China in the World Order

With China it’s unsettling enough that for the first time since the end of World War II our worldwide hegemony is under challenge.  However that’s just the beginning.  As we’ll see, that change is coupled with technological and economic factors that intensify both risks and upsides.

We need first to be clear that the challenge of China is real.  We have had other challenges in the past, most notably from the USSR, but none have had the economic might to back them up. This time we’re talking about an economy that by some measures is already larger than ours.  Those others look puny in retrospect, although the Russian collapse is dangerously seductive.  According to Bob Woodward, the Trump people were convinced that China was just like Russia, and the trade wars would cause a complete collapse in the same way.  When Xi said that the US is the barrier to Chinese national success, he was just restating Trump’s declaration that he would destroy the Chinese economy.  That of course didn’t happen, and the result was a policy that ultimately produced nothing.  Whether we like it or not, we simply don’t have that power.  The Chinese are not going away as an economic, technological, and military force.

At the same time it is equally important not to get hysterical about Chinese competition.  It’s strange how we periodically become obsessed with the idea that some centrally-organized economic system is going to leapfrog us by running things in a way that we can’t.  That happened in the fifties with the USSR (hard to imagine now) and in the eighties with Japan.  In reality the US economy succeeded by reinventing itself many times over, in a way that others did not.   For China, it is historical fact that state-run enterprises have been corrupt disasters, and the current economic miracle got its impetus from an unintended burst of local free enterprise.  Xi’s consolidation of control is no miracle cure.  China is a competitor with strengths and weaknesses. As one recent paper put it, China is not ten feet tall.

If we play to our own strengths, the worry is not that we’re going to be outcompeted by the Chinese (or undermined by Chinese stealing our secrets). It’s that we won’t succeed in creating a workable framework for international competition, and we’ll all lose.

Risks

We begin with the most basic of risks.  We’ve now had many years of Pax Americana, and people forget that history shows that world-power peace is the exception—not the rule.

The reason we’ve had peace is not human progress, international institutions, or even the rise of democracy.  It’s the threat of mutually-assured destruction.  And however much we may want to believe that all-out war is obsolete, that’s in fact a technology issue.

We can be specific.  Much has been written recently about hypersonic missiles, that would fly low at many times the speed of sound and be virtually impossible to detect by radar.  That sounds like a whole new arms race, but there’s actually no point to it so long as the balance of terror remains intact.  That we’re talking about it at all means we’re not so sure.  Reagan’s old “star wars” anti-missile shield was never more than an electoral fantasy, but now there’s plenty of current technology that’s relevant:  networks of satellites for detection, AI for decision-making, precision targeting for lasers.  China already has a nominally-defensive, satellite-linked system that enables ballistic missiles to be used against moving targets (e.g. US carriers in the South China Sea).  

A missile shield would be enormously destabilizing—North Korea could defeat the US in minutes.  (It’s interesting that as long as the system was going to be ours, we never thought seriously about what it meant!)  Who knows when or if something similar could be real.  However the world has been surprised many times by revolutionary changes in the technology of war (Vikings, Mongols, gunpowder, nuclear weapons).

We can’t assume peace; we can’t dictate the world order; we can’t wish away the image of a world trapped in a ruinous and deadly competition for dominance.  An encouraging fact is that everyone is much better off not living in such a world.  However for now we’ve chosen to divide the world into no-holds-barred competing camps.  Avoiding that division requires an act of creation—establishing a workable framework for cooperation and competition.  There are many examples of countries that failed such a challenge with disastrous consequences.   That’s our challenge here.

Making Progress

The first step to progress is to recognize that just as the risks today are higher than one might think, the potential rewards are also.  There’s actually quite a lot to say about the upside, although in the last decades it has been hard to see.

Why is that?   To repeat the obvious, the working classes in the West have been hit by two simultaneous body blows:  globalization and technology.  The result was dramatic, as shown by the following chart

Globalization has been going on forever, but China’s sudden economic development produced a major hit.  For technology the effects have been not only dramatic but accelerating.  Thomas Philippon’s recent book has a chart comparing highest valuation companies over the past six decades.  For the decade of the 1970’s the five highest valuation companies collectively were responsible for 2.4% of total employment.  For the decade of the 2010 the corresponding figure was down to .4%.  The bedrock upwardly-mobile manufacturing jobs are going away, as we continue toward a world where highly-skilled product development is the issue, and production is not.  That’s true for obvious software enterprises like Facebook, but also for pharmaceuticals, integrated circuits, and many other areas. And it’s getting worse.  AI puts a whole new class of jobs at risk, and electric cars (for example) will be much simpler in both manufacturing and maintenance. 

Thus far it has been convenient to blame everything on China, with the consequence that both political parties are promising to bring back the good old days once we stare down the evil Chinese.  (On the left  a 2018 paper by Susan Houseman is cited everywhere to support this position, though it’s actually about weakness in the US manufacturing sector!)  That mindset is dangerous on two grounds:  it’s a kind of scapegoating that gets in the way of rational action, and it obscures other serious problems that need to be addressed.  To get past that we need to discuss national prosperity and population welfare as separate issues.

National Prosperity

For prosperity the key point is that China has actually turned a corner in its effect on the rest of the world.  Although in aggregate terms China remains a very poor country (number 108 in per capita income, far below Mexico for example), the country is so large that its new middle class now buys enough to be a positive driver for the rest of the world economy.  Even with the current market access restrictions, China is the largest national market for Mercedes-Benz and a major market for film industries from everywhere.  The balance of payments deficit was reduced by half under Obama.  For the EU, more export-oriented than we are, the effect is even more pronounced.  (Intellectual property theft was also down under Obama.)

