Wall Street Stuff

Barron’s cover story this weekend urges Fed Chairman Ben Bernanke to stop punishing savers and raise the Fed’s target overnight interest rate. To support their case, they use an array of market indicators, including the US Dollar index and the USD price of gold, arguing that “big investors have come to see the dollar, commodities and stocks as one-way bets.” A dramatically titled sidebar of charts (‘The Perils of Easy Money’) is provided, but beyond the rising price of gold, there’s nothing in them that offers primae facie evidence of either easy money or impending inflation.  Yes, the USD has declined almost 15% from its peak, but at current levels it is simply back to where it was at the end of 2007 and beginning of 2008. And while the S&P 500 has had a breath taking run off of its March 09 lows, it’s still roughly 20% below its peak.

What’s more, there’s little about the real U.S. economy that argues for higher nominal interest rates, and inflation (and deflation) can only arise from a misalignment of the financial system with the real economy. There’s still a considerable amount of private sector debt to be worked out in the coming years and decades; excessive household consumption has run its course; and U.S. demographics do not imply a high or rising ‘natural‘ rate of interest in the decade ahead. In fact, based on that latter point, we can sympathize (out of context) with Milton Friedman’s 1965 claim that “we are all Keynesians now”, as research into population demographics and their effects on economic output and asset pricing has produced some powerful (if tentative) insights. At the present time, the U.S. is simply not at a point where, demographically speaking or policy-wise, a low nominal rate of interest on overnight reserves is likely to produce rising asset prices or “excess demand” for goods and services in the same way that it did in the late 1970s. And for that reason, increasing investment in public goods, as many of today’s policymakers advocate, might be a good idea. It might even be inevitable, judging by the experience of Japan, a country ten years ahead of us on the demographic curve. At the very least, we can hope it will be done well (Art Laffer penned a supply side refutation back in May but did not address his underlying assumptions of perfect competition for — and full employment of — real resources).

The real problem with a low Fed Funds target, as we have pointed out previously, is that the USD is still the world’s primary reserve currency. Thus, while a low Funds rate might be appropriate for the U.S. economy, it can have inflationary consequences in parts of the world that have higher expected growth rates (the reverse can also happen, as it did in the 1990s – while a high funds rate and a strong dollar seemed appropriate for the U.S. economy, they wreaked deflationary havoc on much of the world). Rising prices for goods that are globally traded, and thus subject to the Law of One Price, will feed back into domestic U.S. price levels, providing a noticeable whiff of stagflation, much as gold, precious metals, and other commodities are doing now.  The global pressures caused by an easy Fed are also going to cause plenty of political consternation and some financial dislocation abroad, as recent salvos from global trading partners over the USD attest to. But we don’t expect broader inflationary pressures to unfold in the U.S. for quite some time, nor do we expect Congress to even entertain the possibility of revisiting Humphrey Hawkins; which means, in our view, that the Fed will remain easy for some time, probably well into 2010. In the meantime, should the USD continue its current trajectory, we might see some coordinated global interventions, as we did with the Plaza and Louvre Accords in the mid-1980s. But in those episodes, national treasury departments played the lead roles, not central banks.

There are also a couple of Investment News articles that illuminate some of the beefs we have with our industry. The first one is on a Morningstar study that found that over half of all mutual fund managers have no money in their own funds. There are some legitimate reasons why a percentage of mutual fund managers would not own shares of their own fund — but that percentage should be waaaaay below 51%. That’s bad enough, but what really stuck in our craw was the speculation that some fund managers might have their money in separately managed accounts that follow a similar strategy as their mutual fund, as they tend to offer lower expenses (they also offer greater transparency, potential tax advantages, and opportunities for customization). If we ran our Opportunistic Portfolio as a mutual fund, our firm’s principals and employees would own it as a mutual fund, period. As it is, we only offer it as a separately managed account, because that is a more advantageous approach for most investors, and because technology has made it possible for us to offer separate accounts to all of our clients (it’s also a heck of a lot cheaper than forming a mutual fund). I know this stuff goes right over most of our clients’ heads when we try to explain it. Suffice to say, we’re trying to do right by them, and by our industry, on each and every day, and we appreciate stories like this one as they lend support to a key piece of our competitive strategy.

