I think it’s fascinating to ponder the fact that right now, cosmic rays originating in vastly distant astronomical events are passing through our bodies. We live, in fact, in an ocean of radiation, but the effects have barely begun to be studied.

You may have noticed, if you follow scientific news, that the results of the CERN CLOUD experiment have been published in the journal Nature. A lot of us have been waiting for these results for a long time. The reason is that global temperature records show a very clear correlation with levels of cosmic radiation that impact the earth and its atmosphere. Models, however, have not been able to explain this phenomenon.

In fact, the correlation is inverse. In other words, cosmic radiation has been high historically in times of low global temperatures. This, in turn, is related to solar activity. High levels of solar magnetism block cosmic rays. Therefore, it is hypothesized that cosmic rays during periods of low solar magnetic activity play an increased role in cloud formation. Clouds reflect sunlight, so the Earth cools. When there is high solar activity, which is marked by sunspot activity, cosmic rays are blocked, so fewer clouds form. Theoretically, this would result in global warming.

Because climate science has been politicized to an utterly ridiculous extent, it’s been very difficult to get government-funded scientists to talk about this possibility. The environmental-industrial complex, which consumes billions in tax-provided research funds, is completely vested in the notion that human or anthropogenic activities are the major cause of global increases in temperature, though we’ve seen none of this temperature rise in the last 15 years or so.

Those who hold the contrary position have far fewer resources at their disposal and are at a significant disadvantage in the climate debate. The primary proponents of the cosmic ray theory include Henrik Svensmark, a physicist at the Danish National Space Center in Copenhagen, and his colleagues.

When British particle physicist Jasper Kirkby proposed that CERN, the European Organization for Nuclear Research, test theories tying cosmic rays to climate change, the U.N. and others committed to the CO2 climate change theory immediately dismissed the experiments as irrelevant. Now the first round of experimental results has been released, along with orders from CERN brass NOT to interpret the results.

As I’m under no such prohibition, however, I’ll tell you one thing for sure. Climate science is not settled science. Though the CLOUD study only involved two aerosol gases, sulfuric acid and ammonia, the basic theory that cosmic rays can breed the particles that seed clouds has gained serious credence. Further tests with additional naturally occurring aerosols will reveal much more about the true nature of climate fluctuations.

From Kirby’s published article:

“Ion-induced nucleation [cosmic ray action] will manifest itself as a steady production of new particles [molecular clusters] that is difficult to isolate in atmospheric observations because of other sources of variability but is, nevertheless, taking place and could be quite large when averaged globally over the troposphere [the lower atmosphere].”

These findings, along with other recent discoveries, have shown that the climate model currently used to justify massive government intervention is painfully incomplete. Ironically, I think that the current Great Recession has contributed to the consideration of these findings. When the economy was strong, there was much less resistance to expensive C02-reducing technologies and policies.

Regards,

Patrick Cox

Cosmic Rays Still Changing Climate More Than Mankind Does was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Spurring Innovation through Higher Taxes?

Here’s Blinder explaining the economic benefits of a carbon tax that starts out low, but will eventually become quite steep:

“Once America’s entrepreneurs and corporate executives see lucrative opportunities from carbon-saving devices and technologies, they will start investing right away — and in ways that make the most economic sense. I don’t know whether all this innovation will lead to 80% of our electricity being generated by clean energy sources in 2035, which is the president’s goal. But I can hardly wait to witness the outpouring of ideas it would unleash. The next Steve Jobs, Bill Gates and Mark Zuckerberg are waiting in the wings to make themselves rich by helping the environment.”

We should also be clear that Blinder’s argument for job creation does not rely on the “negative externalities” of carbon emissions. Earlier in the piece, he made a list of the “few nice side effects” that would result from a carbon tax: “reducing our trade deficit, making our economy more efficient, ameliorating global warming …” Because he puts global warming at third in the list, we see that there is nothing peculiar to greenhouse gases behind his main argument for job creation.

No, Blinder is making the simple observation that if the government imposes artificial costs on the current way businesses operate, then the market will respond to the new handicap and end up generating new products and techniques along the way.

This analysis is true, as far it goes. But the same could be said for any new government policy that made it illegal for businesses to continue operating in the ways that they currently find the most efficient. For example, if the government promised to impose stiff taxes on nails and screws over the next few decades, that would certainly cause entrepreneurs to see “lucrative opportunities” in developing do-it-yourself furniture that used only wooden pegs and glue. But obviously consumers would be worse off because of the less convenient and/or more expensive products.

