games, and an Iranian judo competitor pulled from the 2004 Games because he had drawn an Israeli competitor, and, of course, the 62-nation boycott of the 1980 Moscow Games.

Given all that, why not grab a Tibetan flag for a victory lap after winning an event? Nope. That will get an athlete a ticket home, says Rule 51(3).

If athletes leave the Olympic venture, they become what you and I would be — foreign nationals subject to Chinese law regarding protests. Chinese officials said this week they plan “to designate space in three public parks as protest zones for people to vent their grievances.” (Gee. That sounds like the free-speech zones Democrats plan to provide to protesters at their national convention in Denver.)

How convenient. Those with grievances need only tell the Ministry of Public Security — well in advance — the names of those who will participate, what their beef is, and how many will be expressing those grievances … to obtain a permit. Chinese officials will even provide food and drink. But the “protest zones” will be so far from any Olympic venue that the intended audience of any officially permitted protest will be unaware of it. No audience, no media, no impact.

The International Olympic Committee says it believes in free speech … mostly. Says IOC President Jacques Rogge: “For us, freedom of expression is something that is absolute. It’s a human right. Athletes have it. There are small restrictions in not making propaganda or demonstrations in Olympic venues, like on the podium, for obvious reasons.” [emphasis added] Those reasons were not specified.

Rogge does not believe the 205 member nations should hash out their respective religious, racial or ethnic disagreements on the Olympic playing field — and the IOC has codified that belief in Rule 51(3).

But commercial speech? That’s a different matter. The IOC has Rule 51(2): “No form of advertising or other publicity shall be allowed in and above the stadia, venues and other competition areas which are considered as part of the Olympic sites.” This seems a bit of a fantasy.

What do Coca-Cola, Atos Origin, General Electric, Johnson & Johnson, Kodak, Lenovo, Manulife, Mcdonald’s, Omega, Panasonic, Samsung and Visa have in common? For openers, they want a piece of the world’s second-largest advertising market:

The promise of selling a billion bottles of Coke to China’s 1.3 billion people is no longer a pipe dream; last year, 24 billion bottles of Coca-Cola were sold in China. KFC, a unit of Yum Brands, has more than 2,000 stores here. McDonald’s and Starbucks are ubiquitous. And Nokia, the cellphone maker, sold about 70 million phones to Chinese consumers in 2007, racking up sales of $10 billion.

They’re “Worldwide Olympic Partners” who will be advertising in China. And they couldn’t care less about Rule 51(2). That’s because the attendees at the Olympics are not the intended audience. Frankly, nor are viewers of American television, the principal audience of almost all past Olympic advertising. Even the most visible current effort on American television, Visa’s “Go World” feel-good-about-Visa, about-the-Olympics and about-the-human-spirit campaign, is relatively modest.

Advertising outside China won’t touch on controversy or nationalistic themes:

McDonald’s has a TV spot airing called “The More We Get Together” that juxtaposes a nursery-song rhyme against competitive moments with athletes of varied races and colors, none wearing national symbols. “The more we get together the happier we’ll be,” the ad says.

But inside China? that’s a different story.

According to a BusinessWeek headline, sponsors plan in-China-only ad campaigns with a single intent: “Olympic Sponsors Cheer the Home Team: Western businesses are harnessing Olympic fervor in China and playing up national pride in their advertising campaigns.” [emphasis added]

It doesn’t take much of an intellect to figure out why multinational corporations plan bland, non-offensive, outside-China campaigns but boost nationalistic pride in campaigns inside China. With affluence increasing in China both in economic and geographical terms, corporations want a piece of a market with 1.3 billion Chinese citizens — especially its 250 million increasingly middle-class consumer-citizens.

That’s precisely what Olympic sponsors are doing within China — using the desire of the Chinese to obtain a positive image of their country, battered by recent bad press, to maintain and extend brand recognition to those billion-plus potential Chinese consumers, leading, presumably, to increased corporate revenue.

Take McDonald’s. Says BusinessWeek about its campaign:

But within China, where pride in hosting the games is running high and feelings are sensitive because of the Tibetan protests and the Sichuan earthquake, this universalism gives way to something else. For its Chinese marketing, McDonald’s dispenses with appeals to unity and friendship and instead focuses on cheering for the home team. Its slogan in Chinese is “wo jiu xihuan zhongguo ying.” The translation: “I’m loving it when China wins.” [emphasis added]

Coca-Cola, for which China is its fourth-largest market and growing, “paid $70 million to $75 million to be a four-year Olympic partner and $5 million to $15 million to be one of three sponsors of the torch run.” It’s counting on the warm fuzzies of the Olympics to reap reward on that investment.

Coke’s in-China campaign is called “Year of the Shuang,” a Chinese word the company translates as a “physical and emotional state of refreshment.” Coke’s on-site operation in Beijing is massive:

Besides blanket outdoor advertising, Coke will run three centers. The 40,000-square-foot Shuang Experience Center on the Olympic Green will include a gallery about Coke’s history, a theater showing a film about Coke’s sponsorship of the Olympic torch relay, a section on Coke’s charitable activities and a “perfect serve” bar where visitors will receive “perfectly chilled bottles of Coke” … Coke expects to distribute about 26 million beverages sold through concession stands or provided free to Olympic athletes and officials. It will host 10,000 VIP guests, about 8,000 to 9,000 from China.

Says Kevin Tressler, Coca-Cola’s director of worldwide sports and entertainment marketing, “There’s a warm feeling that comes to people when they think about the Olympics. The Olympics is a very powerful brand.”

Adidas offers TV and billboards with this theme: “Together in 2008, Impossible Is Nothing.” The ads show images of individual athletes, in color, supported by a black-and-white, almost indistinguishable mass of Chinese citizens in support.

Even the corporations that are not official Olympic sponsors are piling on. From Pepsi, a viral online “Love China” campaign. Pepsi’s even changing color: It “painted its familiar blue cans red for a limited edition ‘Go Red for China’ promotion.”

The IOC loves commercial speech. It pays well. A major corporate sponsorship for the Beijing Games costs an average of $40 million to $50 million. Add in the 2006 Turin Winter Olympics, and it’s even higher. Says Forbes: “Estimates have computer maker Lenovo paying $80 million to $100 million to be the official sponsor of the games. Eleven global sponsors — including Coca-Cola and McDonald’s —spent a combined $850 million to sponsor the Turin and Beijing Olympics.”

Now, toss in the cost of the actual advertising campaign and media buys. When it comes to free speech, commercial speech is decidedly expensive. So the definition of free speech for an official Olympic sponsor is simple: no competing speech.

