The gas tax (a.k.a. the carbon tax)

This blog has long supported a carbon tax (see this or an older post). There are many reasons, but among them,

• Regardless of where you stand on global warming, pollution is bad. Clean air is good. Without external restraint, our shared environment becomes a tragedy of the commons. A carbon tax is an effective, market-neutral means of increasing the cost of pollution production.
• A carbon tax, unlike cap-and-trade, permits the market to choose where and when efficiencies can be achieved/improved upon.
• Unlike cap-and-trade, a carbon tax is simple, direct, and less subject to stealth manipulation by politicians.

Support crosses ideological lines: Many liberals support a carbon tax (example), economists like it (example), and many conservatives do as well. George Will wrote about it a while ago.

Today, the Weekly Standard website made available an article by Charles Krauthammer, discussing his support for the Net-Zero Gas Tax.

Are the political winds shifting? It is hard to see the public agreeing to a gasoline tax increase or price floor when the economy is souring, but maybe there is a chance.

The brick and mortar crumbles

Buried inside this Financial Times piece about dismal holiday retail sales is the following notable nugget:

Amazon shares rose 0.4 per cent to $51.78 after the online retailer said the holiday period had been its best ever.

This trend will continue into the future. Online purchasing is, by far, the least costly method of shopping for both customer and seller. The online seller does not need to pay sales staff to man a huge box store (with huge leasing and "physical plant" costs of its own), and that cost savings is passed on to you. The customer saves money and time shopping online, and gets lower costs due to seller efficiencies and also because of increased competition. After all, the entire online world is at your fingertips, when shopping online.

The downside of shopping online is generally shipping costs and lack of immediacy. Sometimes brick-and-mortar operations also excel in customer service and item exchanges, but increasingly this is less true. Brick-and-mortar retail outfits rarely repair items online, and try to keep their inventory as thin as possible. For that reason, when problems arise, the customer must deal directly with the manufacturer (with associated phone calls, shipping and RMA delays) rather than the brick-and-mortar store. That experience will be the same for the customer, whether or not the item was purchased online.

Given the cost savings and greater amount of available information online (product details, customer reviews and ratings, etc.), shopping will trend more and more towards online. Brick-and-mortar stores, for many product categories, will be no more than product showrooms where customers browse and interact with brands, rather than purchasing.

Gift shopping such as at Christmas time, in particular, is typically an exercise known well in advance, and can therefore be accomplished online in advance of the event. Customers that have time to research online, purchase online, and wait for package shipment will be drawn towards online retails for much of their gift shopping.

The State of Germany

An excellent blog post on the UK Telegraph's website, analyzing Germany's recession. This was a particularly well-written observation of the current situation:

It is becoming ever clearer that the surplus countries (angels) will suffer just as much - if not more - than the deficit countries (sinners), even if this offends moral justice. This was ultimately the story in the 1930s, though it did not look like that at the outset.

Germany and China have become addicted to exports. This is not as healthy as it looks. They will bear the brunt of belt-tightening by the Anglosphere Club, and East Europe.

TARP, stimulus

Financial Times has two thought-provoking analysis/editorial pieces: One article on TARP's present status, and recommendations for the future. And another considers fiscal stimulus goals and implementation.

(P.S. Posting has been light due to family-related issues.)

Thank the margins

McCain gave an excellent concession speech, and Obama gave an even better acceptance speech.

But the best part of the night? It was a decisive victory, free of [statistically significant] lawyering and second-guessing and voter fraud.

It really was a victory for democracy tonight.

Update: I voted anti-incumbent, as I noted recently. Politico.com helpfully supplies a list of ousted incumbents.

Ethanol blues

FT notes that the ethanol boom is drying up. This is a subject this blog has visited previously.

Ethanol from corn was always a costly, inefficient idea. Corn as a commodity is terribly skewed in the United States by corn-related (and more recently, ethanol) subsidies. The "corn lobby" has successfully prevented more-efficient, cheaper biofuels from Brazillian sugar cane to be imported, for example (see also this comparison).

Press freedom in China

McClathy newspapers' Beijing bureau chief Tim Johnson blogs about the state of press freedom in China. In terms of overall policy,

[China's] Foreign Ministry announced that press freedoms instituted this year for foreign reporters during the Olympics were being extended indefinitely.

Of course, Johnson also notes, it remains important for a foreign journalist to prepare to be detained for any reason, by a local village chief, factory owner, local police, etc.

Johnson also links to a BBC collection of foreign journalists' anecdotes from October 17, on the state of press freedom.

Settlement risk

Financial Times discusses settlement risk in an article noting OTC foreign exchange trading soars.

Although the article is about currency trading, it raises a pet peeve of this blog: All stock trades should be settled instantly, rather than the current T + 3 settlement period.

Doing so reduces one avenue for irresponsible behavior, one window with a large potential for networked (interconnected) risk. Modern trading platforms can certainly support instant settlement. The T+3 settlement does not provide any great advance to the average investor, and short term loans (what the settlement period may be abused to be, in effect) can be had elsewhere.

In other news: right-leaning Investor's Business Daily supports reinstating the uptick rule.

US election endorsements

On November 2nd, I have decided to be a radical, in this election.

I am stating for the record that I will not vote for Obama or McCain. Furthermore, in national and state-wide elections, I am voting anti-incumbent, regardless of the challenger's party affilition.

Congress needs to be shaken and stirred, as neither party seems capable of even discussing looming issues: aging population, need for increased immigration, China and India and global resource competition, US energy shortages and requirements, unsustainable entitlement spending, ancient, decayed infrastructure, corrupt and over-complex tax code, ...

Southern France and The Med

My wife and I just concluded a wonderfully long vacation through southern France, and the Med. One part of her family grew up in southern France. Our first stop was the small village in the foothills of the Cevennes where most of the family remains, St. Hippolyte du Fort. Here I am, with a local tower and now-unused railway overpass in the background:

We rented a car, and drove around the countryside quite a bit. After getting used to French driving laws — for the most part, it is easier to navigate in France than on U.S. roads — we started touring Roman and medieval villages and ruins nearby. The first stop was the tiny medieval village of Sauve:

Next, we visited Nimes, with its Roman Maisson Carre and arena:

Then on to Avignon:

And finally cruising to stop for several days in relaxing Nice, with its world-famous boardwalk, Promenade des Anglais (I am facing away from the camera, in the blue t-shirt, lower left corner):

Woe, woe is the banker

Rock star economist Steven Levitt points out an op-ed by Casey Mulligan, noting that there is no reason to panic. As this blog noted, the bankers are hurting more than any other industry.