This is basic economics: you don’t make the country richer by taxing it, or by taking options away from industry. If investors pour money into carbon-reducing technologies under the threat of a future carbon tax, there is correspondingly less investment available for other technologies.

Dealing with Negative Externalities

Of course, advocates of a carbon tax claim that there is a special reason to penalize carbon emissions, as opposed to nails and screws. They argue that because emissions of carbon dioxide (and other greenhouse gases) may eventually lead to significant damages from climate change, entrepreneurs currently are not taking all of the costs of their actions into account.

Even if we concede this framing of the issue, it still does not follow that economists should favor a new carbon tax. Ironically, we can use the same researcher — William Nordhaus — upon whom Blinder based his own case.

It is true that Nordhaus himself favors a carbon tax. In the 2007 calibration of his “DICE” model of the global economy and climate system, Nordhaus estimated that the theoretically optimal carbon-tax regime would reduce (the present value of) climate damages by about $5 trillion, at the cost of about $2 trillion in lost economic output. This is why Nordhaus favors such a policy — its theoretical benefits exceed the costs by up to $3 trillion.

However, this figure assumes all governments around the world implement the tax. If some governments cheat, then the alleged benefits shrink, as some of the emissions simply migrate from the high-tax to the low-tax areas.

Nordhaus’s calculation also assumes that governments implement the economically optimal carbon tax. If the tax is set too high, however, Nordhaus’s results demonstrate that the cure can be much worse than the disease. For example, when Nordhaus simulated the impact of limiting atmospheric concentrations of CO2 to 1.5 times their preindustrial level, he found that it would make the world more than $14 trillion poorer than if governments did absolutely nothing to regulate emissions. This is because the simulated $13 trillion in benefits from avoided climate damage were swamped by $27 trillion in reduced economic output.

A Carbon Tax Involves Economics, Not Just Natural Science

The proponents of a carbon tax (or “cap and trade”) continuously point out that there is a “consensus” on the natural science linking human activity to rising global temperatures. But theeconomic arguments, needed to show that the benefits of a carbon tax outweigh its costs, are far less conclusive.

For example, in the spring of 2009, Richard Tol published a survey of comprehensive studies of the global “welfare impacts” of climate change.[2] His list of these impacts included, not just appraisals of direct economic harms, but also attempts to value (in dollar terms) intangibles such as human health and mortality. Of the 13 studies Tol surveyed, the best-guess estimate of global GDP impacts ranged from a loss of 4.8 percent to a gain of 2.5 percent. Most of these impacts were calibrated for temperature increases of 2.5 to 3.0 degrees Celsius, which are not expected to occur until the second half of the 21st century. (Currently the globe is about 0.8 degrees Celsius warmer than the preindustrial benchmark.)

Tol found that, of the 11 studies that had been published since the year 1995, the most grim estimate was a global GDP loss of 1.9 percent. To put that number in context, in a 2009 report the Congressional Budget Office estimated that an 83 percent cut in emissions — the long-run cap proposed under the Kerry-Boxer bill — would reduce US GDP in 2050 from 1.1 to 3.4 percent.

To repeat, the damages in Tol’s survey were calibrated for a particular range of temperature increases, and in reality it’s always possible that global warming could be worse by, say, 2085.

But using reasonable projections of what is likely to occur, the economic case for a carbon tax is not nearly the slam dunk that Blinder implied in his article. To reiterate my argument, I am conceding the basic framework of “negative externalities” and peer-reviewed models of the harms from climate change. And still, once we factor in the obvious possibility that governments will not uniformly implement the “optimal” tax, the case for intervention falls apart.

Conclusion

Alan Blinder is right that this country could use a burst of entrepreneurship and investment. But there are much more productive policies to stimulate investment than threatening future tax hikes.

Regards,
Robert P. Murphy
Whiskey & Gunpowder

February 4, 2011

Blinder Understates Cost of Carbon Tax was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

This is a critical matter and here’s the takeaway point: We’re about to see an UTTER TRANSFORMATION of the U.S. economy.

Your life will be regulated — directly and surely indirectly — by the Environmental Protection Agency (EPA), mostly through its powers under the Clean Air Act (CAA). And the parts of your life not regulated by EPA will fall under the jurisdiction of your friendly state or provincial environmental authorities. Many of the policy details will be rounded out via litigation in state and federal courts, mostly initiated by the likes of the Sierra Club and other environmental organizations.

You should expect to see STRICT controls on carbon emissions, via taxes, regulation and outright bans on many energy-using systems. And since 40% of North America’s electricity comes from burning coal, you can plan on having less electric power and on paying much higher electric rates. The utility companies will just pay the fees and costs for cap and trade and pass the bill on to you in your monthly statement, for example.