Remember, the Olympics as a platform for commercial speech always draws a crowd, and not all paid the $50 mill to get in. Those who paid the big dollars to be sponsors want protection from ambush marketers, those corporations that seek to bathe themselves in the aura of the Games without paying for that privilege.

The IOC must be tickled pink (or red, in this Games’ case). It doesn’t have to play the heavy. Chinese officials have already made it impossible for individuals or groups to display any effective free speech. They have also made non-official, non-sponsor Olympic commercial speech illegal. Beijing officials will clamp down on violations of Olympics-related patents, trademarks and copyrights during the Games. Says Chen Feng, deputy director of the marketing department of the Beijing Olympics Organizing Committee:

From July 11, all prominent advertising space in Beijing, including at the airport and on subway lines, will be controlled, giving official sponsors priority. Companies will be monitored for illegal advertising and serious action will be taken against violators.

They’ll even check spectators’ clothing. If one guy’s wearing a non-sponsor company’s T-shirt, that’s fine, perhaps. But if a group of people all have the same shirt, watch out. “If a group of spectators wear the same clothes, then it is suspicious,” Chen said. “We will then talk with them and try to stop it.”

• • • •

There’s far more to the issue of free speech at the Games. This post only frames what’s possible (or not) for athletes, spectators and corporations and why those limitations exist. Should athletes have the right to political protest on the field of play? The IOC says no. Other Olympic committees, in correct-speak, say “yes” but add protests would be “inappropriate” or “distracting” to athletes’ competitive efforts.

Should we abandon the illusion that Olympic athletes are uncompensated amateurs? Do athletes have the right to commercial speech on the field — especially if they’re used to that? An interesting question. Given that virtually every athletically competitive college or university in the United States probably has equipment contracts or sponsorships, corporations would vote “yes” (no surprise). Given that professional athletes, also used to commercial sponsorships, are competing in the Beijing Games, that answer, too, would be “yes” from Coke and its commercial kin. (Thank God NASCAR racing isn’t an Olympic event.)

The Olympic movement has so much inherent conflict of interest regarding freedom of speech. Who gets it? Why? The IOC certainly favors commercial speech. But the speech it abhors the most is embarrassing-to-the-Games speech. That’s precisely what Tommie Smith and John Carlos did in Mexico in 1968, in the IOC’s mind. Hence the IOC’s desire to avoid the adverse press sure to follow political speech by athletes on the field of play.

Meanwhile, don’t show up in Beijing wearing a “Free Tibet” T-shirt. But perhaps a modest swoosh will get by.

CORRECTION: An earlier version of this post said “the English soccer team offer[ed] a Nazi salute at the 1938 Berlin Games.” The Games were played in 1936; the English soccer team traveled to Berlin’s Olympic Stadium on May 14, 1938, to play Germany. The Nazi salute was ordered by England’s Foreign Office under the policy of appeasement toward the Nazis pursued by Neville Chamberlain’s government. England won, 6-3.

In the absence of a grand technological theory that can explain the Universe, such as a Unified Field Theory (nerds can hope), or resolution of the questions raised by more dialectical interpretations of history, many scholars opt for media theory because the items such theory discusses are more accessible in our day-to-day lives. The science-fictional proliferation of portable gizmos and the ubiquity of the silicon chip can give the ordinary citizen pause, and books about media theory are frequently written to answer the somewhat vexing questions that arise.

Media professor and popular blogger Siva Vaidhyanathan investigates with 2004’s The Anarchist in the Library. Mr. Vaidhyanathan, hereafter referred to as V, notes in the inlet of the book that “battle lines are being drawn,” between Freedom and Control, and that the real world has begun to resemble the virtual world. (Or is it, the other way around?) On the one side, he writes, are corporations, judges, the military etc, and on the other are “liberators”, hackers, libertarians, artists and dissidents.

At first glance, it appears that V has not transcended a dialectical interpretation of history, but has merely changed the names of the cast of characters. When reading one notices he arrives firmly on the side of the “proletariat” of artists and freedom-lovers, even though he declares neutrality through much of the book.
V himself is a copyright expert in media theory, and the book is chock-full of examples of interesting copyright issues. His starting point, theoretically, is the Napster case of 2001 and the legal fallout resulting from that case. Many can recall from those days an icon floating around the web (sometimes it was called the web back then) of a guy with a baseball cap on backwards, listening to music through headphones. This image can be held in mind as the icon of the anarchist in the way that V describes an anarchist in this book, as primarily a music-lover looking for free music.

The claim V sets up in the early chapters is this: that the Internet is “like” Diogenes, the cynic philosopher of 370 B.C. Who was this character? Although records are scarce, since he left no writing, Diogenes of Sinope was supposedly a homeless man who wandered the streets of the city, engaging learned people in debate and flouting convention, kind of an Axial rock star. He would not give authority to money or the laws, but claimed to harm no one, and engaged in what would today be described as acts of radical individual freedom. The philosophical thread begun by Diogenes continued on with such groups as the Stoics, the Christian monastics, and Friedrich Nietzsche.

What makes the Internet “cynical” according to the book is that it allows people to act like Diogenes, and any attempts to regulate content or reign it in will fail. It simply can’t be done. A fair theory. But in reading through the rest of the book, one wonders if V provides this theory because he really believes it’s true, or because he’d rather take a negative aesthetic and be wrong than a positive, pro-active one and possibly shown to be foolish. For example, he often suggests that what is needed is “dialogue”, “discussion”, and “debate” about what all this technology means – well, debate about what? Eventually, someone has to throw a value out there.

Do it Yourself Media Theory construction: declare the Internet to be “like” a certain historical figure, build evidence to support the theory, i.e. people behaving “cynically,” frame the opposition as behind the times and also unattractive, then lazily re-narrate current events in light of your theory.

Can’t anyone do this? For example, let’s say the Internet is “like” King Tut of Egypt. Yes, the Internet is a man-child given vast and unprecedented power over a disorganized and mostly-unconscious domain. Seem plausible? To further enhance this theory now let’s suppose each of us is here to build the pyramids by stacking enormous rhetorical blocks on top of each other until it is no longer gravitationally possible to do so, leaving these constructions behind so as to entomb the latest “king.” As of this week, that would be George Carlin. May the king rest in peace.

V uses the example of George Costanza from Seinfeld to make a point… Costanzan cynicism differs from Diogenic cynicism, according to V, in that it is, like George, self-absorbed, pessimistic and fails to be civically-engaged. According to V, one would be a “Costanzan” cynic by criticizing the book’s point of view or suggesting that what we often think of as freedom in terms of uses for new media, is not really. However, V gives us the historical example of the civically-engaged Diogenes as a man mostly thumbing his nose at authority figures and rich people. If that is civic engagement, you might as well watch Jackass, the Movie. V creates a tautologous argument here, meaning there’s no possible evidence which could be introduced into the theory to demonstrate the lack of Costanzan values in any position more cynical than V’s own, as if by participating in the debate you have already cast yourself as the loser before it even begins.