This is a crisis of finance, so far. It will be Another Great Depression when unemployment reaches massive levels (over 25% by 1933). Not even Dr. Doom is predicting that.

Quoth Hawk

Quoting Hudson Hawk, a favorite movie of mine:

Minerva: Markets will crash, crash. Financial empires will crumble, crumble.
Hawk: Except yours, yours.

The over-leveraged home owner

FT writes of policymakers and bankers at the World Economic Forum, calling for more scrutiny and greater co-operation between national regulators.

In particular, I note:

Liu Mingkang, chairman of the China Banking Regulatory Commission, lambasted as “ridiculous” the approach of US regulators to permit 100 per cent-plus mortgages, which he identified as a major cause of the crisis.

You heard nothing about this in today's Pelosi/Reid/Frank/Dodd press conference. The Democrats have their fingers deep into Fannie Mae and Freddie Mac, and are doing everything they can to deflect blame onto the Bush adminstration during this newly-tumultuous election cycle.

Hiatus

This blog will return in 2.5 weeks, following a much-needed European vacation.

China (and India?) absent from debate

Daniel Drezner noticed the same thing I did about the first presidential debate: Lehrer asked no question about China, and the candidates themselves barely mentioned China at all.

The sum total of all mentions of China:

• Obama mentions China in space, noting America must remain competitive in math and science
• McCain soundbite: "We owe China $500 billion", in a discussion about spending restraint
• Obama, later, mentions we are borrowing billions from China.
• Obama refers to China (and Russia) as required partners in any meaningful sanctions on Iran
• McCain mentions Nixon's trip to China, and how Kissinger preceded him, while attempting to lecture Obama on the finer points of diplomacy with dictatorships.

That's it, as far as I can tell from the transcript.

India is not mentioned at all.

As this blog often notes, China and India — one third of our entire planet — are growing and industrializing at light speed, which will have a major impact on geopolitics, the environment, and many other aspects of life as we know it.

A home: to own, or not to own

Taken from a comment at FP Passport blog.

A key aspect of the ongoing debate about the US economic meltdown is an open question: was it wrong to make home ownership more affordable, by relaxing the standard "20% cash downpayment" rule bankers normally apply? This is really a political question with no easy answers.

If you support increased home ownership, as Dodd and Frank did for decades, you pushed for Fannie and Freddie (and by extension, other banks, because Fan & Fred set the standards) to accept mortgage packages which would finance the downpayment, such as an "80-15-5": 80% first mortgage, 15% second mortgage, 5% cash downpayment. You pushed for Fannie and Freddie to accept borrowers with less than stellar credit.

Proponents would argue that home ownership brings society many benefits, such as stability and investment in the country's future.

But policies that encourage home ownership have flaws that are obvious to us today: Lending standards decline. Increased foreclosures. Owners have far smaller stakes in their property, which means little or no cushion if asset prices decrease. Increased numbers of mortgage-related businesses to sell to, and take advantage of, marginal (read: poor or less-educated) peoples.

Not to mention the obvious environmental cost of increased home ownership, and suburban sprawl.

One of the reasons why the Hong Kong property market is attractive is the traditional "20% cash" downpayment is enforced by banks far more strictly than in the United States. Hong Kong is certainly not immune to asset price bubbles, and property is insanely expensive a la Manhattan, but one can argue that it is a bit more sane in the mortgage loan department than the United States.

Glass-Steagall

Megan McArdle, closing an excellent post on the repeal of Glass-Steagall:

Most importantly, commercial banks are not the main problems. If Glass-Steagall's repeal had meaningfully contributed to this crisis, we should see the failures concentrated among megabanks where speculation put deposits at risk. Instead we see the exact opposite: the failures are among either commercial banks with no significant investment arm (Washington Mutual, Countrywide), or standalone investment banks. It is the diversified financial institutions that are riding to the rescue.

Forbes, and mark-to-market

Steve Forbes' prescription:

• $500 gold standard
• end mark-to-market madness
• restore the uptick rule
• end naked shorting
• create a new RTC-like entity

Gold standard: Tying a premier world currency to a commodity is too constraining, an inflexible policy. It is a physical asset and much be stored, secured, and is subject to theft. The asset price is potentially vulnerable to market manipulation. It also presumes that science will never produce a method of creating mass quantities of gold, something I would not necessarily bet on. Alchemy is silly; nanotech, on the other hand...

Naked shorting is an awful practice. In this age of computers, we have the technology sufficient to guarantee that shares are truly being borrowed.

Going further, this blog feels that the T+3 settlement practice should be scrapped in favor of instant settlement. Major Wall Street trading platforms already compete for speed on the millisecond time scale, executing thousands (millions?) of trades per second. Why wait for settlement when we have instant execution?.

Mark-to-market is coming under increasing fire, for reasons made obvious by recent events. The value of an illiquid asset is often zero (cannot be determined) or far below "real" value at various points in time. Forcing assets to be booked at current market price can potentially require recording the value at far below "real" value due to the nature of the market rather than the nature of the underlying asset.

On the flip side, failing to mark-to-market implies government and business accountants must agree on a valuation other than the current market price — a slippery slope fraught with moral hazard.

Mark-to-market will continue to be an issue to watch. Yesterday's WSJ article on AIG and government regulation touched on mark-to-market, as did several other commentators.

Update, since it is presently being debated: Banning short selling seems unwise. However, this blog was specifically and only referring to naked shorting, above, not short selling in general.

Rice on Russia

BBC reports on Secretary Rice's speech regarding Russia.

Kudos to the German Marshall Fund for providing an MP3 version of Dr. Rice's speech. See the bottom of GMF's summary for the podcast link.

Update: Full text of her speech.

