Author: admin

It’s common knowledge that China is building more coal fired power plants than the rest of the world combined. But what is less reported is that China is now the leading producer of both solar panels and wind turbines. China needs energy to feed growing demand, but it also understands that renewable energy will be a vital part of the energy supply of the future. While it is certainly good for the world that China has embraced clean technology, it could potentially be a problem for the United States. It is quite possible that if the United States does not aggressively pursue renewable technology now, which will result in developing new and improved solar panels and new and improved wind turbines, we will end up buying those products from China.

Currently renewable supply only a small percent of China’s needs, but China intends to produce 8 percent of its energy needs from renewable, including wind, solar and biomass, by 2020. Renewable also produce jobs. According to a recent New York Times article, China employs over 1 million people in its renewable energy sector, and is adding over 100,000 jobs a year.

See, http://www.nytimes.com/2010/01/31/business/energy-environment/31renew.html?ref=science

This growth in renewable energy in China is the direct result of government intervention in the economy, and China recently created a National Energy Commission to oversee all energy needs and to push for increased use of renewable.

The New York Times article notes that China has an advantage in developing renewable energy: it is starting from scratch. It has an increased need, and it is just as easy (actually easier) to build a renewable facility as a coal fired power plant. And since everything is starting from scratch, the cost of installing clean versus coal is roughly competitive. In the United States, and other developed markets, the issue is replacement of existing power generation, and so renewables are competing with an existing market.

Renewable energy does cost more than coal energy in China. Wind is as much as 40 percent more expensive than coal, and solar is about twice as expensive. But increased production drives down costs, and eventually the cost for energy from renewables will come down. And, as coal use goes up worldwide the price will go up as well, and perhaps the two cost models will meet and the cost per kilowatt will be the same.

But Chinese renewable energy companies are also interested in dominating the world market for solar panels and wind turbines. This will allow them to recoup some of their development costs by selling equipment overseas. It will also result in their domination of the supply of these products. So, there is the distinct possibility that we will trade reliance on Middle Eastern oil for our energy needs for reliance on Chinese technology for our energy needs.

So we have a couple of choice. One is to ignore renewable energy, and then when we do need alternate sources of energy we will be forced to go to China to buy the equipment. The other option is to begin developing sources of renewable here at home. I like the second choice.

[Orignally Posted on Campaign Blog on April 25]

The financial problems of the Commonwealth, and of the nation, are serious and significant. They arise from a complex set of issues, from tax policy and the changing nature of manufacturing, to competition from China and globalization. Yet some people see the solution is simplistic terms.          

Representative Stan Lee said “You can’t spend your way out of a recession. You can’t tax yourself to prosperity. You can’t borrow your way out of debt.”

With one simple sentence, Lee rejects one hundred years of evidence that Keynesian economics works. This nation only recovered from the Great Depression because of World War Two. The Great Depression ended because of government spending. Since the Second World War there have been recessions around the world, and nations have tried many possible solutions. Japan and Argentina tried cuts to government to end their major recessions, and those nations are still weekend. In Japan the 1990’s are known as the lost decade. Sweden spent its way out of a financial collapse in the late 1990’s, and the recession lasted less than a year. History teaches that done right, a nation can spend its way out of a recession.

With another simple sentence, Lee shows that he has never even contemplated the world beyond this nation’s borders. Why, for example, do Scandinavian countries have high standards of living (read a rich population) when they have high taxes, while South American countries have low standards of living when they have low tax rates? Until the 1960’s, the standard of living in Argentina, Venezuela, Chile, and Brazil was comparable to the standard of living of most of Europe.     

I know that many conservatives will say that they don’t want to be like Europe. That’s fine. But I don’t want to be like Brazil. And when I hear them talk about their ideal tax and regulatory schemes I think of Brazil: vastly rich and lightly taxed small upper class and teaming slums of the poor.

Finally, Mr. Lee says you can’t borrow your way out of debt. That is probably news to many businesses that routinely borrow money to invest in new technology or facilities all in an attempt to increase their revenue. I often hear conservatives say we should operate government more like a business, but then I hear things like Mr. Lee’s statement, and I wonder if they have any concept of what business really does.

We are faced with many complex problems. We will have a hard time solving these problems if we are so constrained by clichés and sound bites that we can’t think.      

According to standard theory, capitalism, or at least “free market” capitalism, works by individuals and businesses trying to maximize their own self interest. In essence they act selfishly and the net result is that they create a benefit for the overall society. While selfishness might seem dangerous, this selfish behavior is actually constrained by the market. If, for example, a company acts selfishly by selling shoddy goods, they will eventually loose sales when the public finds out that they are buying junk. This acts as negative reinforcement which essentially constrains the company’s ability to sell junk. A rational company will, therefore, not sell junk.  There are two important aspects of the free market that help to provide this governor of selfish behavior: the first is that people as economic actors are assumed to act rationally, and the second is the idea that the market works best when everyone has complete and accurate information. So to continue with my example, we should assume that people will act rationally and not purchase shoddy goods, and second we should assume that people will have an easy ability to know what is a shoddy good. The problem with the free market, however, is that (1) people are not rational, and (2) people do not have complete and accurate information. Examples of both abound. Advertising is based on the proven fact that people can be swayed to buy things that they do not need. And, even with the internet, we do not have complete and accurate information about products and services in the marketplace. So these regulators of selfish behavior do not work properly. Despite that, many economic purists believe that it is not just OK, but actually preferable, for people to act selfishly.  