To the author’s credit, he offers the intriguing tale of the RAND Corporation post-2001, and a brief biography of Tim Berners-Lee, who could probably be credited with “inventing” the internet more than anyone else. MP3s and the Recording Industry Association of America are given mentions, the first as the vehicle for anarchy and the latter as an oligarchy that means to “control” the fun of freedom-loving people.

International file piracy is described as a “genuine threat to the industry.” V offers detailed examples of the distinctions between theft in Mexico, Nigeria, and India, the plethora of reasons why this theft occurs, and how petty the chasing down of a guy with a backwards baseball cap seems in comparison. One could easily agree that yes, it does seem petty to wonder whether Lawrence Lessig or Lars Ulrich is correct when millions upon millions of dollars is lost each year to illegal Chinese duplicates. But then, V is now telling us that the anarchist is no longer a guy with a baseball cap on backwards, but now the entire rest of the planet which is not America. Hence, oligarchical controls must walk the entire planet as well, to police these people, a task that V finds so unsavory, as well as impractical in terms of regulating remote places such as Nigeria, that it’s better to just make everything as free as possible rather than risk “making winners into bigger winners and thus rigging the cultural market.”

In short, he means to discourage both anarchist and oligarchic behavior, while somehow romantically siding with anarchists through most of the book. Seems a bit contradictory, which is incidentally, occasionally the criticism leveled against Nietzsche and other cynical philosophers.

A distinction: the definition of anarchist throughout this book is incomplete, because some people have understood that an anarchist is not a guy sitting in front of a monitor with his baseball cap on backwards. That’s a hobbyist. An anarchist is also someone like this:

And there are not too many of those hanging out in the library looking for MP3s. The oligarchical entity of most concern to anarchists of this stripe is the local police department. There are anarchist groups and activists in this country who are not as “direct action” as the perpetually-mobile gentleman just mentioned. These anarchists do read Proudhon and Kropotkin, Bookchin and others, and occasionally do something interesting and beneficial like form a food co-op or put up a mayoral candidate. But, the concern of anarchists such as these, even those who managed to protest WTO meetings, has very little to do with the file-sharing and media-piracy issues mostly covered in this book. This book might then be better titled The Hobbyist in the Library. What V blows up to be some kind of equivalent force to such entities as the Rand Corporation or the RIAA does indeed often amount to mere isolated incidents of youthful people merely seeking to do special favors for friends, the kind of low-level piracy that, while still illegal, has always gone on.

Here are some claims in the book which are vague, or simply false:

The Internet was built according to cynical principles: borderlessness, unregulatability, etc
No, the internet was built to protect scientific information from a possible nuclear strike by the Soviet Union. The principle in action was self-defense.

Hollywood is holding its prime content hostage until we give it what it wants – control over which machines we record on in the privacy of our own homes.
Nothing is being held hostage. The language is too war-like. Like the Muslims of the world, “Hollywood” is not a monolith of interest and studios spend as much time sparring with each other as they do the legal system.

The fundamental purpose of intellectual property law is to create artificial scarcity.
No, laws are written not just to hammer the guys with backwards baseball caps, but also to counter the directives of aggressive business interests.

We should not let the market guide our minds, lest we come up with a genetic treatment for baldness before breast cancer.
Too late…Viagra. And biomedical ethics in relation to capitalism opens up a whole new Pandora’s Box.

Also, p.186: The role of the nation-state is in flux, and its future is up for grabs contradicts what’s on p. 152: Now we see that the nation-state is not going anywhere.

What succeeds in this book is V’s identification of the persistent ethical problem of copyright theft, and his heartfelt concern that something should be done about it. In the conclusion V tells us that he has “avoided making predictions”, “declared no wars” and “refrained from declaring a new historical epoch.” Yet he tells us in the inlet that battle lines have been drawn (except that through the act of declaring a battle, he’s not involved in it, we must presume) and in chapter 1 he declares that activity on the Internet is wholly cynical and Diogenic, thus heralding a “Diogenic” Age?

V uses a rather contrived media theory to discuss intellectual property rights and the Internet. The author’s premise is that the Internet is inherently anarchistic and that ultimately any attempt to regulate it will fail. This argument, while possibly still correct, is poorly constructed, based upon flawed reasoning and erroneous interpretation of Cynical and Anarchist philosophy. Many of the summarizing statements are vague. V claims to be impartial but is, in fact, firmly on the “side” of who he perceives to be anarchists. We can credit the book for achieving one of its original goals, that is, of fomenting discussion about media theory, but in the final analysis, his particular theory holds little water and has poor philosophical foundations. One should strive to either be an anarchist, or go to the library. But to do both creates a problem where none before existed.

D.J.B. is a free-lance writer based in San Diego.

photo credit: Bikernet.com

When we do, an industry with 100,000 employees will annually collect about $11 billion in revenue from our survivors, who presumably love us and wish to put us to rest with appropriate pomp and circumstance. Requiescat in pace, although survivors’ wallets might not.

Since 2002, after authorities found the remains of 339 people scattered about the grounds of a Georgia crematorium, the funeral industry has been visited by a wave of regulatory activity in many states. Not surprisingly, the funeral industry, a monopoly in many ways, wishes to influence that regulatory activity. It has also sought to influence drafting and revision of federal regulations, most notably the Federal Trade Commission’s “Funeral Rule.”

According to a richly detailed and footnoted report by Scott Jordan of the National Institute on Money in State Politics, from 1999 to 2006 the industry has coughed up $6 million in political contributions spread over political parties and state-level candidates in 46 states, positioning itself “to have a hand in shaping legislation and regulation” [emphasis added]. Millions more have gone to federal candidates.

This is what lobbyists principally do — act to influence legislation and regulation. And they’re really good at it. Therefore it’s important to take notice when presidential candidates spout rhetoric promising to “curb this industry” and “control that industry.” How will they do that?

A principal function of government is to necessarily regulate behavior of the governed. Some would argue about the definition of “necessarily,” but for people to live relatively peacefully in communities, states and nations, some agreement must be reached regarding individual and communal behaviors. But if a behavior is viewed as overly or improperly restricted, lobbying for behavioral change results. If one entity’s behavior unduly affects another, lobbying again results. Often, those doing the lobbying are referred to as “special interests.”

In America, government regulates a boatload of stuff. What we eat. The drugs we use (and abuse). How the barber and the butcher must be trained. How much of our earnings we may keep. The conditions of our workplaces. What tax we must pay to maintain the common good. The environmental quality of our air, water and land. The conduct of markets. Medical care. How some products and services are produced. Certain kinds of information. What the military may or may not do. How we collectively and individually protect ourselves and our property. How we marry. How our children are schooled and for how long. And what happens when we die.