The second article is somewhat innocuous, but offers a glimpse into the prevalence of momentum trading in our business, and the general fascination with market momentum. It quotes a large cap manager at ING as saying that ”There does seem to be something unorthodox about [current equity market behavior], but you ignore it at your own peril.” That’s not an objectionable statement, but the article’s headline was a bit stronger: “Market rebound may be illogical, but ‘ignore it at your own peril,’ manage of $1.7B warns”. Surely a similar thought occurred to each of the 20,000 bison shepherded off of Vore over the eons:

[The site hosting that image is pretty neat - you can read a history of bison and horses on the Great Plains while authentic cowboy/saloon music plays in the background.]

Our beef with momentum investing is that it rationalizes away everything but herd direction. If a manager buys momentum because the underlying investment thesis makes sense, there’s nothing wrong with that. But buying momentum for its own sake is the height of glamor boy laziness and stupidity. There’s too much of it in our business, and it contributes precious little to the economies and societies we operate in.

[The 'glamor boy' link will be nostalgic for anyone who was watching MTV in the late 1980s. While it's hard to take Corey Glover's claims of ferocity seriously while he's wearing a spandex suit and a marching band jacket, it's still a great song.]

URLs:

http://online.barrons.com/article/SB125573856421291217.html?mod=rss_barrons_this_week_magazine

http://s.wsj.net/public/resources/documents/BA-EasyMoney091019.pdf

http://www.frbsf.org/publications/economics/letter/2003/el2003-32.html

http://www.time.com/time/printout/0,8816,842353,00.html

http://economics.uwo.ca/econref/WorkingPapers/researchreports/wp2009/wp2009_2.pdf

http://frank.mtsu.edu/~berc/tnbiz/stimulus/laffer.pdf

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20091019/FREE/910199975/1094/INDaily01

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20091019/FREE/910199982/1094/INDaily01

http://www.wyomingtalesandtrails.com/buffalojump.jpg

http://www.youtube.com/watch?v=7XRpuhc9dgU

http://www.wyomingtalesandtrails.com/bison.html

England’s Last Trench Vet

Harry Patch, the United Kingdom’s last surviving infantryman from World War One, passed away at the age of 111. He was apparently something of a national icon – the UK Poet Laureate even wrote a poem about him. Today, the AP quoted the following statements of condolence from British dignitaries:

Prime Minister Gordon Brown said the whole country would mourn “the passing of a great man.”

“The noblest of all the generations has left us, but they will never be forgotten. We say today with still greater force, We Will Remember Them,” Brown said.

Queen Elizabeth II said “we will never forget the bravery and enormous sacrifice of his generation.” Prince Charles said “nothing could give me greater pride” than paying tribute to Patch.

“The Great War is a chapter in our history we must never forget, so many sacrifices were made, so many young lives lost,” the prince said.

There’s some irony at work in this. Mr. Patch, who didn’t start talking about his experiences until he was 100 years old, described himself as a reluctant and frightened combatant who saw the war as a tremendous waste.  Meanwhile, historians increasingly see the ineptitude of political institutions and leadership as the primary cause of the conflict. As Adam Gopnik wrote in the New Yorker in 2004:

You could not have chosen a worse bunch of guys [in 1914] to have the fate of Europe in their hands. There is Kaiser Wilhelm, the deformed lesser member of the dominant royal family of Europe, intensely jealous of his cousin Edward VII and his Francophile ways (although Edward had died by 1910, the icon still shone), and determined to act in a manly and warriorlike way, yet caught in a bizarre cycle of peevishness, belligerent insecurity, and a superstitious fatalism that he thought of as “religious.” There is Count Conrad, who genuinely seems to have acted in part because he was in love with a married woman and imagined that success in war would help his romance. Even Herbert Asquith, the British Prime Minister, who for some reason gets off very lightly in British histories, seems hopelessly inadequate to the occasion.

Gopnik allows for the fact that WWI would prove a novel and harsh learning experience for military and political leaders, who could not foresee all of the battle field consequences that industrial technology would bring about:

…the previous century had been filled with wars, and none of them left behind much more than a scar and a memory of honor. The worst recent war in Europe, the Franco-Prussian War of 1870-71, had made a deep imprint on the French psyche, but it was immediately followed by the decade that resides in our imagination—courtesy of the Impressionists, but courtesy of the facts, too—as idyllic. How bad could a war be? The Germans thought that, more or less, it would be like 1870; the French thought that, with the help of the English, it wouldn’t be like 1870; the English thought that it would be like a modernized 1814, a continental war with decisive interference by Britain’s professional military; and the Russians thought that it couldn’t be worse than just sitting there.

