I just wanted to say that I am going to be taking a break from blogging for several months; this may be the end of In A Future Age. I started this blog one year ago, and it has been a great experience. Thanks for all of my loyal readers. My work at school is taking most of my time, and I am preparing for what comes next.
We have an energy problem in this country. Our government, like our businesses, looks to the next political quarter instead of the long term. A few weeks ago, President Obama spoke to reporters about the need to create a long-term energy strategy, and reduce our dependence on oil. Unfortunately, each of the last seven Presidents has said exactly the same thing. I personally defended Persian Gulf Oil in the Middle East, enforcing United Nations sanctions against Iraq, which amounted to an oil embargo. I saw the United States Fifth Fleet, based in Bahrain, up close. I can say that maintaining a base in Bahrain does not come cheap. Why do I bring this up? Our government spends a substantial amount of money subsidizing energy. Additionally, the government does not regulate carbon, which means the external costs of the greenhouse gas emissions are borne by the general public. Finally, fossil fuels have significant health impacts. Over 10,000 people a year die from the particles emitted by coal-fired plants. Additionally, hundreds of miners die quietly around the world. As we watch the nuclear calamity that is taking place in Japan, it would be wise for us to consider the role of the Federal Government in creating this energy policy, and the failure of President after President to chart a new course for the United States with regards to energy policy.
We have an elaborate electricity grid, an infrastructure that badly needs modernized. Consumers are ignorant for the most part about where their electricity comes from, they just want to be able to flip the switch and power their gear, without having to pay too much. Unfortunately, the myth of cheap energy has Americans convinced that it is our divine right to $.99/gallon gasoline and cheap electricity. Our development in sprawled across the country, and people still pine for that isolated lot with two acres and a great view. Unfortunately, without cheap energy, our house of cards will fall apart.
The Federal Government is positioned to help bring our country into the 21st Century. First of all, our electricity infrastructure needs updated. One agency that has a big role in the energy sector is the Federal Energy Regulatory Commission (FERC). FERC has jurisdiction over interstate electricity transmission, through the Public Utilities Regulatory Policy Act (PURPA). FERC is attempting to build new, modernized high power transmission lines for renewable energy; however, they face opposition at both the state level as well as from utility trade groups like the Coalition for Fair Transmission Policy. The commission represents utilities that want to make sure the costs of those lines are borne by the folks getting the power. Ultimately, between NIMBY concerns over siting new lines, and fights over who will pay, these are many obstacles to creating a new infrastructure capable of empowering large-scale clean energy production. The Federal Government can also nurture decentralized, local renewable power generation through policies like Feed-in Tariffs.
With energy consumption in transportation, our sprawled development is problematic. Government needs to encourage smart growth, as it will pay dividends on lowering per capita energy consumption. For example, in Southeastern Massachusetts, a commuter rail line is being designed to consider smart growth when planning station locations. However, transportation consumption revolves around the automobile. The Obama administration did a good job of getting automobile manufacturers to support a significant increase in CAFE standards. While it is not as progressive as Europe or Asia’s standards, it is still a significant improvement over Bush policies, and the rare effort that is supported by all stakeholders. One long-term issue for our transportation sector is what fuel will be used, and the infrastructure to use it. Right now we are invested in a gasoline infrastructure. Electricity is a more sensible step, but the authors here advocate for hydrogen. Hydrogen would require a significant investment in infrastructure; additionally, as a fuel, to provide the range expected of modern consumers, it must be highly pressurized – making it very difficult to use as a transportation fuel, especially in automobiles. Whatever route we go, it will be incumbent on the Federal Government to work with stakeholders to build the infrastructure necessary to support whatever becomes the ‘new’ fuel.
Ultimately, the main hurdle to the Federal Government charting a long-term energy policy is political will. President Clinton hit the third rail when he proposed a Carbon tax early in his first term. Both parties define prosperity around energy consumption. The Democrats frame clean energy development as “Green Jobs” but haven’t challenged the Republican Party, or the American people, to seriously confront climate change, peak oil, or the various external costs of fossil fuels. The myth of cheap energy goes on. As it does, so does the piecemeal Federal energy policy, from President to President.