Ah. Back to the funeral industry.

For industries, consistency of regulation, and, perhaps, minimizing it, is a desirable goal. Reports Mr. Jordan: “The interests of the funeral industry are not completely monolithic. They fight some oversight, but often support other regulations that may hinder competition.” Mr. Jordan details the uneven oversight of funeral industry regulation from state to state regarding apprenticeships and mortuary science diplomas, trust accounts for prepayment of funeral services, funeral merchandise, package sales vs. itemized billings, and monopolistic behavior. (Did you know that 10 states have “virtual casket monopolies” that allow markups of 300 to 400 percent?)

So the funeral industry set out to seek influence. Here’s the tale of its $6 million:

• State funeral director associations were the leading contributors,
accounting for $3.3 million, or more than half of the industry’s $6
million in contributions.
• The industry placed its bets wisely, with current officeholders receiving 82 percent of the $4.5 million given to candidates and incumbents not up for re-election.
• Party committees in 34 states received $1.5 million, or 25 percent of the industry’s contributions. The industry favored Republican Party.

Like any industry, the funeral industry seeks to influence regulation to further its ability to maximize profit. Its current problem is the patchwork of state regulations affecting the industry, hence its significant contributions at the state level. But gosh, wouldn’t it be easier all around if the funeral industry only had to deal with federal regulations — a single, known, consistent set of rules — rather than 50 different sets of state regs? That’s the wet dream of industries.

That’s what industries claim when faced with conflicting and contradictory regulations from state to state. It inhibits the ability to plan, industries say. It costs more to operate in one state than other. Jobs are at risk, too, they say. Give us one set of rules, please.

When the state of Maine passed a law in 2003 “requiring those who sell tobacco products directly to consumers to use only those delivery services that verify the age of the recipient,” thus superseding a federal statute, the trucking industry took Maine to the Supreme Court. It argued Maine’s law opened “the door to the very patchwork of conflicting state regulations that Congress meant to pre-empt when it deregulated motor transportation.” Industries hate “patchworks of conflicting state regulations.” That creates roadblocks to maximizing profit.

Consider what the auto industry confronts regarding emissions. The federal Clean Air Act gave California “the unique authority to set its own emissions standards and allows other states to adopt California’s rules instead of the federal rules.” So far, more than a dozen states have done so. The auto industry is not happy with that.

Methinks, though, that a principal reason industries seek a single consistent federal regulation is simple: the cost-effectiveness of lobbying. If the feds control the regulations, then the lobbyists only have to deal with Washington, D.C., legislators and regulators rather than those scattered through 50 different state capitals.

See, that’s the thing. Lobbying is most effective when it’s a person-to-person enterprise. The lobbyist takes the politician or regulator to lunch, contributes to his or her favorite charities, attends his or her fundraisers — and makes lots and lots of donations. It’s squeeze and please. One-stop shopping makes that easier.

Why spin the federal regulators? Easy. Congress passes laws in broad strokes that enable regulation. It leaves the details of actually writing the regs to “experts” in federal agencies and departments. If you cover a legislative body as a journalist long enough, as I did, you discover that much legislation is actually drafted by lobbyists. General Electric is the acknowledged master:

[I]n a two-year campaign, fueled as much by brains as political brawn, GE has shaped the legislation that would replace the old export-promotion law in ways that would allow it to save as much, if not more, in taxes, according to both GE lobbyists and congressional aides. In pursuing its financial interest, the company may also have turned the U.S. corporate tax code away from domestic manufacturing and toward expansion of operations abroad.

Industries routinely seek to write tax benefits into legislation. Remember the jobs act that created no jobs? The American Jobs Creation Act of 2004 allowed numerous multinationals a one-time chance to repatriate profits abroad at a tax rate of 5 percent instead of 35 percent. Now, that’s lobbying for you.

How can a president control the wholesale drafting of legislation by lobbyists that time and again becomes the law of the land? I don’t have an answer for that. Perhaps the press that reports on our current crop of contenders could actually ask that question.

But a president does have some control over who writes the regulations mandated by Congress. It’s called The U.S. Constitution, Article II, section 2, clause 2, which says:

The president shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States …[emphasis added]

The president appoints a few thousand people to serve in the federal government. Those hire others. Sometimes those appointments are rather iffy. As I’ve written previously, “Congress makes laws. But presidents appoint the regulators who actually write the policies that implement those laws. While Democratic presidents have had controversies with regulators being too close to the regulated, President Bush’s appointments have been particularly noteworthy as pals of industry.” (Other times, regulators act honorably. It’s a mixed bag.)

President Bush is a dwindling irritant. The next president will likely sweep out hundreds of Bush political appointees in favor of those more palatable to the new president’s philosophy (which, in turn, may be shaped by the influence of those “special interests” who contributed to his or her campaign money, influence or service.)

But whom will the next president appoint to act as writers of regulations? Again, perhaps the press that reports on the campaigns could actually ask that question. So far, only Washington Post columnist David Broder has prominently done so. In wondering why his colleagues spent so much ink and air on the Rev. Jeremiah Wright’s preaching, given that the reverend won’t be a member of an Obama administration, Mr. Broder says:

I’d like to know what kind of people Obama would bring into his White House and where he would turn for a Cabinet, because there is so much uncertainty about his actual policies at home and abroad.

The presidency is routinely referred as the most powerful position in the world. But in the context of legislation and regulation, that ain’t necessarily so. He or she cannot effectively control the former, but he or she may significantly affect the latter through his or her presidential appointments.

Instead of “he said, she said,” horse-race, trivial coverage of the presidential campaign, more light ought to be focused on the qualifications a candidate would demand of potential appointees. The press isn’t doing it.

Meanwhile, back in the $10,000 copper or bronze casket:

The National Funeral Directors Association, “the leading funeral service association, serving 19,500 individual members who represent more than 10,000 funeral homes in the United States and other countries,” continues to lobby the Federal Trade Commission to reopen its regulatory review of the “Funeral Rule” and its decision to retain the rule as it stands.

Says the association’s CEO, Christine Pepper:

After almost a decade of review, during which time NFDA continually offered written comments hoping to tighten and improve the rule to better protect both funeral service professionals and consumers, it is disheartening to see the FTC take this position. While the review process may be over, NFDA will continue to advocate through all available channels of government for a Funeral Rule that provides those meaningful protections. [emphasis added]

Ah, the language of lobbying. Mention those consumers. Discuss meaningful protections. Refer to improvements. Meanwhile, under the FTC’s Funeral Rule, “law enforcement sweeps of 174 funeral homes in nine states found significant violations of the FTC’s Funeral Rule at 26 funeral homes and minor compliance deficiencies at 66 others.” The violations included failure to provide itemized price lists and casket price lists.