He also points out that some of the primary actors were driven by some primal human desires:

Above all, the tragedy was that their goal was not to look weak. Even in Strachan’s dry and unemotional narrative, one wet and emotive word rings out again and again, and that word is “humiliation.” The game was not to prevail—for all the players, save perhaps some of the Germans, knew that none of them could—but to avoid being seen as the loser. There are, in the recorded words, few references to rational war aims, even of the debased, acquisitive kind; instead, you find a relentless emphasis on shame and face, position and credibility, perception of weakness and fear of ridicule. “This time I shall not give in,” Kaiser Wilhelm repeated robotically (to the arms manufacturer Krupp) in July of 1914. Lloyd George, on the British side, a key actor in favor of war, called for the mobilization of a million men lest Britain not be “taken seriously” in the councils of Europe. It was not runaway trains but a fear of being humbled, “reduced to a second-rate power,” that drove the war forward. The keynote is insecurity, an insecurity that arose, above all, from the German paranoia about encirclement, matched by Britain’s insecurity about its naval power.

A few observations:

First, the desire for humiliation — and its opposite objective, saving face — may be what human individuals and/or societies had been selectively adapted to entering the 20th century. In fact, the Armistice at the end of the war fully embodied the desire to further hobble and humiliate the vanquished.  John Maynard Keynes presciently warned the world of its likely consequences, including a second great war. What’s interesting is that in the Second World War, military aims became more about strategic objectives, and Allied leadership did not try to impose quite the same measure of humiliation that their forbears in WWI had. Interestingly — and despite the cultural popularity of martial ideals and practices in business (e.g., The Art of War) — the major players in WWI and WWII seem to have moved a bit beyond the primal motivations of saving face and avoiding humiliation — whereas they continue to play a strong role in most parts of the world. Perhaps the First World War was a crucible for this? These cross currents are alive and well in international business, e.g., in individuals/institutions vs kin/clan traditions (of course, as interesting as these seeming contrasts are, human beings are alike in more respects than they are different, and we all move through backgrounds, however varied, in which individuality, institutions, family, and friends all play important roles).

Second, Gopnik’s and modern historians’ descriptions of WWI are excellent examples of a “complex foresight horizon“. World War One must indeed have been a “world of emergence, perpetual novelty, and ambiguity” for all involved, whether in palaces, parliaments,  trenches, or manning a hearth. Gopnik provides the figure that 260,000 French were killed in the first 26 days — that’s the mind boggling equivalent of more than three 9/11 attacks per day occurring for twenty six straight days! If political and military leaders — and populations at large, as Gopnik aptly points out — had known the calculus beforehand, perhaps they would have shown more modesty. Still, the failures of leadership from 1914 through 1918 (and in many other incidents of political economy in the 20th century) are striking, and not easy to forgive. Perhaps it’s inescapable that people in positions of power will always struggle with the choice between the primal motivation to save face versus the more courageous act of speaking candidly and openly with constituencies (their own and their opponents’), and with the many ethical dilemmas and challenges of wielding power. Hopefully, institutional learning will continue apace.

Meanwhile, strong leadership traits can be heard in the words of the gentleman in question:

At a remembrance ceremony in 2007, Patch said…”Today is not for me. It is for the countless millions who did not come home with their lives intact. They are the heroes,” he said. “It is also important we remember those who lost their lives on both sides.”

The AP article also pointed out that Patch outlived three wives and his two sons — a burden that we probably don’t think about when wishing to live to a ripe old age.