But it goes beyond just the utility companies writing checks to the government. We’re talking about BIG money, from every nook and cranny of the economy. One panelist compared the amount of money in play with cap and trade to completely rewriting the U.S. tax code. “Just tear up the tax code. Abolish it. Pulverize it so it goes away completely,” he said. “Now, rewrite it to raise even MORE money than before, and do it by taxing energy usage.”

United States of Clean Air Act?

So the CAA — which came about in the early 1970s as a way of fighting smog — is now morphing into the new constitution for the U.S. Really, I’m not exaggerating. I know some of you think I overstate my points every now and then. But I’M NOT KIDDING!

We’re seeing a new “American Revolution.” Except the key players are not exactly Ben Franklin and George Washington and James Madison. In the name of fighting climate change, there is a new class of bureaucrats, regulators and judges who will control your life down to what time you plug in your coffeepot. And with “smart metering,” they’ll know if you leave your water heater on for too long. (“Well,” is the reply, “just get a solar heater for your roof.”)

One university professor who spoke at the seminar said that if the U.S. adopts a per capita approach to sustainable worldwide energy usage — a serious proposal that’s in front of several powerful international bodies — we’ll have to reduce carbon-based energy demand in the U.S. by 97%. Basically, if that happens, the environmental true believers will take the U.S. back to an energy state that existed in the 1850s. No typo. The 1850s.

Heck, the energy future of the U.S. might make the scenes in James Kunstler’s 2008 book World Made By Hand look like a day at the beach.

So you can see why I’m saying you should accumulate gold and silver. And while you’re at it, own those geothermal power producers. They’ll be the gold mines of the future.

The “Axis of Overspending,” Inflation and the Rush to Precious Metals

Why am I banging the drum so hard for precious metals? Well, you must know the drill by now. Government spending is out of control. We have a big-spending Congress in Washington that can’t say no to anything (except the token defense cut, or taking away school vouchers from inner-city kids in the District of Columbia). It’s been going on for way too many years, under both previous and current party management.

Everybody who’s anybody in this country, it seems, gets a permanent, pet government program, if not a large bailout. (Huh? You didn’t get your program or bailout?) How long can it last? I think we’re about to find out.

As Bernie Madoff might say, “Bailout, schmailout.” Still, the axis of overspending leads to inflation. It’s the 1970s redux. And inflation will soon rear its head and roar so loud that even the wizards of Washington will have to admit the obvious.

Washington Is Awakening! But Clueless!

Actually, our betters in Washington are waking up to the issue of inflation and the decline of the dollar. Just yesterday, I received an inquiry asking if I want to appear on a nationally syndicated show that originates from Washington, D.C. (well, Alexandria, Va., to be exact). The audience is Washington people — you know the type — and their intellectual and spiritual kin in “blue spots” across the country.

Here’s the exact inquiry:

“We’re doing a story on hoarding behavior and I am looking for people who have taken some (or all) of their savings out of traditional investments and are now storing money as cash or in the form of physical gold or some other precious metal in a safe or secret place. I am having trouble finding anyone like this. Do any of you know of someone who fits this description, who might be willing to talk to me about it? I am looking for someone in Boston; Washington, D.C.; New York; or maybe Chicago. If anyone has any leads, please let me know!”

Oh, man! That’s rich! Verbatim! Honest to God, I have not edited this inquiry by EVEN ONE WORD! These people are clueless!

The producer wants to interview gold bugs for the show. In an anthropological fashion that would do Margaret Mead proud, the subject of the story is “hoarding behavior.” But the poor producer says, “I am having trouble finding anyone like this.” (Like looking for a registered Republican at the Harvard Faculty Club?) And how about that request to find somebody in Boston, Washington, New York or Chicago? If you’re from, say, the silver mining town of Wallace, Idaho, you need not apply.

Here was my reply: “People who’ve taken their savings out to buy gold and store it or hide it probably don’t want to brag about it on NPR.”

“Houston, We Have a Problem”

Remember that line from the movie Apollo 13? “Houston, we have a problem.”

Wow. Do we have a problem in this country, or WHAT? It’s WORSE than Apollo 13. We should be so lucky as to be in a small capsule in the cold of space heading away from Earth toward the moon with almost no oxygen or electrical power. Instead, we’re watching the national currency declining and dying right before our eyes. And the opinion makers of the nation don’t know anybody who owns gold. Amazing!

Meanwhile, Over in Dubai…

Well, the producer could always go find somebody in Dubai. Because from that distant desert kingdom comes word that the Dubai Multi Commodities Centre (DMCC) has finished building a state-of-the-art precious metals vault, with world-class tracking and security systems. Think Fort Knox, but in the desert and without the trees and pretty landscaping we see in the hills of Kentucky.

