Friday 18 April 2008

Pathetic and Despicable

These are the only words I can find to describe how Hillary Clinton is waging her campaign. If all she can do to dominate the news cycle is to twist Barack Obama’s words entirely out of context, then she is simply not worthy to be President of the United States.

This is the contested paragraph of Barack Obama’s speech at a fundraiser in San Fransisco, which I copy from the original Huffington Post. It’s the entry that touched this all off:

"But the truth is, is that, our challenge is to get people persuaded that we can make progress when there's not evidence of that in their daily lives. You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing's replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. So it's not surprising then that they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations."

I find nothing reprehensible about these remarks. He refers to some small towns in Pennsylvania and the Midwest, presumably affected by industrial restructuring and prevailing socio-economic and demographic trends. To claim that he is referring to all religious people or all gun-owners is absurd–a logical fallacy. Yet that is exactly what Hillary Clinton and John McCain are trumpeting.

If a Democrat-or any other commentator-were to use a similar logical causality to explain the political rise of Ross Perot or Pat Buchanan in the late 1980s, this would be considered sharp insight into American society and economy at the time. Yet when an African-American Presidential candidate who is leading the Democratic primary race embarks on a similar logical construct–and even more mildly–he is suddenly branded elitist, arrogant and out of touch with the American people. Remarkable, given that his background hardly bears resembles that of most elitists I know.

Had I made these comments, I would stand by them. To apologise in this case is to accept someone else’s false interpretation, someone in your own party employing nearly every under-handed, supercilious and hypocritical trick in the book to beat you in a crucial election.

As if more evidence were needed, it shows that Hillary Clinton will stop at nothing to win. Her tactics are despicable; her assurances that this is all about “electability” a hypocritical distortion. Somehow she wants us to believe that by sinking to this level she is qualified to beat John McCain in November.

Since when did we decide to become as shallow and dishonest as our opponents? What’s next, a “Willie Horton” campaign ad? A Barack Obama “love child”?

It shows that Hillary is fighting yesterday’s battles. Deeply scarred by her experience with the failure of her 1993 healthcare task force, her husband’s impeachment and the 2004 election, she feels no compunction about rolling out all the negative tactics she can employ against a member of her own party.

Barack Obama offers a vision for the future. The details are in many cases lacking, and that vision will take years to implement and is dependent on bipartisan good will and a macroeconomic recovery. Hillary Clinton offers an abundance of micro-management and focussed policy details, yet these too are incomplete and do not address many of the underlying problems, only their symptoms.

Yet if I were to make my decision based on “character,” Hillary Clinton has once again shown that she has fails this test. She is doing everything she can to win, even if it means destroying the Democratic Party and the hopes and aspirations of the millions of voters who came out to support Barack Obama.

This is not the way I expect a Democratic candidate to campaign against a member of our own party. Even in this hubristic rush for the Presidency, there are limits to the compromises possible with decency and honour. Hillary Clinton has shown that there are no limits to the compromises she would make. The vote next week in Pennsylvania will show how little this profits her.

Tuesday 15 April 2008

Errata in RFK's Energy Manifesto

Vanity Fair recently published Robert F. Kennedy’s Opinion piece The Next President’s First Task [A Manifesto] in its May 2008 edition. This article, which I copy below, purports to establish why renewable energy should be a centerpiece of energy policy in the next administration.

I’m all in favour of renewable energy, and favour government intervention (e.g. through carbon-capping and trading schemes, higher fuel standards, higher energy efficiency in cars and buildings) as a public good which, over time, will be cost-effective. However, there are so many inaccuracies or misleading statements in this "Manifesto", I'm surprised there has been such a muted reaction. We are not going to craft a better energy policy by ignoring the facts.

With this in mind, here are my comments:

1. The article states that 25% of Great Britain’s economy was based on slave labour in 1808. Unless we count 100% of Britain's colonial economic output at the time as slave labour (which it was not), there is no mainstream economic research to prove this statement. If there is, the source should be cited. Furthermore, there are no serious studies of the Industrial Revolution which maintain that its cause was the abolition of slave labour: According to most economic historians, the Industrial Revolution started in the mid-1700s, long before the abolition of slavery in 1808. Simply repeating over-simplifications that may or may not have been made by Lord Puttnam may be comforting, but ultimately inaccurate.