URLs:

http://news.yahoo.com/s/ap/20090725/ap_on_re_eu/eu_britain_obit_patch

http://www.newyorker.com/archive/2004/08/23/040823crat_atlarge?currentPage=all

http://www.amazon.com/s/ref=nb_ss_gw?url=search-alias%3Daps&field-keywords=keynes+consequences+peace&x=0&y=0

http://www.telegraph.co.uk/culture/books/3671688/The-Five-Acts-of-Harry-Patch.html

http://www.santafe.edu/research/publications/workingpapers/95-12-106.pdf

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Perseverance: Coach Don Meyer

Here’s a powerful and inspiring story from the recent ESPN Espy Awards — Northern State University (S.D.) men’s basketball coach Don Meyer was awarded the Jimmy Valvano Award for Peseverance, after surviving and eventually losing a leg to a horrific traffic accident, and undergoing treatment for liver and intestinal cancer that was discovered during the trauma surgery. Meyer coached last season primarily from a wheel chair, and broke the national record for most career wins in men’s college basketball — toughness and dedication.

In his acceptance speech, he said that the experience taught him that “peace is not the absence of trouble, trials, and torment, but calm in the midst of them.” Good stuff.

URLs:

http://nsuwolvesathletics.com/news/2009/7/21/MBB_0721090257.aspx?path=mbball

Southside Lefty

Hay is being made in some quarters about Obama’s poll numbers easing off in recent months, but this video of him throwing out the first pitch at the MLB All Star Game confirm that his rock star status is still intact. It also allows us to make a few observations:

First, there can no longer be any doubt that he’s a “lefty”.

Second, he’s clearly spent more time on his jump shot than his fastball (although he’s no Mayor Mallory, which has to be a relief to his Cabinet and the State Department). It’s reported in the video that he had practiced in the Rose Garden with an aide the night before. Imagine being able to tell that story to your kids and grandkids (unfortunately, in the age of the internet you can no longer claim to have lost the videotape showing how well your practice session prepared him!).

Third, he’s apparently a Southside booster, i.e., a fan of the Chicago White Sox, the perennial buck toothed step sibling to the Chicago Cubs (although, ahem, they won a World Series within the past few years, versus…well, let’s not rub it in, but it’s been awhile for the Cubbies).  The Sox jacket probably played in his favor (and come with hearty Secret Service approval) as the reaction in Busch Stadium, where the Saint Louis Cardinals play, could have been a bit uglier had we worn the jacket of their arch rival Cubbies.

Note to 2012 campaign opponents – if you don’t believe in baseball jinxes, consider putting Wrigley Field on your list of campaign stops!

URLs:

http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=14503618&ch=4226716&src=news

http://www.extremesportclips.com/video/2130/Mayor-Mallory-Can-t-Pitch.html

Announcing CR1 (Credit Revolt I)

Parallel to our coverage of TR2 (Tax Revolt II), we’ve noticed that an interesting aspect of the financial crisis, and the flip side of a rising savings rate, is consumers spurning credit card companies – some in creative and demonstrative ways. From the WSJ:

When Fred Wilharm decided to ditch his credit cards, he reached for the chainsaw.

The real-estate investor from Franklin, Tenn., sliced, drilled and shredded his credit cards in his YouTube video “The Tennessee Credit Card Massacre.” Mr. Wilharm says he had just paid off $3,000 in credit-card debt after the card issuers jacked up his interest rates, and that making the video helped him deal with his anger.

His only regret about the video: “Explosives would have been nice.”

…Mr. Wilharm is one of at least several dozen people who have posted an online video of a “plasectomy,” a term credited to Dave Ramsey, a radio talk-show host with Fox Business News. Some depict cards being chopped with scissors, shredded in blenders or chewed by lawnmowers. Others show cards set on fire, or doused with liquid nitrogen and then shattered with a hammer.

It’s interesting to note that some subjects of the article sound like credit worthy borrowers, rather than folks who’ve overextended themselves. Of course, it’s not unusual to hear of banks contracting credit availability in an economy like this one – that’s a very natural outgrowth of the deleveraging process, as the banking industry withdraws from the excesses of recent years - but it will be interesting to see what kind of long term backlash this provokes among consumer credit users of all stripes (if any) and what it could mean for credit card companies.

Speaking of backlash, we’re considering a moratorium on cute, thematic acronyms, lest we inspire a reader revolt against our blog (RR1, anyone?).

URLs:

http://online.wsj.com/article/SB124528467015725739.html

Two Tasty Web Tidbits

We happened across two web pages that we’d recommend to those who can carve out thirty minutes of their day.