In 2006, FTC regulators obtained a consent settlement when they “contended that Service Corporation International’s (SCI) proposed acquisition of Alderwoods Group Inc. would lessen competition in 47 markets for funeral or cemetery services, leaving consumers with fewer choices and the prospect of higher prices or reduced levels of service. [emphasis added]”

Since 1990, the funeral industry has made more than $7 million in campaign contributions to federal candidates or PACs, leaning toward Republicans.
According to Mr. Jordan, Service Corporation International, “which bills itself as ‘North America’s largest single provider of funeral, cremation and cemetery services,’ contributed more than $319,800 in 19 states.”

So many industries, such as the funeral industry, through their lobbyists and professional associations seek to influence legislation and regulation. Lip service is indeed given by industries to “protecting the consumer” and other politically correct niceties, but don’t be fooled: protection for industry is the holy grail sought.

If your favorite presidential candidate stands up at a rally, looks you straight in the eye, and boldly claims, “I will stand up to the special interests,” you look him or her right back and just as boldly ask: “How?”

It could not be, and should not be, a sound-bite answer.

xpost: Scholars & Rogues

This is actually a boost to remind people that we can produce this kind of journalism at any time. We’re going to have a large enough newsroom to continue to produce this kind of quality journalism.

— Leonard Downie Jr., editor of The Washington Post, winner of six Pulitzer Prizes for 2008; The Post’s front-page story by media critic Howard Kurtz did not mention the paper has endured three rounds of staff cuts since 2003, but the AP’s story did; April 7; emphasis added.

I can only confirm that the route is dynamic.

— Nathan Ballard, a San Francisco city spokesman, as, said The New York Times, “The precise route remained in flux on Tuesday as the torch extravaganza threatened to become more civic migraine than celebration in the face of potential protests by those upset with China’s human rights record and recent crackdown in Tibet”; April 9.

For some members of the U.S. Congress to set aside the Olympic spirit and the principle that sports should not be politicized, and even to openly encourage interference with and harm to the San Francisco torch relay, completely lacks basic morals and conscience.

— Chinese Foreign Minister Jing Yu in a rebuke to House Speaker Nancy Pelosi, D-Calif., for urging peaceful demonstrations against the Olympic torch relay; April 9.

We sincerely regret the inconvenience.

— statement from American Airlines, which has cancelled thousands of flights this week, stranding tens of thousands of passengers, to reinspect aircraft for a problem previously thought corrected; April 10.

I’m quite angry. They should be following the rules,. You don’t try to follow the rules, you follow them. This isn’t golf or horseshoes.

— Brad Weiss, a lawyer whose flight had been canceled by American Airlines, peeved that an earlier inspection of aircraft had deemed them safe to fly; April 10.

Our mechanics felt they had complied but thought they had the ability to take certain latitudes; they did not. In the past they have had certain latitude, and that is no longer the case.

— Daniel Garton, an American Airlines executive vice president, discussing the airline’s inspection policies; April 10.

Nobody at the top ever gets fired.

— Jay Rockefeller, chairman of the aviation subcommittee of the Senate Commerce Committee, suggesting the Federal Aviation Administration’s poor handling of aircraft inspections ought to result in more severe punishments of top officials; April 10.

Our protest is against the problematic order of priorities of the government. First let them find the budget for all the things that the country needs.

— Ron Avni, a leader of a campaign against excessive celebrations on Israel’s 60th anniversary because of apparent deep-seated resentment about the effectiveness of the Israeli government; April 9.

Have we gone mad? Has something gone wrong with our collective mind? The State of Israel is about to mark 60 years of independence in an atmosphere of bitterness, depression and public reluctance ‘to waste the money on celebrations.’

— journalist Sever Plocker, taking the anti-festivity campaigners to task in Yediot Aharonot, the popular Hebrew daily newspaper; April 9.

I say to our brothers and sisters across the continent, don’t wait for dead bodies in the streets of Harare.

— Tendai Biti, secretary general of opposition party Movement for Democratic Change in Zimbabwe, in a plea to other African nations after reporting “widespread attacks on its supporters, black youths drove white farmers off their land and election officials were accused of vote tampering and arrested”; April 9.

In that terrible moment, he had two options — to save himself, or to save his friends. For Mike, this was no choice at all. He threw himself onto the grenade, and absorbed the blast with his body.

— President Bush, awarding the Medal of Honor posthumously to the family of a Navy Seal, Petty Officer Second Class Michael A. Monsoor, who threw himself on a grenade in 2006 to save his comrades in Iraq; April 9.

If this is built, it could affect our livelihood; fewer people may want to come here if we can’t offer the peacefulness we have now. The battle has already made it hard to get it out of my mind and meditate properly.

— Bhante Rahula, vice abbot of Bhavana Society Forest Monastery in West Virginia, which is part of a battle in three states between two electric companies on the one hand and thousands of landowners and residents on the other over a $1.1 billion, 260-mile, 500-kilovolt transmission line that would cut a 200-foot wide swath of forest near the monastery; April 9.

Q: Dana, can I double-check — you are not billing this speech this morning as an address to the nation, right? It’s a statement? …
MS. PERINO: We’re not asking for network time, no, but the President will give his speech at 11:30 a.m. And for those networks who want to cover it, then that will be great — barring any sort of, you know, Hollywood scandal that pops up. (Laughter.) That was not a shot at you all.

— an exchange between a reporter and press secretary Dana Perino at a White House briefing; April 10.

People are saying: ‘Stop it! It’s too much.’ We are a small town in a small country. We didn’t start the war. It was the United States and Great Britain. They must now take the responsibility for the refugees.

— Anders Lago, mayor of Sodertalje, a Swedish city of 83,000 that is home to about 6,000 Iraqi refugees; 40,000 Iraqis have found refuge in Sweden; April 10.

In December of 2007, I signed the United States-Peru Trade Promotion Agreement Implementation Act to bring economic gains for both of our countries, empower workers, and foster accountability and the rule of law. We seek to build on these successes by working with the Congress to approve the United States-Colombia Trade Promotion Agreement and the United States-Panama Trade Promotion Agreement. These and other free trade agreements enhance prosperity in the United States and signal our firm support for those who share our values of freedom and democracy.

— from a statement by President Bush proclaiming “Pan American Day and Pan American Week, 2008″; April 10.

Phil Gramm’s career was as the most aggressive advocate of every predatory and rapacious element that the financial sector has. He’s a sorcerer’s apprentice of instability and disaster in the financial system.

