Monday, March 19, 2018

Protectionism flickers to life

There are times when the conventional disgust with "protectionism" rises to the level of the outrage over pedophilia. Which is strange when you think about it. From Ben Franklin to Abe Lincoln to H. Ross Perot, there have been strong supporters of many of the ideas that the high tariff folks believed in so strongly. When a country is developing a sophisticated manufacturing base, the protectionists usually triumph. It is only when a country gets rich and imperial do the "free" traders win the day. The traders are a fraction of overall economic activity but when the dominant economic strategy favor traders over manufacturing, they get to write the rules in their favor.

Hudson is pretty good on trade issues. He's a ways from Lincoln but he's way better than your typical cable business talking head. So I thought he might celebrate the fact that Trump has at least moved the needle away from the free trade extremism as practiced since the late 1970s. Well, I was wrong. Hudson instead faults Trump for not having a coherent trade policy to back his Twitter outbursts on trade. Fair enough.

Me, I am happy that someone is reopening the Free Trade debate—which has been pretty dormant since the Battle for Seattle in 1999. Free trade has been such an unmitigated disaster there is barely time to count the ways. As someone who comes from the Naomi Klein wing of the DFL when it comes to trade issues, I find it a bit odd to hear some of our best arguments come from the mouth of Trump. I only hope he understands that by even questioning the free trade establishment, he has committed an unspeakable heresy and the the race is on among those who author papers glorifying the conventional economic wisdom to see who can denounce this sin with the greatest fervor.

Trump’s Travesty of Protectionism


Trump’s series of threats this week was a one-two punch. First, he threatened to impose national security tariffs on steel and aluminum, primarily against Canada and Mexico (along with Korea and Japan). Then, he suggested an alternative: He would exempt these countries if they agree to certain U.S. demands.

But these demands make so little economic sense that they should be viewed as an exercise in what academia used to call power politics. Or in Trump’s world, Us versus Them, a zero-sum game in which he has to show that America wins, they lose.

It won’t work. Trump’s diplomatic ploy with Mexico is to say that he’ll be willing to exempt them from the steel and aluminum tariffs if they agree to (1) build the wall that he promised to make them build, and (2) give other special favors to the United States. He can then go to American voters and say, “See, we won; Mexico lost.”

This is unlikely to elicit a Mexican surrender. Its president already has said that building a wall makes no sense, and cancelled the planned diplomatic visit to Washington last week. Giving in to Trump’s election promise to American voters (or more to the point, indulging in his own ego trip about the wall) would be political suicide. Trump would crow that he made Mexico bow to his bidding.

Matters aren’t much better in Canada. While some Pennsylvania and Ohio steel companies probably will try to make Trump look good by hiring back a few hundred workers if and when the tariffs are announced, Canada and other suppliers would have to be laid off. Canadian resentment already has been building up for decades, ever since the auto agreement of the 1960s and ‘70s that favored U.S. suppliers.

But the real economic problem comes from within the United States itself. If new steel workers are hired, they may be laid off in a few months. Most important is the bigger economy-wide picture: The Chamber of Commerce and other groups have calculated that the loss of jobs in steel- and aluminum-using industries will far outnumber the new hiring of steel and aluminum workers.

NPR on Wednesday had a maker of beer kegs explain that if the cost of steel goes up, he can’t afford to match the prices of foreign keg manufacturers who buy their raw materials cheaper – and do NOT have tariffs raised on higher manufactures.

There are many good arguments for protectionism. These arguments are in fact much better than the free-trade patter talk used to indoctrinate college economics students. Of all the branches of today’s mainstream economics, free-trade theory is the most unrealistic. If it were realistic, Britain, the United States and Germany never would have risen to world industrial powers. (I review the fallacies of free-trade theory in Trade, Development and Foreign Debt.)

Economic history provides a long and excellent successful pedigree of good arguments for protective tariffs. Britain created its empire by protectionism, stifling manufactures in the United States as long as it pursued free trade. After the Civil War ended, America built up its industry and agriculture by protectionism, as did Germany and France. (I discuss the strategy in America’s Protectionist Takeoff: 1815-1914.)

But as each of these nations became world leaders, they sought to pull up the ladder and prevent other countries from protecting their own industry and agriculture. So they changed to “free trade imperialism.” The aim of industrial leaders is to convince other countries not to regulate or plan their own markets, but to let the United States engineer an asymmetrical trade policy whose aim is to make other countries dependent on its food exports and monopoly exports, while opening their markets to U.S. companies.

Since the 1920s the protectionist economies that came to support free trade have rewritten of history to white out how they got rich. The strategy of protectionism has been forgotten. Trump’s so-called protective tariffs against steel and aluminum are the antithesis to every principle of protectionism. That is why they are so self-destructive.

A really nationalistic trade strategy is to buy raw materials cheaply, and sell finished manufactured goods at a high value-added price.

The idea of industrial protectionism, from British free trade in the 19thcentury to U.S. trade strategy in the 20th century, was to obtain raw materials in the cheapest places – by making other countries compete to supply them – and protect your high-technology manufactures where the major capital investment, profits and monopoly rents are.

Trump is doing the reverse: He’s increasing the cost of steel and aluminum raw materials inputs. This will squeeze the profits of industrial companies using steel and aluminum – without protecting their markets.

In fact, other countries are now able to legally raise their tariffs to protect their highest-technology sectors that might be most threatened by U.S. exports. Harley Davidson motorcycles have been singled out. They also can block U.S. monopoly exports, such as bourbon and Levi blue jeans, or pharmaceuticals. Or, China can block whatever U.S. technology it decides it wants to compete with.

Trump’s tariff threats caused short-term aluminum prices to jump by 40 percent, and steel prices by about 33 percent. This raises the price of these materials to U.S. manufacturers, squeezing their profits. Foreign manufacturers will not have their materials prices increased, and so can out-compete with U.S. steel- or aluminum-using rivals. The global oversupply in fact may make the price of steel and aluminum decline in foreign markets. So foreign industry will gain a cost advantage.

