February 26, 2012

Oil, in Euros, Touches 2008 Highs

Remarkably, the price of Brent crude, calculated in Euros, has recently touched the highs set in the summer of 2008. Then, too, the oil market was shadowed by the threat of an Israeli attack on Iran (carried out either singly or jointly with the United States). This time around, the upward pressure on prices has also been exacerbated by the sanctions bill passed by the US Congress in December 2011, putting strong pressure on other states (especially China, India, South Korea, and Japan) to reduce or cut off their oil imports from Iran, on pain of being disallowed from the US market. The effect of the sanctions remains unclear--with both China and India showing strong resistance, and Japan and South Korea hoping to get a waiver--but the markets are beginning to register a crisis atmosphere.


Though the price of West Texas Intermediate, in dollars, remains well below the extreme levels of 2008 ($110 vs $145), the dollar price of Brent (a more useful gauge for estimating import costs than WTIC) is $125 a barrel.

Some analysts insist that the price is responding to fundamental moves in supply and demand and discount the importance of the premium owing to war fears or the Iran embargo. Javier Blas of the Financial Times, "Fears for Crude Overtake Euro Crisis Woes," cites analysts who argue that the risk premium is just "a few dollars per barrel" and that the physical market is tight and getting tighter. Contributing to that are the following factors:

South Sudan has stopped pumping nearly 300,000 barrels a day of sought-after low-sulphur crude. Political unrest and strikes have removed about 250,000 b/d of supply from Yemen. Libya is pumping roughly 1m b/d, which is still well below the pre-civil war level of 1.6m b/d. Syrian output has dropped by about 150,000-200,000 b/d due to the turmoil there. . . .

Ageing infrastructure and oil fields are also contributing to higher prices. Crude oil output in the North Sea is falling and Venezuelan production is also sharply lower.

Demand in Asia has picked up in large part because Japanese power generators are turning to oil as an alternative to atomic power in the aftermath of last year’s tsunami and Fukushima nuclear disaster. Only two of Japan’s fleet of 54 reactors are operating, forcing the country to consume more fuel oil and crude for direct burning to generate electricity.

. . . Japan consumed a combined 635,000 b/d of crude and fuel oil for power generation last month, more than double the amount from a year ago.

The IEA, for its part, estimates that global oil consumption will grow by 830,000 b/d this year, more than the 740,000 b/d growth in 2011. “A two-speed outlook prevails,” the agency said on its latest monthly report, anticipating “robust oil demand growth” in emerging countries while consumption continues to fall across most developed nations.

Spikes in oil prices, in 2008, helped precipitate the Great Recession, and there are now ominous signs that we may experience a strong echo of that volatility this time around as well. Happy Election Year!

February 25, 2012

All's Fair in Climate Wars

From the Guardian:

The outing of the researcher who exposed the Heartland Institute's efforts to discredit climate change has thrown the scientific community into tumult, with fierce debates raging on Tuesday over whether to brand his actions heroic, or misguided.

Peter Gleick, a water scientist and president of the Pacific Institute, admitted in a blogpost on Monday night to using a false name to dupe the thinktank into sending him confidential board materials, which he then forwarded to campaigners and journalists.

He apologised for the deception – which he described as "a serious lapse of my own and professional judgment and ethics" – but added in the blog post published at the Huffington Post: "My judgment was blinded by my frustration with the ongoing efforts – often anonymous, well-funded and co-ordinated – to attack climate science."

Gleick's admission – nearly a week after Heartland's financial plans and donors list was put online – set off a fierce online debate about whether his actions made him a hero or a villain, and whether he had helped or set back the cause of climate change.

He suffered his first fallout on Tuesday, when he decided against taking up a new position on a board that fights for science education in schools. Gleick was to have headed a new venture defending climate science in classrooms.

The National Centre for Science Education said it had accepted his decision not to take up a board post, and that it did not condone his action.

For some campaigners, such as Naomi Klein, Gleick was an unalloyed hero, who should be sent some "Twitter love", she wrote on Tuesday.

"Heartland has been subverting well-understood science for years," wrote Scott Mandia, co-founder of the climate science rapid response team. "They also subvert the education of our schoolchildren by trying to 'teach the controversy' where none exists."

Mandia went on: "Peter Gleick, a scientist who is also a journalist, just used the same tricks that any investigative reporter uses to uncover the truth. He is the hero and Heartland remains the villain. He will have many people lining up to support him."

