Salon: How the World Works

Climate-gate!

Andrew Leonard — Fri, 20 Nov 2009 14:30:00 PST

The climate-change obsessed blogosphere -- including both those who accept the science behind anthropogenic climate change and those who deny it -- is in an absolute uproar today after the revelation that an unknown party hacked into the computer system of an important climate research center and posted hundreds of private e-mails to a Russian FTP server.

To climate skeptics, the e-mails prove that global warming is a conspiracy theory. At Wonk Room, Brad Johnson rounded up the politicized reaction:

If you own any shares in alternative energy companies I should start dumping them NOW," says the Telegraph's James Delingpole.

Hot Air's Ed Morrissey claims the emails discuss "repetitive, false data of higher temperatures."

The National Review's Chris Horner salivates, "The blue-dress moment may have arrived."

"The crimes revealed in the e-mails promise to be the global warming scandal of the century," blares Michelle Malkin.

The Australia Herald-Sun's Andrew Bolt claims the emails are "proof of a conspiracy which is one of the largest, most extraordinary and most disgraceful in modern [sic] science."

RealClimate, a blog maintained by real climate scientists, is busy doing damage control. This story will no doubt rage for weeks, so I'm just going to pick one example of the back and forth before trying to take some time to go deeper, if merited.

Here's an e-mail that has gotten particular attention, with the supposedly damning language bolded:

Dear Ray, Mike and Malcolm, Once Tim's got a diagram here we'll send that either later today or first thing tomorrow. I've just completed Mike's Nature trick of adding in the real temps to each series for the last 20 years (ie from 1981 onwards) amd from 1961 for Keith's to hide the decline. Mike's series got the annual land and marine values while the other two got April-Sept for NH land N of 20N. The latter two are real for 1999, while the estimate for 1999 for NH combined is +0.44C wrt 61-90. The Global estimate for 1999 with data through Oct is +0.35C cf. 0.57 for 1998. Thanks for the comments, Ray. Cheers, Phil

Here's RealClimate's explanation:

The paper in question is the Mann, Bradley and Hughes (1998) Nature paper on the original multiproxy temperature reconstruction, and the "trick" is just to plot the instrumental records along with reconstruction so that the context of the recent warming is clear. Scientists often use the term "trick" to refer to a "a good way to deal with a problem", rather than something that is "secret", and so there is nothing problematic in this at all. As for the "decline," it is well known that Keith Briffa's maximum latewood tree ring density proxy diverges from the temperature records after 1960 (this is more commonly known as the "divergence problem" -- see e.g. the recent discussion in this paper) and has been discussed in the literature since Briffa et al in Nature in 1998 (Nature, 391, 678-682). Those authors have always recommend not using the post 1960 part of their reconstruction, and so while "hiding" is probably a poor choice of words (since it is "hidden" in plain sight), not using the data in the plot is completely appropriate, as is further research to understand why this happens.

So what's going on here? Put aside the question of whether the words "trick" or "hide" have nefarious or innocuous meanings. The scientific problem is that in attempting to reconstruct temperatures in the past, climate scientists are often faced with the problem that there were no humans standing around holding thermometers and writing down temperatures. So scientists use "proxies" -- tree rings, or ice cores, or fossilized clams, or lake pollen trapped in sediment. The "divergence problem" referred to above references a case where in one particular instance, tree ring variations in density did not match actual recorded temperatures after 1960.

That poses a conundrum, although not one that throws the entire science of multiproxy paleoclimate reconstruction into doubt. More importantly, t the divergence problem, as RealClimate notes, is not a secret. It's exactly the kind of thing that climate scientists feast on. Such problems are discussed and debated every day by climate scientists (and every other kind of scientist.) The great thing about science is that the process of gathering more data, improving models and theories is infinitely ongoing, and working out how to handle puzzlers like this, both in private e-mails and in the peer-reviewed literature, is what scientists live for.

Overall, the more data we have, the more clear it has become to the vast majority of scientists working in this field that the earth has gotten significantly hotter at an alarming rate in the last century, most likely due to increased concentrations of greenhouse gases in the atmosphere. And if there really is a smoking gun in the hacked e-mails that convicts scientists of fraudulent behavior or faking data, well, let's hear it. I'm not convinced by the above example. But if enough scientists are, that's a different matter.

A Goldman Sachs shareholder revolt?

Andrew Leonard — Fri, 20 Nov 2009 10:18:00 PST

All morning long, the lead story on the Wall Street Journal's home page has been "Goldman Holders Miffed at Bonuses." According to reporter Susanne Craig, some of Goldman's largest shareholders have been privately expressing to Goldman management that a record-large bonus pool might not be in the best interest of the real owners of the investment bank, i.e., the institutions and investors who own Goldman's stock.

In an opinion piece, also in the Journal, Michael Corkery approves of the basic principle:

This is how it is supposed to work. Rather than the federal government dictating what a company should pay its employees, shareholders are having their say.

Ever since Goldman Sachs' 1999 IPO, I've been wondering how the investment bank's big-money culture would square with the trope that a public company's first responsibility is to its shareholders. Up until now, Goldman's shareholders have accepted the basic bargain -- Goldman's stock returns far outpace the market. This success is supposedly attributable to Goldman having the smartest employees. And so the argument goes: If you don't pay the smartest employees an average of over $700,000 per person per year, they will skedaddle.

But it seems as if what looks to be "the biggest employee payout in the firm's 140-year history" is inciting some grumbling even among those who typically could not care less about outsize Wall Street compensation levels.

Corkery is skeptical that the big institutional investors will make good on the only threat they realistically have, which is to sell their stock. But there's an interesting subtext to the whole question of shareholder rights that is ironically highlighted by the Goldman dilemma.

Oftentimes, when we hear that a public company's first responsibility is to its shareholders, this is used as an excuse to shaft workers. What's the easiest way to cut costs and get a quick stock price boost? Lay off employees! It's one of the harshest truths of capitalism -- the people who do the actual work generally get the smallest piece of the pie and are most vulnerable to economic downshifts. The principle that shareholders should come first has propelled countless mergers and acquisitions with disastrous results for the employees of the companies that get sliced and diced in Wall Street's endless parlor games.

For Goldman critics, it might be satisfying to see big shareholders muttering grimly about the impropriety of massive bonuses. It also could be rewarding to see shareholders exert more force in restricting the runaway compensation of top executives, although I'm not going to hold my breath waiting for such "say-on-pay" ideals to ever become common practice. But I'd caution against seeing this episode of dissatisfaction as some great triumph of shareholder democracy over the lords of Wall Street. What the investors really want is more money for themselves -- a fat dividend payout, or higher earnings per share that would be reflected in a higher stock price.

And what that usually means is: Screw the worker. In this case, we're all OK with it, because these are Goldman employees, and everybody is mad at Goldman. But as a general rule, keeping stock prices high by keeping the clamps tightly down on workers is not ideal, from an egalitarian point of view.

More fun with corn cobs and ethanol

Andrew Leonard — Fri, 20 Nov 2009 08:28:00 PST

POET, the ethanol producer referenced in yesterday's post, "Who Cares About Peak Oil When You Have Corn Cobs?", has a public relations department that is on the ball. Nathan Schock, POET's public relations director, posted (and e-mailed to me) the following response, this morning:

Andrew, I work for POET and your post was a nice surprise when I discovered it this morning. There are a few items that I'd like to respond to. First, on the willingness of farmers to collect cobs. We are getting a good response from the farmers we've dealt with around our first plant in Emmetsburg. They are the ones we've laid out the complete case to: what we're paying (the $2.35 figure we released assumes $55 per ton), what the USDA adds through their Biomass Crop Assistance Program ($45 per ton) and the financial assistance we provide in purchasing equipment. When they see the equipment payback of less than two years and a nice profit per acre, they tend to embrace it. Also, we are studying stover removal very carefully with Iowa State University. We need the land to be productive long-term for these facilities to be successful. After the first year of study, we've found that removing cobs and a small portion of husk and leaves does not adversely impact soil quality and there is no need to add additional fertilizer. This is a similar finding to many other studies on crop residue removal. We are continuing to study this with them. Thanks again for the interest in our process. I invite you to stay tuned as we continue to improve it.

Schock also kindly provided a link to a POET press release discussing the preliminary results of Iowa State's research on the impacts of corn stover removal on soil fertility. From which I learned, inadvertently, that POET was funding the very same research I had linked to in my post yesterday.

I have no reason to doubt POET's forthrightness, and I take very seriously Robert Rapier's evaluation that "they have done a good job" on the cellulosic ethanol front. But I find it deliciously ironic that one of the top five results returned by Google for the search terms "corn stover removal soil fertility" turns out to be research paid for the company planning to do the removal.

Other studies have shown that "indiscriminate stover removal' does have a significant effect on soil fertility. Clearly, Schock is telling us that POET plans to be a discriminating stover remover. But when market forces comes into play without adequate government supervision, the line between discriminating and reckless abuse gets awful murky.

Oliver North's climate change English lesson

Andrew Leonard — Fri, 20 Nov 2009 06:21:00 PST

From a fundraising letter from Oliver North:

Again, ever wonder why the liberals now always try to use the new term "catastrophic climate change" rather than "global warming." It's because it allows them to blame EVERY weather event (heat waves, blizzards, floods, droughts, hurricanes, etc.) on you, me, and our current use of fossil fuels. The goal? To destroy our way of life and con us into giving away billions of dollars to solve a non-crisis we have no power to prevent, even if it were real!