On top of that, foreign countries can legally raise tariffs in their own markets – for whatever industries they deem will best gain from this advantage.

Trump’s tariffs will not induce new capital investment in steel or aluminum

America’s logic behind protective tariffs after the Civil War ended the Southern free-trade policies was that tariff protection would create a price umbrella enabling U.S. manufacturers to invest in plant and equipment. Britain already had made these sunk costs, so the United States had to include the cost of capital in its revenue.

That’s how America built up its steel industry, chemical industry and other manufacturing industry.

But no steel or aluminum company is likely to invest more or hire more U.S. labor as a result of higher tariff revenues. These companies may raise their prices, but neither investment nor trickle-down effects are likely.

For one thing, aluminum is made out of electricity, and America is a high-cost producer. Alcan – America’s largest supplier – has a rip-off deal with Iceland getting electricity almost for nothing.

For steel, it takes a long time to build a modern steel mill. No company will do this without an assured market. Trump’s tariff increases do not guarantee that.

America’s policy of breaking international agreements (we’re the “indispensable nation”)

Few companies, labor groups or banks in New York City have been willing to trust Mr. Trump in recent years. He should have called his book “The Art of BREAKING THE deal.” That’s how he made his money. He would sign an agreement with suppliers to his hotels or other buildings, and then offer only 80 cents (or less) on the dollar. He’d tell them, in effect: “You want to sue? That will cost you $50,000 to get into court, and then wait three or four years, by which time we’ll have made enough money to pay you on the cheap.”

Bank lenders had as much trouble getting paid as did Trump’s hapless suppliers. He made his fortune this way – so successfully that he seems to believe that he can use the same strategy in international diplomacy, just as he’s threatening to break the Iran agreement.

Will this work? Or are foreign economies coming to view the United States as “not agreement-capable”? In fact, will U.S. companies themselves believe that agreements signed today will still be honored tomorrow?

Trump’s national security ploy to bypass Congressional authority over trade policy

This is not the first time the United States has raised tariffs unilaterally. George W. Bush did it. And my 1979 book, Global Fracture, describes U.S. protectionism in the 1970s against other countries. America did it again and again.

But Trump has introduced some new twists. First of all, former U.S. protectionism had Congressional backing. But Trump has bypassed Congress, no doubt aware that steel-using and aluminum-using industries can mobilize Congressional support against Trump.

So Trump has used the one play available to the Executive Branch: the National Security umbrella. In a great mind-expansion exercise he claims that it would be a loss of national security to depend on neighboring Canada, Mexico, or allies such as South Korea and Japan for steel and aluminum. If he can convince a kangaroo trade court, this loophole is indeed allowed under WTO rules (GATT Article XXI). The idea was to apply to times of war or other great crisis. But U.S. steel and aluminum production has been steady for over a decade, and there seems to be no military or economic crisis affecting national security.

Suppose Trump gets away with it. Other countries can play this “national security” game. Any economic activity can be deemed national security, because every economy is an overall system, with every given part affecting all the others. So Trump has opened the door for overall asymmetrical jockeying for position. The most likely arena may be high-technology and military-related sectors.

Back in the 1980s this was called “Uncle Sucker” patter talk – acting as if the United States was the exploited party, not the exploiting actor in international trade and investment. Ultimately at issue is how much policy asymmetry the rest of the world is willing to tolerate. Can the United States still push other countries around as it has done for so many years? How far can America push its one-sided agreements before other countries break away?

Each foreign country threatened with loss of steel or aluminum exports has a more high-tech industry that it would like to protect against U.S. competition. The response is likely to be asymmetrical.

And here at home, how long will higher manufacturing industries back Mr. Trump and his policy that makes a travesty of “smart” protectionism? more

Wednesday, March 14, 2018

Even the Paris 2015 climate accords won't solve the problem

Robert Hunziker is perhaps the politician that best understands climate change—and has for some time. He is running for a seat in Washington's 8th Congressional District. I certainly hope he wins.

Whenever I stumble across someone who has a profound and deep understanding of a subject, I am immediately curious as to how he came to be that way. I am especially curious if that person is young. His campaign literature sort of explains his enlightened worldview. Turns out that there CAN be some significant advantages to learning a society from the bottom up. So here's to someone who has had enough exposure to Producing Class virtue to understand that no matter how enlightened a Leisure Class actor, that person cannot build the sustainable future.

Monday, March 12, 2018

Infrastructure funding

Whenever I discuss possible solutions to climate change, it isn't long before someone demands, "How much will this cost??!! And how do you propose we pay for it?" These are in fact excellent questions because the MAIN reason why this civilization-threatening problem doesn't get seriously addressed is the sticker shock that occurs whenever someone gives a realistic estimate for a fix.

Then there's Ellen Brown who reminds us that the problem of not enough money should be the easiest problem to solve of all.  Then she gives us historical examples of why democratic money creation suggest the perfect solutions to the funding problems. Unfortunately, folks who saw the world like Ellen does mostly disappeared by the early 1950s so she has become an almost lone voice for a sane monetary and banking organization.

Which is all the more reason why she should be read.

Friday, March 9, 2018

Climate Tipping Points

Like many college students, there has been a sense when the subject was climate change that we could always "cram for the final" when things got really serious. Now I feel a shift in tone—there is a sense of urgency. Below are two short pieces that address why this may be so. The first addresses the new and truly frightening data the great scientific measurements can provide. While second talks about the disappearing paradise that was Santa Barbara California. Two different looks at impending doom and how close it may be.

Monday, March 5, 2018

The power of conventional wisdom

One of the smartest men I know once assured me that the "Zeitgeist cannot be changed—that's what makes it the Zeitgeist." OK. Except I know better. I grew up in the world created by the Keynesians of the Ken Galbraith variety. I watched it just disappear in the wake of the 1973 Arab oil embargo to be replaced by people who believed in ideas that supposedly had been forever discredited by the Great Depression. I still gasp at the sheer audacity of it all. It helped immeasurably that we had become a land of historical illiterates (The United States of Amnesia--Gore Vidal) so forgetting economic history was a trivial problem. And so the Zeitgeist changed from the Keynesians to the Monetarists in an historical eye-blink. Maoists become central bankers. And no, I most certainly do NOT believe all this happened by accident.