What this means is that, as opposed to the situation in the past, China has the potential for transforming itself from a drain on the world economy—producing more than it consumes—to the opposite.  Raising the living standards for a billion people is an enterprise with potentially many benefits for everyone concerned.  Nothing says that’s going to happen, but the difference is real.  The current situation is no longer dictated by the poverty of China, it is instead an expression of the relationship with China as it stands.  How do we make things better?  Well, if we want China to play by the rules, we need better rules.  As for motivation, growth in the West means growth for them (and, whether we like it or not, success for the ruling party).

The precondition for progress is establishing appropriate conditions for trade, that is to say a notion of fair trade which is comprehensive and up-to-date.  The comprehensive part means we need to cover many items that are not currently included, including labor conditions, environmental issues, international standards for taxation.  There is the potential for trade policy to become a vehicle for raising living standards worldwide.  Stated simply, we’ve had globalization for the rich; we need globalization for everyone else

There are of course no guarantees.  Some elements, such as environmental issues, may be clear areas of common interest.  Labor conditions will be more difficult.  Details of market access will need to be worked out.  It’s important to have everything on the table.  It is particularly important that these are not rules imposed by us on others but norms of behavior for everyone in a common enterprise.

That difference is important in any kind of negotiation, but it is of particular importance for China.  We don’t talk much about it, but China experienced some of the worst of Western imperialism extending well into the 20th century.  That shared history makes Xi’s nationalism easy.  If we want to get what we want, the last thing we should be doing is pretending it’s still true.

What Trade Rules Won’t Fix

Just as China wasn’t responsible for all problems, fixing China (even in the best case) won’t fix everything.  Two points in particular should be emphasized.  First, the kind of national prosperity we’ve been discussing thus far says little about personal welfare.  People are still going to lose jobs both from ever-accelerating technology changes as well as remaining international competition—regardless of fairness.  We’ll still be stuck with the prevailing inequality in society.   We’ll still have all of the dislocations that will result from the economic transformations with climate change.  Those are our domestic problems to solve. 

Blaming China has made it possible to ignore that reality.  Until recently in fact the prevailing ideology was that there is no additional problem of population welfare—the private sector would do it all.  So for loss of good jobs the only issue was globalization, and the only means to address it were tariffs and tax cuts.  Four years of a deficit-funded bubble with huge tax cuts to business did almost nothing for real wages or upward mobility.

Currently there are outlines of a solution.  Particularly with the transitions required by climate change, there is no shortage of work.  With the increases in corporate profit margins and high-end incomes there is no shortage of money—but workable taxation is a big issue.  The public sector needs to put all that together:  to see that the necessary work gets done and the population is supported with a national infrastructure that includes education at all levels, healthcare, so forth.  It’s a work in progress.

The second point to make is that we have tacitly assumed we will maintain our national competitiveness.  While we can see what has been successful in the past, there is no guarantee it will continue in the future.   That isn’t theory.  We just spent four years fighting science, demonizing foreigners, and favoring existing companies over new entrants.  All of that hurts.  It’s our job to play to our strengths.

Parallels with Climate Change

With that we return to the first issue—national prosperity.  For that we want to stress parallels with what’s happening for climate change.

With climate change we’re also presented with a very strong common interest, but a non-trivial task in breaking that down according to individual national interests.  As a country we haven’t thought much about that, since the national dialog has been primarily about getting our own act together, with the assumption that all the others just have to do their jobs too.  However the reality of the situation is that we in the US have twice the per capita CO2 production of any other major emitter in the world,

and we in the West are almost 100% responsible for the level of CO2 currently in the atmosphere.  The vast portion of humanity is going to have to sacrifice for our benefit, and it’s non-trivial to define acceptable justice.

Nonetheless the Paris agreement shows that with good will it’s possible to make progress.  It will require continuing work, with more commitment from the developed world, and also with a mechanism for follow-through on commitments (in the absence of any such system today).  But thus far the strength of common interest seems motivation enough to keep it going.  It’s worth noting that the Montreal Protocol to ban CFC’s (and preserve the Ozone Layer)—one of the most successful efforts at international cooperation ever—also proceeded as a series of successively more demanding steps:

So it’s no surprise—and no cause for panic—that the current Paris goals don’t yet get as far as we need to go.

The parallel with China is precise.  To keep the world economy sane and growing, everyone needs a stake in the game.  In practice it needs to be negotiated between the West and China with at least some account taken of the interests of the rest of the world.  But the issue is less a resolution of differing national interests than a recognition of the magnitude of common interest.  One can even argue that the climate discussions are a necessary prelude to the broader economic discussions that need to take place.

The WTO seems the appropriate vehicle for negotiations, although its capabilities need to be extended to deal with the broader definition of fair trade. Before Trump’s election all parties expected such discussions would begin—including of China’s continuing special status as a developing country.  Instead we got a repudiation of all international rules, in favor of an imagined omnipotent USA.  We’re now going back to the game with the doubled leverage of allies beside us, but with an adversary who views us (particularly after January 6) as weaker and less reliable.  What’s more we’ve spent four years strengthening the militant anti-western side of the Chinese Communist Party.  Certainly there’s a job to do.

It may seem strange to put such emphasis on the WTO since “Bill Clinton let China in the WTO and there was nothing we could do about the Chinese assault on American jobs.”   That truism is actually an example (among others) of what you might call bipartisan revisionist history (the left and right united against the center).  In fact the main issue raised with China’s behavior has always been currency manipulation, which was in no way permitted under WTO rules.  And as the job loss chart (from earlier) makes clear, the loss of American jobs was a phenomenon of the George W. Bush presidency—when we were too busy with the Iraq war and the financial crisis to press our case about anything else.  The WTO is what we make of it; the vast majority of US WTO cases have in fact succeeded.  For now it’s the best game in town.