But that type of behavior has negative consequences. Here are two recent examples. First, a drunk commodities trader in England singlehandedly pushed up the price of oil, and cost his firm millions of dollars. Drink. Trade. Refill. Lose $10 Million. The New York Times, July 1, 2010.  http://www.nytimes.com/2010/07/01/business/global/01oil.html   The second story involves Goldman Sachs and the kinds of derivative that nearly brought down the world’s financial markets in 2008. Time Magazine: How Goldman Trashed a Town, Time, July 5, 2010. Pg 32-33. http://www.time.com/time/magazine/article/0,9171,1999417,00.html Apparently Goldman created a derivative based on adjustable rate mortgages for a trader named John Paulson, who was pretty sure they were crap and would fail, and who therefore shorted them, or bet against them. Goldman, apparently knowing they were junk, engaged in some slick trading to unload the derivatives. It involved multiple sales to various different people, and at each point the new purchaser became less aware of the true nature of the derivative. Finally a number of municipalities bought the derivatives from companies that they had dealt with before, and therefore considered reliable. But what they bought was junk, and they lost millions when the derivative market crashed.  So how does that comport with economic theory? Plenty of people acted selfishly, but what about rationally? And how could people have full and accurate information when they were being lied to? And finally, how does laissez-faire economic theory explain drunk commodities brokers?

A banner at a coal industry sponsored golf outing in Prestonburg Kentucky took a nasty swipe at actress and Kentucky native Ashley Judd. The banner had a picture of Ms. Judd without a top, but with her hands over her breasts, and said “Ashley makes a living removing her top. Why can’t coal miners?” It was, apparently, directed at Judd’s criticism of mountaintop removal in eastern Kentucky.

 

The story was in the Lexington Herald Leader, and is available at:

Banner mocks topless Judd for Coal Comments

It was a particularly personal, nasty attack. Nearly 2500 years ago the Greek philosopher Aristotle said that when you have no other argument, attack the man: or in this case the woman. Aristotle knew if for what it was, a punk move, a cheap shot.

The issue of mountaintop removal is complex, and certainly many of the opponents engage in simplistic logic and reasoning. But that doesn’t justify an ugly, nasty, personal attack.

 

There is really no other way to say it. People (and organizations) that engage in nasty attacks are nasty people.   

Great article in this weeks Business Lexington on wind power in Kentucky. New maps of wind speed at higher elevations indicate that there is harvestable amounts of wind available in Kentucky. According to conservative estimates there is enough wind to generate over 100,000 Gigawatt Hours per year of electricity. Kentucky currently uses about 90,000 GWH per year, so theoretically there is enough wind to power the entire Commonwealth.

The article is at: http://www.smileypete.com/Articles-c-2010-07-08-93700.113117_Winds_of_Change.html

There are two concerns about wind and other renewable sources, like solar. First they are not available all the time, which coal certainly is. And second it currently costs more to generate wind, because it is a new technology.

Addressing the second issue first: coal is a finite resource, and as supplies decline price will increase. So at some point the price of coal power will be higher than the price of alternatives. It makes sense to start phasing in alternatives now, which will help with economies of scale and help bring down the cost.

 As to the second issue, wind would be a suplement to coal until better batteries and other storage methods are found. Coal would still be available as a back up. Using wind would not immediatly replace coal. But as mentioned, coal is a finite resource and will eventually run out. Using alternatives now will reduce the use rate of coal, which will mean that the coal we have will last longer, and that will mean miners will employed longer.

Alternatives, like wind, are a win-win. They will reduce demand for coal, which will reduce polution and help stabilize prices, and they will create jobs in a new segment of the energy market. Not a bad deal.  

I just read three articles about growing Chinese economic and political influence in Africa. The articles are:

 

The Next Empire, The Atlantic Monthly, May 2010

http://www.theatlantic.com/magazine/archive/2010/05/the-next-empire/8018

 

China’s New Continent, Time Magazine, July 5, 2010

http://www.time.com/time/specials/packages/article/0,28804,2000110_2000287_2000276,00.html

 

Look Who’s Leading, Time Magazine, July 12, 2010

http://www.time.com/time/specials/packages/article/0,28804,2000110_2000287_2001036,00.html

 

The Chinese economy is growing dramatically. They have an almost insatiable need for natural resources to supply their factories, and they are turning to Africa to obtain these resources. There are a couple of different scenarios that these articles discuss. One possibility is that the Africans will see China as new colonists, trying to exploit Africa just like the Europeans did just over a century ago. Another possibility is that the systemic problems in Africa (largely widespread corruption and ineffective governments) will prevent China from doing more than merely purchasing raw resources from Africa.

But the third possibility is that with Chinese money, and the growing professionalism described in the second Time article, African could be transformed. That would certainly be great for the Africans. But it might not be so great for the United States. The first Time article notes that China has now surpassed the United States as the leading investor in Africa. If Africa modernizes with Chinese help, African countries will most likely model their economy on China’s, and will most likely turn to China for a variety of other economic, political, and military advice.

The Chinese, apparently, see Africa as an opportunity. For the most part the United States sees Africa (or at least a majority of the nations on the Continent) as a problem needing to be fixed. The Chinese are building mines to obtain raw material, factories to process the raw material into bulk commodities, and transportation systems to move those commodities to ports for shipment to the factories of China. The United States builds schools, clinics, and water treatment facilities. For all of the admirable high-mindedness of the American projects, it is the Chinese who are raising the standard of living of the people of Africa. In twenty years, if the African economy takes off, I hope the people think kindly of the United States. Because unless things change, their main trading partner will be China.