A false dichotomy

In a WSJ article about how bad accounting rules helped sink AIG, comes this quote from Zachary Karabell:

The idea that there is this thing called "the free market" that governments tame or muck up with regulation is a fiction. Governments create the legal conditions for markets; markets shape what governments can do or are willing to do. Regulation versus free-market is a false dichotomy. Maybe in some theoretical universe, if we could start with a blank slate and construct society anew, it wouldn't be. But we exist in a web of markets and regulations, and the challenge is to respond to problems in such a way so that we decrease the odds of future crises.

Links

FT.com gives you the hard number overview of today's action. This caught my eye: SEC took additional steps to curb equity short-selling. Bloomberg has details. Overstock.com CEO Patrick Byrne, who has ranted long and loud on this subject in the past, responds to the SEC's press release. Useful analysis, but do read it with a grain of salt.

From McClatchy's China Rises: An analysis of McCain and Obama's positions on China, summarizing an Asia Foundation report.

Marginal Revolution continues to provide useful insight. Robert Reich weighs in as well.

Turn to Warren

In times of financial woe, smart money apparently turns to US Treasuries and... Warren Buffett (5-day chart). Because, as right-leaning American Spectator points out, Warren warned us about derivatives many times in his shareholder letters and forums.

Update: More Warren from SeekingAlpha. A must read.

Update2: Buffett buys a US power company whose shares are down due to liquidity fears.

Setting expectations

Honestly, I think both Republicans and Democrats mislead the population, by overstating the effect any president has on the overall economic cycle.

Policy can certainly have a major effect, but blaming any one president for all economic woes is so simplistic that it is wrong. Likewise, it is misleading to imply that any one president can "fix" the economy.

Lower the corporate tax

Wanna give Wall Street a pep talk? Lower the corporate tax rate to something competitive with other countries. Talk about offshoring jobs; a higher-than-average corporate tax offshores entire companies. We need to win back IPOs from the London exchange.

(Googling around, I found this NYT piece from Gregory Mankiw that was a good starting point)

Elsewhere, Jonathan Koppell proposes government too big to fail insurance, calling it "tricky but doable".

On armageddon

As it relates to the current financial meltdown, and the notion that bankers sold and invested in securities too complex to fully comprehend the risks, here is a quote from famous software engineer Brian Kernighan:

Debugging is twice as hard as writing the code in the first place. Therefore, if you write the code as cleverly as possible, you are, by definition, not smart enough to debug it.

I am also reminded of a story from July that wonders aloud: are bankers hurting most of all? In previous downturns, industrial workers, "Main Street" felt the crunch most of all. Certainly average Americans are under increased pressure, but damage does seem to be centered largely in the financial services sector. Taxpayers foot the bill for Bear Stearns, but is that really having a major impact outside of Wall Street? Americans still have access to food, shelter, health care, and a job to pay for it all. Unemployment, while rising, remains at historic lows. Recession seems likely, but doom! seems unlikely...

Weekend links

As this blog continues to predict, UAVs on the battlefield enable a wide range of new tactical possibilities. Recently, Woodward has been dropping hints about a new secret weapon in Iraq. Today, The L.A. Times describes higher-tech Predators having a major impact in Iraq.

This is only the beginning. Drones have strategic as well as tactical attributes.

Other links:

Far Eastern Economic Review suggests several ways to collaborate with China, during the next presidency.

And the Washington Post agrees with this blog: A civilian nuclear technology deal between India and the United States is a positive step, even though it makes plain what Iran and North Korea have already demonstrated: the Non-Proliferation Treaty is not worth the paper it is printed upon.

Ponce, Puerto Rico

On the lighter side of things: Just returned from vacationing in Ponce, Puerto Rico. I attended a friend's wedding, held at Castillo Serrallés. This picture is taken from the hill on which the castle sits (castle is just to the right of frame), overlooking Ponce:

Hundreds of years ago, this hill was used for monitoring Ponce's Caribbean harbor. Today, the overlook is the site of iconic Catholic imagery:

Like many areas with colonial Spanish influence, the spoken language is Spanish, even though Puerto Rico is a US territory, its currency is US dollars, and there are no customs when flying to/from the United States. That led me to wonder idly, what would be a good set of languages for a "person of the world" to learn these days?

Looking a this chart, I can see that I'm already ahead of the game with English (the international language of business), a smattering of Spanish, and a tiny bit of Mandarin. I also tend to think that your average multi-lingual person can only command a good conversational grasp of five to six languages, and a good written grasp of 3-4 languages.

So, the list I came up with, for myself: English, Spanish, French, Mandarin (and written) Chinese. That covers huge swaths of each continent. I discounted Hindi because English is often known in areas that speak Hindi. I remain unsure whether I should add Arabic to my personal list of languages. Chinese will take a long time to master, and lumping Arabic on top of that is a lofty goal. It seems like learning right-to-left reading would scramble my brain, too...

McCain: foreign policy radical

Gideon Rachman, FT's chief foreign affairs correspondent, speculates about McCain's foreign policy. His analysis rings true to me.

Opinion polls consistently show that the American public has more faith in Mr McCain as commander-in-chief. He looks like the safe choice for dangerous times.

But this is wrong. Mr McCain will not run a “safe” foreign policy. He adores rolling the dice. [...]

The Obama camp argue that Mr McCain will simply continue with the policies of President George W. Bush. The comparison is certainly interesting. In some ways, Mr McCain is a more reassuring figure – because he is curious and has thought hard about foreign policy for many years. But in other respects, Mr McCain might make Mr Bush look like a cautious softie. [...]

Mr McCain’s policies on Iran, Russia and China are more hawkish even than those of the Bush administration.

That matches this blog's opinion of McCain. This blog also agrees that Iran and Russia should be confronted, and that Obama's campaign is wrongly painting McCain as similar to Bush. But I must strongly disagree on the issue of China.

In an earlier blog post "Just the Facts", we see how China (and India) are simply going to be impossible to ignore. Engagement (rather than confrontation) with China is critical for the United States, as China industrializes and grows, and experiences growing pains.

The futures of China and the United States are intertwined, and I hope McCain is wise enough to see that. Foreign Affairs' piece echoes this, suggesting a "G-2" partnership of equals with China. The past seven US presidents have followed a policy of engagement with China, and we should continue to do so.

Russia announces 'spheres of interest'

Crossposted at FP Passport.

FT: Russia announces 'spheres of interest'.