Even so, this was much easier than anyone could have imagined (or at least me.) The family business was running a church where I learned just how difficult it is to get folks to change their minds. Turns out well-funded think tanks can change quite a few minds. Jason Hirthler lays out a believable explanation for how and why this happened. Interesting reading.

Tuesday, February 27, 2018

DW examines what the oil giants knew about climate change

DW has produced an excellent documentary on the subject How much did the major oil companies know about climate change? Turns out they knew a very great deal. People who actually did some of the research are interviewed for the first time. This is quite remarkable.

The video has been pulled down from YouTube but can still be seen here.

Monday, February 26, 2018

Last Year Hottest ‘By Far’: World’s Oceans Top Temperature Records Again

Remember, air pollution is just a step on the way to becoming water pollution. This was the most memorable one-liner in a class on Energy and Public Policy I took in 1974. Of course, the big subject in those days was acid rain but the policy holds true for global heat retention. Whatever heats the atmosphere will eventually heat the oceans. 2017 was a record year for warming oceans. It was also a record year for damaging hurricanes with Harvey's damage to greater Houston at over $125 billion leading a $300+billion total in natural disasters.

Wednesday, February 21, 2018

A sense of urgency

Quite honestly, I do not know a great deal about Robert Hunziker. But on Monday, he wrote a piece that was special because it injected urgency into the climate debate. Urgency is a quality I often forget to stress both in my life and this blog. So I really appreciated his effort. If we are to escape the fire and energy trap we have built for ourselves, time is rapidly running out—if the goal is to build a post-fire civilization, we should have gotten serious about it in 1973. Projects take time. BIG projects take BIG time and effort. So rebuilding complete civilization, which is the biggest project I can imagine, will require trillions and a global effort.

In addition to reposting him below, I wrote him an email.
Your There is no time left was magnificently crafted—not to mention scary as hell.

As I see it, the fact that no one wants to talk about genuine climate change solutions is that the problem is SO large, very few can comprehend even a tiny segment of the big picture.

The basic problem is fire—that’s where most of the excess CO2 is generated. Making things worse, we are burning carbon that is millions of years old (coal, petroleum). And making this catastrophic, civilizations were designed to run on fire. This took humanity at least 6000 years to accomplish. If your essay is even partially correct, we have about 5 years to replace this incredible investment.

Part two is cultural. This sort of solution will absolutely depend on the kind of people who build the extremely difficult. While the idea of covering a cloudless hunk of the Gobi with solar cells is imaginative, it doesn’t work unless people figure out how to move that massive energy to China’s great cities. Since this has never been done before, it rivals the moon shot in complexity. (Five years, huh?) And yet, we live in a culture whose closest portrayal of the scientific and technological literate is The Big Bang Theory. Yet it is precisely these sorts of persons who have ANY chance of building the new and necessary world. At least we could stop making fun of them and learn what they must accomplish.

Rebuilding complete civilizations will be expensive. We need the world’s central banks to change policy so that the end-fire project is properly financed. Unfortunately, the people who pull the large levers of monetary policy share a fatal flaw—they are scientifically and technologically illiterate. Yet they can either ensure a new civilization or watch the one we have burn to a crisp. Time to make a new qualification for potential central bankers—they MUST be able to demonstrate an understanding of what it means to live in a fire-based civilization.


Monday, February 19, 2018

Peak Fracking

Kunstler has a habit of speculation about the future with at best, partial information. But on this subject, he is spot on! Shale oil is a mirage. It is a secondary recover scheme that only works when there is plenty of money financing this crazy difficult / expensive scheme. In many cases, shale exploration does not even cover the investment in purely energy terms so eventually, even the hot money boys will find something else to do.

Of course, none of this is especially new. I knew folks in 1960s oil patch North Dakota who could have predicted that the long-term outcome for such scheme was non-producing wells.

Enjoy Kunstler at his most informative.

Sunday, February 11, 2018

HAWB 1816-1834 - West Point Foundry and Steam Power for the Navy

How America Was Built

HAWB 1816-1834 - West Point Foundry and Steam Power for the Navy

The following is an excerpt from my book Admiral Benjamin Franklin Isherwood and the Scientific Study of Steam Power (which will hopefully be published later this year), detailing how the U.S. government helped create a private enterprise in 1816, how that enterprise became a leading center of metal working and steam engine building, and how 18 years later the national government turned to that company to help the Navy adopt the new technology of steam propulsion. This is not the mythical laissez faire, "free market" capitalism that supposedly built the United States. It is a deliberate policy of nation building, originated by first Secretary of the Treasury Alexander Hamilton, and carried out by his successors. 

By the early 1830s, there were some people beginning to worry about the more rapid development of naval steam power in Britain, but not much was done. Some Navy Secretaries briefly summarized known developments in the Royal Navy their annual reports, but Congress was not inclined to act on the matter.[1] Things began to change in July 1834, when U.S. Senator from New Jersey Mahlon Dickerson was appointed Secretary of the Navy. Dickerson had been chairman of the Senate Committee on Commerce and Manufactures for the 16th through 18th Congresses and the Senate Committee on Manufactures from the 19th through 22nd Congresses, and no doubt was familiar with the state of steam engine design and manufacture in the country. The Board of Navy Commissioners was already in contact with engine builders, and was trying to obtain plans from the West Point Foundry.[2] In June 1835, President Andrew Jackson ordered Navy Secretary Dickerson to direct the Board of Naval Commissioners to actually begin building a steam battery. This would become the 181-foot, 1,200-ton Fulton II, based on Humphreys’ plans of 1831, with an additional 41 feet of length.