2. No one is "borrowing a billion dollars each day to buy foreign oil", and this is not the reason the US dollar is falling. If this figure refers to the trade deficit, the amount spent by the United States on importing foreign energy is about 10 million barrels per day of crude oil alone (over $ 1 bln), while in January 2008 we imported 380,635 million cubic feet, at an average price of over 5.8 $/tcft. Energy imports are largely consumed by industry and individuals, and has nothing to do with US government spending: it's not the US government paying for energy imports. The reason the US dollar is falling is because of the total trade deficit, total public debt and low interest rates: roughly speaking, the lower the interest rate goes, the lower the USD will fall under prevailing trade and budget deficits in the face of international currencies with better economic policies. While energy imports are an important component of the trade deficit, they have nothing to do with either public debt or low interest rates. In fact, the value of the energy trade deficit is low compared to the US merchandise trade deficit.

3. Sweden's growth rate has never, since 1990 at least, been 3 times the American growth rate: in many years, US GDP growth outstrips Sweden's. The following table of Swedish and US GDP growth rates is provided by Statistics Sweden based on Eurostat data:

4. Using Swedish energy policy as an example for American policy ignores actual conditions. According to the Government of Sweden, petroleum accounts for about 30% of total energy supply; 50% of electricity supply is from hydropower, the rest is nuclear and renewable energy. Sweden has abundant water resources: the US cannot emulate 50% of total energy supply from hydropower even if it wanted to.

5. According to the Energy Authority of Iceland, 20% of total electricity power is from geothermal sources, while 80% comes from hydropower. Iceland’s terrain, climate and geology (a volcanic island on the mid-Atlantic ridge) make this combination of energy sources possible: similar ratios are not possible in the United States, and holding up Iceland as a model of emulate may be attractive, but hardly practical for policy considerations. Don’t forget that Iceland’s population in 362,000 living in a relatively small area: the US population tops 300 million, living on a continent.

6. The fact that California is the largest state economy has nothing to do with energy efficiency per se: to state that energy efficiency is somehow the reason for California’s economy is wrong. By this same logic, the United States, with the largest GDP in the world, would have to be the most energy-efficient.

7. The problem with energy efficiency will not be solved solely by regulatory or distribution sytem changes. A large share of greenhouse gases are the result of automotive emissions, and right now there is no comparably efficient fuel source (at least, not one that can be readily stored) to petroleum. Entrepreneurs burning woodchips aren't going to hack it on this one - at least not in the next 5-10 years based on current technology. Similarly, the science of heating and powering a city is very different from heating and powering individual homes and businesses: we simply don't have the technology today to power NYC, LA, or any other large metropolis in the United States through renewable energy with current technology.

I agree with the goal of developing a balanced energy policy, based on future needs, and emphasizing a mix of renewable energy, nuclear power and carbon-based fuels. However, this has to be fact-based, and include policy prescriptions which will work in the specific American economic, resource-based and social context.

The Next President’s First Task [A Manifesto]
by Robert F. Kennedy Jr. May 2008

Last November, Lord (David) Puttnam debated before Parliament an important bill to tackle global warming. Addressing industry and government warnings that we must proceed slowly to avoid economic ruin, Lord Puttnam recalled that precisely 200 years ago Parliament heard identical caveats during the debate over abolition of the slave trade. At that time slave commerce represented one-fourth of Britain’s G.D.P. and provided its primary source of cheap, abundant energy. Vested interests warned that financial apocalypse would succeed its prohibition.

That debate lasted roughly a year, and Parliament, in the end, made the moral choice, abolishing the trade outright. Instead of collapsing, as slavery’s proponents had predicted, Britain’s economy accelerated. Slavery’s abolition exposed the debilitating inefficiencies associated with zero-cost labor; slavery had been a ball and chain not only for the slaves but also for the British economy, hobbling productivity and stifling growth. Now creativity and productivity surged. Entrepreneurs seeking new sources of energy launched the Industrial Revolution and inaugurated the greatest era of wealth production in human history.

Today, we don’t need to abolish carbon as an energy source in order to see its inefficiencies starkly, or to understand that this addiction is the principal drag on American capitalism. The evidence is before our eyes. The practice of borrowing a billion dollars each day to buy foreign oil has caused the American dollar to implode. More than a trillion dollars in annual subsidies to coal and oil producers have beggared a nation that four decades ago owned half the globe’s wealth. Carbon dependence has eroded our economic power, destroyed our moral authority, diminished our international influence and prestige, endangered our national security, and damaged our health and landscapes. It is subverting everything we value.