I think Ollie's got his history a little mixed up. If I recall, Republicans, following the advice of consultant Frank Luntz, as formulated in his famous 2002 memo, started using the words "climate change" instead of "global warming" because global warming was "too frightening."

From an account in the UK Guardian:

The phrase "global warming" should be abandoned in favor of "climate change", Mr Luntz says, and the party should describe its policies as "conservationist" instead of "environmentalist", because "most people" think environmentalists are "extremists" who indulge in "some pretty bizarre behavior... that turns off many voters".

I guess one example of that bizarre behavior was a little semiotic jujitsu, in which environmentalists embraced the climate change name switch, but tacked on catastrophic to get the original point across.

Who cares about peak oil when you have corn cobs?

Andrew Leonard — Thu, 19 Nov 2009 15:56:00 PST

The old joke about cellulosic ethanol -- biofuel made from lignocellulose, the tough, woody, hard-to-break-down structural elements of plants -- is that it is always five years away from commercial deployment, and has been for the last 20 years, at least. The problem is not inherently technological: We know how to do it; the difficulty has always been in making the process cost-competitive with other fuels.

So the news that POET, the largest ethanol producer in the U.S., has managed to cut production costs for cellulosic ethanol from $4.13 a gallon to $2.35 a gallon in the past year at its trial plant in Scotland, South Dakota, is potentially significant. POET is now predicting big things, reports the Argus Leader:

"Two years ago, I would have told you this was a long shot," CEO Jeff Broin said. "Now I'll tell you that we will produce cellulosic ethanol commercially in two years."

Two years instead of five! That's a big improvement! According to Broin, the factors involved include "reducing energy use, enzyme costs, raw material requirements and capital expenses."

POET's preferred feedstock: left over corn cobs and other post-harvest remnants known as "corn stover" that farmers typically leave to rot on their fields. A few weeks ago, POET organized a "Project Liberty Field Day" in Emmetsburg, Ohio in which 16 different agricultural machinery companies demonstrated new equipment specifically designed for the collection of corn cobs.

I asked Robert Rapier, who has established himself as one of the more influential commentators on all-things-biofuels, what he thought of the news. The critical factor, he said, is knowing what the cost of the inputs are. How much will POET be paying for the corncobs?

"The key to this is going to be how much they have to pay for the biomass. The cost that is quoted assumes a certain price for the biomass. I had a farmer tell me recently that he wouldn't bother gathering it for the price POET wants to pay. So I would say that the costs mentioned in the news story are a best case scenario for getting the farmers to sell corn cobs at the right price."

But the question I always have when hearing about biofuels made from farm "waste" is what happens to soil fertility when you keep extracting more and more plant material from the life-cycle of the farm, and turn it into fuel? Not surprisingly, this is a hot topic among agricultural research scientists in Iowa.

From "Studying Stover Harvest Effects on Yield, Soil, Climate:"

Corn stover has been used for many years as bedding and food for livestock, as well as to nourish and protect soils. In recent years, the ubiquitous stalk, leaf and cob residue of corn plants left in fields after harvest has found a new market: as a potential source for cellulosic ethanol production. But harvesting the stover -- which, when left in place, halts erosion and supplies vital nutrients back to the soil -- could have unintended consequences, from lowering the fertility of fields to affecting productivity, soil and water quality and even climate. A comprehensive new study by Iowa State University agronomy researchers may soon shed light on these questions.

One result of the study, according to the authors, will be better information on "the optimal nitrogen, phosphorus and potassium fertilization rates needed to supplement nutrients lost from residue removal."

That's not such great news. The production of synthetic fertilizer is highly energy-intensive and consumes a lot of fossil fuels. What's the good of replacing gasoline with cellulosic ethanol made from farm waste, if we need to burn more oil to replace the soil nutrients that we are subtracting from the earth?

Because even a Somalian pirate's gotta text

Andrew Leonard — Thu, 19 Nov 2009 12:56:00 PST

No matter how anarchic, war-torn, chaotic and completely dysfunctional a pseudo nation-state might be, in 2009, a brave entrepreneur can still make money selling mobile phone service.

From Reuters via Roving Bandit (which bills itself "Probably the Best Economics Blog in Southern Sudan), we get a story on the thriving mobile phone market in Somalia).

First, another entry in the "lead sentences I wish I had written" category:

Somalia's mobile phone business is booming despite the almost daily artillery fire that flies over expensive satellite dishes and the violence that has brought misery to the population of the Horn of Africa nation.

But here's the money quote:

Besides being crucial for keeping in touch with family, insurgents say they receive orders for attacks by text message, African Union peacekeeping soldiers are bombarded with threatening calls from rebels and government depends on mobiles. One telecoms firm is also expanding its network to coastal ports used by pirates, who make thousands of dollars from ransom payments from ship-owners but have to rely on expensive satellite phones at the moment.

Which raises the question: What kind of texting plan does a Somali pirate need? And is there an app for that?

Liberals, conservatives, agree: Geithner must go

Andrew Leonard — Thu, 19 Nov 2009 09:56:00 PST

What does it mean when a conservative Republican and a liberal Democrat both call for Treasury Secretary Tim Geithner to be fired? Is it a sign that he's lost the confidence of both parties and should be immediately disposed of? Or is it confirmation that he is steering safely down the middle of the river, while the left and the right banks seethe with rage?

This morning, the normally almost supernaturally composed Geithner got into it with Texas Republican Kevin Brady, a pillar of the conservative right, during a Joint Economic Committee hearing in Congress.

The Wall Street Journal's Damien Palleta has the transcript:

Mr. Brady opened up his questioning by telling Mr. Geithner Republicans, Democrats, and the American people had lost confidence in the Treasury Secretary and asked him to resign. "It is a great privilege to serve this president," Mr. Geithner responded. "I agree with almost nothing you said." Mr. Geithner then took it a step further: "You gave this president an economy falling off the cliff." Mr. Brady wasn't done: "Remind me, Mr. Secretary, what post were you holding when President Obama took office?" Geithner: "I was the President of the Federal Reserve Bank of New York." Brady then accused him of "shirking responsibility for the design of this bailout." Mr. Geithner said the government's steps were "absolutely necessary to break the back of this financial panic." He said without the Obama administration's steps, "you would have an economy still falling, not growing."

Meanwhile, last night, Oregon Democrat Peter DeFazio, a staunch member of the House's progressive caucus took some hard swings at Geithner for paying more attention to Wall Street than to Main Street during an MSNBC interview with Ed Schultz. He finished by calling for both Larry Summers and Geithner to be fired, saying with a smirk, "We may have to sacrifice just two more jobs to get millions back for Americans."

Brady, of course, is mad that Congress passed a stimulus bill while DeFazio is furious that the stimulus bill wasn't even bigger. Hard to satisfy both those constituencies... My own opinion is that conservative Democratic Senators are a far greater obstacle to direct government assistance to Main Street than either Summers or Geithner, and I agree with the Treasury Secretary that the financial panic had to be broken with extreme measures or we would be in a much worse position now than we already are. But, as noted by DeFazio, Geithner's performance during the AIG bailout can be easily faulted and the pivot that the entire White House is making towards emphasizing deficit reduction is ill-timed and insensitive to what this country really needs right now.

Ultimately, I seriously doubt whether President Obama will heed either the conservatives or the progressives at this point. I'm betting he continues on with his team intact. But like everything else, the political future of the White House and all his economic advisers can be pinned to one economic indicator -- the unemployment rate. The further up it goes, the hotter the kitchen will get.

Banking lobby lament: Put down your pitchforks

Andrew Leonard — Thu, 19 Nov 2009 07:08:00 PST

Ironic juxtaposition of the day:

From Rasmussen Reports, via Naked Capitalism:

50 percent of Americans say interest rates on their credit cards have been raised in the past six months, as Congress seeks to limit the ability of banks to raise those rates... 77 percent of Americans believe that credit card companies take unfair advantage of consumers with the interest rates they charge. Just 14 percent do not agree.

From a Bloomberg News article detailing the prospects of TARP overseer Elizabeth Warren's brainchild, the Consumer Financial Protection Agency:

"The time for pitchforks and torches is over," [said Scott Talbott, chief lobbyist for the Financial Services Roundtable]. "The focus should be on reforming the system and making it better."

Pity the poor bankers, trapped in their castles while the peasants storm their walls, shrieking blood and murder! It's almost as if the financial industry hadn't been bailed out to tune of trillions of dollars of taxpayer money, or hadn't managed, so far, to successfully neuter every bit of proposed regulatory reform that has come down the pike. From the banking industry's perspective, everybody has just been so unfair. Why do all those mean people keep saying nasty things about us?

Railing against the tone-deaf arrogance of banking industry lobbyists gets old fast. People like Talbott are paid well to say exactly what they are saying, and judging by their success, they're worth every penny of it. But at some point, by their own rhetoric, they will incite exactly the kind of boiling-over rage that they make-believe is currently afflicting them. Seventy-seven percent of Americans, among whom can be counted many who have lost their jobs and homes because of mistakes made by bankers, feel that credit card companies are taking advantage of them. Imagine that! But couldn't it be possible that their real reason for rage is that the time for pitchforks and torches never came?