You want “hoarding behavior”? The new vault will become the home for the exchange-traded fund (ETF) of Dubai Gold Securities. Also, “It’s a natural home for the central banks in the region to store their gold in Dubai, rather than in London, where they have typically held their gold,” said a Dubai-based gold dealer INTL Commodities DMCC’s CEO Jeffrey Rhodes. Yep. “Natural home.” (Margaret Mead, call your office!)

A DMCC official stated that the new vault will be used to store precious metals associated with precious metal-based ETFs that are on the drawing boards and scheduled for launch later in 2009. This can only add to worldwide demand for gold and silver, especially from the traditionally gold-friendly Middle East.

Here’s the Bottom Line…

OK, so here’s the bottom line. When the American people realize that the dollar is in for another round of inflation, they’re going to look for a way out. When people envision the future decline in their purchasing power, we’ll see a rush for the monetary exits. It’ll be the “Gold Panic” of 2009, or 2010 or 2011… Whichever year gets the naming rights.

When the reality sinks in, people will flock in droves to physical precious metals (yeah, try to get some!), as well as mining shares. I’m old enough to remember the last time it happened, in the 1970s and early 1980s. And I’ve studied enough history to know it won’t be pretty.

So beat the gold rush! Hoard now!

Until we meet again,
Byron King

May 28, 2009

Gold, Climate Change and the Cap-and-Trade Revolution was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

“Climate Change” Driving Policy Now

According to the satellite builder, the dominant elements of the political and media culture are “completely in the tank” when it comes to believing in the dangers of “climate change.”  It’s not as if climate change is demonstrably true, he pointed out.  There are valid scientific data from both sides of the climate change issue, and many valid data points in between.  But according to the aerospace executive – some of whose satellites were built to track climate change — “For at least ten years, if you have not been promoting the dangers of climate change then you have not been receiving government grants.  So the research community is following the money.”

Thus the research literature is coming out strongly in favor of “doing something” about climate change.  And policy-makers are using this research literature to justify doing what they’ve wanted all along, which is change the world as we know it.  As a class, the activists want to change the world into something else.

“Pathological Hatred” of Carbon-Based Fuels

According to the steel executive, the climate change issue has spurred what amounts to “a pathological hatred” of carbon-based energy systems.  “It doesn’t have to make practical sense,” says this source.  “It doesn’t even have to work with economics.  It just has to support a policy to utterly transform the nation’s energy system.  The people making policy now have a crusader’s mentality.  ‘The past is trash,’ is how many of the new policy makers view our world.  So the new policy makers want to promote radical change in energy policy.  They’re going to jam it down the throat of the economy.”

According to the steel executive, the steel industry expects to see inflation-adjusted, baseline energy prices triple or quadruple within ten years.  “Whether the government taxes carbon-based energy at the source, or whether they pass ‘cap-and-trade’ legislation, it’s going to cost us.  So we’ll pay.  Of course, we’ll pass along the new costs to the steel buyers.  If demand goes down, we’ll close facilities.  Then the TV cameras will show up at the plant gates to watch us shut the doors and click the padlocks.  And we’ll get called bad names by the people who never much liked us in the first place.”

Can the Economy Support What the Government Wants to Do?

The former Treasury official added that a new “policy paradigm” has yet to form in Washington DC.  “It’s like during the Cold War, there was a bi-partisan consensus to confront and contain the Soviet Union.  It was expensive, but we agreed to do it.  We made the national sacrifice.  Well, that foreign policy consensus ended when the Berlin Wall fell and the USSR came down.”  The groupthink in the early 1990s was that another kind of broad consensus had to take the place of the confrontation with the Soviets.  And by its very nature, that consensus was fragile.

“Let me back up,” said the former Treasury official. “Confronting the Soviet Union gave the U.S. an excuse to continue with Franklin Roosevelt’s Depression Era, New Deal, big government for 45 years after World War II.  But after the USSR fell?  Why did we still need big government?  To run a modern welfare state?  That was the justification.  Remember the talk about that ‘Peace Dividend?’  People were drooling over the idea of cutting the military budget and paying for more and better social welfare through more big government.”

“So what happened?” asked the Treasury guy.  “Some people thought they were going to run a big government welfare state using modern monetary theory.  They convinced themselves that we could do that.  They didn’t understand the long term problem.”