We know that nations that “decarbonize” their economies reap immediate rewards. Sweden announced in 2006 the phaseout of all fossil fuels (and nuclear energy) by 2020. In 1991 the Swedes enacted a carbon tax—now up to $150 a ton—and as a result thousands of entrepreneurs rushed to develop new ways of generating energy from wind, the sun, and the tides, and from woodchips, agricultural waste, and garbage. Growth rates climbed to upwards of three times those of the U.S.

Iceland was 80 percent dependent on imported coal and oil in the 1970s and was among the poorest economies in Europe. Today, Iceland is 100 percent energy-independent, with 90 percent of the nation’s homes heated by geothermal and its remaining electrical needs met by hydro. The International Monetary Fund now ranks Iceland the fourth most affluent nation on earth. The country, which previously had to beg for corporate investment, now has companies lined up to relocate there to take advantage of its low-cost clean energy.

It should come as no surprise that California, America’s most energy-efficient state, also possesses its strongest economy. The United States has far greater domestic energy resources than Iceland or Sweden does. We sit atop the second-largest geothermal resources in the world. The American Midwest is the Saudi Arabia of wind; indeed, North Dakota, Kansas, and Texas alone produce enough harnessable wind to meet all of the nation’s electricity demand. As for solar, according to a study in Scientific American, photovoltaic and solar-thermal installations across just 19 percent of the most barren desert land in the Southwest could supply nearly all of our nation’s electricity needs without any rooftop installation, even assuming every American owned a plug-in hybrid.

In America, several obstacles impede the kind of entrepreneurial revolution we need. To begin with, that trillion dollars in annual coal-and-oil subsidies gives the carbon industry a decisive market advantage. Meanwhile, an overstressed and inefficient national electrical grid can’t accommodate new kinds of power. At the same time, a byzantine array of local rules impede access by innovators to national markets.
There are a number of things the new president should immediately do to hasten the approaching boom in energy innovation. A carbon cap-and-trade system designed to put downward pressure on carbon emissions is quite simply a no-brainer. Already endorsed by Senators McCain, Clinton, and Obama, such a system would measure national carbon emissions and create a market to auction emissions credits. The supply of credits is then reduced each year to meet pre-determined carbon-reduction targets. As supply tightens, credit value increases, providing rich monetary rewards for innovators who reduce carbon. Since it is precisely targeted, cap-and-trade is more effective than a carbon tax. It is also more palatable to politicians, who despise taxes and love markets. Industry likes the system’s clear goals. This market-based approach has a proven track record.

There’s a second thing the next president should do, and it would be a strategic masterstroke: push to revamp the nation’s antiquated high-voltage power-transmission system so that it can deliver solar, wind, geothermal, and other renewable energy across the country. Right now, a Texas wind-farm manager who wants to get his electrons to market faces two huge impediments. First, our regional power grids are overstressed and misaligned. The biggest renewable-energy opportunities—for instance, Southwest solar and Midwest wind—are outside the grids’ reach. Furthermore, traveling via alternating-current (A.C.) lines, too much of that wind farmer’s energy would dissipate before it crossed the country. The nation urgently needs more investment in its backbone transmission grid, including new direct-current (D.C.) power lines for efficient long-haul transmission. Even more important, we need to build in “smart” features, including storage points and computerized management overlays, allowing the new grid to intelligently deploy the energy along the way. Construction of this new grid will create a marketplace where utilities, established businesses, and entrepreneurs can sell energy and efficiency.

The other obstacle is the web of arcane and conflicting state rules that currently restrict access to the grid. The federal government needs to work with state authorities to open up the grids, allowing clean-energy innovators to fairly compete for investment, space, and customers. We need open markets where hundreds of local and national power producers can scramble to deliver economic and environmental solutions at the lowest possible price. The energy sector, in other words, needs an initiative analogous to the 1996 Telecommunications Act, which required open access to all the nation’s telephone lines. Marketplace competition among national and local phone companies instantly precipitated the historic explosion in telecom activity.

Construction of efficient and open-transmission marketplaces and green-power-plant infrastructure would require about a trillion dollars over the next 15 years. For roughly a third of the projected cost of the Iraq war we could wean the country from carbon. And the good news is that the government doesn’t actually have to pay for all of this. If the president works with governors to lift constraints and encourage investment, utilities and private entrepreneurs will quickly step in to revitalize the grid and recover their investment through royalties collected for transporting green electrons. Businesses and homes will become power plants as individuals cash in by installing solar panels and wind turbines on their buildings, and by selling the stored energy in their plug-in hybrids back to the grid at peak hours.