— James K. Galbraith, a University of Texas economist, criticizing former senator Phil Gramm, who is one of presidential candidate John McCain’s key economic advisers; April 2.

When the congressman speaks, we listen, and we pretty much do as he says. He is the type of politician that comes around once every 50 years in Washington. He has an incredible presence, and his word means more than anyone’s to us.

— Rich Kasunic, a Pennsylvania state senator, on Rep. John Murtha, who recently endorsed presidential candidate Hillary Clinton; March 29.

If you’ve got AIDS, cancer or erectile dysfunction, a group of big advertising networks are going to promise not to remember that you read sites about those topics and remind you (or others using your computer) of your condition with ads for related drugs as you surf the net. But if you have Parkinson’s disease, congestive heart failure or warts, the ad companies have decided it may well be acceptable to keep track of your interest in medical subjects and fill your browser with ads for helpful products from pharmaceutical companies. Advertising to people who are dead may also be acceptable …

— from a New York Times story by Saul Hansell about “proposed guidelines for [members of the Network Advertising Initiative, a trade association of companies who place ads on the Web] to follow when engaging in behavioral targeting, that is keeping track of what Internet users do in order to show them ads for products in which they may be interested”; April 10.

This information can be quite profound. It can lead to a decision to have your breasts chopped off before you’ve been sick for a day or having your ovaries scooped out before you have children. These are dramatic decisions, but these products are going on the marketplace as though they were underarm deodorant.

— R. Alta Charo, a professor of law and bioethics at the University of Wisconsin, on the emergence of the for-profit, personalized gene-testing industry; March 25.

Striking fear also serves pharmaceutical companies, which want you to worry about diseases, because people who worry are more likely to go to their doctors and ask for drugs than people who don’t. It turns out that much of what we — and our doctors — think we know about many health problems has been shaped by drugmakers and their marketers. Take “condition branding,” one of the most brilliant and widely used marketing techniques for selling drugs. Condition branders use “information” about medical conditions to forge links between disease and treatment in the minds of both patients and doctors. If they have a drug but no condition, they will simply invent a disease. I’ve been reporting this for years.

— medicine and health-care writer Shannon Brownlee in a Washington Post commentary; March 30.

This spring, nearly every top designer has a “Cinderella” slipper, a shoe priced so high that it should come with a handsome prince — or an hour with a male escort, at least. Christian Louboutin’s webbed suede and button sandals sell for $1,345, while Versace offers a $1,400 satin pump festooned with nothing more than a few tassels. Dior’s platform slingback with beaded heel runs $1,030, while Balenciaga’s pink and brown braided gladiator sandal goes for $1,375.

— lede to a Los Angeles Times story by Monica Corcoran about the high cost of fashion pumps; March 30.

photo credits:
Petty Officer Second Class Michael A. Monsoor: U.S. Navy via Associated Press
$1,400 Jimmy Choo pumps: Kirk McKoy, Los Angeles Times

xpost: Scholars & Rogues

I was deeply amused to read the breathless news coverage of Hammerin’ Hank Paulson’s “ambitious” and “sweeping” plans to restructure the federal financial regulatory structure. It says something about how far the goalposts of this country’s discourse have been moved towards rampant, unchecked, unbridled “law of the jungle” financial pillaging that modest reforms like these are considered a major move.

If these pathetic hot-flashing stenographers that call themselves “reporters” would actually take a closer look at the plan itself–hell, even just the fact sheet–they would see that not only is Paulson’s reform agenda miniscule at best, but that it’s a shell game, a distraction designed to accomplish the long-held mantra of the Bush administration–centralizing federal power and weakening consumer protections at the state level.

Some of the recommendations are good–like creating a national office tasked solely with investigating and providing oversight on mortgage originations, and merging the anachronistic Office of Thrift Supervision (OTS) with the Office of the Comptroller of the Currency, another little-heralded agency I’ll mention again later. But read these following passages I quote carefully (emphases added):

Last March, Treasury convened a blue-ribbon panel to discuss U.S. capital markets competitiveness. Industry leaders and policymakers alike agreed that the competitiveness of our financial services sector – and its ability to support U.S. economic growth – is constrained by an outdated financial regulatory framework.

So they’ve been talking about how to improve and modernize the federal regulatory structure for a year. If I recall, a year ago Fed chief Ben Bernanke was only beginning to telegraph the warnings of larger economic failure from the subprime mortgage collapse, insisting the problem was still contained. And note the language–not “protect consumers,” but “support U.S. economic growth.” Not “constrained by unscrupulous lenders, ill-informed borrowers, overly complex transactional rules, and a Fed chief who does his best impression of a box turtle,” but an “outdated regulatory framework.” Gotta love that conservative ethos–even in the face of total market failure, regulation is still Satan personified.

Back to the fact sheet:

Treasury recommends the creation of a new federal commission led by a Presidential appointee, the Mortgage Origination Commission (MOC), to evaluate, rate, and report on the adequacy of each state’s system for licensing and regulating participants in the mortgage origination process. Federal legislation should establish (or provide authority for the MOC to develop) uniform minimum qualifications for state mortgage market participant licensing systems. Treasury recommends that the Federal Reserve continue to write regulations implementing national mortgage lending laws. Treasury recommends clarification and enhancement of the Federal enforcement authority over these laws.

I’m all in favor of establishing a “minimum floor” for decent mortgage laws, but the worry I have is something succinctly espoused by Alan White at the CL&P Blog:

While the Blueprint seems to preserve a role for state financial institutions regulators, it would impose federal oversight of the quality of state licensing for mortgage originators. More significantly, it calls for the Federal Reserve to take sole responsibility for regulating lender conduct in the mortgage market. Although it is not explicit, there seems to be a call for federal preemption of state mortgage regulation. This proposal is troubling, given the activity at the state level in regulating predatory mortgage practices (with North Carolina often cited as a model) during a time when Congress took virtually no action to curb mortgage abuses.

This has been a time-honored tactic of the Bush regime for as long as I can remember–to take away power from the states and federalize it in a weaker, central, federal authority, which precludes stronger state consumer protection laws on everything from identity theft to cellphone contracts. Matter of fact, former New York Attorney General and Governor Elliot Spitzer took pains to point out how the Bush White House deliberately interfered with the states’ investigation of predatory lenders, using the Office of the Comptroller as its blunt instrument:

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules. But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

As Greg Palast astutely noted not long ago, it was no coincidence that Spitzer’s very public fall from grace happened at the exact same moment Bernanke and Paulson secured a $200 billion taxpayer-funded bailout for the faltering banks. The DOJ waved this tasty piece of candy in front of the press–“Hey, look, sex scandal! Prostitution! Democrat!“–and off they went with the intensity of Pavlov’s best dogs. And now we’re supposed to expect that the same administration that engineered and profiteered off this scandal can be trusted to craft a new regulatory framework to prevent this from happening again? Motherfucker, please.

