Category Archives: economics

Two oily quickies

1) This would be wrong morally, economically and practically, but poetically, there’s no denying the appeal:

So the oil companies are once again boasting record profits and yet the auto makers are asking for some government cheese.  Does anyone else see the irony here?  So I’ve got a little trickle down theory of my own.  As long as Detroit continues to make cars for the Gas-Capades let the oil companies bail them out.

(Hat-tip: Sullivan.)

2) It’s a little surprising this didn’t happen more six months ago, when the cargo would have been worth twice as much, but it’s a hell of a target of opportunity.

Let failing companies fail

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Credit: “How not to take a roundabout in the wet,” Flickr/edvvc

The banks and investment firms arguablyneeded bailing out because they’re integral to having functional financial markets, which are in turn integral to, well, modern capitalism. If they go down, almost literally everybody goes down. But a failing carmaker is just a company that blew it. Those fail all the time.

They do not deserve to be bailed out.

In a letter to Treasury Secretary Henry M. Paulson Jr., House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) asked Paulson to “review the feasibility . . . of providing temporary assistance to the automobile industry during the current financial crisis.”

The letter notes that Congress granted Paulson broad discretion to use the bailout money to “restore financial market stability. A healthy automobile manufacturing sector is essential to the restoration of financial market security,” the letter continues, as well as to “the overall health of our economy, and the livelihood of the automobile sector’s workforce.”

Stability and security are not the same thing any more than a mechanically functioning economy is the same thing as a prosperous one. Governments can arrange for the first; they can only temporarily pretend to arrange for the second, and only at tremendous cost.

The Post helpfully goes on to explain why this is a moronic idea for practical reasons, not just principled ones:

If the request is granted, it would expand the federal government’s role in private enterprise far beyond the financial sector. Critics have warned that a bailout of GM would attract a long line of other companies to Washington to argue that their survival, too, is critical to the economic health of the country. The move would push the Bush administration to decide winners and losers in yet another huge sector of the economy, and it would force President-elect Barack Obama to manage a complex restructuring of the ailing automotive industry.

I work for a newspaper. Where’s the New York Times‘s bailout? Or, more to the point, the Christian Science Monitor‘s? Or U.S. News and World Report‘s?

GM and Ford and Chrysler screwed up massively, failing to foresee a consumer demand for smaller, cheaper, drastically more efficient vehicles. They are very big companies, but they are not special companies, and the problem is not something that just happened to them; Nissan and Honda and Toyota haven’t had an easy ride the last couple of months, but they’re still going concerns. If the U.S. automakers can’t make it on their own, let them go.

Taking stock

Obama speaks

Obama speaks

(Credit: “obama,” Flickr/BohPhoto)

Wow. Lots has changed since I was last blogging here something like as often as I want to, back before the Canadian federal election ate my life. That kicked off at the beginning of September; since then the markets have spiralled downward, the prices of oil and of gas have tanked, a serious recession has apparently begun, the Canadian Conservatives have been re-elected and named a new cabinet, and, oh yes, the Americans elected Barack Obama.

The landscape has clearly changed. Some observations:

  1. The crashing price of energy — oil is down more than 50 per cent from its high last summer — indicates dramatically reduced demand for the stuff. Environmentally speaking, this is good: the slower we burn through the supply, the less urgent will be efforts to exploit marginal deposits of it. But it’s also a clear indicator of dramatically reduced economic activity, which means people as a whole are poorer. There’s a serious policy problem: When fuel was expensive, critics said we couldn’t afford cockamamie plans to make it more expensive — by taxing it — to encourage the use of alternatives. Now it’s cheaper, but critics say the economy can’t take any more shocks, such as a tax on fuel. There will never be a comfortable time for market-oriented policies that make any kind of energy more expensive.
  2. If we’re lucky, though, people won’t soon forget how unpleasant it was to take out second mortgages to fill the tank and won’t flock back to SUVs they don’t need. I’m not terribly optimistic on this point, though: we had the energy crisis of the 1970s and the SUV came along anyway.
  3. The downturn should, however, create opportunities for entrepreneurs with the best kind of green ideas: those that help the planet while making the economy more productive. Efficiency is a lot more appealing in bust times than in booms. And the downturn should also kill off some of the sillier children of the recent green boomlet, such as bogus carbon-offset programs.
  4. With a weaker economy, the make-work argument for green policies (that aggressive government action to promote green technology will “create jobs”) appeals to a lot more people. Obama’s platform promises five million new green-collar jobs, for instance. More jobs may be a happy byproduct of sound environmental policy, but making them a deliberate economic end is asking for trouble.
  5. In the same vein, rumour that Obama is considering making Robert F. Kennedy Jr. the head of the U.S. Environmental Protection Agency is unsettling. I have no idea whether Kennedy is a capable administrator who can head a large government entity; I do respect his vigour and enthusiasm in fighting traditional pollution, especially of waterways. The question is whether the EPA will be the point agency on climate change in an Obama administration or whether the issue will be seen as essentially an economic/industrial matter and be handed to an appropriate cabinet officer. I hope that’s what happens.
  6. In Canada, the environment portfolio’s just been given to Jim Prentice, who was most recently the minister of industry. He’s also considered Prime Minister Stephen Harper’s most quietly competent ministers. We’ll have to see whether what Harper’s after from him is quiet or competence. I hope Prentice is in the job to steal the best parts of the Liberals’ “Green Shift” plan. Harper could safely do that pretty much immediately, since its author, Liberal leader Stéphane Dion, is resigning in disgrace over the election results as soon as his busted party can pick a successor.
  7. By the way, poor Stéphane Dion. A very good man in a very wrong job.