Others acknowledged Gleick's wrongdoing, but said it should be viewed in the context of the work of Heartland and other entities devoted to spreading disinformation about science.

"What Peter Gleick did was unethical. He acknowledges that from a point of view of professional ethics there is no defending those actions," said Dale Jamieson, an expert on ethics who heads the environmental studies programme at New York University. "But relative to what has been going on on the climate denial side this is a fairly small breach of ethics."

He also rejected the suggestion that Gleick's wrongdoing could hurt the cause of climate change, or undermine the credibility of scientists.

"Whatever moral high ground there is in science comes from doing science," he said. "The failing that Peter Gleick engaged in is not a scientific failing. It is just a personal failure."

But other scientists said Gleick did far more harm than good.

Richard Klein, a climate researcher at the Stockholm Environment Institute, said he was astounded at Gleick's actions. "All I can say is: what was he thinking?" he said. "It's an own goal. It's not just his own credibility, his own integrity on the line. It's a whole community of climate scientists who, with the odd exception, want to do good science and make sure science is recognised."

He went on: "It doesn't just blur the line between climate science and science policy. It blurs the line between what are acceptable and what are not acceptable methods. He is not perceived by the outside world as acting in his personal capacity. He acted also by responding as Peter Gleick the scientist and of course that hurts other scientists as well."

John Nolt, a professor of environmental ethics at the University of Tennessee in Knoxville, said his big fear was that the furore over Gleick's deception would distract from efforts to act on climate change. The revelations in the Heartland document - many already familiar to the environmental community - were not worth that cost, he said.

"Nothing serves climate change deniers better than the loss of perspective that ensues when debate turns from urgent matters of science and policy to largely inconsequential disputes about personal behavior," said Nolt.

Nolt said he did not subscribe to the argument that Gleick's wrong was minor in comparison to the damage done by Heartland. "I do think he crossed a line. It is unethical to obtain documents through deception in that way and I don't think it matters what the other side is doing," he said.

For many veteran of the climate wars, there was an uncanny parallels to the breach of Heartland materials and the hack of scientists' emails from East Anglia's climate research unit in 2009. However, scientists almost invariably noted that Gleick had come clean, unlike those who carried out the East Anglia hack.

"It's wrong to obtain documents under false pretenses, just as it was wrong for hackers to have taken scientists' emails from the University of East Anglia. There's no excuse for fighting deception with deception," Kevin Knoblach, president of the Union of Concerned Scientists wrote. "Gleick has now come forward to publicly acknowledge his responsibility in this matter. Obviously, the person or persons who took scientists' emails have not felt a similar need to come clean."

The climate science legal defence fund went even further, in a letter tweaking the Heartland Institute for its complaints about invasion of privacy.

There was also intense speculation on Tuesday about whether Gleick had exposed himself to criminal prosecution or a law suit brought by Heartland. The thinktank president, Joseph Bast, said the unauthorised release of confidential documents, and a two-page memo which Gleick said was sent to him anonymously, had caused permanent damage to its reputation.

"A mere apology is not enough to undo the damage," Bast said in a statement. He said Heartland was consulting legal experts.

Heartland claims the two-page memo, which summarises other documents that appear to be authentic, is a fake.

In a sign of combat to come, Gleick has taken on Chris Lehane, a top Democratic operative and crisis manager. Lehane, who worked in the Clinton White House, is credited for exposing the rightwing forces arrayed against the Democratic president. He was Al Gore's press secretary during his 2000 run for the White House.

In his admission, Gleick claimed that he carried out the hoax on Heartland as a means of verifying the authenticity of a document that appeared to set out the thinktank's climate strategy.

"At the beginning of 2012, I received an anonymous document in the mail describing what appeared to be details of the Heartland Institute's climate programme strategy," Gleick wrote. "It contained information about their funders and the Institute's apparent efforts to muddy public understanding about climate science and policy. I do not know the source of that original document but assumed it was sent to me because of my past exchanges with Heartland and because I was named in it.

"Given the potential impact however, I attempted to confirm the accuracy of the information in this document. In an effort to do so, and in a serious lapse of my own and professional judgment and ethics, I solicited and received additional materials directly from the Heartland Institute under someone else's name. The materials the Heartland Institute sent to me confirmed many of the facts in the original document, including especially their 2012 fundraising strategy and budget. I forwarded, anonymously, the documents I had received to a set of journalists and experts working on climate issues."