On the cover of the paperback version of George Akerlof and Robert Schiller’s Animal Spirits, the blurb, from Time’s Michael Grunwald, is “Animal Sprits [is]… the new must read in Obamaworld.” In March of 2011, two years after President Obama took office and Animal Spirits was first published, it is clear that the President and his economic team were reading from this playbook. However, it is also clear that the President missed an opportunity to communicate to the public why he took the actions that he did. As the United States moves forward in a so-called jobless recovery, and divisiveness and friction rule across D.C. and the country, our economic policy is hobbled and scattershot. Support for the American Recovery and Reinvestment Act has wavered in the last two years, and the public’s drop in support killed any political will for more stimulus spending. The public apprehension and political failures are ironic, actually, because in Animal Spirits, Akerlof and Schiller write about an earlier misinterpretation of Keynesian economics, during the Great Depression.
In 1936 John Maynard Keynes’ The General Theory of Employment, Interest, and Money was published. Keynes charted a course between classical economists that argued that less regulation would allow private markets and rational actors, via the famous ‘invisible hand,’ to create jobs, and socialists that argued for the state to direct the economy. Instead, Keynes took issue with the idea that only rational actors governed the economy; he believed that noneconomic, non-rational, animal spirits actually caused involuntary unemployment and economic fluctuation. The government should not be too authoritarian, like the socialists argued, but it should also not be too permissive, like the classical economists argued. Unfortunately, in an effort to create consensus with classical economists, supporters of Keynes removed most of the animal spirits, hoping that they could convince the broad public as quickly as possible to adopt Keynes’ fiscal policy prescriptions (just like President Obama allowed political expediency to rule his economic platform). Unfortunately, this watered down theory was vulnerable to critique by neo-classical economists like Milton Friedman. The central thesis of Akerlof and Schiller’s book is that these animal spirits, cast off in the midst of the Great Depression, remain a prime cause of our contemporary economic difficulties. In fact, these ideas have emerged once again in the field of behavioral economics.
There are five animal spirits that the authors resurrect from The General Theory:
1) Confidence, the trust and belief that leads rational actors to make some irrational decisions, which amplifies business cycles
2) Fairness, often pushed to the backburner in economic textbooks, often trumps economic concerns and impacts both wages and prices
3) Corrupt Behavior and Bad Faith, economic activity with sinister motivation, was clearly evident in the recent economic crisis and recession, but can be clearly traced back through all of the major economic bumps in our past
4) Money illusion, disavowed by neo-classical economists like Milton Friedman, remains a contemporary concern as people continue to be confused about the impact of inflation and deflation
5) Stories, the narratives we create to describe human experience, often seem true and nurture speculative bubbles (like the housing bubble) until the bubble pops and the story changes
In the aftermath of the global economic shock, when many of the great economies of the world continue to stumble towards recovery, Akerlof and Schiller’s analysis is perfectly timed. They clearly trace the impact of these animal spirits on the economy, from the Great Depression through the stagflation of the 1970s, through the recessions and the Savings & Loans crises of the 1980s, the recession and the tech bubble of the 1990s, and finally to the Enron debacle, the housing bubble, and the jobless recoveries of our recent past. Akerlof and Schiller are true Keynesians; they appreciate the power of the free market to create economic opportunity, but they also appreciate the damage that these animal spirits can make in the economy. The vast neo-classical deregulation that started in the 1970s and continued through the last decade did not take into account these Animal Spirits, and the vast economic turmoil was the result.
Confidence is one of the most important animal spirits – it leads ‘rational actors’ to what Federal Reserve Chairman Alan Greenspan described as “Irrational exuberance.” If one looks back to the stock market of the 1890s or the 1920s, or the tech and housing bubble of our recent past, confidence is clearly evident. Remember in 2004 when some of your friends said that housing prices could never fall? That is confidence gone astray, irrational exuberance. That is also a story that we all told each other, which seemed irrefutable logic, until it wasn’t.
Fairness has a big impact on unemployment. The neo-classical theories about how a labor market would clear itself revolve around wage efficiency, the idea that employers will pay the lowest wage and employ as many people as possible. Unfortunately, the labor contract is more complicated than that, and the transaction only starts when the wage is agreed upon. Schiller and Akerlof show that wages vary a great deal, and employers often pay more than they need to, to secure a motivated and skilled workforce. Fairness affects both the employer and the employee. The wage that workers deem fair is almost always above the market-clearing wage; this ensures that wages will remain sticky even during economic downturns, despite the fact that the ranks of the unemployed grow.