In his announcement, Medvedev outlined five points (Russian version) upon which Russian foreign policy would be based:

• the superiority of the fundamental principles of international law
• world must be multipolar
• Russia does not seek confrontation with any other country.
• Russia will protect the lives of its citizens, "wherever they are."
• Moscow would seek to develop ties in friendly regions.

In Afghanistan, Karzai accepted Medvedev's offer of 225 Russian police officers, to help train Afghan police.

UK: Op-eds from Gordon Brown and David Miliband.

Economist editorial: Put out even more flags

Russian police shoot a Russian opposition journalist, following his arrest.

Update: More news of Russia coming down the wires...

Dmitry Rogozin, the Russian ambassador to NATO, ratchets up the heat by tossing out the "w-bomb":

"If NATO takes military actions against Abkhazia and South Ossetia, acting solely in support of Tbilisi, this will mean a declaration of war on Russia."

Meantime, an AP story quotes Russian FM Lavrov, suggesting imposition of an arms embargo until the Saakashvili regime is removed,

"If the United States and its allies in the end choose not their own national interests, not the interests of the Georgian people, but rather choose the Saakashvili regime, it will be a mistake of historic proportions,"

"For a start it would be right to impose an embargo on weapons to this regime, until different authorities turn Georgia a normal state,

The AP story also notes that tensions are increasing in the Black Sea, where long-planned NATO exercises are taking place. This article from a Turkish news site elaborates.

On the subject of Turkey, Russia, and Georgia: Turkey proposes a Caucasus alliance, in an attempt to decrease tensions. Turkey does not wish to be caught in the middle, pulled between the West and Russia. Also, recall this post on "post-imperial stress syndrome" from a few days ago, highlighting this WSJ article: Will Turkey abandon NATO?

Where news websites get it wrong

Pardon the interruption of usual foreign policy chatter.

Major news organizations, including several thought generally to be Internet savvy, continue to miss basic lessons about news inherent to good Internet-based news reporting. In no particular order:

• Link to unfiltered, raw data sources. News articles are synthesis, summary and analysis of raw data sources. It is rare to see a news article that actually links to a reporter's notes, a transcript, or organization press release. In the Information Age, there is no reason not to publish all available data on a subject, even if it is a mess of jumbled notes on paper napkins, covered with mustard and mayo from a sloppy reporter's lunch (scan it in). Transparency is impossible without giving the public direct, unfiltered access to raw information.

• Link to third party websites. Fearing the loss of revenue, news publishers avoid linking to third party websites for fear of driving traffic away from their site. This fear is sometimes justified, but generally not: The "hit and run" pattern, where Web surfers open many links to many different websites, is highly common, probably the dominant usage pattern for news websites.

  The smart web publisher will choose the best link for the given text, regardless of whether or not you control the link destination. Web surfers will come to trust a publisher who supplies high quality links, and return to that publisher again and again.

• Add links for context, key words and background. Readers should always be able to click on a link in a news article, to obtain more information about what they just read.
• Your site is not better than the Internet. The Washington Post is an example of this awful practice. Major personages and themes are made hyperlinks in each Washington Post article. But instead of each link going to a useful page providing additional information, each link simply performs a site-local search. For example, a hyperlink "Joe Lieberman" will produce a list of Lieberman-related WaPo articles. It is far more useful to the reader to click on a link labelled "Joe Lieberman" and receive wikipedia-like background information on Joe Lieberman.
• Maintain a factbase. As events unfold, readers should be able to click on a single link to receive a "backgrounder" that includes events listed in chronological order. Generally, this is wikipedia, but larger organizations may wish to maintain their own "strategic briefings" on various subjects.
• Link directly to a website, even if partisan or controversial. However, clearly warn readers of bias or offensiveness first. It is inexcuseable to write a story about Internet-related news, and not link directly to the subjects at hand. Example: This CNN story which discusses a Youtube video, but fails to link to it. You still have the standard journalism ethics questions to deal with, of course: does linking to a website potentially encourage bad behavior? One must avoid balance the public's right to know with giving terrorists and extremists a platform.
• Multi-page articles are incredibly annoying. The web is not a platform limited by physical page size limits. Web browsers and modern computers are easily capable of opening novels in a single web page. Web users know that you are forcing us to click for advertising and statistics gathering reasons, and we don't like it one bit. Add more advertisements to long web pages ("multiple ad units" in Google AdSense parlance).
• Build a community by enabling comments. However, this unfortunately requires either a digg-like crowd moderation system, or moderators (paid or unpaid), once comment traffic reaches the level necessary to build a community. As a bonus, consider how to highlight comments that you and the community find to be interesting, informative, or simply noteworthy due to the author (i.e. a celebrity comments).
• Inferior search. If your website search feature performs less capably than Google's search feature for publishers, you have a problem. Another major problem with news website search engines is the lack of indexing fresh content. A reader reads a story on Obama, then does a search for Obama, and the returned results are stale (hours or days old).

A key technical problem is that third party linking often falls into the realm of editorial policy. The news wires such as AP and Reuters are probably reluctant to provide links embedded in their wire stories for this reason.

Evacuation incentive

A mandatory evacuation of New Orleans has been ordered by the mayor. The predicted path of Hurricane Gustav has it coming ashore in the New Orleans vicinity.

Even assuming minimal storm damage, a mandatory evacuation following so closely on the heels of Katrina surely wears thin on residents still struggling to rebuild. This hurricane drives home the point that living "in the path of nature" carries additional costs.

Living in North Carolina, the threat of a hurricane and evacuation is everpresent. But you notice that our state is well prepared. North Carolina understands that a major storm may hit, and carefully plans evacuations. Our outer banks are popular beaches, but are almost instantly cut off in the event of a storm surge or bridge washout. Developing storm plans was a necessity. As a result, our storm costs have long been factored in at the state and local levels: insurance rates, development codes, and state infrastructure projects. Florida shines as a stellar example of hurricane preparedness, outshining us. Florida learned lessons with Andrew, if not before.

In contrast, New Orleans relies heavily on federal funds simply for its continued existence. Federally-funded engineering works (levees, canals) and constant pumping are the only reasons why New Orleans is not underwater right now. Further, the city is sinking. (Note: the article is from 2001, pre-Katrina, and begins with this line: "The surge of a Category 5 storm could put New Orleans under 18 ft. of water.")