Gleick, a well regarded scientist, has been an important figure in the increasingly heated climate wars, and has sparred often in print against Heartland and others who deny the existence of climate change, such as the Republican senator Jim Inhofe.

But Gleick does not appear to have experienced immediate remorse. He did not move to claim the ruse until there was already feverish online speculation about his involvement. He responded to a request by the Guardian for comment last Wednesday by saying he did not wish to comment.

Those actions may have undercut an entire career, the journalist Andrew Revkin wrote in his Dot Earth blog on the New York Times website.

"Gleick's use of deception in pursuit of his cause after years of calling out climate deception has destroyed his credibility and harmed others," he wrote.

"The broader tragedy is that his decision to go to such extremes in his fight with Heartland has greatly set back any prospects of the country having the "rational public debate" that he wrote — correctly — is so desperately needed."

But there were relatively few in the campaigner or scientific community who shared that view on Tuesday. "I don't think there was ever going to be a kumbaya moment with the folks from Heartland anyway," said Jeff Ruch, director of the Public Employees for Environmental Responsibility. "When you have interests that are funding organisations to spread doubt regardless of the circumstances they are still going to find ways to spread doubt."

My take:

Gleick has greatly contributed to my understanding of water issues, and it would be a tragedy were he to be forced out of the Pacific Institute. (I am not an entirely unbiased judge—his son was a student of mine, and a very good one at that—though I only became aware of the familial relation after his graduation.) As against the climate scientists, I am temperamentally disposed to “teach the conflicts” and cringe at dogmatic assertions that there is no controversy regarding climate science. On the other hand, the larger share of underhanded tricks (e.g., the theft of the East Anglia emails), outrageous charges (“It’s all a vast conspiracy”) and corrupt practices (the endless amounts of “greenwashing” indulged in by corporate America) belong with the climate skeptics. The idea that the Heartland Institute has been irreparably harmed by Gleick’s actions seems absurd, as is Revkin’s charge that Gleick’s credibility has been “destroyed.” The board of the Pacific Institute should accept his apology, enforce a one month leave of absence, and then take him back. It would be a hugely disproportionate penalty, and a great loss to environmental education, to force him to leave the institute he helped found.  

**

Suzanne Goldenberg, "Gleick Apology Over Heartland Leak Stirs Ethics Debate Among Climate Scientists," The Guardian, February 21, 2012

Net Energy Deficit

By comparison with other sources of energy like coal and natural gas, the impact of petroleum on the balance of trade is huge.  Though the United States, in 2011, began exporting more "petroleum products" like gasoline, jet fuel, and distillates than it imports (for the first time in many years), it remains overwhelmingly in a net trade deficit so far as its overall energy use is concerned.

After reaching over $350 billion in 2008, the net burden of imports fell sharply in 2009 as a consequence of both the Great Recession and the fall in oil prices. Lately, however, it has been going back up. The following graph from the Energy Information Administration only includes data to the end of 2010, but the 20 percent rise in oil prices from the end of 2010 to the present (February 24, 2012) ensures that the net energy deficit has lately grown larger. Domestic oil production, though increasing, has not grown by a comparable 20 percent in the last 14 months.


According to Bloomberg—which used a misleading headline, “Americans Gaining Energy Independence with U.S. as Top Producer”—the United States has increased the percentage of demand met from domestic sources to an estimated 81 percent through the first 10 months of 2011, the highest level since 1992.

U.S. energy self-sufficiency has been steadily rising since 2005, when it hit a low of 70 percent . . . . Domestic crude oil production rose 3.6 percent last year to an average 5.7 million barrels a day, the highest since 2003, according to the Energy Department. . . . [The Bloomberg figures do not include natural gas liquids or biofuels, which boosts domestic production by another 3 mbd or so].

At the same time, the efficiency of the average U.S. passenger vehicle has helped limit demand. It increased to 29.6 miles per gallon in 2011 from 19.9 mpg in 1978, according to the National Highway Traffic Safety Administration. . . .

With the price of a barrel of oil at about $100, a drop of 4 million barrels a day in oil imports -- which . . . could happen by 2020, if not before -- would shave $145 billion off the deficit. Through the first 11 months of last year, the trade gap was $513 billion, according to the Commerce Department. Crude for March delivery settled at $96.91 a barrel yesterday [February 5, 2012] on the New York Mercantile Exchange. . . .