Clean, green... Texas?

Andrew Leonard — Wed, 18 Nov 2009 13:44:00 PST

According to the World Wind Energy Association, by the end of 2008, wind power accounted for 1.3 percent of global electricity consumption.

Doesn't sound like much, does it? But at growth rates of 30 percent a year, it can start to add up quickly, particularly in areas where wind farms are concentrated, such as Texas, or Spain. Just over a week ago, wind power accounted for over half of Spain's electricity consumption for five hours (albeit in the middle of the night, when overall usage hit a low.) Even more amazingly, as the Wall Street Journal's Environmental Capital blog informs us, on Oct 28, at about 8:30 p.m., wind power accounted for 18 percent of all of Texas' electricity consumption -- or about 6223 megawatts.

Texas!

There are many reasons why Texas is suddenly the U.S. leader in wind power -- lots of wind, fewer bureaucratic constraints on siting new facilities, generally high electricity prices that make wind power relatively more attractive. Some of these can be replicated elsewhere and some can't. But maybe the most important fact to consider about Texas is how fast the wind power marke thas grown. Ten years ago, Texas had an installed capacity of just 180 megawatts. In 2007, 4296. Two weeks ago...6223 at 8:30 p.m.

So whenever you hear someone pooh pooh the idea that renewable energy will ever account for a significant proportion of global energy consumption, just refer them to Texas. If the economics are right, change can happen, very, very quickly. If, for example, a cap-and-trade system rejiggered energy prices to make wind and solar even more competitive, investment would flow to the cleantech sector like the Mississippi flows to the Gulf of Mexico. Sure, there are storage and transmission issues, but these can and will be solved, if the prices are right.

Now, it is true that many Texan wind farms are operated by foreign companies, and that has caused a brouhaha of late, because stimulus money aimed at boosting the deployment of wind farms inevitably gets spent on wind turbines that are manufactured in foreign countries. There are still jobs, especially for depressed rural areas, in wind farms, but the really good jobs are in building turbines. The political heat on one recent project got so intense that the developer has now promised to build a wind turbine plant in the United States, as part of the deal.

Balancing green jobs and green power is always going to be tricky. If the U.S. wants to ramp up green power as fast as possible, other nations will benefit, because they have emphasized the development of their green power sector more consistently than has the U.S. But that is all the more reason to push forward on a climate/energy bill that resets marketplace parameters in the United States. Because if Texas-sized wind power growth tells us anything, it is that abrupt transformative change is entirely possible. And where growth at that rate occurs, there will be jobs, and lots of 'em.

A 3,700-year old bristlecone pine cannot lie

Andrew Leonard — Wed, 18 Nov 2009 09:47:00 PST

A couple of things to think about while mulling over the news that any action (or even debate) on a U.S. climate bill has been pushed to next year.

From the abstract for "Recent unprecedented tree-ring growth in bristlecone pine at the highest elevations and possible causes," published this week in the Proceedings of the National Academy of Sciences:

Great Basin bristlecone pine (Pinus longaeva) at 3 sites in western North America near the upper elevation limit of tree growth showed ring growth in the second half of the 20th century that was greater than during any other 50-year period in the last 3,700 years. The accelerated growth is suggestive of an environmental change unprecedented in millennia.

RealClimate offers an accessible summary. Bristlecone pines are quite popular with paleoclimatologists who specialize in analyzing tree rings because they live for thousands of years. The bottom line -- in recent decades, bristlecones have responded dramatically to warmer temperatures.

Meanwhile, from Europe comes the news that wine-makers are stressing out about global warming.

From AFP:

"All over the world, alcohol levels are going up," said British wine critic Jancis Robinson at the WineFuture conference, citing just one problem producers are facing as a result of rising temperatures. "Champagne alcohol levels are becoming embarrassingly high," she added, meaning that the heat which is raising the alcohol content changes both the texture and personality of a wine.

One answer for wineries: Just as the Western Bristlecone will likely respond to higher temperatures by spreading to higher elevations in a natural example of adaptation, wineries too could move north to milder regions as temperatures rise. Of course, if that happens, we would no longer be able to call champagne by the name "champagne," since the grapes would no longer be grown in the province of Champagne. But that's quibbling! Why worry about global warming? Just like the bristlecone, we'll just move on up.

There is no question that humanity will adapt to climate change. Even if the climate bill of an environmentalist's dreams were enacted into law tomorrow, we're not going to stop rising temperatures in the near future. The best we can legitimately hope to do, at this point, is slow the rise. So along with cutting back greenhouse gas emissions and using energy more efficiently, we will also be forced to adapt. And maybe the tundra will bloom with corn and Norway will be pumping out faux-Bordeaux.

But there are degrees of adaptation. For example, after a hurricane-propelled storm surge wipes out your beachfront home, you might decide to move inland. A little costly, a little risky, perhaps, but hey, you're adapting. But what if you decided to move before your house was destroyed? Or what if, even better, your society cut back on greenhouse gas emissions enough so that sea temperatures didn't rise quite so quickly, giving you more time to figure out whether you wanted to move, or build a stronger house, or erect a sea wall?

One of the key things that separates humans from most other animals is that our brains feature highly developed frontal lobes that enable us to think about the future and take proactive action to ward off misfortune. A bristlecone pine or a grapevine can't do that. But we can. We can adapt the hard way, by letting climate change wreak havoc, or the easy way, by doing what we can to give us more of a chance to properly adapt -- and maybe, just maybe, keep champagne in Champagne.

Obama's zugzwang economy

Andrew Leonard — Wed, 18 Nov 2009 07:44:00 PST

On Tuesday, White House Chief of Staff Rahm Emanuel said that deficit reduction was "foremost" on the minds of the president and his economic team. On Wednesday, Obama took the new theme one step further; he told Fox News that more government debt could actually cause a double-dip recession.

"It is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession," he said.

People will lose confidence in the U.S. economy? People have no confidence in the current economy, and not because of their concerns about mounting debt. Mounting unemployment and a tsunami of home foreclosures have everyone feeling fragile, and today's disappointing housing start numbers (they fell sharply, by 10 percent compared to the previous month) only serve to reinforce a generalized sense of insecurity.

It is also just as likely that attempting to subtract from the debt right now would precipitate the double-dip recession. Obama is trying to solve a political problem -- successful GOP attacks on government spending -- with rhetoric that signals the direct opposite action of what is necessary to solve a much more fundamental problem: An economy this sick needs more government action, not less.

The usual suspects are sinking into a deeper gloom than ever. Brad DeLong puts the chances of a new Great Depression at five percent, "and it now looks very much as if if such a shock hits the U.S. government will be unable to do a d----- thing about it." Paul Krugman is offering "roughly even odds" on a "Japanese-style lost decade."

Democratic leaders in the House of Representatives are talking up a new jobs bill. Good luck getting the Senate to go along! In the game of chess, the word "zugzwang" describes a situation in which any move made by a player weakens his position. Obama is rapidly nearing that dead-end. If he pushes for more spending, he feeds his political opponents. If he pushes for debt reduction, he runs the risk of disemboweling the recovery. But if he does nothing, we all probably lose.

Tracking the right-wing cyclist-hating nexus

Andrew Leonard — Tue, 17 Nov 2009 12:19:00 PST

I am always on the lookout for interesting interconnections between unexpected endpoints, but today's installment -- bridging together cyclist-hate and the infamous right-wing Arkansas Project witch-hunt against Bill and Hillary Clinton -- is a doozy, even by my standards.

Copenhagenize.com, The Copenhagen Bike Culture Blog, somehow managed to dig up clipping from the Indianapolis Star, circa 1980 that trashes the notion of bike lanes in New York City in language so malevolent as to beggar description.

A couple of excerpts:

Millions of trucks, buses, taxis, and privately owned vehicles have been squeezed into narrowed streets. Months have been sliced from the lives of drivers and passengers; a drive from 30th Street to Central Park south is now five to 10 minutes longer -- God knows how much longer it is if one begins in Greenwich Village. Access to nearby shops is more difficult, and neighborhood dogs, answering nature's call, are terrified to venture toward the curb. In fact millions of pedestrians, standing at crosswalks, have experienced real terror, exposed as they now are to the mercy and moderation of bicycle riders, people whose lawlessness and viciousness are a matter of record... Not only are bicycles dangerous, they are as antiquated a form of transportation as the rickshaw. In no advanced city on earth will you find civilized people cycling to work. The urban cyclist is generally a crank, either profoundly antisocial or hopelessly narcissistic and following the strenuous life in hopes of achieving immortality or a legendary sex life. When you encounter him give him a wide berth and never turn your back on him...

Now, I will acknowledge a certain felicity of phrasing and tendency towards what some might call outrageous hyperbole that could lead one to believe that the author of this screed was attempting to be humorous. But then I looked closer at the byline, and saw that said author was R. Emmett Tyrrell, the founder of The American Spectator, one of the pillars of the modern right-wing propaganda establishment, and a name likely to be quite familiar to Salon readers who have been hanging around these parts for more than a decade.

But in case you weren't around back then, the Arkansas Project, in which the American Spectator, funded by right-wing philanthropist/evil mastermind Richard Mellon Scaife, spent millions of dollars in a mostly futile effort to dig up dirt on Bill and Hillary Clinton's pre-White House days, played a role in the national conversation somewhat analogous to that fulfilled by birthers today. In other words, rampant, unhinged conspiracy theorizing! Good times, good times.