Regular blogging resumes. Thanks for your patience.

Money and carbon

Bill Doskoch compares the climate crisis to the credit crisis: figuring out what to do is hard, and then doing it is harder, but the fact we don’t want to deal with it doesn’t mean it isn’t coming for us.

Many commentators saluted the “resilience” of the U.S. consumer without noting that it was all being done with borrowed money.

And now, the bill is becoming due. Years of economic pain will be the likely result.

To my mind, we’re running a climate deficit by pumping carbon into the atmosphere to keep today’s economy propped up (in part so we can buy stuff we don’t really need by using borrowed money). The longer we put off meaningful action on reducing emissions, the greater the bill will be — and as this post shows, things are getting worse globally instead of better.

An environmental policy, this ain’t

Cutting taxes on diesel is not what you’d call “green.”

Stephen Harper pledged Tuesday that a re-elected Conservative government would halve a federal tax on diesel fuel. The prime minister is expected to contrast the move with the carbon tax on diesel fuel that is a centrepiece of the Liberal party’s Green Shift plan.

The Tories will take to two cents per litre the four-cents-a-litre excise tax. The Tories say that would cost the federal treasury $600 million a year.

As Stephen Gordon writes, “it takes two serious and pressing problems – the deteriorating fiscal situation and greenhouse gas emissions – and makes them both worse.”

Why study something when you already know you won’t do it

What a good, small-c conservative idea this would have been.

Government officials have abruptly cancelled a comprehensive study into the benefits of using tolls, congestion charges, parking levies and other “urban transportation pricing mechanisms” to help reduce pollution in Canada’s largest cities and pay for more public transport.

The study, which had been commissioned this week by Transport Canada, was to have examined “how pricing can be used as a tool to induce greater efficiency and sustainability in urban transportation,” according to a request for tender document. A government spokesman told the Globe and Mail Saturday that the government did not wish to push forward with the study.

But I suppose it’s hard to let sound economic thinking get in the way of sound political thinking.

Managing abundance

Matthew Yglesias debunks the idea that Alaska Gov. Sarah Palin is an expert on America’s energy problems:

Alaska politicians never worry that energy may be getting too expensive and think about how to respond. They worry that energy might get too cheap! Alaska politicians don’t develop expertise in energy conservation measures or alternative fuels, they develop expertise in fighting with out-of-state executives about how to divide the profits that come from expensive energy. That’s the energy problem people think about in Alaska, Oklahoma, and parts of Texas and Louisiana but it’s not the energy problem people worry about in Michigan or Ohio or Virginia or Florida or New Mexico or Colorado or most anywhere else in the country.

It’s up there with Liberal leader Stéphane Dion’s assertion that Canada could lead the world in water-resources management, since we have so much water. No: we don’t have so much water because we’re so damned good at hoarding it, we have so much because we got a lucky deal. You want to see some people who are good at managing water, go to Saudi Arabia or someplace, where they don’t have any.

Subsidies to big companies are NOT conservative

Bit of an up-and-down day as the federal Conservative government doles out goodies in advance of an expected election call.

The up: Pushing the use of low-speed electric trucks, mostly for whirring around large industrial sites, ports, resorts and that kind of thing.

The down: Eighty freaking million dollars for Ford, in a “repayable” loan in support of a project to build greener engines. Big engines, mind you, for big cars — the same ones the Ontario Liberals kicked in $30 million for not long ago. The Tories say that that the outside, their loan will “create or sustain” 757 jobs, making the price tag about $106,000 per, in a project that apparently no bank or other professional investment entity was interested in supporting.

The Conservatives must know this is nuts, contrary to every economic principle they have previously espoused. Governments shouldn’t pick winners, even in pursuit of worthy causes like environmentalism. But apparently when there’s an election to win, all that goes out the window. It’s troubling that there’s no longer any party that seems to stand for letting big companies live or die on their own.

U.S. miles driven drops again

Shouldn’t be a surprise by now, but yet again, Americans drove less year-over-year in July 2008 versus 2007. I think we can definitively put to rest the idea that demand for gasoline doesn’t change much with price, though apparently it is a bit sticky — prices have to remain high for a while before people start changing their lives.

Matthew Yglesias makes the obvious argument for a carbon tax.

The pipe dream of energy independence

Juan Cole, the expert on Iraqi Shi’ism who’s understandably gone a bit batty on the Bush administration since the unpleasantness began in Iraq, makes some fine points nevertheless on the subject of U.S. energy independence. Namely that it’s not going to happen and politicians should stop talking as if it is.

I happen to be more sympathetic to nuclear energy than most thoroughgoing greens, at least as an interim solution to the greenhouse-gas problem. And if “energy independence” really means “not buying billions of dollars in fuel from repressive Middle Eastern regimes that hate the United States and/or only stay in power by in turn subsidizing people who do,” nuclear power’s a pretty good way to get there. But given how much uranium the United States needs to import, it’s not a way to make the U.S. truly independent in its energy consumption.

In a global market economy, we might as well talk about silicon independence (computers being a strategic economic and military resource, after all), or pharmaceutical independence, or plywood independence. It’s nonsensical.