The U.S. likely became a net exporter of refined oil products last year for the first time since 1949. And it will probably become a net exporter of natural gas early in the next decade . . . .

Crude production in the U.S. is already increasing. Within three years, domestic output could reach 7 million barrels a day, the highest in 20 years . . . The U.S. produced 5.9 million barrels of crude oil a day in December, while consuming 18.5 million barrels of petroleum products . . . North Dakota -- the center of the so-called tight-oil transformation -- is now the fourth largest oil-producing state, behind Texas, Alaska and California. . . .

Automakers have agreed to raise the fuel economy of the vehicles they sell in the U.S. to a fleetwide average of 54.5 miles per gallon by 2025 under an agreement last year with the Obama administration. . . .

The 2008-09 recession helped lower oil demand, and consumption has lagged even as the economy has recovered, said Judith Dwarkin, director of energy research for ITG Investment Research in Calgary. Coupled with higher domestic output, “this has translated into an import requirement of some 15.4 barrels per person per year -- about on par with the mid-1990s.” . . .

The following Bloomberg chart shows the recent surplus in net exports of refined oil products:


Oil statistics can be tricky to pin down. The first chart below (reporting data from the Energy Information Administration) shows petroleum imports (including crude oil and products) at 11 million barrels a day at the end of 2011,  whereas the second chart (direct from the EIA) shows net imports of crude oil and petroleum products falling in December 2011 to 7.4 million barrels a day. The figures don't quite add up; there are around 3 mbd of exports of petroleum products, but crude oil exports are negligible.



February 24, 2012

The Limits of Capitalism


In Part II of Jeremy Grantham’s February 2012 investment commentary—“The Longest Quarterly Letter Ever”—he summarizes the case that resource constraints and future environmental damage pose fundamental challenges to the viability of capitalism. Among the deficiencies of capitalism is that “Your Grandchildren Have No Value." Grantham's quarterly letter is justly renowned for its sage observations; this gathers old themes into a new synthesis. It deserves a much wider audience than his customary readership in the soul-starved financial services industry. The extract is lengthy, at around 3200 words: 

* * *
 
The Financial Times has had a plethora of recent articles examining possible deficiencies in capitalism.  The general opinion is that this is not capitalism’s finest hour.  The financial crash revealed a chronic weakness in establishment economic theory, whose trust in efficiency of capital markets encouraged deregulation and helped land us in our present trouble.  Hyman Minsky’s work that suggested that recurrent financial crises were “well-nigh inevitable” could not have been more completely forgotten.  Only a handful of the hundreds of senior economists and bankers seemed to see what was coming. 

Debt has also proven troublesome, with both governments and individuals allowing debt ratios to become unmanageable at great risk to the economy, while government policies and taxes in particular encouraged the slide rather than moved to control it. 

In the last 20 years, corporate ownership began to look odd.  The nominal owners – stockholders – typically traded every few months and took on the part of institutions, with little or no interest in corporate affairs, with the result that corporate officers appeared to own the companies and behaved accordingly.  Stock option programs transferred ownership from shareholders to managers in giant dollops and were awarded on short-term results.  One consequence of this was a distorted incentive that encouraged leverage and other forms of going for broke with other people’s money.  Boards of Directors demonstrated little timely intervention and typically only found their claws in situations of complete disaster, when it was too late.  Total remuneration in the U.S. for senior officers, unopposed by typical boards, rose as a percentage of the average worker’s pay from 40 times in Eisenhower’s era to over 600 times today, with no indication of any general improvement in talent.  Few rewards were carefully related to long-term results. Pretax income inequality rose in most countries and was offset by tax adjustments in very few.  In the U.S., oddly, the tax changes accentuated the shift.  Such an increase in inequality was caused by all of the benefits of the substantial productivity flowing to a few, while the average hour’s pay stayed unprecedentedly unchanged for 40 years!  This risks making economic progress both slower and bumpier as the stressed average worker reaches for debt and then, in a crisis, is forced to retrench. 