At some point, I hope the rest of the country (via our Congressmen) will push back, and force those who want to stay in New Orleans to bear the costs themselves. There is nothing wrong with living in extreme locations — as long as you don't expect others to pick up the above-average costs that are inevitably incurred.

On the carbon tax

Greg Mankiw, a Harvard professor of economics, notes that VP pick Sarah Palin is not a member of the "Pigou Club."

What is that, I wondered? As it turns out, it is my old friend, the carbon tax. Mankiw makes an excellent argument in his 2006 post, The Pigou Club Manifesto.

In general, Americans are taxed too much, directly and indirectly. As an exception, however, this blog strongly endorses the carbon tax, with the proviso that indirect and inefficient carbon taxes such as CAFE standards are rolled back.

Here are some of my own reasons why a carbon tax would be good policy [assuming existing stealth carbon taxes are eliminated]:

• Simple, direct, and honest. Consumers bear the costs of increased fuel efficiency standards (CAFE) and exotic "clean fuel" blends, but this is not readily apparent to them when they make a purchase.
• Entirely market-based. The market will choose what technology is the most efficient, and least expensive. At present, we have politicians embarrassing themselves by choosing specific technologies to subsidize. This backfired wildly with corn ethanol. Given the right incentives, the market will choose the technology — as it did with fossil fuels for the past 100 or more years.
• Helps account for pollution, permitting deregulation in other areas. You don't have to swallow the Sierra Club talking points on global warming to dislike pollution. The absence of a carbon tax in pollution-free forms of energy creates market incentives that combat pollution in whatever way the market decides is best.
• Exposes the sham of pseudo-market-based systems such as proposed cap-and-trade systems for trading carbon credits, or carbon offsets. Carbon credits, just like fiat currency, are a resources whose supply is infinite, and the size of the market is controlled entirely by politicians. Thus cap-and-trade is a system easily susceptible to convert abuse, because the size of the market has no technical basis in reality.
• Replaces other stealth taxes. As noted above in other points, a carbon tax permits elimination of highly specific regulations and subsidies, designed with the goal of reducing fossil fuel use and pollution. These government interventions in the markets often have negative side-effects such as an increase in beef prices due to scarcity and price of corn feedstock, due in turn to corn ethanol subsidies.
• Allows consumers to choose for themselves what to drive, what to burn, what to use. Politicians should take a lesson from the recent spike in oil prices, and the follow-on effects from consumers: those that needed or wanted SUVs continued driving them. Others reduces their driving, bought smaller cars. Politicians did not need to legislate this behavior, the public made their own decisions.
• Helps stem the flow of US dollars going to autocratic, oil-rich regimes.
• Avoids outright bans of carbon burning vehicles and machinery. Owners of vintage muscle cars and race cars would rightly be outraged if politicians simply banned heavy-polluting vehicles, for example. The American economy would utterly collapse if burning coal for electricity were banned, as another example.

Pollution-free personal transportation is a worthy goal and logical endpoint, but absent a crisis it will take decades to achieve that goal. A carbon tax is a direct and honest method of aiding that transition.

The negatives of the carbon tax can be easily enumerated, as the negatives of any oil or gas price increase. In particular, as I noted in this post, higher prices hurt the poor the most.

Turkey and NATO

The Director of the Center For Eurasian Policy at the Hudson Institute asks in the WSJ, Will Turkey abandon NATO? The piece examines how Turkey must choose between Russia and NATO with regards to the Black Sea, noting Turkey's dependence on Russian gas.

In additional to being an informative read, it introduces to me a new and strikingly apt phrase:

[Russia and Turkey] share what some call the post-imperial stress syndrome: that is, an inability to see former provinces as fellow independent states, and ultimately a wish to recreate old agreements on spheres of influence.

Give-and-take between satellite democracies and their larger neighbors will inevitably occur. Everyone is talking about how the larger autocratic states must adjust, but so also must the satellite democracies find a happy medium with their autocratic neighbor.

The perils of recognizing South Ossetia

FP's current Seven Questions post is about Russia's war with Georgia, interviewing ex-CIA regional expert Paul Goble. The interview is a good one, in particular answering a question that I had:

FP: But if the South Ossetians and the Abkhazians don’t want to be part of Georgia, why should the West support President Saakashvili’s position? Why is it a good idea to support Georgia’s “territorial integrity”?

Since 1932 — since the Stimson Doctrine was articulated when the Japanese seized Manchuria and transformed it into “Manchukuo” as a client state — it has been (largely) consistent American policy that the United States does not recognize territorial change achieved by an act of aggression. So, the issue is not, as the Russians have put it, between simple territory integrity or the right of nations to self-determination. It is whether the United States and Western governments will accept border changes brought about by the use of force.

Western and US officials produced many soundbites on upholding Georgian territorial integrity, but little or nothing on why this principle must be upheld. It seemed to run counter to "facts on the ground" demonstrating that Abkhazia and South Ossetia had little interest in being part of Georgia.

Abkhazia is largely independent anyway. South Ossetia is really a shell; independent yes, but mainly a smuggling route into Russia, and under implicit Russian control anyway. Neither wanted to be part of Georgia before the war, and now, really do not wish to be part of Georgia.

Thus, self-determination (freedom) runs up against another sound, logical principle: do not encourage aggressive states to redraw boundaries by force of arms. In any case, unlimited self-determination is a bad idea anyway. Fragmenting an existing nation-state has the potential to destabilize entire regions.

Redrawing nation-state boundaries as the West did with Kosovo did indeed open a new can of worms. As the Seven Questions post indicates, redrawing boundaries for breakaway regions is a double-edged sword. That is true for Kosovo and the West as it is for Abkhazia, South Ossetia and Russia.

This wikipedia article provides a surprising amount of depth on worldwide reaction to Kosovo recognition, and various regions striving for independence. (WARNING: read the wikipedia article with two grains of salt, rather than the usual one)

Fukuyama responds, and other links

Fukuyama's End of History has been mentioned quite a bit recently, with regards to recent Russian expansionism in Georgia. In a Washington Post op-ed, Fukuyama responds to recent events. Many recent critics of Fukuyama's thesis appear to misinterpret his argument somewhat; he never argued that liberal democracy had triumphed to such a degree that no other form of government would arise in modern times.