But the Navy had not a single officer or sailor with a solid knowledge of the design and operation of steam engines.... by the end of the year the Board was forced to admit it simply did not have the knowledge and expertise to carry it into effect. In a remarkable letter to Secretary Dickerson, dated December 30, 1835, the Commissioners frankly confessed “their ignorance upon the subject of steam engines” and doubted they would be able to even provide “necessary information to enable persons to make proper offers” to design and build the engines. “They [the Commissioners] are satisfied that they are incompetent themselves, and have no person under their direction who could furnish them with the necessary information to form a contract for steam engines that may secure the United States from imposition, disappointment, and loss…”[3]

Fully aware that they lacked the expertise to make any decisions regarding procurement of steam engines, the Board of Commissioners, requested assistance from Gouverneur Kemble, president of the West Point Foundry, at the time perhaps the largest iron foundry and engine builder in the country. The West Point Foundry was established in 1816 at one of four strategic locations selected by Secretary of War James Monroe and Secretary of the Treasury Alexander J. Dallas for the construction of iron foundries to produce cannon and shot for the Army and Navy. It was located in Cold Spring, New York, on the Hudson River opposite West Point. (The other foundry sites were Georgetown, D.C., Richmond, Va., and Pittsburgh, Penn.) To begin construction, $25,000 in direct funding was given to Gouverneur Kemble, a New York businessman “who had served Commodore Stephen Decatur's fleet as an assistant navy agent in Cadiz, Spain during the Barbary War in 1814,” and who therefore was “no stranger to the Navy Department's method of procuring supplies or doing business.”[4] 

The foundry’s first engine for a steamboat was built in 1823 for the James Kent. It was a very successful design, securing the company a leading reputation for building engines and other machinery. Over the next two decades the foundry built engines for a number of other boats, including Victory (1827), DeWitt Clinton (1828), Erie (1832), Champlain (1832), Highlander (1835), Swallow (1836), Rochester (1836), Utica (1837), and Troy (1841).[5] Beginning in 1830, West Point Foundry built three of the first four steam railroad locomotives made in the United States. The first, Tom Thumb, was designed, built, and operated by Peter Cooper, and was only an experimental machine, intended not for revenue service, but to convince the directors of the Baltimore and Ohio Railroad that steam was a viable source of power for railroads (it must be recalled that at the time, there were widespread doubts about the feasibility of applying power to iron wheels on iron rails, especially up a grade.) The next three locomotives built in the U.S. were all intended for revenue service, and all were built by the West Point Foundry: Best Friend of Charleston (1830), and West Point (1831), both for the South Carolina Canal and Rail Road Company, followed in 1831 by the DeWitt Clinton, for the Mohawk & Hudson Railway. These was followed a few years later by the locomotives Phoenix and Experiment, the last reportedly capable of reaching 80 miles per hour.[6]

It must be noted—especially now, when the economic role of government is under constant attack as dangerous “statism”—that the shift by a government-funded establishment into a leading role in new technologies was entirely in accord with the intent of first President George Washington, and his Treasury Secretary, Alexander Hamilton, and their plans to have the new government actively foster and promote economic development. In his 1791 Report on Manufactures, Hamilton wrote:

To cherish and stimulate the activity of the human mind, by multiplying the objects of enterprise, is not among the least considerable of the expedients by which the wealth of a nation may be promoted…. Experience teaches, that men are often so much governed by what they are accustomed to see and practise, that the simplest and most obvious improvements, in the most ordinary occupations, are adopted with hesitation, reluctance, and by slow gradations…. To produce the desirable changes as early as may be expedient may therefore require the incitement and patronage of government… it is of importance that the confidence of cautious, sagacious capitalists, both citizens and foreigners, should be excited. And to inspire this description of persons with confidence, it is essential that they should be made to see in any project which is new—and for that reason alone, if for no other, precarious—the prospect of such a degree of countenance and support from government, as may be capable of overcoming the obstacles inseparable from first experiments.[7]

When the Navy Board of Commissioners requested his assistance, Kemble in turn sought the advice of Robert L. Stevens, son of the builder of the first steam battery in 1814. He had helped his father design and build the steamboats Phoenix (1807) and Julianna (1811), and mastered them on the Delaware River, servicing Philadelphia. The Phoenix had been built in Hoboken, New Jersey, and her transit from thence to Philadelphia in June 1809 made her the first steamboat to sail the open ocean. Robert Stevens had also traveled to Britain to examine railroads and locomotives there, and had brought the locomotive John Bull to the U.S. in 1831 to operate on the Camden and Amboy Railroad, of which Stevens was president.

When Kemble’s brother, William—who was West Point Foundry’ agent in New York City and presumably was dealing with Stevens—sent drawings for engines to Navy Commissioner John Rodgers in January 1834, he included a note stating “Robert Stevens feels the engines above 30 inches cylinder should not be vertical due to wear in the underside and in vessels because of the length taken up by the engine.”[8]

The plans and accompanying explanations must have further perplexed the board. In June 1835, the Board requested it be allowed to again contact Stevens, plus others who had designed and commanded steam vessels. Secretary Dickerson readily agreed. Three board commissioners traveled to New York, and began gathering information. At some point, they concluded that the Navy simply needed to secure the services of someone with the training and skills required to supervise the acquisition and building of steam engines, and installing them in a hull. In July 1836, the Commissioners accepted the offer of Charles H. Haswell, a skilled worker at the West Point Foundry, to design a steam engine and supervise its construction. Haswell had been schooled in the classics, but in 1828, at the age of 19, he began working at the New York City engine works of James P. Allaire, one of the first major builders of steam engines and boilers in the United States. The brass hardware and fittings for the engine of Robert Fulton’s North River / Clermont were built by Allaire.

At first, Haswell was a temporary employee of the Navy Board of Commissioners, but it quickly became apparent that his lack of rank was a serious disadvantage in dealing with naval officers, so Haswell was given the official title of “Chief Engineer” of the Fulton II. This had little actual effect; obstruction and delays continued; and the steam battery was not ready for launch until May 1837.