Money illusion also impacts wages; neo-classical economists argue that there is a Natural Rate of unemployment, but wage rigidity is partly due to the fact that people are largely unaware of the impact of inflation or deflation on their purchasing power. A survey they conducted with a group of economists and a second group representing the general public shows the money illusion clearly: reacting to the statement “I think if my pay went up I would feel more satisfaction… even if prices went up as much,” 90% of the economists disagreed, while 59% of the general public agreed. Fairness and money illusion clearly affect the setting of wages, behind the scenes of economic logic. Akerlof and Schiller argue that we should “fire the forecaster,” and forget, once and for all, the myth that capitalism is pure. They argue that safeguards must be built to protect the general public from the excesses of capitalism. They also make clear that the stories that we tell each other are often irrational and exaggerated, and we must be protected from these exaggerations.
Like I mentioned above, it is clear the Obama Administration used Animal Spirits as a playbook in their efforts to prevent the economy from falling into a Depression. Schiller and Akerlof advocated the use of the Discount window, as well as other provisions taken by both the Federal Reserve as well as the Treasury Department to prop up the banks. To their credit, they also predicted that “the injections may make the banks richer, and therefore less likely to become insolvent, but they will not necessarily lend more money.” As a result, the Government ended up taking extraordinary measures to ensure that money was available for mortgages and loans.
Ultimately, the actions taken by the Administration fell short of what Keynes, or Schiller and Akerlof would advocate. The stimulus was insufficient, and the government did not act aggressively enough to regulate the banks. But like the Gulf Oil spill last summer, I think the biggest loss was the failure to take advantage of the moment to educate the General Public of the external costs of our capitalist economy. If a better effort were made to explain to the general public the Animal Spirits, how they impact the economy, and the logic of the stimulus and TARP, our response could have been more sustained, more consistent, and less contentious. Keynesian economics could have stepped into the clear light of day, but instead the lessons of these animal spirits and their impact on the economy remain lost to much of the general public. Because the problem of Too Big To Fail was not confronted, we will undoubtedly once again be in a position to deal with the consequences of leverage and risk that these global institutions create.
We have an energy problem. At the end of the day, no energy source is free. We all want energy that is readily available, reliable, and without external costs. We want to be able to cheaply power our HDTV, our car, and our furnace. We want our supply chains to be affordable, so prices will be low. In short, we want the magic elixir that will allow us to carry on in our current configuration without having to change.
Unfortunately, we are painfully unaware of the external costs of the energy we produce. Gwyneth Cravens, on NPR’s Talk of the Nation, spoke about the cost of coal:
“But I would just like to remind people that over 10,000 people a year die in the United States alone from fine particulates from coal-fired plants, which, incidentally, spew out more – it’s a low-dose radioactive material, but burning coal concentrates uranium and radon – radium, and so on. And so in the coal ash, the waste which lies around in unlined pits, there’s enough in the coal ash of one big coal-fired plant to make about six atomic bombs, uranium 235. So the – and the stuff coming out of the stacks looks – you know, you don’t see the soot anymore so much, but you see – or you don’t – what you don’t see are these invisible gases, sulfur and nitrogen gases which turn into fine particulates when they’re combined with water vapor and get into the airways of our lungs and kill people with lung cancer and heart disease. So this is an ongoing catastrophe, along with ocean acidification. As the ocean takes up more carbon dioxide, the water becomes more acidic. This is beginning to affect shelled organisms like corals. They can’t make the calcium carbonate shells in the acidic waters. And so – and about three million people a year die from fossil fuel combustion pollution worldwide. We have to think about how to provide base-load electricity – that is 24/7, around-the-clock electricity. We are witnessing in Japan what happens when you don’t have electricity and how terrible that is for people from the health point of view alone.”
In Japan, we are seeing at Fukushima Daiichi what a 9.0 Earthquake and a massive tsunami can do to the best laid plans of mice and men. Opposition to wind turbines remains strong here in New England. In Rhode Island, where I live, there is ongoing opposition to a Liquid Natural Gas terminal in Mt. Hope Bay. More broadly, opposition is growing to hydrofracking of natural gas in the Marcellus Shale in Pennsylvania and across the country. Large scale renewable energy projects are challenged by environmentalists (like the large scale solar project in California) and by parents (opposition to the construction of high-power transmission lines). In individual communities, wealthy homeowners fight the construction of wind turbines and solar panels.