This far from exhaustive list is still impressively long but it seems to me to be basically business as usual, and most of it worse in the U.S. than in other capitalist countries.  Scandinavian countries, for example, seem to struggle with their set of problems reasonably satisfactorily.  Presumably, economists will slowly digest the lessons of the last few years and will develop realistic and useful theories.  We can at least hope.  Trial and error, reform, and common sense seem reasonably likely to be a match for all of these problems eventually.  They are irritating and debilitating problems today but they will not bring us to our knees.  There are some problems, though, that have surfaced seldom or never in the Financial Times discussions that very well may.  In my opinion, they threaten even our survival and it is these problems I would like to concentrate on. 

Capitalism has gone through a Darwinistic series of trials and errors, which still continues.  For the time being, capitalism has tuned itself to rapid growth at almost any cost.  Circumstances such as the hydrocarbon revolution and the ensuing population explosion have allowed for both high growth and high profit margins to sustain the growth.  Sustained high margins have in turn trained capitalists – or corporate executives if you prefer – to set high hurdles for all investments.  The 14% hurdle for discount rates that was considered a minimum in the late 1990s, for example, halves the future value of a dollar every 5 years, so that in 10 years today’s dollar is worth 25¢; in 20 years 6¢; and in 50 years one tenth of one cent!  It is hardly surprising that any event out that far is ignored.

For example, let us say that a firm’s current actions are going to cost society at large a billion dollars’ worth of harm in 50 years.  Further, let us agree that all of the costs will definitely be imposed on the company.  The company would feel that pain today as equivalent to only a mere $1 million hit to earnings.  Why should they care?

In contrast, the income of typical individuals is likely to compound at most at 1.5% a year, their risk-free investments at an imputed zero % (today’s 30-year bond minus inflation), and an equity investment at perhaps 4%, net of inflation and tax.  To take the highest of these three rates, the billion dollar pain at a 4% discount rate is going to feel to the average citizen, who faces the bill in 50 years, not like $1 million, but like $100 million.   And for some societal purposes, 4% real is far too high. Surely, for example, shouldn’t the value, and hence cost, of a child’s life in 50 years be identical to the value and cost today?  The reader can easily see how a corporation’s outlook on potential future damage might be a painful mismatch with that of ordinary individuals and society at large.  The consequences of this not only can be disastrous but probably will be.  A few painstaking readers might remember my “Farmer and The Devil” story of last July.  In it I showed how a good capitalist farmer had to sign a contract in which the Devil guaranteed a quadrupling of the farmer’s income through very aggressive farming practices at the hidden cost of 1% a year of his soil.  The farmer would enormously profit and eagerly re-up through the first several 20-year contracts only to end up with no soil, no food, and no people at about 100 years out.  Yet each time the farmer re-upped, he did the sensible capitalist thing.  In this case, Adam Smith’s “invisible hand” failed, and fatally so. 

Damage to the “commons,” known as “externalities” has been discussed for decades, although the most threatening one – loss of our collective ability to feed ourselves, through erosion and fertilizer depletion – has received little or no attention.  There have been no useful tricks proposed, however, for how we will collectively impose sensible, survivable, long-term policies over problems of the “commons.”  To leave it to capitalism to get us out of this fix by maximizing its short-term profits is dangerously na├»ve and misses the point:  capitalism and corporations have absolutely no mechanism for dealing with these problems, and seen through a corporate discount rate lens, our grandchildren really do have no value. 

To move from the problem of long time horizons to the short-term common good, it is quickly apparent that capitalism in general has no sense of ethics or conscience. Whatever the Supreme Court may think, it is not a person.  Why would a company give up a penny for the common good if it is not required to by enforced regulation or unless it looked like that penny might be returned with profit in the future because having a good image might be good for business? Ethical CEOs can drag a company along for a while, but this is an undependable and temporary fix.  Ethical humans can also impose their will on corporations singly or en masse by withholding purchases or bestowing them, and companies can anticipate this and even influence it through clever brand advertising, “clean coal” being my favorite.  But that is quite different from corporate altruism.  Thus, we can roast our planet and firms may offer marvelous and profitable energy-saving equipment, but it will be for profit today, not planet saving tomorrow. 