Bacevich @ LA Times throws cold water on the notion that Big Change and Big Improvements will occur in America's foreign policy, if [insert Presidential candidate] is elected. Stating the obvious, but it needs to be said.

Japan Times on Bush's legacy in Asia.

Ambassador Charles Ries on improvements in Iraq's electricity infrastructure.

Investors avoid Russia

Financial Times examines the state of Russian investing following the start of the war. Not surprisingly, investors feel greater risk exists post-August 8th.

Yields on debt rose, reflecting risk repricing. Equity markets fell. Foreign currency reserves declined by $16.4bn, one of the largest drops in a decade.

Next gen drone warfare

Popular Mechanics posted the results from the UK Ministry of Defense's Grand Challenge.

It is my longstanding prediction that UAVs will become ever more prevalent on the battlefield, to the point where they fulfill the majority of air attack and ground support roles.

This, in turn, will have profound influence on the worldwide balance-of-power, becoming one of the most important force multipliers available to US forces. This will also make electronic warfare, in particular signals disruption, satellite (GPS) interference and network penetration, key avenues for the enemy to pursue.

In particular, a single soldier far from the front lines might control a swarm of UAVs, directing the swarm to overwhelm its target. Or, the soldier might sit at a console, making a stream of yes/no kill decisions, and assisting with automated targeting systems. The Popular Mechanics article describes swarming behavior with several of the drones participating in the Grand Challenge.

Finally, while I'm on the subject, StrategyPage published a UAV update (for US forces) recently, Rise of the Droids.

Update: Just after posting the initial draft, SP published another UAV update. In short, they are highly effective and everybody wants more. The MQ-9 Reaper, a combat UAV with recon capability, will eventually supercede the MQ-1 Predator (primarily a recon UAV).

US troops are developing new tactics based on the UAV's ability to keep an area under surveillance for an extended period of time. Presumably the same will occur as combat UAVs like the Reaper become more prevalent.

Western oil giants lose influence

The NYT describes the current state of Western oil production: falling.

I created a handy graph using the NYT's numbers. Stark, simple graphs really drive home the reality of the situation. "Western oil companies" below includes not only US companies but also European energy giants such as BP and Total. The graph represents the percentage of world assets under Western control.

British deal with Shia in Iraq?

This is the first I've heard of this. Rumor, or something more?

The Times Online hints in the middle of an op-ed,

Only recently has it become clear that in the battle for Basra earlier this year British troops remained aloof while Iraqi and American forces overwhelmed the Mahdi Army, followers of the cleric Moqtada al-Sadr. Apparently Britain had done a deal with the Shi’ite group. According to some reports, senior US officers and the Iraqi government have now lost faith in British forces.

Losing Abkhazia and S. Ossetia

People are reacting to the Russian president stating, in no uncertain terms, and Georgia will lose South Ossetia.

Even with my reliably pro-American bias, I could see that both Abkhazia and South Ossetia were very unlikely to return to the status quo (Georgian territory, de facto independences).

The Georgian attacks on Ossetia pushed those citizens farther into the Russian camp. Months of Russian provocations are irrelevant [to S. Ossetians]. I think there is little question that the people in the disputed territories would vote against being a part of Georgia.

Thus, the problem:

• One should defend the principle of territorial integrity, especially when that principle is violated by armed aggression.
• However, in this case, defending that principle implies forcing a people somewhere they do not wish to be.

The Russians did not and do not care a whit about the Ossetians. But defense of Georgian territorial integrity implies the US does not, either.

Catch 22.

A "technical" war?

Russia advances from South Ossetia and Abkhazia to bombing targets in core, undisputed Georgia. Putin has been widely quoted as saying the conflict will be taken to its "logical conclusion."

That leaves us to speculate about what that means. Let me offer one guess, something I have thought about in the context of a US attack of Iran: a military assault by one country upon another, with the main goal of eliminating the entire military capability of another country. Although some key civilian infrastructure may be destroyed — particularly items such as bridges with dual civilian and military roles — the civilian apparatus in general is largely left untouched. (something smarter bombs enable, in modern warfare) Occupation of the country is never considered even as a possibility.

Given the relative military strengths, Russia is clearly pursuing a war of punishment at this point. The biggest open question, I think, is not occupation but whether Russia will actively seek to depose Saakashvili and other Georgian politicians.

Diplomats hard at work

Quoting today's NYT update on the Georgian conflict,

Secretary Rice worked through the night Saturday [...] on a Security Council resolution. American diplomats said that they did not want an actual Security Council vote on the resolution until Tuesday or so, the better to draw out the debate and publicly shame the Russian government. While the resolution will carry no punitive weight, and is almost sure to be vetoed by Russia, a permanent Council member, the hope is that it could create more pressure for a cease-fire, officials said.

I cannot help but recall the 1939 image of Britain and France ruminating over their treaty obligations to Poland, as the German blitzkreig rained down for hours, then days. Diplomats scrambled and negotiated "through the night" to produce a result that would not shape the conflict in any way.

(to clarify, I am not drawing an analogy between the two situations, merely noting a stark image that flashed through my mind)

Are you part of the Pipeline War?

Wired Magazine notes that Georgia is under online attack, with most official government websites unavailable for days.

Due to the nature of distributed computing, the sheer numbers of compromised PCs and the cloaked nature of modern botnets, it is difficult to determine how much of the online attack is by a government, by outside groups whom the government tacitly encourages, or by those wholly outside the realm of government involvement and knowledge.

This reveals an unsettling facet of this war: you might be an unknowing participant.

If a virus (or trojan etc.) infects your computer, then your computer may be among the many thousands of other computers around the world sending Internet traffic to Georgia websites. This is called a distributed denial-of-service attack, or DDoS.

As always, make sure your computer has up-to-date software. Update Windows, update your anti-virus software, and manually run a scan if you so inclined. It can't hurt. Pay attention and notice if your Internet connection or computer seems unusually slow.

Russia/Georgia reactions

CNN reports on international reaction to Russia's escalation of the fighting (attacking targets outside South Ossetia).

The official said European allies have told the United States that Russia has "crossed a line of unacceptable behavior" and should "expect international condemnation." "I do sense an emerging unified view among our key allies," he said.