Issues for Today

As a last topic, we want to be clear that we are in no way minimizing the seriousness of the immediate issues that divide the US and China.  One short list makes that clear:

– Taiwan

– Uighurs

– Hong Kong

– Islands in the South China Sea

– Regime-incited nationalism

The first point deserves special comment, because it shows how high the stakes can be.  On one side it is a matter of Chinese national pride, instilled by state propaganda for every school child.   On the other it is not only a matter of US national commitment, it’s also critically strategic.  As one example, Taiwan is the home of TSMC—the worldwide leader in IC manufacturing technology.  Every new iPhone has an TSMC processor.  (This example also shows we can’t solve global supply chain issues by just assuming we’ll bring it all home!)

Other articles have talked about scenarios for de-escalating this complicated situation.  We’re not going to go through those here, but it is nonetheless worth saying a few words about how each of the issues fits with the strategies we’ve just discussed.

The Uighurs and Hong Kong are issues that the Chinese view as internal matters.  Outside of China we can attempt to exert pressure by economic threats, but we’re in no position to change that point of view.  Four years’ worth of dictates have instead made it worse–a matter of sovereignty versus capitulation.  Ideally by bringing China into a broader realm of international standards for behavior, we can attempt to make both—and particularly the Uighurs—a different class of issue:  what it means to belong to the international order.  Hong Kong is the harder issue, because the threat to the national control is bigger.  However it’s easier to think about compromise once the sovereignty isn’t the main story.

The South China Sea is a national security question.  More than two-thirds of Chinese trade comes via the South China Sea.  China, like us, wants complete control of its immediate strategic environment.  We after all have the Monroe Doctrine.  Thus far we’ve taken the worst possible approach, asserting US control of the seas for any purpose we choose.  That’s going to be hard to walk back, but the only way to do it is by making freedom of the seas a matter outside of national whim, perhaps linked to some kind of regional agreement.  It won’t be easy, but we can at least dial down some of the immediate pressure.

Regime-incited nationalism is the usual face of fascism.  We heighten it by continuing to act as an imperialist power—asserting that it is our decision whether to continue to allow Chinese economic development.  We have limited ability to change the issue, as it is a tool the regime uses to maintain its power.  However, the more contacts there are and the less rabid our own vocabulary, the better the chance to cool it.  It’s worth noting that in the Nazi era, most Germans justified Nazi aggression by a belief that Germany had been purposely shoved aside.

Finally we return to Taiwan.  The only thing you can say is that it’s clear how much the issue means for both sides.  If cooperation is necessary for continued prosperity, then both sides need to find a way to save face.  That’s what we were doing for decades.  Trump and Pompeo were part of the change, but it was probably happening on Chinese side anyway.  The only way out is to strengthen the motivation for sanity.  For that, common interest (with a united West) is always better than military threats.  Even today, the impediment to invasion is more economic than military.  International institutions strengthen both the carrot and the stick—you’re giving up more and making retaliation more comprehensive and certain.

All that being said, we end by again emphasizing the parallel with climate change.  Climate change is a pending catastrophe that is forcing the world to come together in a more closely-coordinated way than ever before.  As with climate change, the China-US relationship constitutes a critical issue that can only be resolved by strengthening international frameworks for both cooperation and competition.   The world can be a better place, or we’ll all face the consequences.

The Coronavirus Message for Climate

Since the coronavirus is at the top of everyone’s consciousness, there has been a lot written about what the coronavirus experience has to say on a great many issues.  After a while you start to get numb.  However for climate change the parallels are so explicit and telling that they need to be emphasized.  The argument in this piece is not new, but it’s worth spelling out in detail.

The coronavirus shows just how hard it is for us as a country—or as a world—to act ahead of a disaster even when the evidence is clear.  We were unprepared when the crisis came, because we just didn’t want to believe it could happen.  Our reluctance not to believe was of course encouraged by players (foreign and domestic) who felt there was something to be gained by delay.

The result is measured both by the numbers of dead and by the economic consequences of the drastic measures taken to stop the exponential growth of cases and deaths.  In the US that means on the order of 200,000 deaths and the worst job loss since the Great Depression.  The weeks of delay made this situation exponentially worse.  You can argue about the details, but there is no question that failure to act early cost us dearly on both counts.  We’ll muddle through, but badly wounded.

The parallels to climate change are explicit—but for climate the muddling through is no sure thing.  There are two primary points:

  1. CO2 in the atmosphere just adds up—which means that whatever problems finally force us to act will keep getting worse until we can manage to stop fossil fuels completely.  In other words from whatever time we recognize a crisis, we will be locked-in for many further years of worsening crisis.
  2. That’s even worse than it sounds because—as with epidemics—there is an exponential growth aspect here too.  To see this we can start with the example of hurricanes.  For hurricanes, the damages in the wind-speed categories are such that each step makes the previous look trivial.  In other words, as wind speed grows in a regular, linear way, damage goes up exponentially.

This isn’t just a matter of hurricanes; it’s typical for damage.  For floods you go from marginal areas affected to major cities.  In any category you can think of, damage goes up exponentially.  The bottom line is that for all those years of lock-in, every additional ton of carbon dioxide we add to the atmosphere will pack a wallop.  This is the stuff of nightmares.

The latest climate report gives us the timescale.  To avoid catastrophic consequences CO2 production needs to drop 45%  by 2030 and reach 0 by 2050.

We couldn’t get ourselves to believe the coronavirus would really happen, and climate disaster is even further from our past experience.  So the tendency to disbelieve is even stronger.