It gets worse, for what capitalism has always had is money with which to try to buy influence.  Today’s version of U.S. capitalism has died and gone to heaven on this issue.  A company is now free to spend money to influence political outcomes and need tell no one, least of all its own shareholders, the technical owners.  So, rich industries can exert so much political influence that they now have a dangerous degree of influence over Congress.  And the issues they most influence are precisely the ones that matter most, the ones that are most important to society’s long-term wellbeing, indeed its very existence.  Thus, taking huge benefits from Nature and damaging it in return is completely free and all attempts at government control are fought with costly lobbying and advertising.  And one of the first victims in this campaign has been the truth.  If scientific evidence suggests costs and limits be imposed on industry to protect the long-term environment, then science will be opposed by clever disinformation.  It’s now getting to be an old and obvious story, but because their propaganda is good and despite the solidness of the data, half of the people believe the problem is a government run wild, mad to control everything.  So the “industrial complex” (or parts of it) fights to increase the inherent weaknesses of capitalism.  They deliberately make it ever harder to reach the very long-term decisions that will serve us all.  The influence of the Tobacco companies in deliberately obscuring the science to protect profits at a huge cost to society in health costs and lives is a perfect analogy to the energy industries that work hard to confuse the public on scientific measures of damage to health and the environment.  Yet it is one that is surprisingly forgotten.

Of all the technical weaknesses in capitalism, though, probably the most immediately dangerous is its absolute inability to process the finiteness of resources and the mathematical impossibility of maintaining rapid growth in physical output.  You can have steady increases in the quality of goods and services and, I hope, the quality of life, but you can’t have sustainable growth in physical output.  You can have “growth” – for now – or you can have “sustainable” forever, but not both.  This is a message brought to you by the laws of compound interest and the laws of nature.  However, you can try to have both.  But many, when given the choice, select “Growth, and to hell with the consequences.”  Alternatively they adopt a hear-no-evil approach to life and listen exclusively to good news.  The good news for such people is that there are always a few experts lacking in long-horizon vision, simple common sense, or whose co-operation has been rented, like “expert” witnesses at a murder trial, who can be dragged out to reliably say that everything will always work out fine.  (One famous professor went seamlessly from saying tobacco smoking was just fine to saying continuously pumping out greenhouse gases would also be without consequences).  The optimists offer as evidence that we will always be in the best of all possible worlds, not our species’ tough million or so years of trial and painful error, but only the last 200 years, when hydrocarbon and other resources have given us a temporary reprieve.  This reprieve does not make the finite magically infinite, but the 250 years of the hydrocarbon intermission can feel like forever.  Capitalism certainly acts as if it believes that rapid growth in physical wealth can go on forever.  It appears to be hooked on high growth and avoids any suggestion that it might be slowed down by limits.  Thus, it exhibits horror at the thought (and occasional reality) of declining population when in fact such a decline is an absolute necessity in order for us to end up gracefully, rather than painfully, at a fully sustainable world economy.  Similarly with natural resources, capitalism wants to eat into these precious, limited resources at an accelerating rate with the subtext that everyone on the planet has the right to live like the wasteful polluting developed countries do today.  You don’t have to be a PhD mathematician to work out that if the average Chinese and Indian were to catch up with (the theoretically moving target of) the average American, then our planet’s goose is cooked, along with most other things.  Indeed, scientists calculate that if they caught up, we would need at least three planets to be fully sustainable.  But few listen to scientists these days.  So, do you know how many economic theories treat resources as if they are finite? Well, the researchers at the O.E.C.D say “none” – that no such theory exists.  Economic theory either ignores this little problem or assumes you reach out and take the needed resources given the normal workings of supply and demand and you can do it indefinitely.  This is a lack of common sense on a par with “rational expectations,” that elegant theory that encouraged the ludicrous faith in deregulation and the wisdom of free markets, which brought us our recent financial fiascos.  But this failure in economic theory – ignoring natural limits – risks far more dangerous outcomes than temporary financial crashes.

Let me pose a simple question.  If there were an extra thousand years of oil supply – of onshore traditional oil – available at, say, a production cost of $200 a barrel in addition to the actual 40 years of mixed-cost reserves that we have today, what difference would it make in today’s price?  Remarkably, the answer is “none.”  Today’s price is concerned only with the intermediate-term workings of current costs of current barrels and current demand.  Yet every rational reader knows that this should not be the case: that the existence of huge reserves (or the lack thereof) should indeed influence today’s price in a world concerned about its very long-term well-being.  In addition to ignoring the depleting supplies of high quality materials, no concern at all is shown for our current devastatingly erosive and resource-intensive global farming practices. 