With the hiring of Haswell, the virtuous economic circle designed by Alexander Hamilton was completed. The government had “cherished and stimulated the activity of the human mind,” and “multiplied the objects of enterprise,” and now was harvesting the wealth of mechanical knowledge which had thereby been promoted. The national government had provided direct funding for the creation of West Point Foundry, and within two decades it had become a center of the nation’s most advanced metalworking and machine-making capabilities. Now the government was reaching out to enlist the skills and capabilities of the Foundry to help the nation’s Navy transit into the modern era of mechanized power. 

[1] Sprout, Harold and Margaret, The Rise of American Naval Power, Princeton, NJ, 1966, Princeton University Press, pp. 112-113.

[2] Tomblin, Barbara, From Sail to Steam: The Development of Steam Technology in the United States Navy, 1838-1903 (unpublished History PhD dissertation, Rutgers University, 1988, pp. 14-15.

[3] Bennett, Frank M., The Steam Navy of the United States; A History of the Growth of the Steam Vessel of War in the U.S. Navy, and of the Naval Engineer Corps, Press of W. T. Nicholson, Pittsburgh, Penn., 1896, p. 18.

[4] Tomblin, pp. 15-17.

[5] Buckman, David Lear, Old Steamboat Days on the Hudson River; tales and reminiscences of the stirring times that followed the introduction of steam navigation, New York, 1907, The Grafton Press, pp. 137-138.

[6] “Archaeological Research at West Point Foundry Preserve,”, accessed November 7, 2017.

[7] Hamilton, Alexander, Report on Manufactures, Communicated to the House of Representatives, December 5, 1791.

[8] Tomblin, p. 21.

Wednesday, February 7, 2018

Donald Trump isn't the only solar power protectionist

The Chinese really DID cheat on solar panels. The chain of events goes something like:
  1. The Germans, even though blessed with very few good natural solar sites, decide to forge ahead with solar cell development anyway. To make this all work, they create an industry from scratch and cover the upfront capital costs with subsidies. They justify this public expense by claiming it is a jobs program for the old DDR.
  2. Solar cells are very sophisticated products. To make them successfully, they required the creation of very sophisticated tooling. The folks who figured out how to make these tools, naturally looked for new customers beyond the Germans that bought them first. So when the Chinese got into solar cell manufacture, they could purchase excellent tools off the shelf sold to them by folks who knew what they were doing. Ah yes, the advantages of being second.
  3. Suddenly, the Chinese could build solar panels for a fraction of what it cost to invent the methods in the first place. In fact they created a glut on the market that could could only be cleared by dramatically lowering prices. They lowered them so much, that the Germans (and others) actually won some trade rulings in WTO. 
  4. The EU slapped tariffs on Chinese solar panels in 2013, which were renewed in 2017. So when Trump got into the act in 2018, he was not being especially innovative. There seems little to make one believe that he acted to protect infant solar industry in USA—the most common defense of tariffs. Rather, he did it to burnish his America-First credentials. We will see how that goes.
My guess is that these tariffs will have very little impact. The reason solar is growing by leaps and bounds is that the industry has perfected some very efficient and low-cost methods of manufacture. Solar is already cheaper than any of the alternatives and new methods will probably lower costs even more. And if the Chinese government is already subsidizing their solar industry, they can probably plug a few sales holes caused by tariffs.

Tuesday, January 30, 2018

Protectionism in the age of solar cells, Part 2

When the Trump administration announced last week that it was imposing tariffs on solar cell panels mostly coming from South Korea and China, it appears that the progressive blogosphere was almost unanimous in condemning the action as an attack on solar energy.

I was dismayed that the neoliberal lies about free trade had apparently been accepted by so many. As Jon Larson wrote on Real Economics, “In certain corners of the economic world, this is a major story—mostly because it flies in the face of neoliberalism's first commandment—Thou shall not condone protectionism!”

The tariffs should be attacked, but not because they are tariffs, not because they are protectionist, not because they may lead to less imports of panels and therefore the loss of jobs of people installing them.

The tariffs should be attacked because they are not accompanied by a robust industrial policy that will help USA manufacturers replace panels no longer being imported, by panels of domestic manufacture.

Protectionism is an issue on which the Democratic Party and the left in general are very vulnerable. Basically, they have forgotten the actual history of industrial development: every single country that successfully industrialized did so behind trade barriers. Many readers may not believe me, but it is historical fact. For a relatively short but full explication of the fact that protectionism works, I point you to James Fallows’ December 1993 article in The Atlantic, “How the World Works.” For an entire book on this topic, the best is probably South Korean economist Ha-Joon Chang's 2007 book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, available as a large pdf file here. An excellent review of Chang’s book, by Chalmers Johnson, is here.

For a brief discussion of how this history was purposefully and deliberately eradicated from American universities and economics courses a century ago, read “Prophet of Prosperity” in a recent issue of The Pennsylvania Gazette of the University of Pennsylvania. The motive? “...landlords and other rentiers were reclassified as capitalists, just ones who invested in land and raw assets rather than machinery, and thereby earned “the increments of value attaching to land,” thus removing the social opprobrium of being exploiters, parasites and usurers. And, more importantly, to allow “money to make money.”

We like to taunt our conservative and libertarian opponents that you are entitled to your own opinions, but you are not entitled to your own facts. Well, the same applies on this issue, and to the neoliberals amongst us: you are entitled to your own opinions, but you are not entitled to your own facts. The facts are clear that historically, countries that successfully industrialized did so behind trade barriers that protected their infant industries, and protected the earning power of their working people. The facts are equally clear that since the imposition of economic neoliberalism and free trade on developing countries, and their enforcement by the World Bank, the International Monetary Fund, and other international NGOs, not to mention the USA government and others, the growth rate of the national economies of developing countries has been LESS than it was before neoliberalism and free trade. Those are the facts, and all the crap you were taught in college economics courses will not change them.

