A day or two ago, Vanguard Funds – the best
performing mutual fund system available to ordinary folks like me -- sent out a quick summary of world economic
prospects. Not so good. Not recovering as fast as we hoped. As of today, there
have been steep declines in stock markets all over the world.
As it happens, just before the main declines
started, I posted a piece on the near-term economic risks. My analysis (below)
was mainly based on the problem of not enough eocnomic demand. Vanguage says
there is a debate about whether the problems are due to demand ort to some
supply isssues. Do first I post what I sent on the damend side; below that, I
comment on how this analysis fits with supply issues and with what is happening
in China.
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I agree with Gail that the
world economy is very much at risk right now, in the short term, even before
any possible changes in the energy system are factored in. It's almost as if
the world "wanted" a major depression starting
in 2008, and is still hanging on until that impulse is satisfied. I have the
impression that the serious top economists are deeply concerned -- but I am
amazed at some of the basic points in mainstream economics which are being
missed. And yes, I believe that major new actions on energy COULD save the EU,
at least, even though they did not at all cause the recent problems. (They had
some role in the US experience of 2008, in causing mortgage defaults.)
But -- I say that having had a lot of mainstream economics
education at Harvard and LDE, and having built a few major econometric models
used by DOE for its Annual Energy Outlook in the 1980's.
Gail mentioned
debt. That is PART of the problem. There is scurrilous attack on Bernanke which
nonetheless quotes him as saying something very reasonable, like: "Because
of legitimate concerns about debt, the three big economies (US, ECU, China) are
not stimulating their economies enough to get us out of deep chronic
unemployment like Japan's Lost Decade. Monetary people will try to
prevent it geting worse, and enable at least a slow recovery, but our
capabilities are limited and if you expect us to solve the whole thing, you may
be in line for a VERY rude awakening."
So -- the tradeoff between government debt, on the one hand,
versus "jobs" (and growth and even sustainability) on the other. Certainly
we should all know from the news that the "war" between enemies of
debt and enemies of austerity is the number one issue in Europe. A few
years ago, I saw figures in the Financial Times showing about the same huge
problematic government debt ratios in all three big economies (US, China, EU).
It's actually a good thing that the problem is a common one, reducing a little
the pressure for nasty downward spirals; however, the recent Chinese
devaluation does remind us of the competitive trade things (in Bernanke's PhD
thesis!) which were the final trigger of the Grea tDepression. The big drop in the stock market today reminded me of Gail's post.
A side note -- there is a huge amount of misinformation about
China out there. Traveling there a lot has been a great eye-opener for me. It
turns out -- in some ways there is less economic integration between provinces
of China than of nations of the EU. It's fascinating to compare and contrast
European nations versus provinces of China over the past 3000 years ro so...
but I should resist for now. The key point is that in 2009, the Year of
Stimulus, China relied on provinces to do so much stimulus that they continued
rapid economic growth -- and ended up with a debt problem as bad as ours.
What I find hard to understand, emotionally, is why the leaders
of the profession have not done more to ask about "Pareto
optimality," which any serious economist is supposed to know all about. In
other words: instead of just fighting about debt versus jobs and growth and
sustainability, why can't we focus more effort on analyzing clearly what could
be done to get the best of all four worlds? I have seen some insightful
stuff from Stiglitz, and recently saw a woman from his Roosevelt Institute,
whose startled me with how coherent and serious she was compared to the others
parading on TV who look more and more like a parade of clowns. But I haven't
followed up.
Maybe part of the problem is that a lot of economists were
trained to understand the basics of aggregate demand and monetary policy, but
not
on multisectoral models. Back when I worked for DOE, it became
brutally clear that decent forecasting required us to break out least the 18
main SIC codes in manufacturing -- something which the Wharton Annual model
did, but few others. The possibility of reconciling the requirements of debt
versus those of growth and jobs depend a lot on having a kind of fine
resolution, going beyond the aggregate seven-variable models they commonly teach
in college.
In the US, the main shit on its way to the fan is with
sequestration. It amazes me how little sense of reality there seems to be out
there about sequestration. Maybe folks don't understand what "8% cut per
year" means, both to civilian and to military budgets, and the likely
impacts not only on jobs but on security and growth. We are on course for that.
The small partial budget agreement two years ago was only a temporary thing,
running out even now. It doesn't help that lots of folks would PREFER to
just shut down half the government permanently, and would enjoy entertaining us
all again in a couple of months.
For space in particular -- I really wonder how the supporters of
SLS can possibly fail to understand what a gift they are offering the
budgeteers, desperate for ways to accommodate sequestration, by displaying a
giant piece of useless pork on a silver platter. No HINT of restructuring it to
make it fill more serious technology and national security needs of the US in
space.
I also wonder at times why people like the defense contractors
do not exploit their clout to build quiet coalitions to break through the
vested interests which are blocking the two more serious large-scale
opportunities to honestly cu back on the need for sequestration in a way which
does not crush aggregate demand: (1) closing big loophole,s not like mortgages,
but corporate welfare things, like the billions the oil industry gets as part
of the "distressed industry" special break; andor (2) the continued
RISE in government medical spending, for example as certain folks think they
are entitled to churn out more unnecessary and questionable hip replacements
and Caesarians (SOME are useful, but..) and the new bonanza they are hoping for
in electrical brain stimulation (a concept similar to "great medical
breakthroughs" of the past like frontal lobotomies and cocaine). .