The return of history, indeed. What sort of diplomacy will we see, I wonder? Will we see Europe and America unified, guaranteeing Georgian territory (excluding Ossetia)? Or will we tell Georgia "I told you so" and stay out of it?

Inevitably Western diplomats will be going to sleep tonight, having nightmares about the return of the cold war. This is energy "politics" at its worst, and the forseeable result of Russia's recent willingness to wield resource control as an economic weapon, a method of control.

Updates roll in at Foreign Policy and elsewhere, as well as on major news wires.

New York Times has a good background piece, Taunting the Bear.

China blogging

Two excellent links from Danwei:

• China's first blogger, Isaac Mao, talks about the beginning of China blogging, censorship, and Google.
• FT: China needs proof of democracy’s advantage. A must-read analysis piece from Arthur Kroeber, who gives an overview of the current ruling elite. I am pondering an extended blog post, going into detail on this.

Better fuel standards?

A New York Times editorial calls for tougher fuel economy (mpg) standards. They further claim that consumers and the auto industry would be in much better shape, had Congress done so 5, 10 or 20 years ago.

That seems unlikely, given how CAFE is applied in practice. Automakers continue to sell whatever quantity of popular vehicle is being sold, regardless of its fuel efficiency (example: SUVs). Other cars in the fleet are sold to balance out the CAFE standards, occasionally at slim-to-no-profit. Thus, raising federally required fuel efficiency does little to address pollution, carbon, or oil supply/demand problems. If gasoline is always cheap, fuel efficiency only slightly reduces demand. Fuel efficiency combined with cheap gasoline can even increase demand, if the nation collectively feels it can drive more due to owning efficient cars.

If we wish to benefit from hindsight, the best solution is a carbon tax (or price floor), as noted in a fantastic piece by conservative George Will. (Here in America, a conservative calling for a tax is highly unusual)

If a carbon tax had been in place 5, 10, 20 years ago, the oil prices would be the same as today, yet all that additional money would have stayed inside the United States rather than going to Nigeria, Russia, and the Middle East. High oil and gas prices accomplish what decades of environmentalism and government regulation failed to do: raise efficiency, sink SUV sales, and encourage investors to take a serious look at alternative energy.

Calling for tougher CAFE standards will do little. An oil price floor or gasoline price floor will directly accomplish the NYT's desired goals (reducing auto emissions, reducing fossil fuel use, etc.) while also being far more open, honest, transparent, and simple.

Obstacles to China's growth

Today, Chinese president Hu Jintao emphasized growth as a higher priority than inflation. Seeking Alpha noted this in their PBoC relaxes lending caps article, which also noted potential shifts in RMB policymaking apparatus.

Those articles led me to an excellent blog post from March 2008, summarizing challenges to China's growth: ROI, energy efficiency, pollution, desertification, demographics, high sustained outside investment levels and slumping business competitiveness.

And while ringing alarm bells regarding copper, this article paints a useful picture about the slowing state of Chinese exports, and commodities in general.

Finally, the current issue of Foreign Affairs examines the US-China partnership and speculates about future policy improvements, suggesting in particular a "G-2".

Shadow governments for America

FP noticed a Marc Ambinder report on Obama's preparations for a White House transition.

I have long held the belief that all key presidential candidates should form a UK-style shadow government, so as to prepare for the transition well in advance.

This

• Would permit vetting of key advisors and cabinet posts, long before the November election.
• Would give the voters a better picture of the candidate.
• Permits presidential candidate to lean on key advisors in public. Right now, media coverage of presidential candidates simply assumes that a President is a one-person expert on all subjects. Reality clearly shatters this illusion.
• Other minor advantages that come from having a Secretary of State-in-waiting, a Secretary of Defenese-in-waiting, etc.

We should do everything we can to encourage John McCain to follow suit.

The transition has already begun, anyway: President Bush now briefs both Obama and McCain on key issues they must confront, once elected.

Overall, this should improve future White House transitions, and increase transparency of a candidate and his campaign.

I can see some disadvantages, although in my opinion not outweighing the advantages: inevitably some posts in a candidate's shadow government will be vacant, or go through rapid changes during the campaign. Therefore, voters may "vet" one Shadow Secretary of State, while a wholly different person gets the job following the election.

Another disadvantage might be the added scandal-by-association danger that additional spot-lit personalities bring. This is not a disadvantage for voters, as it results from added transparency, but candidates will surely consider this angle.

Is geo-engineering a good idea?

Is geoengineering a good idea? In most cases, I say no.

Popular Mechanics, green websites and other sources have been offering geoengineering solutions such as massive carbon dioxide sinks to help offset pollution elsewhere. The latest example is using lime to cut carbon dioxide levels.

Geoengineering worries me because doing so on a planetary scale is inevitably fraught with unintended consequences. It is an attempt to control one of the most complex systems in existence: all of Earth. Testing is out of the question, as any test would inevitably fail to account for the trillions of variables involved in everyday life: ocean currents, surface and underwater temperature changes, sunlight (potentially filtered through lime/algae/etc.), amount of fish poop in the water, and on and on. Without testing, geoengineering is by definition a one-shot gamble, with the entire planet at stake.

And, at the end of the day, most geoengineering solutions involve combatting pollution with more pollution.

My favorite analogy is Pepsi Clear: during the manufacturing process of clear Pepsi, the drink begins its life as opaque syrup, and ingredients (read: chemicals) are added to the drink to make it clear. That is just plain unsettling. When one adds two positive numbers together, you don't get zero.

Infrastructure and oil prices

Here in North Carolina, gasoline taxes fund roads and public transportation. Cutting taxes, as this story from 2006 describes, directly impacts that infrastructure.

As high oil and gas prices today reduce demand, revenue to maintain that infrastructure decreases.

In a future where personal vehicles don't run on fossil fuels, where will that money come from? The general fund? Bonds? Taxes on electricity and natural gas? Tolls?

My futuristic guess: In the future, you will subscribe to American Super Highways(tm) road service, just like you subscribe to Internet service, thus giving your vehicle or PRT access to that roadway.

In any case, if gasoline-fuelled cars become the minority, that "hidden" cost must be borne elsewhere. This is not a criticism of any particular policy. I'm merely a technocrat wondering aloud about an unsolved problem we must eventually confront.