What was the long-term problem?  “The welfare state was never going to last.  Especially because the nation collectively wanted it to support a rank, consumerist culture that could not earn its keep within the world economy.  We imported, imported, imported.  And we paid for it with cheap dollars.  After the U.S. left the gold standard in 1971, the fundamentals of the American productive economy could never support what the nation was trying to do.  We’ll look back eventually and realize it was delusional policy-making.  All we did was run down the economy for a couple of generations.  It finally collapsed in 2008.”

Whatever “post-USSR consensus” existed in the U.S. in the 1990s shattered during the 2000s.  “People went nuts because of the Bush Administration,” said the Treasury official.  “The white-bread explanation – call it ‘Decline and Fall for Dummies’ — was that it was all about the evil George Bush and his wars in Afghanistan and Iraq.  Well, Bush and the wars were visible, so that’s what people blamed.  The real problem for the U.S. was that the whole foundation for post-war American society, economy and governance was caving in under our feet.  The timbers were rotten.”

The Barn Burned Down – Did Anyone Notice?

According to the Treasury man, the U.S. economy is now confronted by “block obsolescence” of many of the economic and political assumptions with which we’ve lived for decades, since World War II.  “Chrysler isn’t the only big institution that’s bankrupt.  We ought to burn down a few universities, while we’re at it,” he added.

And he noted that Republicans and Democrats both fed at the trough while the going was good.  “But while the politicians had their heads buried in the trough for all those years,” he said, “they didn’t notice that the barn was burning down around them.”

The Treasury-man continued:  “Look at the destruction of former industrial titans like General Motors, and with GM the annihilation of much of the rest of the automobile industry.  Who’s going to invent whatever will take its place?  We used to say that 40% of the U.S. economy was based on the auto industry, directly or indirectly.  Are we ever going to see 40% of the U.S. economy based on putting solar panels on roofs, or tuning the gearboxes of windmills?”

“Free-Traded” to the Poorhouse – We’re at the Edge of the End

The former Treasury official looked at the ongoing economic crash.  He placed it within the context of the long-term decline in U.S. manufacturing.  “As a society,” he said, “we’ve made a lot of very bad choices of both moral philosophy and economic policy.  Those bad choices have brought us to the edge of the end.  We’ve spent, borrowed and ‘free-traded’ ourselves to the poorhouse.  Now the Chinese own us.”

Helping Embryonic Industry – Creating a Success Story

The venture capitalist chimed in with some thoughts.  “If the feds are going to spend billions on stimulus, then they ought to direct some of that money to help fund promising research.  How about some money to pay for every fossil-fuel power plant in the country to siphon off some of its CO2?  Then run the CO2 through a facility to grow algae to make biofuels.”

“We’d be killing about four birds with one stone,” explained the venture capitalist.  “We’d be taking down CO2 emissions.  Not much, maybe, but some.  We’d be helping an embryonic industry that can be competitive in coming years.  Heck, turning algae into fuel is easy.  The basic part is just high school chemistry.  So we’d be creating a new supply source for the liquid fuels industry.  And we’d be able to point to at least one success story where people can agree that we all did something right.”

Then the venture capitalist added that one of his startups is “working on coal-eating bugs.”  He explained that “There’s a lot of coal buried so deep, or under other conditions that we can’t mine it.  That coal will never get out.  So why not put bugs down in the deep seams, and let them eat the coal?  Then we can harvest the gases that come out the back end of the bugs, and use that as feedstock for other things.”

“Well, What Do YOU Think?”

At one point, one of the lunch participants turned to the silent person at the table, who was busy taking it all in and making a few discrete notes.  Then came the dreaded question, “Well Byron, what do YOU think?”

I focused my comments on geothermal development.  I pointed out that for all the anti-carbon sentiment out there, the most under-appreciated, “clean and green” energy source is geothermal.  There appears to be strong support for geothermal development via tax incentives and other, policy-based standards.  Combine this with the growing social focus on clean, renewable energy sources.

Right now, 24 states have renewable portfolio standards (RPS) for electricity production.  And Congress is leaning towards setting a national standard of 20% to 25% RPS power production by 2025.  We’re at the point where a utility like California’s Pacific Gas and Electric is so desperate for “clean” energy that they’re contracting with a privately-owned company to build a satellite to harvest solar energy from space, and “beam” it back to earth.

The companies that are out there now are in relatively advanced stages of developments.  The big problem is that the follow-on pipeline is almost empty.  The problem has been lack of access to capital for the past year or so.  In other words, lack of capital is the strongest headwind to progress.  If the funding delays can break down, then we’ll see decreased complexity for funding, and project schedules moving ahead.

That’s all for now.  Thanks for reading…

Byron King

April 30, 2009

The Direction of Energy Policy was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.