As described above, the current U.S. capitalist system appears to contain some potentially fatal flaws.  Therefore, we should ask what it would take for our system to evolve in time to save our bacon.  Clearly, a better balance with regulations would be a help.  This requires reasonably enlightened regulations, which are unlikely to be produced until big money’s influence in Congress, and particularly in elections, decreases.  This would necessitate legal changes all the way up to the Supreme Court.  It’s a long haul, but a handful of other democratic countries in northern Europe have been successful, and with the stakes so high we have little alternative but to change our ways.

It would certainly help if the general public were better educated, especially in science. The same applies, unfortunately, to Congress itself.  This body is desperately short of scientists and basic familiarity with things scientific.  Our key problems need to be addressed by people very familiar and comfortable with science.  It is said that eight of the nine senior leaders in China’s government are scientists.  At that high a level, of our 535 Congressmen and the President and Vice President, less than a handful – arguably only two or three – would pass the test.  (I suppose you could throw in the Supreme Court Justices if you wanted to.)  It is said, on the other hand, that about 100 Congressmen do not believe in evolution. Without a respect for science in Congress and with science in the general public declining as an interest, some of the painful new issues are going to be hard to address.  (The percentage of students graduating with degrees in science as a proportion of total U.S. graduates is the 60th highest by country these days!)  This lack of scientific familiarity is made worse by the fact that everyone loves to hear good news, Americans more than most. The tough news we must sooner or later grasp is made tougher by the skilled, energetic denials, well-funded by powerful industries that fear their profits would be threatened.  Libertarians seem to feel that even if the bad news were true, the necessary regulations would be so distasteful that they would really prefer that the science were different, and they deem it so, putting desired political theory over science.

Meanwhile, China gets on with it and science is accepted in what used to be our normal way until the last decade or two.  And I suppose they have some unfair advantages, among them leaders with scientific backgrounds and higher science scores for the general public, but they also have the luxury of a leadership that does not face election campaigns. Lucky them.  The critical consequences are that they waste no time in challenging climate problems (the same is true of India) and, even more importantly perhaps, they begin to really worry, almost panic, about their long-term access to crucial resources.  In contrast to our political log jam and failure to face long-term issues, they have moved rapidly to exploit new sustainable energy sources, to tie down resource deals, and to promote improved resource efficiency. 

The U.S. and Canada are blessed with natural advantages that are unrivalled (at least if you include security, which, in a desperate, resource-constrained, warming world might hurt New Zealand, that otherwise would look hard to beat).  Yet the relatively uncontrolled variety of capitalism that exists in the U.S. today may negate many of our advantages.  Solutions to these issues – far more important than any others – need a delicate mix of capitalism and wise, democratically-controlled government regulation.  That might sound like an oxymoron to far too many people.  If we can’t make it sound, plausible, and acceptable in the next few decades, then we are in deep trouble for the world really, really needs U.S. leadership on these critical issues. 

Karl Marx went on and on about the tendency of capitalism to so fixate on growth that in time it would forget the need to put on a friendly face for society and would drive home too clearly and brutally its advantage over labor.  Ironically, in some way he and Engels looked forward to globalization and the supranational company because they argued it would make capitalism even more powerful, over reaching, and eventually reckless.  It would, they claimed, offer the capitalists more rope to hang themselves with or, rather, to be hung with, in the workers’ revolution.  The rope for the job, they suggested with black humor, would be bought from briskly competing capitalists, eager till the end for a good deal.  Well, time marches on and it’s going to be hard to have a workers’ revolution with no workers.  Organizing robotic machine tools will not be easy.  However, Marx and Engels certainly got the part right about globalization and the supranational company increasing the power of capital at the expense of labor.  To interfere with Marx’s apocalyptic vision, we need some enlightened governmental moderation of the new globalized Juggernaut (even slightly enlightened would be encouraging) before capitalism gets so cocky that we have some serious social reaction. 

But for me capitalism’s complete fixation on growth at all cost that Marx concentrated on is not as important as the other issues discussed here.  Capitalism, by ignoring the finite nature of resources and by neglecting the long-term well-being of the planet and its potentially crucial biodiversity, threatens our existence.  Fifty and one-hundred-year horizons are important despite the “tyranny of the discount rate,” and grandchildren do have value.  My conclusion is that capitalism does admittedly do a thousand things better than other systems: it only currently fails in two or three.  Unfortunately for us all, even a single one of these failings may bring capitalism down and us with it.