Does anyone else see this? We live under the myth that there is a cheap source of energy without cost out there. Our gasoline, which we import mostly, must be defended by the Fifth Fleet (in Bahrain, where Shiites are rising up against the Sunni king) and heavily subsidized. The greenhouse gas emissions from automobiles are not without cost, as much as denialists would like to believe. Because we remain under the spell of the cheap energy myth, some of us remain willing to accept the costs of hydrofracking (water) and coal (see above quote). We compare the cost of renewable energy to the cost of natural gas and coal, and ignore the external costs, and say that renewable energy is too expensive. Unfortunately, our cheap energy is simply not sustainable.
If we were smart, we would realize that 1) there is no perfect, cheap, elixir out there. We need to take into account the external costs and start planning a smart, renewable energy future. We would also realize that 2) NIMBY is the enemy of planning a smart energy future. People want to plug in their laptop or their iron, and remain ignorant of where that power comes from and how it arrives at their outlet. People want their homes to be just the right temperature in the summer and winter, and not recognize the cost of doing so. People want to live in the suburbs, and commute long distances to work, to karate practice, to visit Disneyland. Yet, people get upset when a wind turbine goes up, or when talk of a new transmission line starts. NIMBY is simply not sustainable. If we truly understood the costs of the energy we use, we would use less of it, we would be much more efficient, we would plan for the long term instead of just one quarter ahead.
What do we need? We need a smart grid, decentralized power generation, a diverse mixture of renewable energy, state of the art nuclear power, and some fossil fuels, and above all else we need to place a price on carbon. Energy will not be cheap, but we fool ourselves if we believe it is cheap today. We need to embrace the future, instead of wishing we could return back to 1890. If we don’t of course, we will eventually fall out of the cheap energy spell, but we will start kicking ourselves for not recognizing it sooner.
The train is rumbling south as we head for New York City, and the America I see is a rusted hulk of its former glory. Alongside the tracks, empty warehouses sit idle, as rust creeps up their backsides. Graffiti is ubiquitous, marking the territory of boredom and decades of class warfare. The angry howls of America reach out of the electronic media; USA! USA! Remembering a time when that meant something, I wonder when it all went wrong. I suppose we were always overconfident, but after several courageous fights we got soft, we expected things to be taken care of.
We built an empire of sand, which is now crumbling in front of us. Our manifest destiny, the cry of Oklahoma! Oregon! Always pushing onward, for something more. Once California was a paradise, but then we turned it into a concrete jungle. Now our Manifest Destiny is consumption, consumption, always more consumption. Corinthian leather, granite countertops, what does it all mean? Meanwhile our communities are shit, we don’t know our neighbors anymore, we don’t trust each other anymore. It has turned into a blame game, with our own vanity invested in impossible dreams, with few willing to confront the truth that USA may not be sustainable.
Exponential growth, that is what our economy is built for. If we can only find that free energy, that impossible, magical, elixir that will drive us forward, then humanity will have no limits. Of course, what of the world outside of the good old USA? Not the Continent, not Shanghai, not Australia, but what of the great unwashed in Bangladesh, Africa that will suffer only more under our changing climate? What of the real danger that we might not have enough food, energy, to keep this going? Well, the angry man cries, USA! USA! Only alarmists need question our lifestyles. There are no limits to what we can accomplish, right?
Mother always said you could become anything you wanted when you grew up. Hedge fund manager with a Swiss chalet? Now we’re talking. There is no external cost that the world does not happily bear for the greatness of USA, the angry man says. As we head south towards New York City, I wonder what my grandchildren will think? What will our history books read? Since the victors write history books, will their books be written in Mandarin?
Our President calls for America to win the future. When people are skeptical of wind turbines and solar turbines because they are too expensive, but they happily allow energy companies to pollute their drinking water with hydrofracking chemicals, I wonder if we have it in us to win anything. I think the future will be handed to us like a consolation prize, and our grandchildren will wonder how we could be so vain. The angry man will cry out into the night, USA! USA! On and onward.
Today the unsustainable behavior of one species now impacts the entire planet Earth, from mountain glaciers to the depths of the oceans. We humans don’t really consider ourselves to be one species among many; rather, we consider ourselves as nations, races, ethnic groups, even economic functionaries. The Book of Genesis frames our power over other species when it states, “And God said, Let us make man in our image, after our likeness; and let them have dominion over the fish of the sea, and over the fowl of the air, and over the cattle, and over all the earth, and over every creeping thing that creepeth upon the earth.”