Energy expert and former C.I.A. director R. James Woolsey predicts: “With rational market incentives and a smart backbone, you’ll see capital and entrepreneurs flooding this field with lightning speed.” Ten percent of venture-capital dollars are already deployed in the clean-tech sector, and the world’s biggest companies are crowding the space with capital and scrambling for position.

The president’s final priority must be to connect a much smarter power grid to vastly more efficient buildings and machines. We have barely scratched the surface here. Washington is a decade behind its obligation, first set by Ronald Reagan, to set cost-minimizing efficiency standards for all major appliances. With the conspicuous exception of Arnold Schwarzenegger’s California, the states aren’t doing much better. And Congress keeps setting ludicrously tight expiration dates for its energy-efficiency tax credits, frustrating both planning and investment. The new president must take all of this in hand at once.

The benefits to America are beyond measure. We will cut annual trade and budget deficits by hundreds of billions, improve public health and farm production, diminish global warming, and create millions of good jobs. And for the first time in half a century we will live free from Middle Eastern wars and entanglements with petty tyrants who despise democracy and are hated by their own people.

Environmentalist Robert F. Kennedy Jr. is president of the Waterkeeper Alliance, a non-governmental organization that promotes clean water throughout the world.

Wednesday 9 April 2008

The real cost of Virginia-class submarines

Yet another inaccuracy thrown up by the blogosphere, confirming that we should be checking our numbers very carefully indeed. Robert Scheer's article "A submarine to fight Al Quaida's navy" throws out the following statement: Example: the $81-billion submarine pushed by Sen. Joseph Lieberman, presumably to fight al-Qaida’s navy.

Quite apart from the disingenuity in maintaining that this submarine is intended to fight Al Quaeda, the cost is wrong. The CBO estimates that the cost per submarine will be between the original $ 2.1 billion budget price and $ 2.7 for the current Virginia class, and $ 3.2 billion for the Improved Virginia class. The Submarine Force Structure Study calls for 18 boats procured by 2015, with a further number coming into service thereafter. The CBO's estimates are based on 2 boats per year.

Perhaps Mr. Scheer refers to the Virginia programme costs: this should be specified, even if his overall conclusions are wrong.

Counting the Cost of the War in Iraq

I'm sure this is another post which won't be so popular among readers, but I feel it's important to be accurate on the figures and their interpretation. There have been various articles in press and the blogosphere in recent days reporting on the Obama's campaign's estimate of the cost of the Iraq war at $ 100 per month per household. This is inaccurate, because it assumes that 100% of the Federal Budget comes from individual taxpayers. It does not. Of the 2007 (estimated) Federal Budget of $ 2.540 billion, some $ 1.169 billion is from individual income taxes, or about 46%.

The calculation is explained in Bill Adair's article in the St. Petersburg Times of 1 April 2008. The methodology behind the number is explained below:

"There was no footnote for the $100 estimate, so we called Bilmes to ask how they had calculated it. She said they took the Bush administration's 2008 request for war funding — $196-billion — and divided it by 12 to get a monthly cost. That works out to $16-billlion for both wars and about $12-billion just for the Iraq portion.

She and Stiglitz then divided those figures by the number of U.S. households and came up with $138 for both wars and slightly more than $100 for Iraq alone, she said."

I've re-created the Bilmes calculation as follows:

In 2006, the Census recorded 119 million married people with the spouse present in the US ( The Iraq budget in 2007 (according to Bilmer/CRS estimate) was $ 159 billion. The total cost to families (assuming families pay 100% of the budget) is $ 1,336 per year, or $ 111 per month. However, individual income taxes account for only 46% of the budget, so the family total is $ 51 per month, or $ 615 per year.

Whether the war costs $ 1,336 per year per family or $ 615, it's still a lot of money. But what are the underlying issues behind these numbers?

Total US GDP in 2007 is estimated by the US Treasury at $ 13.761 trillion. Assuming the Iraq war budget cost of $ 159 billion is correct, then the direct, recorded share of the Iraq war is 1.16% of GDP. This is a historic low amount for a war which has deployed, directly and indirectly, about 35-40% (my estimate) of America's total armed forces in any given year (counting all support staff). This essentially means that while it is expensive, it is not prohibitive to fight. Further conclusions are at the discretion of each reader.

Friday 4 April 2008

In favour of $ 81 billion submarines

The SSN-774 Virginia, photo courtesy of Naval Technology.