Anyway, to learn that R. Emmett Tyrrell hates bicycles is an epiphany-causing event that tempts me to believe that there is a greater purpose to the universe than I am normally prepared to contemplate. Maybe there is a god, and if so, she is laughing at me.

Geithner and AIG, the Rashomon version

Andrew Leonard — Tue, 17 Nov 2009 10:24:00 PST

Most mainstream media reports on special inspector general Neil Barofsky's audit of the Fed bailout of AIG summarized the findings as an implicit remonstration: Tim Geithner's Fed looks bad because it was unable to get AIG's counterparties to agree to a deal in which they received less than what they were owed under the terms of the credit default swaps AIG had entered into. But in the econoblogosphere, it's Rashomon all over again.

Naked Capitalism's Yves Smith exploded in anger, calling the report "far too forgiving" of the Fed, accusing Barofsky of being just "as badly cognitively captured as the Fed is" and declaring that the "uncritical reportage of defenses by the officialdom is annoying."

You get the sense that at this point in the game, Smith would not be satisfied by anything less than a firing squad. What she sees as uncritical reportage others could interpret as "leaving the Fed hung out to dry." For example, the audit reports that Fed was worried about "violating the principle of the sanctity of contract." Come on! The financial world was falling apart and the U.S. government was on the hook for hundreds of billions of dollars in a frantic effort to stave off utter disaster. In that milieu, the supposed sanctity of contracts is a bogus excuse, mere cover for doing nothing. As Smith points out:

Companies that get into trouble renegotiate their obligations as a matter of course. You cannot get blood from a turnip. And the fact that the Feds stepped in to prevent the financial system from collapsing is NOT THE SAME as an open-ended commitment to honor the obligations of a dead company.

Meanwhile, Felix Salmon is feeling charitable today. The fact that the financial world was falling apart, he argues, is reason to cut Geithner and the Fed some slack.

It shouldn't have happened, that's true: for the sake of putting a knife into the moral-hazard trade, some haircut -- any haircut -- should definitely have been imposed, even if it was only the 2 percent that UBS offered to accept. But the government owned AIG, which created the situation that Germans call Anstaltslast: the fact that state-owned companies simply don't default on their obligations. The government was also battling a major crisis using the only weapon at its disposal: enormous amounts of liquidity. When you're putting out a fire, you don't stop to worry that large amounts of liquidity are going to end up where you don't particularly want them -- the important thing is putting out the fire. So yes, given a bit more aggression and foresight, the Fed could have tried to cram down a haircut onto AIG's counterparties. But at the time, no one was particularly interested in being harsh to the global financial sector; instead, they were trying to rescue it.

Regular HTWW readers will know that in the past I have been sympathetic to the view that in the mad rush to keep the global economy functioning, mistakes were going to be made. But after reading Barofsky's report, I feel much less inclined to go there. The sequence of events is too blatant: The Fed asked the companies to take a haircut, the companies said no, and there is no evidence that the Fed pushed back at all. What kind of negotiating stance is that? It looks like pusillanimous capitulation.

But not to everyone. To the structured finance lawyer who writes The Economics of Contempt blog, the report vindicates Geithner! (That sound you just heard was Yves Smith popping like an over-inflated balloon.)

[The report] makes clear that the NY Fed did try to negotiate haircuts with AIG's counterparties, but not at all surprisingly, the counterparties (and the French regulators) refused, and the NY Fed was left with no choice but to pay par value. Geithner, contrary to popular belief, didn't have the powers of a bankruptcy court.

Economics of Contempt is relying here on one of the crucial reasons why the Fed's bargaining position differed from, say, the Obama administration's stance with regard to the hedge funds who were refusing to take haircuts in the negotiations over the GM and Chrysler restructurings. In the case of the automakers, the government could say, you're going to get a worse deal from the bankruptcy judge, so you better take this one now. That was a threat with some juice to it. But the whole point of the government bailout of AIG was to avoid a Lehman-like bankruptcy that would take everyone down with it. So, it is true, the Fed's leverage was not terrific.

I am less sure what to make of Economics of Contempt's position that for the Fed to play hardball would be an abuse of "its regulatory authority for purposes of retaliation." I don't think anyone was considering the Fed's attempt to get a haircut as "retaliation." Instead, a more appropriate framing would be that the Fed should be attempting to get the best deal for its taxpayer money. The Fed had moral authority -- We're saving all of your asses, so play ball!

Just such a position is taken by The Epicurean Dealmaker, who imagines a scenario in which the Fed stared down the reluctant banks and shamed them into compliance.

A sample:

I have also been authorized to inform you that we are fully aware of the legal rights and fiduciary duties which constrain each of you to do what you think is best for your firms and your stakeholders. Under normal circumstances, we would be entirely supportive of these obligations. However, these are not normal times. Furthermore, and because these are not normal times, I would like to inform you that the government of the United States of America will take an extremely dim view of any individual or institution which chooses to pursue simply its own interest and its own duties without regard for the consequences to the broad economy, this country, and indeed the entire world. This government has a fiduciary duty too, gentlemen, and I am afraid that it trumps yours.

There's a lot more where that came from, and it makes for very entertaining reading. There's just one problem. For the speech to work in real life, one would have to imagine it being delivered by Tim Geithner.

And I just don't see the Secretary of Treasury as a guy who could deliver, in this or any other reality, a passage like this:

I am not your fucking friend. As far as you are concerned, you should view me as the Angel of Fucking Death. Because the time has come for each of you to do what is right for the greater good. It is time to think about survival, gentlemen -- your own and that of your institutions -- both now and in the future. For let me assure you that the decisions you make in this room today will be remembered. They will be remembered, gentlemen, as long as there is a United States of America. And if, God willing, we all come through this terrible crisis to a safer and more stable world, those people who helped us get there will be remembered. And, perhaps more importantly, those people and institutions in this room which did not help us, which put their own narrow personal and corporate interests before the interests of this nation and its people, will be remembered as well.

The funny thing: Although that speech never was given and never could have been given by the parties involved, it contains an essential truth -- the decisions made during that fateful week will always be remembered. For its role, Goldman Sachs is now widely reviled, and it's very difficult to see how that will change, any time soon.

The Chamber of Commerce humiliates itself, again

Andrew Leonard — Tue, 17 Nov 2009 07:45:00 PST

One must credit the U.S. Chamber of Commerce for its consistency. Climate change legislation: Bad, because it will kill jobs. Financial reform: Bad, because it will kill jobs. Healthcare reform: Bad, because it will kill jobs.

And if you don't believe it, well, the Chamber will pay a "respected economist" $50,000 to tell you that these things must be true.

From the Washington Post: (Found via Mark Thoma.)

The U.S. Chamber of Commerce and an assortment of national business groups opposed to President Obama's health-care reform effort are collecting money to finance an economic study that could be used to portray the legislation as a job killer and threat to the nation's economy, according to an e-mail solicitation from a top Chamber official.

From the e-mail:

"The economist will then circulate a sign-on letter to hundreds of other economists saying that the bill will kill jobs and hurt the economy. We will then be able to use this open letter to produce advertisements, and as a powerful lobbying and grass-roots document."

According to Post reporter Michael D. Shear, "Randy Johnson, the Chamber's senior vice president who handles health-care issues, called the e-mail 'inartfully worded.'"

("Inartfully worded" has become the political in-phrase for "oops, you caught us in a politically humiliating lie or outrageous gaffe." The first time I recall hearing this phrase was when President Obama told NBC's Brian Williams that Sonia Sotomayor's comments about the superiority of "wise Latinas" was "inartful." I assume there are previous documented uses by embarrassed politicians, but of late, the phrase is everywhere.)

One thing the Post doesn't ask in its report on the latest stupid Chamber of Commerce trick: Why isn't the business community cheering healthcare reform on because of its clear job-creating potential? Healthcare costs are a business expense that is growing rapidly year-on-year. If the government provided healthcare insurance, businesses would presumably have more funds available to hire people. I'm sure there's a reputable economist around somewhere willing to make that case, for free!

How Geithner's Fed screwed up the AIG bailout

Andrew Leonard — Mon, 16 Nov 2009 19:51:00 PST

The Special Inspector General's Report on the A.I.G. Bailout has been released, and while I wouldn't go as far as The Big Picture's Barry Ritholtz, who says the New York Fed was "played for patsies" and calls the whole spectacle "embarrassing and pathetic," the report sure doesn't make the Fed look very good.

The critical issue, again, goes back to the fall of 2008, when AIG was collapsing because it could not pay what it owed to other financial institutions under the terms of the credit default swaps that the insurance company entered to. Could the Fed have gotten a better deal from AIG's counterparties? Instead of lending AIG billions of dollars to pay the likes of Goldman Sachs and Merrill Lynch in full, could the Fed have convinced the banks to take a "haircut" -- to agree to less than they were contractually owed?

The Special Inspector's report indicates that the Fed hired BlackRock Solutions to advise it on options, and BlackRock specifically told the Fed that one of its choices included seeking "a reduction in the amount that counterparties would receive -- otherwise known as concessions or a 'haircut' -- for the total of the CDOs and related swaps held by each of AIGFP's counterparties."