Thankfully, at least some Democrats are challenging Bush, Bernanke, and Paulson on the “closing the barn door after the storm hits” nature of the plan. Chris Dodd is right to call this rescue plan for what it is, and as chairman of the Senate Banking Committee, he has enough clout to ensure it will never see the light of day.

The simple truth is that no amount of taxpayer-funded bailouts for banks can effectively stop the convulsions this country’s economy is going through. They can only prolong the pain that consumers will endure in the form of record-high foreclosures, deflating home prices (which are still overpriced in too many areas, ironically), and the loss of home equity as a financial cushion to bracket against everything from soaring gas prices to food costs to student loans for the kids. The terrible trio of Bush, Bernanke, and Paulson have introduced mortgage rescue plans before, remember, but they were mild at best and downright useless at worst.

The bailout is not for you. None of these plans are for you, and they never have been. You’re just a tool, an asset being offloaded on a balance sheet, sinking with the ship. The lifeboats are already full to busting with the CEOs of Countrywide, Bank of America, Bear Stearns, and Citigroup, and there’s no room for you. Better sink or swim.

Here, though, it is Google – owner of 62.9% of all Internet searches ($16.4 bn in ad revenue) – which dwarfs any tie up (Yahoo-Microsoft have a combined search share of 15.7% and $ 9.8 bn in ad revenue). Could it be that Google is trying to pull a Microsoft and protect its home-turf advantage from a healthy rival?

The Shock of Protectionism

Recent respondents to my weekly newspaper column here in Cape Town have expressed shock – shock – that businesses appear to actively seek protection from their competitors. Such protection naturally increasing prices and hurts consumers.

One of the easiest ways to raise barriers to competitors is through calls for the patriotism of consumers. South Africa has become one of the most regular claimants against dumping from foreign business rivals at the World Trade Organisation. For those of you not acquainted with the business strategy, I shall briefly digress.

It may horrify you to know that some countries have lower costs of labour, rent and taxes than do others. Products made there are, therefore, somewhat cheaper. When imported – even with the cost of distribution and import tariffs added on at the border – they are still cheaper than manufactures produced locally. Sometimes the results are a tad unusual. For instance, while the breast-meat of chickens is very popular in the US, thighs, wings and legs are less desirable. Eager to divest themselves of this part of the bird, US distributors sell it for quite low prices around the world.

South African companies find it hard to compete against this and so they have won a case against US chicken distributors allowing for large fines (tariffs) to be imposed at the border. This helps local producers keep their margins firmly in place and defrauds local consumers. US prawn fisherman won a similar dispute against farmed prawns sourced from China.

Suing foreign competitors for “dumping” products by selling them for less than local firms is very popular. It appeals to xenophobia and nationalism by declaring that “jobs will be lost due to the predations of these evil foreigners”. At the same time it allows businesses to keep their prices high. It is now known as the “third rail” of US trade policy.

Monopolies make slaves of us all

Companies that trade their monopoly power into influence to keep competitors out of their markets are justly held to account. So too are companies that collude with their competitors to raise prices. However, governments confuse the issue through promoting such anti-competitive behaviour in their chosen industries. Agricultural subsidies are one hefty example. Why not subsidies to US software designers?

A tax allowance given to one chosen industry is equivalent to a special tax levied against all that industry’s foreign competitors at the border. Given that other industries are consumers of the favoured industry, this raises all prices for them. American corn farmers (who receive hefty subsidies) are in competition with American software writers (who don’t). If corn farmers are protected from competition they can charge more. They pass those costs on to their customers. Many of their customers are software writers (who, even if they don’t eat corn, may eat beef which does). Higher corn prices become higher programming costs. A tax supporting corn farmers becomes a tax decreasing the competitiveness of American software programmers.

Price controls are another way that governments like to imagine they can “protect” consumers from the perils of competitive markets. Venezuela is currently out of coffee and milk. Price controls have made it impossible to import coffee, and farmers no longer milk cows when the cost of doing so is higher than what they’re allowed to charge. Closer to home (South Africa) the government’s price controls on pharmaceuticals have meant that first-line antibiotics – such as Amoxycillin – will soon be unavailable.

Not content with this state of affairs, the South African government is to introduce price controls on gas as well as legislative monopolies to protect gas suppliers.

Bulls to the wall

Price controls are like slavery; forcing people to provide their labour at a price other than it is worth. As slave-owners discovered; slaves work to their lowest ability, not their best. So too with monopolies.

A good government approach to competition is one that promotes it and keeps the competitors fighting it out, no matter how tired they are. Try and imagine a sports match with protectionism, monopolies and anti-dumping laws?

Anti-dumping? A rookie hotshot isn’t allowed to play because he costs less than the opposing team’s seasoned veterans. Monopolies? Only one team is allowed to earn advertising revenues and use them to build up their player base. Protectionism? Our star player has a cold; the opposing team has to send three of their players off to keep things even.

Good competition policy works a bit like an all out bull-fight. Even when they beg for mercy you keep them in the ring; so that the blood and bones of the losers become fertile soil for the growth of the next generation of champions.

[He has] accepted responsibility for the columns published under his name in his local newspaper, and has apologized for not upholding the standards expected by the president.

— White House press secretary Dana Perino in a written statement expressing President Bush’s disappointment that White House aide Timothy S. Goeglein, originally recruited to work in the White House by former adviser Karl Rove, had plagiarized from the Dartmouth Review for columns he wrote for the News-Sentinel of Fort Wayne, Ind.; March 1; emphasis added.

You’re used to making $17 an hour with benefits, and now you have to take any job for $8 an hour. I’ve literally sat and cried, but my friends with double degrees are doing worse. It’s the economy. It’s really bad.

— Nicole Flennaugh, 36, a widow who has a college degree and who was laid off as a customer service representative at an educational services company, and who, even after applying for dozens of full-time jobs, has been getting by with occasional stints as an office temp; March 1.

The deficit today is at 1.2 percent of GDP, which is lower than the average of the last 40 years. In other words, we have told the American people that by keeping taxes low we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance. And that’s exactly where we’re headed.

— President Bush in a statement after meeting with his economic advisers; Oct. 11; emphasis added.

I like to let other people know how well I’m doing and put that information out to the public. I turned out to be a good trader, and I want people to know about it.

— Brian Zacharias, 23, a senior economics major at the University of Virginia, on why he posts at Covestor; a Washington Post story says, “Money used to be a taboo subject. Not anymore, thanks to Web sites such as Facebook and MySpace, which have created a generation willing to talk about anything and everything online. Several new sites are incorporating that impulse into the world of money, blending social networking with personal finance”; March 2.