There are plenty of well-connected, interested players out to convince us to wait.  The oil companies and their allies are doing quite a good job of it.  Pence and Pompeo (among many others) are Koch organization soldiers in a Trump organization out to sabotage all efforts to control climate change.  Another indication of oil company power is Harvard University’s recent announcement of a commitment to fight climate change—by making their investment portfolio carbon-neutral starting in 2050, the year when the scientists say we need to be done!

That’s where we are.  Climate change is the coronavirus on a bigger scale.  It’s much more dangerous and with even more powerful forces out to convince us to wait, and wait, until it’s too late to matter anymore.  We’ve been warned.

Short and Long Term Issues for Climate Change

In addressing climate change, one problem is that short and long term issues are not always the same.  As we’ve noted before, conservation is a legitimate short-term issue but not a primary long-term goal.

You can go a step farther with that:  there is technology we don’t want at all long-term that is still the best we’ve got for now.  That’s not just a matter of saving a little extra carbon dioxide; more importantly it’s buying time.

What the scientists have given us is not so much a schedule as a carbon budget—how much CO2 we can produce without irretrievable harm.  Many of the technologies we need to get off of fossil fuels completely are not 100% up to snuff.  What that means is that we can’t jump immediately into what we see as the right solution—more money won’t help.  That means accepting non-optimal technologies that cut some CO2 now.

Cutting CO2 buys time.  We need that time.

Here’s are a few areas that need work.  It’s too easy to wish them away:

– Electric cars are still too expensive and slow-charging to replace current technology.  This is a little like self-driving cars—the expectations have gotten ahead of the reality.

– Solar and wind may be cheap, but they’re not everywhere and not all the time.  For electric power generation that’s a problem.  In-network power storage is not up to the task of twenty-four hour operation.  With the current US grid, solar power in Arizona is not going to drive the rest of the country.

As an example, California’s aggressive deployment of solar electricity has forced external contracting to handle power peaks.  Currently the peaks are supplied by CO2-intensive fossil fuel plants in nearby states.

Local power generation can displace some residential and commercial demand, but at best that’s only 10% of the picture:

consumption-by-source-and-sector

– For heavy industry—steel and cement for example—CO2 production is not just a matter of power consumption, it’s intrinsic to the industrial processes.  There are no simple solutions to change that.  Flue-based carbon capture just has to get better.  (Direct air capture of CO2—despite much enthusiastic press—is even farther off.)

Prospects for fixing all of this are good, but we’ve got to buy time to get there.  That means taking steps with what we’ve got now.  Here are a few examples:

– We should think more about hybrid cars.  That’s increasingly cheaper technology, it saves considerable gas, and recent plug-in hybrids save more (perhaps leading even to upgradeable batteries).   The biggest problem with the technology is that, despite improving sales, we’re still not selling enough of it.  Initial carbon pricing should be aimed at universal hybrid penetration.  Tesla is great, but it’s not going to have a big enough impact now.

– Replacement of coal by gas saves 50% of CO2 production.  There aren’t always alternatives, for the reasons listed above.  Furthermore, lumping all fossil fuels together makes it easy to excuse coal.  When Germany and Japan closed nuclear plants, they didn’t go to gas, they went to coal.

While we’re currently seeing more growth of CO2 emissions with gas than with coal, it’s easy to draw the wrong conclusion.  Coal and oil still represent the vast part of CO2 production, and any replacement is a win.

s20_2019_Coal_Oil_Gas_Cement

– Carbon capture is unavoidable.  The first focus is on flue-based technologies, even if direct air capture is sexier.  This needs real money, because the industrial sector is huge worldwide.

To those items we should add one more difficult bit of reality:  the US needs a vastly improved national electric power network as a near-term prerequisite for much future work.  That means more high-voltage power interconnections.  That in turn means dealing with environmental issues and protection for the poorer neighborhoods that normally bear the brunt of such things.  One way or another this has to be made to happen, even though it involves competing concerns.

All of this underlines the need for a real plan—with both domestic and international aspects.  That needs to be a step-by-step prescription for what we should do about climate change.  That is what money needs to be spent on what technologies when and where.  For all their strengths, neither the Green New Deal nor the CCL’s carbon pricing is anything like a comprehensive plan.

Carbon pricing in particular remains a source of considerable confusion.  Since it is a critical component, we end with a few comments to avoid misunderstanding.

– Carbon pricing has to be a clear signal to industry of where the world is going.  It may start relatively low (as we’ve just discussed), but planned increases must send the message that the fossil fuel world is ending.  We need to get to at least $100 a ton in 5-10 years.  As such, proposals of $40 a ton with only nominal increases (coming from oil industry sources among others) are dead on arrival.  Carbon pricing is not good or bad in the abstract; it’s good or bad based on the numbers.

– Carbon pricing is not a tax, it’s killing a silent subsidy.  Carbon in the atmosphere costs all of us money in current and future climate change disasters.  Keeping it free represents an annual subsidy to the fossil fuel industry in the US of approximately $1T yearly (lower numbers are based on flawed cost models and just plain wrong).  That huge perversion of the economy has to end.  The money belongs to the public; it’s not there for the taking.  It needs to be given back in a way that mitigates the regressive effect of higher oil prices.  If we need more money for climate change or anything else, that needs to be done through the tax and budgeting system.  That’s where we make decisions about who pays.

– Carbon pricing will not solve all problems.  Government has many active roles to play, for example in putting together the new national electric power infrastructure that will be critical for progress.  Also government will need to address the enormous social consequences of remaking the economy.  We need to have carbon pricing to prevent perversion of the economy, but it’s only one element in a comprehensive plan.

 

The True Cost of CO2

It seems perfectly reasonable.  Each ton of CO2 added to the atmosphere causes damage.  We can estimate that damage by looking at what’s happening.