The Fed made a least a semblance of an effort:

On November 6 and 7, 2008, FRBNY assistant vice presidents, vice presidents, senior vice presidents, and executive vice presidents contacted eight of AIGFP's largest counterparties (Societe Generale, Goldman Sachs, Merrill Lynch, Deutsche Bank, UBS, Calyon, Barclays and Bank of America) by telephone. They described a proposal under which each counterparty was asked to accept a haircut from par. Seven of the eight counterparties told FRBNY officials that they would not voluntarily agree to a haircut. The eighth counterparty, UBS, said that it would accept a haircut of 2 percent as long as the other counterparties also granted a similar concession to FRBNY.... At the end of the day on November 7, after FRBNY officials had received negative reactions from seven of the eight counterparties, including the French banks' formal refusal, senior FRBNY officials met with then-President Geithner. After discussing the counterparties' reactions, including UBS's conditional acceptance to give a 2 percent haircut, the officials recommended to President Geithner that the Maiden Lane III transactions go forward without haircuts because it would be impractical to obtain haircuts from all the counterparties. Mr. Geithner concurred, and it was decided that FRBNY would cease efforts to negotiate haircuts and pay the counterparties the market value of the CDOs.

The Report lists a number of reasons why Geithner and the rest of the Fed felt that they could not push harder for haircuts. Chiefly, Geithner did not believe the Fed had enough leverage to get a deal, because their most powerful option -- the threat of default and an AIG bankruptcy -- had already been negated by the initial $85 billion loan to AIG in September, "an intervention that the counterparties understood to mean that the U.S. government would not permit an AIG failure."

In addition, FRBNY was concerned that its use of a threat of an AIG default might introduce doubt into the marketplace about the resolve of the U.S. government in following through on its commitments in support of financial stability. FRBNY officials felt the introduction of such uncertainty might have been dangerous and potentially expensive for the U.S. economy in light of the precarious market conditions in November 2008 and the extraordinary official efforts that had been taken to support market functioning.

There were other reasons: The Fed was worried about the reaction of the credit rating agencies, it was concerned that it was confusing its role as AIG's creditor with its role as bank regulator, and it was "uncomfortable with violating the principle of sanctity of contract."

OK. I'm wrong, again. It is embarassing and pathetic. The Fed was played for patsies. And it was Tim Geithner's Fed.

UPDATE: Reaction to the report: Geithner was vindicated! No he wasn't! It's a whitewash!

The East isn't red; it's polluted

Andrew Leonard — Mon, 16 Nov 2009 15:29:00 PST

Two researchers at the University of Neuchatel in Switzerland get this week's HTWW award for coolest use of Google Maps. (Found via Globalisation and the Environment.)

Jean-Marie Grether and Nicole A. Mathys have devised a methodology that allows them to track the physical global "center of gravity" of various phenomena, and used it track to carbon dioxide emissions over the last 30 years.

As one might guess, in 1970, the center of Co2 emissions gravity was located between Europe and the United States, just off the coast of Iceland. Since then it has moved steadily to the east, toward Asia. More troublingly, the rate at which greenhouse gas emissions are moving is faster than the rate at which the center of GDP growth is moving, suggesting that "Asian production is getting more CO2 intensive than Western production." That's not good news, because it means that industrial production is getting less efficient and worse for the environment as it migrates to Asia.

A side note: The satellite photos of the globe with their little pink and yellow balloons superimposed on the planet emphasize, quite strongly, the truth of North-South relations, at least insofar as industrial production is concerned. Because the center of gravity may be moving on the East-West axis at a brisk pace, but it's going absolutely nowhere on the North-South axis. If I lived in the South, I'd know whom to blame for climate change.

A New Deal for child care

Andrew Leonard — Mon, 16 Nov 2009 14:01:00 PST

While the financial press and the econoblogosphere obsess about the bleak labor statistics in the U.S. or argue about whether the Obama stimulus has actually saved any jobs, over at Slate, where staffers apparently are required to come up with three contrarian takes on the day's news before their first cup of coffee, Daniel Gross writes "Coming Soon: Jobs! Why employment will rebound sooner than you think."

After pointing out that the economy is shedding jobs at a slower and slower rate and that first time claims for unemployment benefits are falling, he focuses on the the astonishing 9.5 percent productivity growth registered in the third quarter -- which translates as fewer workers working harder -- and theorizes that such a trend cannot be sustained.

If you look at economies over many centuries, you can't grow productivity for 7 or 9 percent for more than two or three quarters," said Lakshman Achuthan, managing director at New York-based Economic Cycle Research Institute, whose leading employment indicators are looking up. "At a certain point, people will start to collapse at work." Should the economy expand in the fourth quarter at the same 3.5 percent annual rate it did in the third quarter -- as it shows every sign of doing -- companies won't have any choice but to hire, says Michael Darda, chief economist at MKM Partners. "There's an outside chance we could see job growth by the end of the year."

Seems like a slender thread on which to hang one's optimism, and sure enough, Nouriel "Dr. Doom" Roubini presents a rather forcefully stated dissenting view in "The Worst is Yet to Come: Unemployed Americans Should Hunker Down for More Job Losses."

The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.... So we can expect that job losses will continue until the end of 2010 at the earliest.... The average length of unemployment is at an all time high; the ratio of job applicants to vacancies is 6 to 1; initial claims are down but continued claims are very high and now millions of unemployed are resorting to the exceptional extended unemployment benefits programs and are staying in them longer.... Based on my best judgment, it is most likely that the unemployment rate will peak close to 11 percent and will remain at a very high level for two years or more.

At first glance, Roubini's pessimism would seem more grounded than Gross' optimism, with one caveat -- productivity growth did not grow as fast in either of the last two recessions as it is now, nor did we witness the same kind of V-shaped GDP plummet and then rebound in 1991-2 or 2001-03 that we are seeing now.

So maybe this time is different. But probably not -- which leads to the critical question: What should we be doing now? Roubini argues that "There's really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers."

A temporary tax credit is in the works, by all indications. Help for state governments was axed by moderates in the Senate during the first stimulus go-round, and it's hard to see them loosening up as the deficit hawk clamor grows ever louder. As for labor-intensive, shovel-ready infrastructure projects -- I expect the administration's response to that request would be "show me the opportunities." It takes time to get big infrastructural projects underway -- more time than ever before, most likely, given various current regulatory and bureaucratic hurdles. The most obvious problem facing the Obama administration, if it wanted to start putting people on the public payroll directly, is what should the people be hired to do?

A good wrap-up in the Washington Post by Alec MacGillis cites Jared Bernstein, a White House economic adviser, as arguing "that there weren't enough public works projects ready to be launched." But MacGillis also mentions a proposal by the Economic Policy Institute (which, ironically, is the think-tank at which Bernstein previously resided") for "giving money to states and cities to hire people to paint schools, board up vacant homes, staff child-care centers and reopen library branches."

Changing diapers might not sound as dramatic as building bridges or new highways -- but not every paying job requires a shovel. A New Deal for child care might not be glamorous, but both the out-of-work and the working parents would stand to benefit tremendously

Why Genentech lobbyists are worth every penny

Andrew Leonard — Mon, 16 Nov 2009 10:45:00 PST

Robert Pear's New York Times scoop reporting that both Republican and Democratic legislators submitted statements to the Congressional Record that are word-for-word copies of materials written by Genentech lobbyists is one of those classic stories bound to make us feel warm and cuddly about how responsibly our government officials perform their jobs.

The Genentech lobbyists, who appear to be worth every cent the Bay Area biotech firm pays them, came up with two different position statements specially targeted to Republicans and Democrats, in reference to an amendment to the House healthcare bill recently passed by a razor-thin majority.

The Democrats emphasized the job creation aspect of the amendment.

Republicans opposed the bill, but praised a provision that would give the Food and Drug Administration the authority to approve generic versions of expensive biotechnology drugs, along the lines favored by brand-name companies like Genentech.

One important line repeated by at least two representatives: "I do believe the sections relating to the creation of a market for biosimilar products is one area of the bill that strikes the appropriate balance in providing lower cost options."

That's as much detail as Pear provides on the substantive issue at the heart of Genentech's concerns, but it's worth drilling down on a bit more, because it so aptly demonstrates a fundamental failure of government as currently practiced in the United States.

The "provision" that would give the FDA "authority to approve generic versions of expensive biotechnology drugs" is actually an amendment proposed by Democratic Rep. Anna Eshoo that would protect companies like Genentech from generic competition. Unsurprisingly, Eshoo represents the San Francisco Bay Area district in which Genentech is headquartered.

Specifically, the amendment gives producers of so-called biologics -- complex biotech drugs -- 12.5 years of "data exclusivity" protecting the test results associated with the development of a particular drug.

The test result data is critical to the formulation of "biosimilars" -- generic versions of complex, "large molecule" biotech drugs. There's a valid reason for this, which is explained coherently by Genentech on its own Web site. State-of-the-art biologics are created through a manufacturing process so complicated and sensitive that even the smallest differences in the process can result in significant differences in the structure and effect of the resulting drug, even if the end product "looks" more or less similar to the original. The biotech industry position is that since generic versions of these drugs will be manufactured differently than the originals, they should go through the same extensive safety testing process as the originals did before being ruled safe for human use.