First is a photo and video narrative of Venture Capitalist and uber-blogger Guy Kawasaki’s trip to the US Naval aircraft carrier USS Nimitz (as a full grown Navy brat, this one got its hooks into me easily).

Second is a video of a presentation given by Gapminder founder Hans Rosling, who’s not just brilliant, but also the king of Swedish stand-up (at least he’s the funniest Swede we’ve ever seen on stage). Rosling uses a very cool visual platform to convey the ideas he expresses, which are about global economics and then some. His objective is to get people thinking about the world in ways that avoid bias and oversimplification. As someone who teaches Statistics to undergrads, this stuff is golden.

We came across the Rosling presentation via an intermediary link from Kawasaki’s site – networks are so cool.

URLs:

http://blog.guykawasaki.com/2009/06/24-hours-at-sea-on-the-uss-nimitz.html

http://dotsub.com/view/3b345061-c5da-4604-b59c-404527f0bd68

http://www.gapminder.org/

http://www.presentationzen.com/presentationzen/2009/05/tedx-tokyo-this-friday-in-japan.html

Tyson: Defending Obamanomics

UC Berkeley economist Laura D’Andrea Tyson penned an interesting op-ed for the WSJ today, arguing that President Obama’s stimulus plan and budget will have positive economic and social impacts. Some of her claims are wait-and-see economic projections, others offer some helpful detail and historic perspective, and a few are, in our opinion, open to vigorous debate. Key excerpts include the following:

The president’s budget is progressive and ambitious. It will not, however, explode the size of government as some critics warn. If the economy recovers as projected, over the next decade taxes as a share of GDP at around 19% will be lower than they were during the second half of the 1990s, government spending as a share of GDP at around 22.5% will be about where it was under Reagan, and nondefense discretionary spending at around 3.6% of GDP will fall to its lowest level since that data was first collected in 1962.

This is Tyson’s essential argument, and it’s important to read/hear. She notes that the projections are subject to some uncertainty: “The real risk lies in the possibility that the economy’s recovery starts later and is much weaker than the economic assumptions in the budget.” However, we think the underlying objectives are the ones to pay attention to. In our view, people on the political left and right tend to expect far too much good from their own policy preferences than warranted, and far too much harm from their opponents’. And right now, too many folks on the right are gnashing teeth, rending garments, and calling for the end of the world as we know it. We’ve been saying for some time that investors should brace themselves for public policy shifts that will lower most financial asset values at the margin, perhaps substantially. But it’s also important to keep in mind that (1) there’s nothing in Obama’s plans that spells doom or outright collapse (in fact they contain some worthy economic objectives) and (2) our political system tends to be very responsive to costly policy errors, at least compared to most current and historical alternatives.

President Obama’s budget will restore the top two marginal tax rates to their 1990s levels of 36% and 39.6% for individuals earning more than $200,000 and couples earning more than $250,000. These changes will affect only the top 3% of taxpayers, the group that has enjoyed the largest gains in income and wealth over the last decade. In addition, for these taxpayers the tax rate on capital gains will increase to 20%, the lowest rate in the 1990s and the rate President Bush proposed in 2001, and the tax rate on dividends will increase to 20%, a rate lower than the rate of the 1990s and nearly 40% lower than that proposed by President Bush in 2001.

Good policy context, and there have been some stubborn problems with the U.S. income distribution over the last few decades, which we believe is an important factor in the Democratic party’s return to power. In another passage, she also clarified the change in treatment of charitable deductions, which will be deducted at a maximum rate of 28%; that’s not as dire as some commentators have described. However, we have to keep a few counter points in mind. First, in the U.S., there is a relatively high rate of movement between tax brackets; the people being taxed more heavily in coming years may not be the people who benefited from rising incomes at the top over recent decades. Second, taxing the beneficiaries more heavily is not the only solution to improving the income distribution; for example, the inflation tax on savings, and most importantly, our relatively high marginal tax rates on corporate income (as demonstrated by David and Christina Romer, colleagues of Tyson’s at Berkeley) are compelling alternatives that might confer greater long term benefits to society as a whole. In fact, there was some thin but tantalizing data following the 2003 tax cuts that indicated income improvements among lower wage earners; unfortunately, the relevant measures expired before any firm conclusions could be drawn, but the 2003-2006 period might prove to be a fruitful area for research into taxes and income distribution. Tyson also waves away the impact on small businesses, arguing that only 3% of them would be subject to a higher rate; perhaps, but it still imposes a marginal cost during a time of deep economic recession and uncertainty, and it also worsens the relative distortions between personal and corporate income taxes. Third, the federal government must be very careful not to cross that unknown threshold where human capital begins to emigrate from the U.S., something that has happened in states like California and Illinois in recent years. As a country, we may be nowhere near that point yet, but we are closer than we were in 2008. And if we are reckless enough to cross it, the long term consequences would be depressing.