The Obama administration went through that exercise in some detail to justify environmental protection measures—and came up with $42 per ton.  The Trump administration people reduced that number to less than $7 and increased the future discounting factor from 3% to 7%.  That’s certainly a problem.

However the $42 figure is also wrong, and the whole notion of a dollar cost of CO2 undermines much of the discussion of the costs of climate change.

One way to see that is to look at the language we use to talk about hurricanes.  For starters I’m going to reference the usual storm class definitions:

hurricanes

As the wind speed increases, the damage rises by orders of magnitude.   At each stage the damage rises to such a degree that damage at the previous level becomes negligible.  There is no single number that tells you how much extra damage you’re going to get from a 5 mph increase in wind speed—it gets dramatically worse with each stage.  This is basically an exponential model; it is certainly not multiplication of windspeed by a number appropriate for category 1.

You can see how this argument plays with climate.  Starting with hurricanes, we have a basically linear relation of CO2 concentration and water surface temperature:

sea-surface-temp-download1-2016

And essentially the same is true for water surface temperature and maximum windspeeds. To that gets added the exponential relation of windspeed with damage.  Put it all that together and you get an exponential relationship between added CO2 and hurricane damage.

The same kind of relationship holds for almost any kind of climate damage you can think of.  Sea level rise first affects marginal districts but then more and more of mainstream society.  Droughts first affect marginal areas and gradually more and more of the breadbasket.  Health threats first affect the most vulnerable but eventually everyone.   Accelerating costs are the rule, not the exception.

How does this affect how we think about costs of climate change?  In fact we’re missing most of the damage.  The cost of a ton of carbon today has two components:  the costs that we measure today and the extra damage incurred by raising the CO2 level for all subsequent tons of CO2.  That second part is what you won’t get with any fixed value for the cost of CO2.  It may be harder to calculate, but it’s ultimately the main thing—because it’s adding CO2 that gets us to catastrophe.  We’re missing the step-ups in the hurricane example.

There’s a weird dichotomy between the science and the cost models.  On one hand we have scientific studies about truly catastrophic consequences of going beyond a global temperature increase of 1.5 degree C—even to 2.0 degrees C—and on the other hand we have the fixed value of $42 per ton.  In the second case we’re not charged for contributing to glacial melting that can’t be stopped before inundating both Bangladesh and Manhattan.  It’s beyond ludicrous that we’re applying discounting factors to future costs but not charging for the long-term consequences of that ton of CO2 that remains in the atmosphere!

For now the only viable number for the cost of a ton of CO2 in the atmosphere is actually how much it will cost to take it back out.  That number is currently about $1000 a ton. There are many people trying to do better; the current (undoubtedly overoptimistic) estimate is about $150 per ton.  That’s the lower bound.

Believe the scientists.  A catastrophe is a catastrophe.  You can’t make it go away with cost models that sweep it all under the rug.

The Coronavirus and the Limits of Capitalism

23035851695_0ddbaae4c9_b

“Lankenau Hospital” by Montgomery County Planning Commission licensed under CC BY-SA 2.0

It’s easy to look at the coronavirus as a one of a kind.  After all, who expected this cataclysm that came from nowhere?   How could anyone have predicted it?

In fact the world is full of low-probability events that you have to care about.   The coronavirus is on a par with airplane crashes and oil-rig explosions.  Capitalism is not good at dealing with any of them.

There’s a myth about that sort of thing.  Of course we don’t need airline or aircraft regulation, because the companies in question know what a disaster would mean and will take care that such things don’t happen.  That’s a nice story, but it’s false.   People don’t get promoted because of events that didn’t happen.  They do get promoted by saving money wasted on something that’s never going to occur.

If you’re going to stop that sort of thing from happening, you need a different mindset.  Government has to spend money on regulation and public health and safe, comprehensive infrastructure.   No one else is going to do it.  We now know unequivocally that we decided we didn’t have to care about the CDC.  It has come back to haunt us.  There’s more where that came from.

In fact there’s a whole bunch of other things we’ve decided we don’t have to care about.  After all, “I don’t have to care” has been the liberating elixir of our age.  Many of these we’ve talked about before, but it’s worth recalling some here:

Climate change

Avoiding a depression (clearly relevant now)

Nuclear proliferation

Losing our edge in science and technology

We’ve washed our hands of all of this, blithely punting to a private sector that is no more prepared than for the coronavirus.

The message from the coronavirus is that bad things really can happen, no matter how much we may want to avoid thinking about them.

The coronavirus is the canary in the mine.   We’ll get over it somehow, but we’ve had our warning.

The Crisis of our State of the Union

Trump’s State of the Union deserves a full response.

It was bad enough to sit through the deceptions and lies in the description of the national economy—where very small actual gains (smallest annual reduction in unemployment in any three-year period since the 2008 crash; worst real wage growth at low unemployment in at least 40 years) were bought at enormously high cost (1.4T tax cut that went directly to Wall Street through artificial earnings and stock buybacks; nothing for infrastructure, education, opioid epidemic, etc.).

unemployment_and_wages

However, all of that is just the beginning.  Many commentators have made that point (although many talking-head economists have done the country a disservice by exaggerating the benefits and ignoring the costs).

The real issue is that you would never guess that we live in crucial times for this country and the world.  You might expect that now I’m going to talk about climate change.   But even that is only a piece of it.  Only in the “I don’t have to care” world of today’s Republican Party is the State of the Union grounds for applause.

We are presiding over the demise of America’s promise in irresponsibility, incompetence, and simple vanity.  Let’s go down a list.