Of course, if the generic manufacturers were required to spend the same amount of time and money proving the safety of their drugs as the original manufacturers, there wouldn't be much of a cost advantage for them. And that would negate the whole point of giving pharmaceutical companies limited patent durations for their drugs. As a society, we have decided that it makes good sense to limit the patent duration on drugs to 20 years. This encourages the biotech companies to keep making new drugs, and ensures that the cost of existing drugs steadily falls.

For the generic manufacturers to be able to successfully prove that their drugs are as safe as the originals, they need access to the test data compiled at great expense by the original manufacturers. And that's where the battle is currently being fought. Genentech and the rest of the biotech companies want to maintain test data exclusivity for as long as possible. The generics want a shorter period.

You can read a paper, funded by PHARMA, the lobbying organization for the big pharmaceutical companies, explaining why the period of test data exclusivity should be at least 12.9 and possibly as high as 16, years, to ensure that the drug companies can at least break even on their investment, here. And you can read a paper, paid for by a major producer of generics, explaining why the term should be only seven years, here.

This is not an all-or-nothing argument between information-wants-to-be-free absolutists and hardcore free-marketers who believe in eternal patents and the strictest possible intellectual property laws. This is a very granular argument. In a range from seven to 16 years, what period of test data exclusivity best serves the public interest?

In my ideal world, scientists and economists whose salaries were paid for by us, i.e., the government, would be conducting the research necessary to come up with a good answer to this very specific question.

But instead, we get Democrats and Republicans regurgitating statements about "appropriate balance" that have been written by lobbyists for companies that have a vested interest in the outcome of the bill.

And that's this week's installment in how the world does not work.

General Motors: From the deathbed to the gurney

Andrew Leonard — Mon, 16 Nov 2009 07:35:00 PST

Rarely has an article reporting quarterly financial numbers for a major American automaker included so many unintended opportunities for hilarity as Monday's Wall Street Journal detailing third quarter earnings for General Motors.

Let's start with the lead sentence:

General Motors Co. reported a $1.15 billion loss for a shortened third quarter, providing the first evidence of the auto maker's improvement since emerging from bankruptcy protection.

GM CEO Fritz Henderson announced that "today's results provide evidence of a solid foundation we're building for the new GM."

Only in today's Detroit: A $1.15 billion loss can be considered an not only an "improvement" but a "solid foundation."

But it gets much better:

The results also don't comply with generally accepted accounting principles and exclude key items such as valuation changes for its pension and health-care accounts.

So the "improvement" and the "solid foundation" that led to $1.15 billion loss can be partially accredited to accounting shenanigans. That is encouraging!

But here's the capper: Henderson also announced that next month GM would start paying back its government loans, beginning with a $1.2 billion installment in December. If you are confused as to how a company that just lost at least a billion dollars is in a financial position to start paying down its debt in billion-dollar chunks, well, here's the answer.

In what could be a controversial move, the company plans to use other money it received from the U.S. government to pay back the borrowing.

Hope that clears everything up.

The future of corn on a hot planet

Andrew Leonard — Fri, 13 Nov 2009 14:01:00 PST

A troubling fact about corn: In the United States from 1940-1960, after the introduction of hybrid corn and in the wake of the disastrous Dust Bowl years of 1934 and 1936, corn yields and corn heat tolerance both grew. But since 1960, while yields have continued to grow as new hybrid and genetically modified varieties have been introduced, along with other agricultural innovations, heat tolerance has actually fallen.

Why is this significant? Because after a certain temperature, usually around 86 degrees Fahrenheit, corn yields drop dramatically. And even the most conservative mainstream climate scientist predictions about the effect of global warming include temperature rises that would hammer the corn-growing heartland of the United States.

These insights come from a fascinating new paper, "The Evolution of Heat Tolerance of Corn: Implications for Climate Change" by North Carolina State University's Michael J. Roberts, a professor of Agricultural and Resource Economics, and Wolfram Schlenker, an economist at Columbia University. The researchers take advantage of a 100 years of incredibly detailed information on corn yields and temperature records in Indiana, the third-largest corn-growing state in the U.S.

Since the mildest scenario for climate change would result in heat extremes "worse than the worst of the Dust Bowl years" the question of corn heat tolerance is critical for the future of the American corn belt. Perhaps most alarming:

The... decline in heat tolerance might be due to the fact that maximizing corn plants for average yields also makes them more sensitive to suboptimal growing conditions..."

Which leads to the question "whether recent increases in yields could only be achieved by making plants less heat resistant, or whether future breeding cycles can increase both heat tolerance and average yields at the same time."

Monsanto, I am sure, would answer the latter part of that question with a resounding affirmative. But the alternative is chilling: We have been progressively breeding and engineering crop strains that are less and less able to cope with climate change.

Roberts and Schlenker conclude with an interesting point about crop prices and income inequality, and a slight dig at Michael Pollan. Pollan has argued for years that subsidizing corn production has led to artificially low prices for corn products and thus contributed to undesirable things such as the obesity crisis. In that scenario, higher prices for corn would be better for our health.

But Roberts And Schlenker point out that such would only be true in a world without vast disparities in income. Rich people, or rich countries like the United States, shrug off rising grain prices and continue to merrily go about their carnivorous corn-fed-meat-eating ways. But poor people in poorer countries can't handle even minor price increases, and starve.

If incomes were not so divergent, prices would simply rise until enough people substituted to a presumably more healthy diet with less meat. The main reason climate change impacts on agriculture pose such a great threat lies not just in the size of potential production impacts, but also because massive income inequality limits potential adaptation on the demand side of the market. The greatest hope is an uncertain one: that technological change will obviate the need for behavioral change.

Jamie Dimon's size obsession

Andrew Leonard — Fri, 13 Nov 2009 11:22:00 PST

"Global economic growth requires the services of big financial firms," concludes JPMorganChase CEO Jamie Dimon at the end of a Washington Post Op-Ed defending the right of banks to be as monstrously huge as they please.

Is that true? Until very recently, modern global economic growth was inseparable from advances in telecommunications and computer networks and transportation technologies that made the world a smaller place and in so doing also made it profoundly easier for smaller entities to find their niche in global production networks. It seems reasonable to assume, unless peak oil crushes globalization beneath its hobnailed boots, that such a trend will continue after the current unpleasantness subsides. Got a computer and broadband access? You are ready to rock, almost wherever you are.

When it is hard to connect one place with another, or one firm with one another, or the user of capital with the provider of capital, then bigness is an advantage. But when such things become easy, where's the size requirement?

Dimon:

To understand the harm of artificially capping the size of financial institutions, consider that some of America's largest companies, which employ millions of Americans, operate around the world. These global enterprises need financial-services partners in China, India, Brazil, South Africa and Russia: partners that can efficiently execute diverse and large-scale transactions; that offer the full range of products and services from loan underwriting and risk management to providing local lines of credit; that can process terabytes of financial data; that can provide financing in the billions.

Dimon argues that efficiencies of scale lower prices. But doesn't competition also lower prices. If a few giant American banks control "the full range of products and services" that America's largest companies need, where does the pressure to keep costs down come from? And do you really have to be a big bank to process terabytes of financial data, or just have access to some big computers? Does it even make sense to depend on one bank for all your credit needs? At the Baseline Scenario James Kwak observes that "the last time Johnson & Johnson issued debt, it used eleven underwriters."

Dimon says banks should be allowed to be as big as they want and that they should also be allowed to fail. That's great. We'd all love to see a big bank allowed to fail when it screws up. The problem, which Dimon avoids addressing head on, is that when a really big bank fails it threatens to take out large swaths of the surrounding landscape along with it. Smaller institutions pose less of a threat. Since it is also easier to be a smaller institution in today's global economy, why fight it?

Great moments in labor history: The Viagra strike

Andrew Leonard — Fri, 13 Nov 2009 08:52:00 PST

Great moments in American labor history:

1892: An attempt by Andrew Carnegie and Henry Clay Frick to break a steelworkers union led to a pitched gun battle between strikers and Pinkerton security forces in Homestead, Pennsylvania.

1894: 3000 employees of the Pullman Palace Car Company went on strike to protest a 30 percent wage cut.

1913: Silk mill workers in Paterson, New Jersey led by the Industrial Workers of the World go on strike seeking eight-hour days and better working conditions.

1937: The Great Flint Sit-Down Strike led to the first labor agreement between General Motors and the United Auto Workers.

2009: The employees of the Southeastern Pennsylvania Transportation Authority (SEPTA) end a strike after convincing the bosses to increase Viagra coverage: (Found via Jim Edwards' BNET Pharma blog.)

The Southeastern Pennsylvania Transportation Authority has agreed to cover almost all of its rising health-care costs, and to increase coverage for Pfizer's (PFE) Viagra and other erectile dysfunction treatments, the Philadelphia Daily News reports. Workers are unhappy that their health insurance plan only covers about 10 pills a month.

To be fair, there was far more at issue in the SEPTA strike than merely erectile dysfunction healthcare coverage. Wages, pension fund contributions, and the prospect of changes in healthcare costs after federal legislation passes were all part of the contested deal. But when one considers what the miners, steelworkers, railworkers and seamstresses of decades past fought and died for, the right to more than ten pills of Viagra a month signifies a peculiarly modern form of labor movement progress.

Which is not to say and sex and labor militancy haven't gone together for a long long time. In Aristophanes' "Lysistrata" the women of Athens withheld sex in an effort to stop the Peloponnesian War. In Philadelphia in 2009 transit workers withheld their labor in an effort, in part, to enhance their sex lives.