It hurts. I’m a man who’s trying to make a living for my family and I’m not succeeding.

— independent trucker Robert Griffith of Lebanon, Tenn., on the difficulties of making a living because of high fuel costs; according to BusinessWeek, “As the cost of diesel doubled over the last four years, his take-home pay has plummeted, from $50,000 to $11,000 last year. He’s literally burning money; he spent $64,000 on diesel in the last eight months”; March 1.

It’s everything that gets shipped. That is the one that is much scarier.

— Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., on diesel fuel’s impact on the economy; says BusinessWeek, “While gas prices are unlikely to rise as high as $4 a gallon, diesel may well pass that psychologically important level this spring”; March 1.

Q: When the President yesterday that he hadn’t heard forecasts of $4 gas, was he serious?
MR. JOHNDROE: One, the President realizes that the high price of gasoline is a hardship for many Americans, but the President’s point was that neither his advisors nor Energy Department analysts are at this point forecasting $4 a gallon gasoline.
Q: It’s here. It’s already in California.
MR. JOHNDROE: I think that the national average, as of earlier this week, was $3.15, according to the Energy Department and other surveys. And so, no doubt, the price of gas is high. It causes hardship for many Americans. There is a — it is something the President is concerned about. He talked about that yesterday. It’s important for people to remember there are no short-term solutions to this.

— exchange between reporter and spokesman Gordon Johndroe during a White House press briefing; Feb. 29.

Some major financial institutions have, however, experienced staggering problems because they engaged in the “weakened lending practices” I described in last year’s letter. John Stumpf, CEO of Wells Fargo, aptly dissected the recent behavior of many lenders: “It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine.”

— Warren Buffett, CEO of Berkshire Hathaway, in his annual letter to stockholders; February 2008; emphasis added.

People in the entertainment and sports industries serve as role models to millions of young Americans, and that comes with the responsibility to dispel the notion that drug abuse is glamorous and free of consequences. Teachers, pastors, and parents also have an obligation to help young people develop the character and self-respect to resist drugs. The Federal Government will continue to do its part to keep our young people safe, and I urge all Americans to do the same. Our children deserve nothing less.

— President Bush in his weekly radio address; March 1; emphasis added.

We have seen in the last year disruptions in the national meth and cocaine markets on the supply side — cocaine shortages reported in 38 cities. Increases in price and purity demonstrate that the volatility of those markets has been sustained — or that reductions in the volatility in the prices shown in those reductions has been sustained under effective pressure on supply that hitherto was not possible.

— John Walters, director of the Office of National Drug Control Policy, discussing the 2008 national drug control strategy with reporters via White House conference call; March 1.

I really can’t tell you, traveling and campaigning now for many months, how dispirited the Bridge to Nowhere or earmark and pork-barrel spending was to our Republican base. We lost in 2006 not because of Iraq but because spending got out of control.

— presidential candidate John McCain in a conference call with conservative bloggers; March 1; emphasis added.

I thought all along that the Northrop Grumman-EADS proposal was the best.

— Sen. Richard Shelby, R-Ala., on the Air Force’s decision to award a $35 billion contract to Northrop Grumman and the European parent of Airbus to build up to 179 new refueling tanker aircraft; the award would bring 7,000 new jobs to Alabama; Feb. 29.

We are so very excited about having the opportunity to help the Air Force acquire the most modern and capable refueling tanker — a tanker assembled in America — by Americans.

— Rep. Jo Bonner, R-Ala., on the tanker aircraft award; Feb. 29; emphasis added.

Aerospace workers protest announcement that the Air Force did not choose Boeing to supply air-refueling tankers outside the Machinists union hall in Everett, Wash.

I am deeply troubled by the Air Force’s decision to award the KC-X tanker to a French company that has never built a tanker in its history.

— Rep. Todd Tiahrt, R-Kan., of Wichita, which has significant facilities of defense contractor Boeing Co., which lost out on the tanker aircraft award; Feb. 29.

You can put an American sticker on a plane and call it American, but you can’t call it American made. They are clearly going to be made overseas, and that is a factor we all have to be thinking about, whether we want American planes built overseas.

— Sen. Patty Murray, D-Wash., saying she was “frustrated, angry and in shock at this announcement” that Boeing, previously headquartered in her state, lost the Air Force tanker award; Feb. 29.

Fair is fair. Noting (not hyping) an unusually harsh global winter is merely pointing out the obvious. Dissenters of a man-made ‘climate crisis’ are using the reality of this record-breaking winter to expose the silly warming alarmism that the news media and some scientists have been ceaselessly promoting for decades.

— from an e-mail to reporter sent by Marc Morano, the communications director for the Republican minority on the Senate Environment and Public Works Committee, who headlined a blog post and news release about a cooler winter this way: “Earth’s ‘Fever’ Breaks: Global COOLING Currently Under Way”; March 1.

Look at what’s happened to wheat prices alone — they shot up 25 percent in one day last week. This is really the first emergency we’ve faced without a drought, war, natural disaster. We will have to cut the amount of people being served or the amount of food being served if we do not get more funds.

— Josette Sheeran, executive director of the UN’s World Food Program, on the impact of rising food prices; the UN “announced this month that it was facing a $505 million shortfall due to soaring food and fuel costs, and would cut distribution if it did not receive new funds”; March 1.

The 12,785-square-foot house, which stands out from its neighbors because it is so large, sits on slightly more than three lots with more than 200 feet of beach frontage along exclusive Carbon Beach — also known as “Billionaires Beach.” The mansion, built in 2002, has eight bedrooms, seven bathrooms and a tennis court.

— a description of the Malibu beach house sold by Nancy Daly Riordan, the estranged wife of former Los Angeles Mayor Richard Riordan, for $68 million.

Photo credit:
Protest — Dan DeLong, Seattle Post-Intelligencer

Quotabull is a weekly feature of Scholars & Rogues.

What issue do you feel has not been adequately covered in the presidential debates thus far?

1: Civil liberties (26)
2: Green energy (15)
3: Media consolidation (11)
    Net neutrality (11)
5: Executive power (10)
6: Mercenary forces (9)
    Sibel Edmonds/corruption conspiracy (9)
8: Native American rights (7)
9: Infrastructure (6)
10: Student loan debt (5)
    AFRICOM/US military control of Africa’s resources (5)
12: Other (4)
13: Nuclear proliferation (3)
    Economy (3)
15: Trade policy (2)
16: Sub-prime lending crisis (0)

You’re invited to vote in our newest poll, which asks about your voting plans for November. The poll is live in the column to the right.

All S&R polls and results are non-scientific. At least, they’re not very good science. For amusement purposes only – no betting, please…