Reducing the nation’s dependence on foreign oil and cutting carbon emissions are also priorities, supported by overwhelming scientific evidence on the risks and costs of climate change.

This is the point we would take vigorous exception to; in fact, it’s almost reflexive any time we hear the phrase “overwhelming scientific evidence.” If we had a dollar for every time that phrase has been misapplied in the history of humankind, we could retire and write these missives for our own amusement. Good science acknowledges that uncertainty looms large in any model, however the evidence may look at any point in time. Human beings have been diligently modeling climate change and anthropogenic warming – an exceedingly complex and chaotic system of interactions – for less than thirty years. Our knowledge of many important contributing factors is just as young or younger, and for yet to be discovered factors, it’s nonexistent. As Benoit Mandelbrot wrote in Fractals and Scaling in Finance, “it is prudent to fear that ‘what we know’ is not necessarily the last word.”

Despite our heretical skepticism, we think that cleaner energy technologies are extremely desirable, and we fully acknowledge the risk that the current models prove to be accurate. Anthropogenic climate change and its consequences could be as serious as the critics say, or worse, and limiting CO2 emissions might indeed be an effective means of limiting the damage. Scientist James Hansen’s and others’ warnings of an irreversible ‘tipping point’ should not be dismissed out of hand either.

But the climate change movement reminds us very much of other movements once based on “overwhelming scientific evidence”. For example, it was believed for a time, by some otherwise intelligent people, that autism was primarily caused by cold and emotionally distant mothering! A more credible and persistent one is the connection between diet (saturated fat and/or cholesterol) and Coronary Heart Disease (CHD). The consensus built upon “overwhelming scientific evidence” has been subjected to an increasing number of attacks in recent decades, as evidence accumulates that limiting the ingestion of cholesterol and/or saturated fat to lower the risk of CHD in populations is highly questionable:

“[In the Framingham Massachusetts study,] the more saturated fat one ate, the more cholesterol one ate, the more calories one ate, the lower people’s serum cholesterol…we found that the people who ate the most cholesterol, ate the most saturated fat, ate the most calories weighed the least and were the most physically active.” Dr William Castelli 1992 (link).

Dr. Clare Hasler noted in a 2000 Journal of the American College of Nutrition article, “it is now known that there is little if any connection between dietary cholesterol and blood cholesterol levels.”

According to Dr. Uffe Ravnskov, “observations strongly suggest that high cholesterol is only a risk marker, a factor that is secondary to the real cause of coronary heart disease. It is just as logical to lower cholesterol to prevent a heart attack, as to lower an elevated body temperature to combat an underlying infection or cancer.” He has also aggregated substantial evidence that calls the association of saturated fat intake and CHD into question.

In recent years, regulatory bodies like the FDA have paid increasing attention to the role of trans fatty acids in the diet, and by many measures, they are at least as harmful, perhaps much moreso, than saturated fats were once believed to be. In short, the once “overwhelming scientific evidence” that saturated fat and/or cholesterol in the diet raise the risk of CHD in a population has turned out to be  little more than the well-publicized-theorizing (or opinions) of some scientists (or activists) based on preliminary but incomplete findings, supported by economic beneficiaries, such as pharmaceutical companies. This is not to say that CHD management therapies, including dietary modification and drugs, are worthless; they are surely helpful for some individuals. But the diet-CHD hypothesis for entire populations, after decades of widespread acceptance, has been shown to be quite shaky.

There are countless other examples, from many fields of life, that “overwhelming scientific evidence” is often extremely plastic, and that “consensus” is often oversold (the SMON episode in Japan is a powerful example). Our sense is that the anthropogenic global warming movement has many of the features of such movements, and if true, the costs of pursuing this particular piece of change could far outweigh the realized benefits. And as long as we profess to care about future generations of citizens and taxpayers, not to mention understanding and solving the problem at hand, we should be explicitly mindful of this risk.