But protectionism alone does not work. There must be a national industrial policy to promote and encourage the development and growth of new industries. As originally developed by George Washington and his Treasury Secretary, Alexander Hamilton, and later in the 19th century by Henry Clay, Henry Carey, Abraham Lincoln (on Lincoln, see one of the best overlooked books on historical political economy, Lincoln and the Economics of the American Dream, by Gabor S. Borit, Memphis State University Press, 1978)., and others, protectionism was one pillar of a three-part program for national economic development. The other two were a national banking system, and internal improvements (what we today call infrastructure).

Saturday, January 27, 2018

Protectionism in the age of solar cells

The Trump administration has annouced its intention to slap some tariffs on products mostly coming from S. Korea and China. In certain corners of the economic world, this is a major story—mostly because it flies in the face of neoliberalism's first commandment—Thou shall not condone protectionism!

As two guys who are serious students of industrialization in general and USA industrialization in particular, Tony and I are pretty supportive of some sort of economic protectionism. Tony's approach is very straight-forward—he looks at the historical record and sees that every nation that successfully industrialized did it behind tariff walls.

My take is that because the financial markets are hopelessly corrupt, shortsighted, and technologically illiterate, they are unable to properly value the infrastructure of industrialization. When financialization first started, there were a few protests at the ability of real scoundrels to seize and then cash in on assets they rarely understood, who in the process of their plunder, squandered a system of wealth creation that had taken decades to create. They pissed away USA's industrial crown jewels for a tiny fraction of what they were worth with their get-rich-quick schemes. These protests probably crested with Oliver Stone's movie Wall Street—an effort so excellent, I suspect Stone didn't even know how good it was.

Along with the plunder came the justifications for why this did not matter. Around here, these loony economic expressions for how the world should work, but doesn't, are lumped under the garbage pile we call neoliberalism. And in the world of the neoliberals, there is no greater sin than "protectionism." Yet here we are with a president who believes that tariffs and such are probably a good thing. He's about 30 years too late, but he seems to think USA industry should be protected. One other thing, the Asians have been about as brazen in their theft of intellectual property as anyone—including USA from GB. The Chinese were caught red-handed dumping solar panels. The party injured by this was actually Germany but a couple of USA manufacturers won some settlement with the Chinese. Ironically, both USA victims are foreign-owned—one German, one Chinese.

I have included four essays on this subject after the break:
  1. The Asians seem to think this is a major shift in USA trade policy. My guess is that they will figure out ways to adjust to new market realities.
  2. Lindorff seems to think these tough new trade rules are a manifestation of an unhappy empire that wants to slap around China and Korea for the crime of wanting a different foreign policy than the folks from Foggy Bottom.
  3. Reuters, which always believes protectionism is a bad thing, argues that tariffs on solar panels will most hurt the solar panel installers.
  4. The folks at Rolling Stone just assume this is Trump's way of throwing some roadblocks in the way of new green technologies.
All of these folks have a point. And we will probably hear a lot more on this subject. This is a protectionist proposal in a neoliberal world—a world with thousand of economists well-trained and motivated towards shooting this thing down. As someone who participated in the debate over NAFTA, I am very interested to see how this debate will differ.

Saturday, January 20, 2018

Bids to build renewable energy in Colorado point to a bright future

In Colorado, an electric utility's request for proposals to build new generating capacity resulted in stunning evidence that renewables are now cheaper than fossil fuels--even with storage capacity included for when solar and wind are "down."

This merely confirms that there is a boom in renewable energy underway, but judged from the perspective of the task at hand--putting the entire global economy on a renewable energy basis and eliminating the burning of fossil fuels altogether--this boom is merely a blip. Bloomberg New Energy Finance, which has been tracking global investments in the sector for the past ten years, reported that renewable energy investment in 2017 totaled $333.5 billion worldwide, up three percent from 2016. The 2017 numbers were the second highest yet recorded, and brought cumulative investment in renewables since 2010 to $2.5 trillion.

This may sound like a lot of money--and it is--but it should also be viewed in the context of fossil fuels being subsidized $1.9 trillion a year. And that number is from five years ago. According to a report from the International Monetary Fund in March 2013, governments around the world give $480 billion a year in direct subsidies. This is a worldwide amount, and it is not structured as you might expect: most of these direct fossil fuel subsidies are by governments in the developing world and are designed to make petro-products affordable for poor people. The remaining $1.4 trillion, according to the IMF, is the “externalities” cost of  “the effects of energy consumption on global warming; on public health through the adverse effects on local pollution; on traffic congestion and accidents; and on road damage.” A writer summarizing the IMF report noted that by "failing to make fossil fuel companies pay" for these externalities, "governments are implicitly subsidizing those companies. IMF calls this under-taxing of fossil fuels “mispricing,” but it’s easier to think of them as indirect subsidies."
But the amount actually needed to shift the entire world to renewables is $100 trillion. We could achieve that in 15 years with a slightly less than ten percent increase in annual world economic output--which would create the largest and most sustained economic boom in human history. That is an investment of just under $7 trillion a year. So, the $333.5 billion worldwide in 2017 needs to be increased twenty-fold.

This shows that a reliance on the conservative/libertarian/neoliberal ideology of free markets and private enterprise is woefully inadequate to what needs to be done. We need the activist role of national governments promoting and supporting economic activity that promotes the General Welfare, and discourages economic activity that is useless and often predatory, such as speculative trading in stock, bond, futures, currency and derivative markets. Contrary to the myths of conservatives and libertarians, this issue of the government actively steering the national economy in a positive direction was the central focus of the U.S. Constitutional Convention of 1787. The U.S. Constitution, its mandate to promote the General Welfare, and the entire history of How America Was Built, clearly shows that government of, by, and for the people, must supervise the building of an economy  of, by, and for the people.