Robert Scheer's article A Submarine to Fight al-Qaida’s Navy was posted on Truthdig on April 1st, 2008 and has received widespread coverage. While I appreciate his concern on military procurement as evidence of a wider imbalance on public spending, he over-simplifies the issue, and creates a wholly wrong impression on military procurement priorities and economics and how to solve their apparent problems.

Let's start with examining more carefully the logical premises behind his condemnation of the high-tech weapons systems he mentions, particularly the Joint Strike Fighter (JSF) and the Virginia-class submarine. It's important to ask ourselves a basic question: Are we against the principle of high technology weapons systems, or only their cost?

If we are against the principle of high-tech military capacity, we should remember that Al Quaeda is obviously not the opponent in mind when designing the capacities of either system: It is Russia and China. Russia recently launched its new Borei-class submarine has stepped up aviation patrols against US carrier forces, and has resumed standing strategic bombing patrols. Recent press reports indicate that after years of arms imports, China is reducing reliance on Russian systems in favour of domestically-produced platforms and components. We know that much of China's military budget is concealed in other line items, while it's recent anti-satellite missile test is a worrying indication of their intent and capacity.

Despite our understandable focus on the campaigns currently being fought in Afghanistan and Iraq, we should not neglect the wider strategic picture. Yes, America and the West won the Cold War, and thank goodness we did. Yet the dividends of peace lasted perhaps 15 years, approximately from 1989 to the middle part of the present decade, when Russian and Chinese intentions have become abundantly clear. The fact that the United States currently has no significant rival in conventional terms ignores the fact that both China and Russia have openly stated their intention develop the capacity to project force in sufficient degrees to counter US capabilities. We are not living in an ideal world, and to claim that US military policy is solely concerned with Al Quaeda is disingenuous, or perhaps simply naive.

If we are against the cost of new-generation military procurement, we should remember that a significant part of the technology in both the Virginia-class submarine and the F-35 JSF is new. I would estimate that between 20-35% of the cost is core R&D expenditure; an additional 10-15% will be in setting up and mastering production lines and engineering for what is an extremely complex system. Both systems push the envelope in terms of performance - the Virginia class being the most quiet in its class with unprecedented underwater warfare capabilities; the JSF as the most stealthy and maneuverable multiple-capacity platform of its generation, with air-to-air and air-to-ground roles. Both systems integrate new structural designs, electronics and power systems, which are not simply a question of reverse engineering or incremental changes.

The F-35 Lighting II JSF (c) Lockheed Martin, courtesy of the JSF Program Office

This is not a process similar to manufacturing Toyota Corollas, after all: it is more similar to manufacturing space shuttles or, indeed the space station itself. We should not be surprised by a delay in programme completion given this complexity. We should not be surprised if costs rise: inflation and rising materials costs alone (steel, tungsten, chromium, copper, etc) account for a large share of the cost increases. We should remember that these are not your standard consumer items, with a lifecycle of 2-5 years. Both the JSF and the Virginia class will be in service for the next 40 years, judging by past platforms such as the F-16 or the Ohio class.

In economics terms, we should remember that both systems are designed essentially for a single client - the US Department of Defence. Although the JSF does include international governments, the project is managed and led by the Pentagon, and rightly so. Whenever you have a single customer, it's inevitable that costs will rise and delays will occur. However, there are no easy alternatives for this, for obvious reasons. We don't want to make highly sensitive R&D and manufacturing capacity in this sector open to multiple clients, which would be one way of introducing competition, and therefore efficiency, into military procurement. We need instead to examine the structuring of production contracts and incentives, and most probably to re-design procurement and project management processes. Again, however, delays and cost over-runs on procurement programmes of this magnitude are almost certainly inevitable.

Finally, we need to remember that military and aerospace procurement leads to important collateral benefits: it employs extremely bright engineers and scientists and research institutions, while fostering high-complexity manufacturing at home. It leads to important spin-offs, such as the internet, GPS, Teflon and any number of other products. If we take a total lifecycle approach, we may find that government investment in military technology provides a net financial gain, as peculiar as this may sound.

We may agree that domestic and foreign policy has been particularly disagreeable under the Bush Administration, and that the "military-industrial" complex (or mentality) has created unfortunate results in wider US foreign policy. Whatever these negative impacts may be, I for one am happy if the US has a significant military edge over its rivals China and Russia, because the alternative is far too disturbing to contemplate.