Another important concern relates to cap and trade as a means of limiting carbon emissions – the so-called “market based” approach. This sets up a public-private system that allows privileged entities to extract significant economic rents. According to Tyson, the Obama Administration claims that 80% of the initial auction revenues from a cap and trade system “will be used to finance a refundable tax credit of up to $400 for individuals and up to $800 for families.” There are severe agency risks in a cap and trade system, far more than a straight carbon tax, and its planned implementation strikingly contradicts, for example, the decision made by Treasury and Congress to end the use of private debt collectors by the IRS.

———————————–

Epilogue: We have a serious beef with some of the global warming related thinking and marketing being peddled these days. One of the most irritating examples comes from our local cable company – it’s an ad with children ranging from perhaps three to twelve years old, warning their parents about impending ecological collapse – as if the planet itself needs us to save it! This idea is so inane that it borders on insane. The planet will be absolutely fine, with or without us, presumably until our solar system collapses. As Professor Valerius Geist noted in his book Whitetail Tracks:

The type of landscapes we take for granted as “natural” are actually an article of human intervention caused by human elimination of megaherbivores…

The huge, tree-crunching giants [are] gone, a profound departure from normal landscape ecology…Kill the big plant-eaters and continents sprout forests…That was the new setting, the new ecological stage, for a new beginning for life on Earth…Fires replaced giant herbivores as devourers of trees…Life adores opportunity. It simply will not rest!

In other words, life on planet earth is capable of adapting to many different climates. Thus, the whole global warming movement, for the most part, is not about the planet, but about us! It is propelled by our evolved capacity to think about the future, to worry about our place in it, and perhaps by cultural and institutional backgrounds that encourage us to embrace personal guilt and responsibility. This should not lessen the material concerns raised by the global warming hypothesis, of course. But it should at least start to demolish the old “Mother Earth needs our help” myth as the  mindless bunch of nonsense that it is.

Geist’s observations also tie back into anthropogenic global warming, as the past existence of megafauna would argue that the earth’s climate has been much warmer in past epochs, perhaps warmer than the worst climate models currently predict. Imagine a world of giant herbivores toppling flora of any size, crunching, munching, and ingesting massive amounts of plant material, fermenting them in specialized digestive systems with multi chambered stomachs, and acting as giant fertilizing machines spreading seed-laden dung far and wide. The “greenhouse gas” emissions of such processes would have been massive, and a hot, tropical planet would have been the norm. Looked at in that light, it’s unreasonable to argue, for example, that large, stable polar ice caps represent some normal state of affairs in the natural history of the planet’s climate. Rather, their contraction represents a threat to our species’ and some other species’ status quos. But the planet will get along swimmingly with or without humans, polar bears, arctic seals, or the many other species at risk from a significantly warmer climate, many of whom exploited niches created by past shifts in climate. As Geist observes, life adores opportunity and will not rest – no new niche will go unfilled.

Again, to be clear, climate change is a possibility with potentially severe ecological consequences for human beings and other species. But it’s important to contemplate it in the broadest context possible, and with a clear understanding of our motivations for doing so. We will also point out that given the complexity and significance of the subject, the highest probability of optimal policy outcomes is likely to be conferred by referenda. However, there are few causes whose champions and true believers would agree to subject them to such a process, much less abide by an “undesirable” outcome (Bjorn Lomborg’s Copenhagen Consensus Center is a notable exception to these typical human behaviors). Hence the rush to implement programs – based, of course, on “overwhelming scientific evidence”.

URLs:

http://online.wsj.com/article/SB123655553728965955.html

http://homodiet.netfirms.com/otherssay/chd/heart_disease1.htm

http://www.jacn.org/cgi/reprint/19/suppl_5/499S

http://www.ravnskov.nu/cholesterol.htm

http://www.webcpa.com/ar
ticle.cfm?ARTICLEID=30927

http://www.palaeos.com/Mesozoic/Mesozoic.htm

http://www.copenhagenconsensus.com/Default.aspx?ID=319

http://www.nytimes.com/2004/06/05/arts/50-billion-question-world-where-to-begin.html