According to the Encyclopedia Britannica, sacredness is “the power, being, or realm understood by religious persons to be at the core of existence and to have a transformative effect on their lives and destinies.” The Oxford American dictionary defines sacred as “connected to God (or the Gods) and dedicated to a religious purpose and so deserving veneration.” Is the Earth a sacred place, and if so, are we treating it like one?
Thomas Berry, in his essay “Earth as Sacred Community,” examines the Biblical context of the sacred and the divine, and finds that, “Within the Biblical context, the continuity of the divine presence with the natural world was altered by establishing the divine as a transcendent personality creating a world entirely distinct from itself… Only the human really belonged to the sacred community of the redeemed.” That distinction is important, because in the Biblical framework, the primary human concern is to find Eternal Salvation in a Heavenly Kingdom. The earth, then, is merely a way station on our journey to Salvation, not necessarily a place to live in a divine presence.
Within the Biblical context, we may have exercised our “dominion” a bit too far. Wendell Berry, in his essay “A Native Hill,” writes that “We have lived by the assumption that what is good for us would be good for the world. And this has been based on the even flimsier assumption that we could know with any certainty what was good even for us. We have fulfilled the danger of this by making our personal pride and greed the standard of our behavior towards the world – to the incalculable disadvantage of the world and everything living in it.”
However, can we find in our religious traditions a sacred connection to the world around us? Certainly, we can find it in various Native American and Asian religious traditions. Today, many Christians are reconsidering their view of the sacred, from the growing Interfaith Power and Light movement, to the Southern Baptist Environment and Climate Initiative. The Southern Baptist declaration reads that, “There is undeniable evidence that the earth—wildlife, water, land and air—can be damaged by human activity, and that people suffer as a result. When this happens, it is especially egregious because creation serves as revelation of God’s presence, majesty and provision. Though not every person will physically hear God’s revelation found in Scripture, all people have access to God’s cosmic revelation: the heavens, the waters, natural order, the beauty of nature (Psalm 19; Romans 1).” As we reconsider our giant footprint on the Earth, that notion of sacredness is an important part of our efforts to live sustainably.
Despite the millions spent by the Brothers Koch to convince us that climate science is a conspiracy, I often wonder why so many people call themselves skeptics. After all, climate change denialists seem to be playing a game of Whack-a-Mole, where no matter how many times you disprove their critiques, they offer them again and again. Seth Godin talks about the limits of evidence-based marketing in his blog, offering a vision of how the tide may end up turning against the Flat Earth society. Godin infers that at this point, there is nothing that scientists can do to convince a hardened skeptic:
“Here’s the conversation that needs to happen before we invest a lot of time in evidence-based marketing in the face of skepticism: ‘What evidence would you need to see in order to change your mind?’ If the honest answer is, “well, actually, there’s nothing you could show me that would change my mind,” you’ve just saved everyone a lot of time. Please don’t bother having endless fact-based discussions…What would you have to show someone who believes men never walked on the moon? What evidence would you have to proffer in order to change the mind of someone who is certain the Earth is only 5,000 years old? If they’re being truthful with you, there’s nothing they haven’t been exposed to that would do the trick.”
Instead, Godin writes that the best tactic to convince skeptics is a necessarily slow, painful process: eventually enough of the right opinion-makers will be convinced:
“Of course, evidence isn’t the only marketing tactic that is effective. In fact, it’s often not the best tactic. What would change his mind, what would change the mind of many people resistant to evidence is a series of eager testimonials from other tribe members who have changed their minds. When people who are respected in a social or professional circle clearly and loudly proclaim that they’ve changed their minds, a ripple effect starts. First, peer pressure tries to repress these flip-flopping outliers. But if they persist in their new mindset, over time others may come along. Soon, the majority flips. It’s not easy or fast, but it happens.”
Where does that leave us? It means that we should appreciate conservatives that do have sensible views of climate science; it means that birthers and climate science denialists will make a lot of noise, but ultimately will not be swayed by reason; it means that we should continue to use reason, but expect that it will get us nowhere with certain people. It means that for the immediate future, America will continue to have a very complicated presence in climate negotiations.
- Facts only confuse denialists and confirm the existence of massive conspiracies (amanwithaphd.wordpress.com)