"Call of Duty" gamers scoff at recession

Andrew Leonard — Fri, 13 Nov 2009 06:14:00 PST

My son came home from middle school yesterday talking about "Call of Duty: Modern Warfare 2." One friend already owned it, he said wistfully. Another had somehow managed to convince his parents to splurge on the deluxe edition, complete with $200 night goggles.

Today, I learn from the headlines that "Call of Duty" sold 4.7 million copies in its first day (Veteran's Day in the U.S.) That's the most copies of a game sold in in a single day ever, and the $400 million take, reports the Financial Times, rivals the opening weekend U.S. box office take of "The Dark Knight." The newspaper industry and the music business might be having a difficult time surviving the combined effects of a down economy and the difficulties of finding business models that work on the Internet, but the gaming industry is powering ahead.

There's no beating this business model, I guess.

From the Sacramento Bee:

The game's appeal is simple and direct: Some people like to shoot things. Most of the time, we call them guys. The game brings death, destruction, loud sprays of gunfire, spreading pools of blood, a sophisticated musical score and really cool graphics into the homes of otherwise peace- loving people.

My son is skeptical as to whether the hyper-realism of "Call of Duty" will get parental approval. But maybe it's my patriotic duty to support him in his consumer frenzy -- blood, guts, and GDP growth.

Duran Duran and cheap recording technology

Andrew Leonard — Thu, 12 Nov 2009 12:42:00 PST

The comments thread on yesterday's "Duran Duran and Art in the Age of Internet Reproduction" is full of good stuff, but I was particularly taken by an e-mail from Zach Carter, a blogger at The Media Consortium and guitarist for the Charlottesville Va. band Drunk Tigers.

As a musician myself, I think about this stuff a lot, and I think Taylor is onto something -- sort of -- but has fingered the wrong technological issue. If I have his argument right, it goes something like this: The Internet makes it easier to get music, which makes us live in the cultural past, since we can get our hands on lots of old music very easily. I just don't see how that's the issue. Recorded music has been easy to access for decades. Riding your bike to the record store was fun, but let's face it -- it really wasn't that hard. And once you were there, you could have listened to or purchased thousands of records that you didn't. TV appearances and record label marketing departments essentially narrowed your choices and made contemporary music more accessible than older music. The Internet hasn't so much radically altered access, in my view, as it has radically diminished the influence of major label marketing. But I still think he's right to say that something about contemporary music is actually less compelling, although like Taylor, I can offer no quantifiable standard by which to measure the cultural slump I perceive. I don't think the Internet is responsible for this, I think it's the cost of recording music. Digital recording technology has made it much, much less expensive for bands to make reasonably high-quality recordings in much less time than it took, say 15 years ago. That has meant it is a hell of a lot more feasible for broke bands to make a record, which combined with the Internet, puts more music in circulation. When the recording landscape was changing really fast in the late '90s, I remember a lot of people predicting a major musical flowering -- all of this creativity would no longer be constrained by money, and more new and exciting musical ideas would soon be available. I don't think that has happenned at all. Instead, we've got something of a boring rock band bubble. To be sure, there have been some great new artists in the past decade, but we've also heard lots and lots and lots of pleasant melodies and chimey guitars. Part of this is just the nature of digital recording -- the recording software is largely standardized across the industry, and it's very easy to do certain fixes to sound recordings now that you couldn't really do before 1995. Everybody uses the same equipment and deploys the same tricks, and everybody's records have a similar sound. But a huge part is just mediocrity. Access to recording has mostly enabled a lot of middle-of-the road music to be made that otherwise would never have surfaced. This isn't to say that record label A&R judgement was ever very reliable, but rather to say that record labels couldn't possibly sign as many artists who are making recordings on their own dime today. Again, I have no statistics to reference, but judging by the anecdotes of rock critics from the '70s and '80s, I don't think there were nearly as many bands a few decades back than there are now. When you have literally thousands of bands doing roughly the same thing, listening to older music can seem much more interesting.

Obama's huge deficit flip-flop

Andrew Leonard — Thu, 12 Nov 2009 10:03:00 PST

Don't look now, but the ghost of Herbert Hoover is haunting the White House. Deficit reduction is back on the agenda, and the timing couldn't possibly be worse -- unless Obama gets very, very lucky.

The Wall Street Journal is reporting that the White House has suddenly decided to make debt reduction a priority:

The Office of Management and Budget has asked all cabinet agencies, except defense and veterans affairs, to prepare two budget proposals for fiscal 2011, which begins Oct 1, 2010. One would freeze spending at current levels. The other would cut spending by 5 percent."

White House Chief of Staff Rahm Emanuel is reportedly on the warpath seeking spending cuts, and the administration may even be planning to apply unspent TARP money directly to paying down the deficit.

What a difference an off-year election makes! For months, we've heard a consistent refrain from Obama's economic brain trust: Under no circumstances should we repeat the mistake made in 1937 by Franklin Roosevelt, who, feeling political pressure to balance the budget, cut spending and short-circuited a nascent recovery from the Great Depression. The downside risks to the economy are still too great, warned the advisors. If we throttle back on stimulative fiscal policy, we could easily precipitate a double-dip recession. What's more, the Treasury has had little problem auctioning off unprecedented amounts of debt, suggesting that bond market investors just aren't very concerned about the deficit right now.

But hardly a week after Democratic gubernatorial losses in New Jersey and Virginia, along with some troubling poll numbers indicating GOP attacks on big-spending government are beginning to stick with voters, the administration is suddenly considering across-the-board 5 percent budget cuts.

But guess what? The downside risks to the economy are still great. Unemployment is still rising. The full impact of the implosion of the commercial real estate sector has yet to be felt. Much of what is encouraging in the third-quarter GDP growth statistics can be directly attributed to stimulus spending and such one-trick-ponies as the Cash-for-Clunkers program and a huge first-time home-buyer tax credit. Oil prices are rising. State budgets are cracking under the pressure all across the country. Banks aren't lending. Wal-Mart is apprehensive about holiday sales.

It isn't as if the White House doesn't know any of this. Just last Friday, President Obama, prodded by 10.2 percent unemployment, signed into law deficit increasing extensions of the home-buyer tax credit and unemployment benefits.

The Journal:

The administration is constrained in tackling the mounting deficit, since raising taxes or slashing spending could stunt economic growth. Administration officials say the Obama economic team is especially concerned that rapid deficit reduction could hurt the economy.

But a 5 percent across-the-board spending cut, by definition, would be an anti-stimulative measure. Even a spending freeze runs the risk of backfiring. Astonishing as it may seem, the Republican Party, thrashed in two consecutive major national elections and miles away from a majority in either the House or the Senate, is still running the country.

The most optimistic interpretation of the new emphasis on deficit reduction is that it is all just rhetoric. By the time the next fiscal year starts, in October 2010, the political implications of Obama's economic management will be a done deal, at least as far as the midterm elections are concerned. Democratic fortunes will hinge on whether the economy is experiencing a sustained recovery, and not on what the budget projections for the 2011 fiscal year. If unemployment has started to decline appreciably a year from now, it's possible that turning government attention to deficit reduction could be feasible. By talking about it now, the administration is merely trying to limit the political fallout from the GOP tax-and-spend drumbeat.

So maybe Obama gets lucky, and the economy recovers strongly enough to give the administration more options. Rising tax revenue spurred by a growing economy would automatically qualify as "debt reduction." But it's a gamble. If unemployment keeps rising throughout 2010, and the economy loses its current momentum and slides back into recession, then it really doesn't matter what the Obama administration is promising to do today about spending priorities a year from now. Because 12, 13 or 14 percent unemployment will demand extreme government attention, balanced budget or no balanced budget. And if the GOP comes back into power in Congress on the back of a bad economy in 2010, and then attempts to cut government spending all by its lonesome, its hold on power after 2012 might turn out to be just as fragile as the current Democratic majority's seems to be.

Fox Business: The economy according to Ann Coulter

Andrew Leonard — Thu, 12 Nov 2009 07:13:00 PST

Paul Krugman tells us to read James Wolcott, who has been inexplicably torturing himself by watching the Fox Business channel so the rest of us don't have to.

Wielding his keyboard like a stiletto, Wolcott delivers a sophisticated rendition of a familiar theme: For conservative commentators, when the stock market goes down, it is a verdict on Obama. But when it goes up, it's simply irrational. Don't be fooled by the resurgence in your 401K and college fund portfolios, folks -- once investors finally understand the true implications of health care reform and Keynesian fiscal policy they will sell, sell, sell. Variations on this formula can be found on all the business news channels, but naturally, as Krugman notes, the virus is strongest at Fox. The truly baffling part: Fox Business delivers these insights via such renowned economic experts as arch neocon John "blow up the U.N." Bolton, the utterly untrustworthy political consultant Dick Morris, and Ann Coulter.

Investment advice from Ann Coulter? In what alternate reality does that make sense?

Wolcott finishes up his riff with a nice flourish:

...If it were a Republican president in the White House and the Dow was hitting such highs the same week of the 20th anniversary of the fall of the Berlin Wall, the hosts and panelists at Fox would be waving little American flags celebrating the market boom as a fitting toast for the triumph of Western capitalism over communism and a rebuke to naysayers and doubters with souls so gray and faith so brittle.