  1. Climate change

On climate change there can be no question of the urgency and magnitude of the challenge.  Science has given us a carbon budget we have to meet. The administration denies all of it and works systematically to undermine world progress.  As we’ve noted before, if we act today we have the elements of victory—but we also have ample evidence it’s a near thing.

Inaction on this subject is a grave risk to ourselves, our children, and the rest of humanity.

  1. World economic order

The elephant hiding in plain sight is the growth of the Chinese economy.  We are in the process of being supplanted as the world’s largest economy, and the room for growth there is enormous—China is already our equal by some measures, but their per-capita income still ranks only as 108th!  The world is preparing a new international order, and we’re in danger of missing the boat.

We have a chance to define notions of trade that open markets everywhere and embrace standards for wages and working conditions, environmental concerns (including climate change), and human rights.  In some sense this is a necessary complement to what’s needed for climate change.  However we are losing leverage for that enterprise every day.

We’ve taken the position (without exaggeration) that God has chosen us to rule, so we should abolish all international norms that might constrain our behavior.  With the growth of China that’s a losing game.  Even today we were unable to dictate to China in our trade war, and it’s China—not us—that’s the biggest foreign market for European cars.  We’re not going to be calling the shots forever, and without rules it’s their game.  In this Trump is not defending the US interest against the Chinese, he’s defending his personal dictatorial power against the interest of the country.  We have a very limited window to take back the promise.

  1. Technology

There will always be changes in technology, but the pace of change has reached the point where we have to keep up or lose.  This affects all aspects of our success as a country:  our national income, the jobs of our workers, the strength of our military.

Instead of recognizing that reality we’ve got our head in the sand.  Some examples:

– We’ve done everything possible to discredit scientists and science generally, and for climate change and environment protection in particular.

– We’ve disbanded scientific advisory councils in government.

– We’ve had multiple State of the Union addresses where the only mention of education was vocational.

– We’ve killed net neutrality, thereby sacrificing new enterprises to the interests of the phone companies.

– On 5G and AI the government has come late to the party, without real plans.  For 5G in particular we’re actually asking our allies just to wait until we’ve figured out some alternative to Huawei.  This is worse than a failure of planning—5G applications are what’s most important, and waiting is punting that stage of technology back to the Chinese.

– More generally there’s simply no understanding of the importance of government in funding exploratory research—for technologies before the stage where private companies can run with them.  The tax cuts included a targeted punishment for major research universities.

– Finally the current rampant xenophobia flies in the face of the past and current contributions of foreigners to our technological strength.  We must continue to be the destination of choice for entrepreneurs looking to realize their visions.

We are simply ignoring the technological challenges and what has made us successful.  God only helps those who help themselves.

  1. Nuclear proliferation

This may seem a more limited issue, but that’s only because it hasn’t hit yet.  There are still only a limited number of players, largely under control.  But we’re doing everything possible to change that.

We’ve not only presented the world with the contrast in our treatments of North Korea and Iran, we’ve argued specifically for nations to do what it takes for their own defense.  We’ve eschewed the sort of international cooperation necessary to prevent new entrants.  And we’ve given Saudi Arabia nuclear material and technology without asking any questions at all.

The only reason we were less worried about this in the past was that world leaders had all recognized the nature of the threat.   We’re no longer keeping our eyes on the ball.  Nuclear technology gets ever easier.  As more entrants join the nuclear club, it gets harder to control their behavior and prevent the further sale of nuclear technology to third-parties of whatever ilk.  The North Koreans have done it before.

The clock is ticking.

  1. National ideals

It’s shocking how shallow the support for democracy has turned out to be.  In Sinclair Lewis’ “It Can’t Happen Here” many people had to die for the dictators to take over.  The reality was much easier.

Democracy is not a luxury.  It is key to what made this country what it is.  We were never perfect, but we were much more a country “of the people, by the people, for the people” than had ever existed before.

We’re losing all of that right down the line:

– We’ve reversed our progress in expanding suffrage, and are now looking for reasons to block people from voting.  The Citizens United ruling put rich people and corporations in control of elections.  Deliberate voter suppression by state governments is stated Republican policy.

– Support for public education is declining, and funding is still below 2008 levels.

– Upward mobility is now below that of most other developed countries.

– The religious right is in charge of what happens to women’s bodies.

– We’ve lost the social cohesion needed for big national efforts.  The President no longer even pretends to represent the nation—he’s a warlord who delivers spoils for his supporters.

There are plenty of historical examples of how hard it is to reclaim democracy once it’s gone.  If we’re going to have the strength of a country by and for the people, things had better change fast.

 

We live in a crucial time.  On one hand we could even see massive destruction of humanity; on the other we could see an unprecedented level of international cooperation as a precursor to a very prosperous and peaceful world.

One thing we can’t do is ignore the reality of our time.  We can’t afford the “I don’t have to care” puffery of this criminally fictitious State of the Union.

What Matters for Climate Change

Last year this blog had an overview of the major factors involved in fighting climate change.  Most of that is still current, but it has also become clear that there is a lot of confusion—even in the climate movement—about consequences.  So this piece is not about the basics; it’s about the reality of what it takes to combat climate change.

To start with, Here is a list (off the top of my head) of widely-believed nonsense.  There is probably something to annoy everyone.  You can see if I’ve made a case for it by the end.

– Conservation is a primary issue

– It’s important to get solar cells on rooftops everywhere

– Recycling is important

– Local initiatives are important

– State initiatives are important

– The main game is getting our house in order

– We don’t need to do anything, since technologists will solve it by themselves

– We’re ready for electric cars to take over the transportation sector

– Current solar and wind are ready to take over everything

– Winning is simple, we just have to stop the oil companies and start deploying the good stuff.