Thursday, January 18, 2018

The decline and fall of neoliberalism in the Democratic Party

If you are snow-bound in USA today, and want something to read, I highly recommend Ryan Cooper's excellent short summary of USA political and economic history since the New Deal, posted last week, The decline and fall of neoliberalism in the Democratic Party
Nations took various roads out of the Great Depression. Every one involved ditching liberal orthodoxy — deficit spending and the abandonment of the gold standard being the key two policies in most instances, which had to overcome resistance from business. In Germany, fascism removed "capitalist objections to full employment," wrote economist Michal Kalecki, by routing all deficit spending into rearmament and by keeping labor quiescent with political repression and permanent dictatorship. 
In the United States, the replacement ideology was the New Deal. After some initial failed experimentation with planning, New Dealers settled on a framework of stimulus, regulation, unionization, progressive taxation, and anti-trust, heavily influenced by Louis Brandeis (to be covered in the next article in this series). To get people back to work and prime the economic pump, vast new public works were built, and millions were directly employed by the state. Business — especially finance — was regulated, above all to prevent concentration. Unions were protected under a new legal regime created by the National Labor Relations Act. Taxes on the rich were sharply increased, both to raise revenue and to deliberately prevent the accumulation of vast fortunes. Finally, world trade was managed under the Bretton-Woods system.
These two paragraphs are an excellent summary of what the New Deal was -- and what was dismantled in a joint project of conservatives, libertarians, and neoliberals. This dismantling is why neoliberals are as much to blame for the rise of neofascism around the world. While conservatives, libertarians and the Republican Party, the past half century, constantly stoked bigotry by "feeding meat to their base," neoliberals joined them in destroying the "welfare state" policies that were enacted after World War Two to ensure that never again would fascism be incubated in a cauldron of economic misery and inequality. 

Cooper includes all the most important points of this history, with the exception of the race to the bottom initiated by NAFTA and free trade. Also, Cooper does not fully grasp that the prosperity of the tech boom under Clinton was mostly the result of the phase shift in the national economy resulting from the 1950s through 1980s build-out of the new technology of computers, which -- like all phase shifts in the economy -- began with government support and promotion of new technologies (in this case, computers are developed in military research programs during World War for ballistics calculations, fire control, aircraft simulation, radar, code breaking, and physics calculation for the Manhattan Project, as covered in my chronology HAWB 1940s-1950s Timeline of computer development shows crucial role of government.)

Cooper's article is the first of a four-part series examining the four major factions in the Democratic Party and American left today. This first part considers the neoliberals, which of course is the faction which currently dominates the Democratic Party leadership, though it is in a dwindling minority. It dominates because it has money, but not votes. 

The second part is The Return of the Trust Busters, the faction around Elizabeth Warren, which Cooper brilliantly traces back to Louis Brandeis. 

The third article is Bernie Sanders and the Rise of American Social Democracy.

The fourth and final installment is The Dawn of American Socialism, which focused on the faction led by the Democratic Socialists of America.

There is no consideration of the historically crucial role of the American School of political economy, which helps explain why Cooper does not include the disastrous "race to the bottom" initiated by NAFTA and free trade.

I also highly recommend Cooper's How to Crush Trump from December 27, 2017, especially this paragraph:
Then in 2020, Trump must be crushed at the ballot box. His corrupt administration must be thoroughly investigated, and any criminal acts punished. More importantly, the economic base of Republican plutocracy — Wall Street, monopolist corporations, and idle rich heirs and heiresses — must also be crushed. Monopolies must be broken up, taxes on the rich and corporations dramatically increased, and the size, profitability, and power of Wall Street sharply reduced with cricket bat regulations.
None of Obama's "don't look back, only forward," pursuit of bipartisan unicorns. Criminal activity must be ruthlessly targeted and vigorously prosecuted, ESPECIALLY by our political enemies.

Wednesday, January 17, 2018

Even the Germans are dropping climate goals

The Germans have been world leaders in pursuing ambitious environmental goals by improving hardware. But their efforts are showing signs of fatigue. The commitment to "clean diesel" has shown pretty conclusively that a vehicle with reasonable fuel economy and performance cannot be built. So everyone started to cheat. Turns out it is easier to raise environmental standards than to comply with them. Especially if the new standards cannot be met because of hard scientific laws.

In addition, the Germans paid for much of the heavy lifting necessary to make solar panels on a commercial scale. And then the Chinese ran off with their markets using the same production technology. This tends to be disheartening. So they are not especially enthusiastic about meeting the climate targets they set in Paris 2015. Throw into the mix that the Germans do not have a government these days and it looks like the targets for 2020 are about to be kicked down the road.

DW takes it from here:

Tuesday, January 9, 2018

Student Debt Slavery

My little town is home to two liberal arts colleges that cost over $60,000 / year to attend. Both have stellar reputations for what they do. One is more of a music conservatory with solid departments in math and science. The other is a place where high achievers like National Merit Scholars go to see what its like to be in rooms full of high school valedictorians. But $60,000??

In one of the college's student center, I got into an interesting conversation with a 19-year-old who was reading Kerouac and wondering why his professor had assigned the thing. Now I have a bit of sympathy for the professor who probably, like me, read Kerouac on his own initiative back in the day. I read On the Road and was amazed that Kerouac was able to describe anything at all considering the serious drug and booze haze he was in most of the time. Looking back, this book is mostly a tribute to the casual rootlessness that was possible owing to the general prosperity of the times and $0.26 per gallon gasoline. There was so much prosperity that whole subgroups of people like the hippies could survive on the what fell from prosperity's table. There is probably nothing wrong with having the young read Kerouac if only to discover what their grandparents found cool. But $60,000???

Anther encounter with a product of a quarter-million dollar's worth of enlightenment was amazing in another way. This sparkling-sharp young man had gotten his degree in video production who when faced with the task of how to use the sun to light his scene, got completely befuddled because, I am pretty sure, he had never noticed the different times and positions of the setting sun based on the calendar so could not predict where his subjects should be placed if he wanted to shoot them in golden-hour light. Think of that—this guy did not learn something that humans have known about for at least 6000 years, something that was of practical value if he wanted to be a good cinematographer, and he had just spent a $quarter-million on an "elite" education. $250,000! For that sum of money, he could have traveled the world for a couple of years so he wouldn't have that typical "Merikun parochialism, equipped himself with professional-grade cameras and audio gear, and still have plenty left over to fund his video ventures for a couple of years while starting up. $250,000 is a LOT of money.