Meanwhile, if you're looking for economic news a little more grounded in the real economy than the ebbs and flows of the stock market, the weekly jobless claim numbers (seasonally adjusted) for the first week of November dropped again, taking the four week moving average to its lowest total in a year. That is good news, unless you're Fox Business, in which case it is probably yet another reason to stock up on gold.

Duran Duran and art in the age of Internet reproduction

Andrew Leonard — Wed, 11 Nov 2009 15:02:00 PST

In a speech given at UCLA two weeks ago, Duran Duran bassist John Taylor comes off as earnest and reasonably thoughtful, so I am going to do my best to take seriously his argument that the Internet may be "stifling new music." But it won't be easy. When a member of a band notorious for leveraging its good looks and stylish hair into rock superstardom mainly via the new medium of MTV complains about the supposed negative impact of even newer media it sounds just a little bit ungrateful.

Here's Taylor's critical point:

...The availability and accessibility of music on the Internet today is truly incredible, and I applaud anything that can inspire interest or curiosity in anyone. But this also means that those of us who before would have been looking towards the current culture for inspiration are now often to be found... in various backwaters of older music. This relative lack of need for current, innovative culture can cause, has caused, is causing -- maybe -- the innovative culture to slow down, much as an assembly line in Detroit slows down and lay-offs have to be made when the demand for a new model recedes. And the speed and growth of new technology, which has been so heralded and so much fuss has been made of, has actually served to disguise how little real growth is taking place at the artistic level.

In the excerpt of the speech published by the BBC, Taylor provides no evidence for his theory that there is "little real growth" taking place in music today, or that listeners are less interested, in any quantitatively measurable sense, in new music now than they ever were before. Even if this could be proven, I'd more inclined to blame consolidation in the music industry and radio business, the stultifying effects of such things as classic rock radio station formats, and other market forces for cramping new music creativity, before I blamed the Net's powers of distribution.

But the argument about access just seems cockeyed. New music is easier to find than ever before. The technological obstacles separating nearly any group of musicians practicing in their garage from my daughter's Nano are nothing at all compared to the efforts a new band would have had to make in the 60s, 70s, or 80s to get heard. If this is "stifling," then I can't imagine what a nurturing environment would be like -- I am routinely overwhelmed by the choices available to me. All one needs to be drowning in a sea of newness is the will to dive in.

That being said, Taylor does touch on something important going on in our culture worth investigating. The past, or at least "the past" that dates back to the introduction of audio and video recording technology, is no longer the past. In the vast territories of cable television and the Internet and everything captured on disk, the cultural modes of previous generations are all part of our ongoing present. Nothing fades away. It's all there, ready to be found. When I was a kid, if it wasn't on the handful of broadcast televison channels or a dozen or so radio stations, it just wasn't on. As a teenager in the 1970s, the 1960s seemed a galaxy far, far away. But for my children, there is a very real sense in which the 60s, 70s, 80s, and 90s are all contemporaneous with the now.

Does this push us, culturally, towards a mode of expression dominated by sampling or remixing the existing corpus of entertainment product, instead of creating something completely fresh and new? It's a good question? Where's Walter Benjamin when you need him? Certainly, something's happening here...

But rather than worry about whether the Internet is exerting a baleful influence, I think we just need to make our peace with the fact that every new technology creates a different space for cultural practice. Duran Duran without cable television or a high-end production studio is simply unthinkable. Recording technologies enabled the commodification of musical performance on a mass basis. Networked computers have crippled the profitability of that commodification. The adventure is ongoing.

Perhaps the digitally-enabled overhang of the cultural production of previous generations is a heavy burden. But I guarantee you that those artists who do break free of its restrictions, and can come up with something interesting to say, will be easier to find and easier to enjoy than any pioneers of any previous era were.

South Carolina GOPers wish Sen. Graham would secede

Andrew Leonard — Wed, 11 Nov 2009 11:41:00 PST

In hardcore GOP politics, there's one brand that just can't be beat -- South Carolina's.

South Carolina Republicans are sui generis: Whether it's Sen. Jim "healthcare will be Obama's Waterloo" DeMint or Rep. Joe "You Lie!" Wilson or Gov. Mark "no stimulus for me" Sanford, they rarely disappoint. One would expect no less from the first state to secede from the United States after Lincoln's election and the first state where shots were fired in the Civil War. Racist tweets and jokes about Michelle Obama and escaped gorillas? Also easily explainable: In 1860, there were three slaves for every free person in South Carolina -- only Mississippi could compare. It's a legacy that's apparently pretty hard to shake.

Any watering down of the brand must be resisted with unflinching fervor. In the eyes of some South Carolina Republicans, Sen. Lindsey Graham's pledge to help pass climate legislation is nothing less than foul betrayal. Thus the latest news, reported by the Associated Press: Graham has been officially censured for straying from the path of righteousness by some of his fellow Republicans. (Found via Senatus.)

Republican leaders in a South Carolina county have censured their own U.S. Sen. Lindsey Graham for working with Democrats on a climate bill and other legislation. The Republican has often worked with Democrats in Congress, but Charleston County Chairwoman Lin Bennett says his work on climate legislation is the last straw.

The State adds:

County chairwoman Lin Bennett said the unanimous voice vote of 50 of 104 executive members "is an effort to get his attention. They (party leaders) are just fed up, and they want him to know they're fed up.

The resolution reads, in part:

U.S. Senator Lindsey Graham -- in the name of bipartisanship -- continues to weaken the Republican brand and tarnish the ideals of freedom, rule of law, and fiscal conservatism.

Note well: The brand comes first, followed by freedom and the rule of law. Don't you forget it, Lindsey!

"A crisis of unprecedented proportions is approaching"

Andrew Leonard — Wed, 11 Nov 2009 08:28:00 PST

California Controller John Chiang's monthly summary of the state's cash situation starts on a happy note. (Found via Calculated Risk.) Unexpectedly, General Fund revenues for October beat budget estimates, mainly because of a boost from corporate taxes.

Chiang, whose monthly missives warning of impending bankruptcy have been a staple of California life for the last year, becomes positively ebullient:

October's numbers may contain some signs that California's economy is gradually beginning to heal. Both personal income and corporate taxes beat monthly estimates, while corporate and sales taxes also came in higher than October 2008.

As California goes, so goes the nation? If we're talking budget paralysis and dysfunctional politics, that might not be a good thing. But if we're talking economic recovery, a return to health out West would be a welcome prospect for the entire country.

However, after lulling our fears with his happy talk, Chiang appends a "guest article": "Overview of the Commercial Property and Capital Markets with Implications for the State of California," by Dr. Randall Zisler.

The message from Dr. Zisler is quite different. Nationally, the commercial real estate market is in big, big trouble.

A crisis of unprecedented proportions is approaching. Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years. We estimate another $500 billion to $750 billion of unscheduled maturities (i.e., defaults). Unfortunately, traditional lenders of consequence are practically out of the market and massive amounts of maturing debt will not easily find refinancing. Marking-to-market outstanding debt will render many banks, especially regional and community banks, insolvent, especially as much of the debt is likely worth about 50 percent of par, or less.

Stated baldly: Banks are on the hook for loans to commercial real estate developers that will never be paid back and can't be refinanced. Zisler doesn't break down the figures to tell us how much of that $3 trillion in outstanding mortgage debt is California's, but one can guess that it is a significant fraction.

California's faltering steps forward, in terms of rising tax revenue for October, could just be the calm before the commercial real estate storm finally hits. Double-dip recession, with a California topping, anyone?

The economic crash and its aftermath are affecting all sectors of the economy, real estate being no exception. Real estate, especially in the transactional sub-sectors (e.g., brokers, etc.), accounts for a significant share of the California labor force. The downturn has created a vicious negative feedback, a symptom of which is still ongoing property deflation and tenant defaults. Attendant symptoms are reduced property tax revenues, failing businesses, decimated transactions volume, and reduced income and sales tax revenues. The extent to which the recovery is delayed will depend on a number of factors, not least of which is the extent and timing of loss recognition by owners and financial institutions.

Family doctors go better with Coke

Andrew Leonard — Tue, 10 Nov 2009 14:49:00 PST

A Coke a day, keeps the family doctors in pay.

Outrage of the week alert: Via a tweet from Steve Silberman, we are directed to this story from the Cleveland Plain Dealer reporting that the American Academy of Family Physicians has "a six-figure grant from the Coca-Cola Co. to create content about beverages and sweeteners for the academy's consumer Web site, FamilyDoctor.org."

Kaye Spector reports the obvious:

Soda and other sweetened beverages are the No. 1 source of added sugars in the U.S. diet, the American Heart Association says, and many health experts blame the drinks, at least in part, for the soaring U.S. obesity rate. A 12-ounce can of soda can contain up to 10 teaspoons of sugar.

From the AAFP press release:

The Consumer Alliance program is a way of working with interested companies to develop educational materials to help consumers make informed decisions so they can include the products they love in a balanced diet and healthy lifestyle," said AAFP President-elect Lori Heim, M.D., of Vass, N.C.

The American Academy of Family Physicians -- working hard to help you incorporate "the products you love but that aren't at all good for you" into your unhealthy lifestyle.

But hey, there is a silver lining. From the press release again:

The Consumer Alliance program also will create a new source of funding for AAFP, which, in recent years, has broadened its search for funding outside the pharmaceutical industry.

Fantastic! Have a Coke with your Ativan.