– For climate change employment, we need local communities to decide what they really need

– The private sector is doing it all by itself

– Carbon pricing is optional

– Carbon pricing is all it takes

– We need to get a better deal than the Paris Agreement

– We’re in control of our own destiny

– We all need to change our lifestyles

– Fighting climate change will tank the economy

– Economic dislocation means taking care of miners

– Since poor people get hurt worse, climate action is a matter of charity—for social justice

– Same thing for racial justice

– Same thing for regional justice

– Internationally, this is a matter of everyone taking care of their own

– With China and India, the important thing is to stand tough to get what we want

– We have to insist that any new technology developed here gets manufactured here

 

Let’s start this off with item #1—conservation.  From within the US it’s easy to believe the fight against climate change is all about conservation.  After all, we’re up against a hard limit on tolerable levels of carbon dioxide in the atmosphere, so we’ve just got to cut down on burning in all ways.  And we’ve got to learn to behave differently in the future.

However that logic breaks down quickly.  What about all the people in China and India?  Our conservation is a blip compared with them, but we share the same atmosphere.  Do they just have to get used to the idea that cars and air conditioning aren’t for them?  They should accept permanent sacrifice for the good of mankind?  Even in the US, no amount of conservation will move people to electric cars or eliminate the CO2 production from heavy industry.

So even for the near-term we have to recognize that the fight against climate change is not primarily about conservation but about alternative energy sources.  Worldwide, we need to evolve energy sources, so that there will be enough to take care of people everywhere.  As noted in the prior piece, there is in fact no reason to fear we will ultimately lack for power.  This isn’t about learning to live with energy scarcity—it’s about creating a future for all people, all countries, and all life styles.

For that reason we need to focus on the transition to alternative sources of power.  There are two quite different types of problems to be solved:

– Generating and distributing power

The first thing to recognize is that (despite some obfuscation from the oil companies) the future is electric.  That’s the common currency for the energy to be used everywhere, in factories, in homes, in cars.  It’s what all the renewables produce today, and what will be produced by all future candidate technologies.  Electricity is easily transmitted over long distances, and can be stored for later use (although there is much still to be done for high-volume, in-network storage).

So this work includes the electrical network, the sources of energy, and the means to store it.  Since everything will move to the electrical grid, its capacity will need to grow significantly and fast.  This is a huge project, but this is ultimately just a matter of national will.  That makes it the easier part.

– Adapting applications to use it

For that you need to work through the major sectors of energy usage.  Here is the chart for the United States.

consumption-by-source-and-sector

This is a larger and more complex undertaking, requiring careful planning for each sector.  Carbon pricing is one of the few actions that can be done across the board.   As we noted previously, assuming the atmosphere is free amounts to an annual subsidy of $1 T to the US fossil fuel industry.  Even low-level initial pricing (as with CCL) sends a message for corporate planning.  However, it is naïve to believe that carbon pricing will just take care of all sectors in time to avert disaster.  Note also, for priorities, that the residential and commercial sector is the smallest by far.

We also have to think about this problem not just for the US but for the rest of the world as well.  The US Energy Information Agency has released a document that helps in thinking about that task.  (A short summary of conclusions is available here.)  It has projections of energy use throughout the world going out to 2050.  With that it includes variants of the US energy use chart (just given) for other countries.  A significant fact is that many developing countries have a proportionally much larger industrial segment than we do, as high as 70%.

The report shows some influence of climate concerns, particularly in the US and China, but overall it describes the dimensions of a disaster.  The following chart taken from the report shows a continuing growth of CO2 emissions for the entire period.   While the report itself doesn’t explicitly call out the bottom line, the numbers from the report imply that the world will hit a point of no return already by 2035—with a CO2 concentration of 482 ppm and a temperature rise of 1.6 degrees C.

eia1

In the EIA scenarios, the world does a pretty good job of migrating electric grids to renewables (or to some extent gas)—but a terrible job of moving applications to electricity.  In developed countries this translates to business as usual, but in the developing world it’s much worse.  India, for example, is seen as growing exponentially with much of the increase powered by coal.  This isn’t just a question of forcing them to meet our standards.  Heavy industry is a particular problem everywhere.

So the application area is a big job with many industry-specific issues.  The world desperately needs focused research efforts with results that can be applied large-scale worldwide.  This can’t be a matter of everyone guarding discoveries for national advantage.  Cooperative international arrangements will be key to meaningful progress.

 

Even at this high level there are a number of conclusions to be drawn:

– There is no do-nothing alternative.

Technology will deliver a viable future, but we’ll have to work to get there.  There’s no silver bullet that makes it all go away.

– Technology development is important and has to be figured into any planning, but technology concerns are not the barrier to success.

It is perfectly possible to put together a plan to get the US where it needs to be by 2030.  That’s not saying all technology problems have been solved (after all electric cars are still much too expensive), but we can see a path to success.  We shouldn’t trivialize the effort and sophistication required, but based on where we are, and given financing, it appears that the technical side can get done.  The next point is less clear.

– Changes are huge and have to be dealt-with politically.

This isn’t just a matter of coal-miners losing their jobs.  Electric cars alone will have pervasive consequences.  We have to understand that worries about change are rational, so an important part of domestic climate policy has to be an assurance everyone will be made whole.  Otherwise we will continue to face the push back seen most recently in the Australian election.

In the US there is every reason for the less advantaged to distrust the political powers that be.  In the developing world it’s even worse—you’re talking about giving up on the benefits of development for some unknown duration.  The situation is necessarily difficult.   It’s only going to work if wealthy people and wealthy countries realize it’s in their own interest to come up with the goods.  No one will escape the consequences otherwise.

– The international side is unavoidable.