I have neighbors who have tenure—which these days is an amazing accomplishment. There's probably at least 50 highly qualified PhD s for every tenured position available. And because being a professor is a pretty cushy job, a lot of them don't retire at 65 and open up the job for someone younger. One neighbor finally got tenure at 50. Hard to find fault with them as people. On the other hand, they are part of a system that consigns children into a lifetime of debt peonage / slavery.

Nasty business.

Monday, January 8, 2018

The Shale Oil promise of abundant new petroleum supplies will not be kept

The following from Bloomberg is possibly the least surprising development imaginable. The idea that shale oil was going to supplant oil from traditional wells was just bonkers. For whatever reasons, discovery of oil in traditional formations has been declining—the believers in peak oil have be predicting this for a long time (since about 1970 in my awareness.) Bloomberg does not cite peak oil as the reason for a collapse in oil discoveries—they are true believers that if oil prices would rise, new oil would be found. But then, they are people who worship at the altar of "free" markets—they MUST believe this or they will be drummed out of the economic clerisy for heresy.

The promise of a sustainable energy future was predicated on the hope that humanity would be wise enough to spend some significant fraction of its declining fossil fuel supplies on building the replacement for them. I fervently hope that we have not already screwed up this possibility too.

Friday, January 5, 2018

Graphene—a tribute to Industrial-Class virtue

A big-picture look at the requirements for meaningful action on climate change will always come back to the subject of energy. The human need for energy is what drives the problem. Plus no matter what problem you are trying to solve, from plastics recycling to increased clean-water supplies, the solution WILL require energy.

Running the world on solar supplies alone is probably possible but it will be ridiculously difficult to pull off. Of course, I spent most of my life believing that solar cells would always be so expensive that it would require social subsidies to get countries to make the conversion. And I was mostly right—both wind and solar technologies have been aided by social / political demand and subsidies until now. But now when it comes to solar cells, they have become the low-cost option for electrical generation.

But because they don't work at night, solar cells need a storage system to make them conventionally reliable. Electrical storage has been a primary interest of mine since the 1950s. I had a flywheel phase and a super-capacitor phase along the way. But mostly I ignored the battery stage because of personal experience with their costs and unreliability combined with a series of lavish claims for improved performance that seemed to fizzle on closer inspection.

This time, the key to storage will probably be graphene—a substance first theorized by P.R.Wallace in 1947 while a new hire at Canada's McGill University. This stuff is amazing but ridiculously hard to produce. Not so surprisingly, it's the Koreans who are figuring out how to make commercial quantities—they have set their sights of being world leaders in battery technology and there are a multitude of arguments suggesting they are already there.

The YouTube below will explain the role of graphene in a possible sustainable future. Spend 6:02 of your life to understand this almost miraculous material.

And here is a little 3 minute clip showing graphene research results from academia. These folks think the a threefold increase in energy density from current lithium-ion battery technology is a conservative number. Who knows, maybe, just maybe, someone will really make a breakthrough is this mostly breakthrough resistant product. Get a 5x improvement and we can start talking about battery-powered flight and serious grid-level storage. Just remember, technological improvement is not automatic even though the computer example has taught a whole generation to believe that next year, the new computers will be cheaper and faster. Battery technology has gone for quite awhile without a breakthrough. So in this sphere, the progress almost everyone seems to believe is automatic has been anything but. Of course, it was never automatic in computers either but rather the outcome of very smart people working very hard.

Wednesday, January 3, 2018

The Political Economy of Seymour Melman

A reader (KF) sent me the following link about Seymour Melman—which is a good thing because I probably would have just blown it off otherwise. Because when I was first exposed to Melman, I wasn't all that impressed. I had a sociology professor that made us buy one of his books which soured me on the man before I had read a word. But those of us who were anti-war activists knew about him because he was one of the very few professors who were public with their anti-war stance. But because he was an academic, he came off as oddly stiff to those of us for whom being against the war was an exercise in fluctuating between being scared to death and being absolutely furious.

So it is with some pleasure I see that Jon Rynn has penned this excellent description of why Melman embodied that sort of thinking we in Minnesota were supposed to learn. And surprisingly enough—did. The Melman he describes and I share a great deal of thinking. And this is NOT because I read his book—I did not. That was the quarter I started my fight with my local draft board, and almost died from a ruptured appendix—spent three weeks in the hospital with an antibiotic drip and 104°F fever. So Melman and I came to similar conclusions on political economy by really different roots (routes).

There is another possibility here. Rynn may be punching up Melman's ideas because he is such an admirer. That's cool by me. I do the same thing to Veblen. Anyway...enjoy. And thanks again to KF

Monday, January 1, 2018

Dr. Strangelove on climate change

Bill McKibben is one of those who are especially furious about the fact that the oil industry knew about CO2 and climate change as far back as the 1970s. Turns out that they knew far longer than that. As told below, Edward Teller, the father of the hydrogen bomb, the guy who figured out how to make nuclear warheads small enough to be loaded into submarines, the model for Stanley Kubrick's Dr. Strangelove, THAT Edward Teller, gave a speech to the American Petroleum Institute outlining the risks posed to the atmosphere by the burning of fossil fuels in November of 1959. McKibben should absolutely love that because the speech was given a little over a year before he was born.

The reason this story is totally believable is that the people associated with nuclear power have been warning us about climate change in apocalyptic terms for a long time. The guy who taught me how to sail was an electrical engineer who spent his career making critical pieces for nuclear power plants. Not long before he died, he told me, "Climate change is the biggest threat facing the human race...ever. If newspapers treated the threat with the importance it deserves, they would have 144 point headlines on the subject above the fold every single day."

So while it would be possible to dismiss the Teller speech as just another sales job by someone representing nuclear power (which is how the API probably treated it) it is remarkably accurate and prescient.