Cutting debt that way, instead of some of the awful alternatives some are
pushing, would not reduce jobs as much... but still, it's hard to avoid SOME
increase in US employment when the net spending cuts kick in.
But the EU has a much better set of options.
The EU is all agog about whether Greece will drop the euro, but
they seem to be using that emotionally as a distraction form the much bigger
problems they are not working their way out of. With or without Greece using
the euro, issues of jobs versus debt are huge in the whole continent, and even
Germany won't do well if its main export partners falter. But there is a way
out.
At nss.org/EU, we posted a quick summary recommendation,
which has direct bearing on SSP as well as ordinary solar farms. The
suggestion is that the feed-in tariff system be KEPT STRONG, but REORGANIZED,
so that it's EU-WIDE (with investment also demanded for more of an EU grid), so
that tariffs for higher-cost options like rooftop solar get cut back to what
large solar farms get paid, and expanded to support large solar farms OR
RECTENNAS anywhere in the EU. This would NOT call for government investment in
SSP! But it would seriously empower the private sector, by providing a solid
predictable market. New investment in the energy sector has huge
potential, and it's beautiful that it would provide economic demand WITHOUT new
government spending. It could soak up the loose cash floating around without a
good home. So long as the new feed-in tariffs are no more than 20 eurocents per
kwh, it would also be cheaper than what European electricity users are paying
today, and reduce dependence on Russian natural gas -- a rather serious
problem.
At times, I wonder why EU authorities have not seen this obvious
approach, not unlike the "three pillars" strategy of Japan which
seemed likely to save their economy before Fukushima hit. Perhaps it is
difficult in part because Schroder and Chirac are now funded by the Russian gas
industry?
In any case, SSP, solar energy, CO2 emission and the EU economy
would all benefit from two parallel efforts:
AND
'(2) Major private sector and R&D efforts to maximize
the ability of the private sector to respond to the new opportunities which nss.org/EU would open up. I do see BOTH SSP and new types of large solar
farm as a crucial part of that, and would be happy to get into the technical
details of either one.
Best of luck to us all. We really need it.
Paul
P.S., Speaking of one of the reasons we need faster progress on
these technologies...
A couple of days ago, I did a quick google on:
NOAA Antarctic deep ocean oxygen
I have several more detailed papers on the original work
somewhere, but the two images below do basically tell the story:
The colors tell how much oxygen is left, and the red numbers how
fast it is depleting.
I seem to recall a bit more detail in what I saw before, but you
can see which side is the Pacific side, and this should be OK at least as a
starting point. I think these sources do cite the originals.
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THE SUPPLY SIDE AND
CHINA
Vanguard says there
is a debate as to whether the faltering of growth worldwide is due to demand
side problems (as above) or supply issues – more specifically, the failure of
supply side forces to provide worthwhile investment opportunities.
As I think over what
Vanguard is saying, I remember of course that THEY have money to invest, that
real investment does lead to more economic demand, and that they are struggling to find really
productive and promising places to invest their money in.
This is totally
consistent with what I have been assuming above, that there is plenty of
private sector capital available right now (due a lot to central banks trying
to prevent depression), but without a good place to put it. The key idea of
nss.org/EU is exactly to CREATE new opportunities for such investment,
opportunities which are truly productive in a very serious and fundamental way,
on a scale large enough to turn around any economy on this planet. Roughly, if world electricity is about a $2
trillion per year industry – 10 cents per kwh over 20,000 terawatts per year,
or more, then the INVESTMENT behind it is even larger. Rebuilding that
investment for security and sustainability, saving the customer money, is
plenty big enough to reinvigorate the EU economy. The EU is lucky and unique in
having SUCH a clear opportunity... if nly they would see it and act on it...
but what about other folks?
The question of the
week is: what is happening to China?
Thanks to a nice
article in Bloomber this week, and some books I recently read about setting up
companies in China, I do begin to see what could be a way ahead for them.
In essence, the central
government there does have some degrees of freedom we don’t have here, even
though the provinces have more power than Americans usually understand.
Bloomberg reports how China has been moving towards rpleicating the US script
on eocnomics much more than many Americans wuld expect... but it is not working
as well as hoped. Under strict banking rules, ruling out shady local
investments in real estate based on off-the-book loans, demand and growth do
falter. So they are holding up growth, AT THE EXPENSE of letting money flow
back into questionable real estate stuff. In a way, it’s just like what
Vanguard talks about – using investment to drive a return to growth, but
investment in WHAT to WHAT benefit, under what market rules?
Real estate... hey,
that’s where I parked my liquid cash this month myself...
But the EU
opportunity in renewable energy is much greater, and more reliably something
they need. China has also put money into
R&D, renewables, grids and energy secure transportation, but they could do
a lot more. (Some folks in China at high levels might even understand the
IEEEUSA recommendations and ideas for good investment in that area.) There is a
lot more to be said about unmet technical opportunities... as I have discussed
with Chileans lately. Hina is doing a lot already, but could profitably do
more.
IN real estate
proper, I remember very vividly a talk at the Internal Fund for China’s
Environment (IFCE) a couple of years ago... when a city planner/developer for
the US described the challenge of getting maximum value for money in building
new cities, avoiding destructive externalities which tend to cause lack of
value in the investment in most nations. That too might be a guide to constraints
on new real estate investments, to avoid channeling money into waste. Suddenly
a variant of their “ecocities” comes to mind, for the primary economic growth
and market rules.
There is a possible
way forward for China here... and better sustainable, grounded economic growth
in ANY of the big three benefits all three, if we don’t shoot ourselves in the
foot.
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