There is only one atmosphere.   Every country in the world has to cooperate, or we all lose.  When the US opts out, everyone loses faith in the future—as was evident in the recent Madrid meeting.  We have to restore international unity in order to make progress.  And that will only come when every country sees a just role for itself individually.  As for the terms of the Paris Agreement—it is only a first step and actually better for rich countries than will ultimately be workable.

We cannot go into this with the attitude that the objective is to come out a winner at the expense of everyone else.  If everyone doesn’t win, we all lose.

– This is not a matter for incrementalism.

We’re not going to get there with well-meaning people insulating their houses or businesses putting solar cells on the roof.

It’s worth putting some numbers on this.  With current technology, the power output of a solar cell is 20 watts per square foot.  From that you can calculate how many solar cells would be needed to meet current US electrical demand.  The answer is about 2500 square miles, assuming they’re all in brilliantly-lit, weather-free Arizona.  (And there are serious problems in managing that one too.)  All of it gets an order of magnitude worse if we decide to go piecemeal in random, less promising locations–and that’s just for today’s electrical grid, not where we have to get to.

That’s not to say that Arizona is necessarily the solution.  The point is that there has to be a rational national policy that will actually get the job done.

 

Greta Thunberg is right—there is no substitute for major political action.  Anything less is delusion, regardless of who says it.  The 2020 election is the single, deciding climate issue today.

Perhaps we need the right metaphor.  The fight against climate change is a war.  We’re all in it together—losing is losing for everyone.  The countries of the world are allies in the sense that each of them is necessary for success.  National economies will be affected, but through national climate efforts with no shortage of jobs.

Right now we’re like the US in mid 1941.  We can see and understand the enemy, but we’re not convinced we really have to be involved.  That situation only got resolved when the Japanese attacked Pearl Harbor, and it was clear there was no other choice.  You can make a case we were lucky that it wasn’t too late.  Without the Nazi’s disdain for “Jewish physics”, they might even have gotten the bomb.

For climate, if we act today we have the elements of victory.   We also have ample evidence it’s a near thing.  A climate Pearl Harbor may well be too late—and beyond anything we want to live to see.

Lessons From the British Election

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“Boris” by Raymond Wang is licensed under CC BY-NC-ND 4.0

There is no way to avoid talking about the horrors of the British election.  With the confirmation of Brexit and the triumph of Boris Johnson, we have all stood witness to the disgraceful demise of a nation now left only with dreams of past glory.

For us though the important question is about what it means for our own election.  On that point the discussion has been generally limited to one question:  Does it say we should worry about the Democrats going too far to the left?  That one is hard to decide, since Labor leader Jeremy Corbyn was so unpopular for his own sake. 

However, that being said, there is still much to discuss.   We propose three points:

  1. Catastrophes not only can happen, but will happen if we don’t watch out for them.

The Democratic debates thus far have played out largely as conflict between the center and left wings of the party.  That means essentially all of it has been fought in the never-never land of post-Trump.  That’s not the same as working on viable strategies to win.

This will be a very tough election, fighting the Fox News, the Electoral College, incredible amounts of Republican money, and all the (legal and illegal) powers of incumbency.  Most candidates have done a reasonable job in providing position papers for what they stand for.  They need to tell us how they’re going to win.

  1. We need to recognize that the electorate isn’t convinced of the urgency of change.

In Britain, Corbyn’s big socialist revival was not so much wrong as a non sequitur.  What actually was all this trying to solve?  Why was it an argument for change?  It was ultimately a declaration of irrelevance.

We have a similar problem.  The very first question of the very first debate has never been adequately answered.  Elizabeth Warren was asked (more or less): “Why are you proposing all these changes when—by all polls—the vast majority of Americans think the economy is doing fine?”  That’s a question for all Democrats—what is it that’s so bad that we need change?

Warren’s answer—about radical inequality—was nowhere near strong enough.  It essentially said that all those people who answered the polls were just wrong.  But no one else has done better.  Healthcare was a great issue for the midterms—that’s something broken that we’re going to fix.  But it’s not enough to unseat Trump.  Impeachment doesn’t touch peoples’ lives directly—it’s about an abstraction called democracy.  Even climate change comes across as an abstraction, although it’s part of what’s needed.  Democrats need a short, clear reason why people need to worry that there is something that needs fixing.

That’s a bar to be passed before we can begin to get traction with specific plans for change.  Until then, like it or not, “fundamental structural change” will be a negative.

  1. We have to keep this a referendum on Trump.

Corbyn pretended Brexit wasn’t the main issue and went off with his own program.  The public was unwilling to follow.

Regardless of how broadly we see the issues, this election is about where Trump is taking the country.

We need a well-defined Trump story to challenge Republican claims of a great rebirth of the American economy.  Even on trade they’ll do what worked for George Bush on Iraq—we’ve been through all the pain, don’t miss out on the rewards!

That means we need to show what four more years of Trump will actually mean.  And how to meet the real challenges for our future.  It seems helpful to think in terms of personal and national issues for the voters:

Personal well-being

Healthcare (complete failure of vision)

Decline in good jobs (manufacturing, good jobs in general)

Education (no initiatives, no funding)

Income inequality (all growth for the rich)

Guns (unsafe to be in school!)

Climate change (what world for our children?)

Women’s rights trampled (bodies owned by the government)

Worse life for everyone but the protected few

National well-being

Eroding technology dominance (science marginalized)

New businesses sacrificed to old (Net Neutrality)

Losing out with climate change denial (ceded primary position to China)

Weakness with China and North Korea (situation is worse than ever before)

Nuclear proliferation (a danger in all directions)

Racism and divisiveness undermine our strengths (just what Putin ordered)

Demise of democracy (our major source of prosperity and power)

=>  Welcome to the Chinese century

 

That’s where we’re going.  For our own dreams of past glory.