Republicans behave shamefully

Usually this blog tries to avoid the "horse race" of US politics, which dominates most US news coverage of politics, but sometimes events rise to the occasion anyway.

A Journal editorial describes how Republicans mistreat reformers in their own party.

Voters are not blind to the crazy spending during the six years of Republican reign, and they will inevitably be aware of all these efforts to continue earmarking and spending. One wonders why the Republican party continues to pursue the path of seppuku.

When it comes to earmarks, the Democrats are no better, of course. Voters know this, too. Congressional approval ratings, Democrat or Republican, are at an all time low for good reasons. Nobody from either party is showing leadership at a time of economic turmoil.

Bankers hurting most of all?

An interesting perspective on the credit crisis from across the pond, helping put some of the forecasts of economic doom in context:

The upshot is that the main people suffering pay cuts and job losses in the present crisis are bankers, rather than industrial workers as in previous slowdowns. Not surprisingly, this gives financiers a jaundiced view of the world. [...]

US preparing a deal with Iran?

FP posted (with permission) an interesting email from Iran policy scholar Gary Sick. In it, he critiqued John Bolton's analysis of the Iran/Israel/US situation. A choice paragraph:

While much of the world was hyperventilating over the possibility that the United States (and maybe Israel) were getting ready to launch a new war against Iran, Bolton was looking at the realities and concluding that far from bombing, the U.S. was preparing to do a deal with Iran. He had noticed that over the past two years the U.S. had completely reversed its position opposing European talks with Iran.

Read the whole thing. There definitely have been some policy shifts in the Bush administration recently, and it does seem like Gates and Rice are taking the lead at the moment.

Update: Washington Post reports on a "significant" departure from prior policy: the U.S. meets with Iran in Geneva.

Bretton Woods 2

Ed Cone's summary of Nouriel Roubini's Bloomberg interview was interesting and thought-provoking.

It is useful to review the history of Bretton Woods at Wikipedia, and in particular, the current system informally known as Bretton Woods II:

• The United States imports considerable amounts of goods, particularly from East Asian export-oriented economies such as China, Japan and various other Southeast-Asian countries.
• Since China and Japan don't have much demand for U.S.-produced goods, United States runs large trade deficits with both countries.
• Under normal circumstances, trade deficits would correct themselves through depreciation of the dollar and appreciation of the yen and the renminbi. However, Chinese and Japanese governments are interested in keeping their currencies low with respect to the dollar to keep their products competitive. To achieve that, they are forced to buy large quantities of U.S. treasury securities with freshly-printed money.
• Similar mechanisms work in the Eurozone with the euro and its satellite currency (Swiss franc). The Eurozone is somewhat less coupled to the U.S. economy, so the euro has been allowed to appreciate considerably with respect to the dollar.

In my opinion, we need a stronger dollar policy. Presently the weak dollar makes US exports attractive and overall shrinks the trade deficit, which is great for us. But, where does it end?

Continued weak dollar policy could unravel Bretton Woods II, because it devalues dollars so much that foreigners face massive losses, simply by holding dollar reserves. That in turn greatly diminshes our ability to shape events in the world.

Strong dollar policy naturally does the reverse. It enhances Bretton Woods II, and helps keep global peace by ensuring that we are all happy trading partners. It ensures our own continued economic health, by encouraging holders of dollar reserves to continue holding them, rather than dumping dollars for another currency.

Yet the downsides to stronger dollar policy ripples through US exports and the trade deficit, eventually to US jobs. Inflation will continue, which readily explains reluctance of the current US administration to change things. Yet events will eventually force their hand.

As an aside, this protectionist streak running through the country could help unravel Bretton Woods II as well. I'm talking to both Democrats and Republicans here. Free trade not only benefits all trading partners, and lifts millions out of poverty, it also helps keep the peace.

Start engaging in protectionist behavior, and other countries will be forced to retaliate in kind. As global resources like air, oil and water become ever more scarce or overused, we need global cooperation more than ever before. Like it or not, we are dependent on other nations. Calling for "Manhattan Projects" to fix problems doesn't change the immediate situation.

Update, from today's Financial Times: Sovereign funds cut exposure to weak dollar. As one ADIA staffer says in the article, echoing the pain felt by all countries pegged to the weakening U.S. dollar, "We are suffering. We are importing inflation for no reason."

Mexico: crisis of democracy

In the past year, most of the Mexican news that bubbles up before my eyes seemed to be related to either population migration (no surprise) or violent Mexican drug cartels.

I was disheartened but not surprised to read a BBC report about Mexican drug cartels threatening the country's very foundation, its democratic institutions (according to the head of the Mexican intel service).

Europe oil/gas wants to bring nuclear power to Mid East

Two of Europe’s biggest oil and gas companies, Total and Eni, each plan to bring nuclear power to countries in the Middle East. (link)

It should be U.S. companies leading the way, in that technology. After the 1970s energy crisis, France invested heavily in nuclear power and technology, and is seeing clear benefits today.

It's sad that the United States is not a serious contender in the nuclear power arena, at a time when we need plentiful, clean, safe energy.

UAE cancels Iraqi debt, sends ambassador

BBC: The United Arab Emirates is sending an ambassador to Baghdad, and cancelling all debt ($7 billion) owed it by Iraq. (link)

Food price linkage to ethanol

Interesting article, related to my previous post: Secret report: biofuel caused food crisis. Internal World Bank study delivers blow to plant energy drive.

The key paragraph (as it relates to my last post):

President Bush has linked higher food prices to higher demand from India and China, but the leaked World Bank study disputes that: "Rapid income growth in developing countries has not led to large increases in global grain consumption and was not a major factor responsible for the large price increases."

With regards to biofuels, using a food source was always a stupid idea. Waste biomass is a much more plentiful source, one that does not compete with food.

With regards to India and China and my last post, that industrialization and urbanization shift is not something that occurs in a matter of months, like these food price increases.

The article doesn't discuss how much of the food price increases were linked to oil price increases (food must be transported to the market, after all). Analysis I've read in FT and elsewhere seems to think that the oil price increases are not yet fully factored into food prices, implying further price increases are coming.

Just the facts

World population: 6.6 billion (link)
India population: 1.1 billion (link)
China population: 1.3 billion (link)
United States population: 0.3 billion (link)

Our industrial revolution began in the late 1700s. Our Western society took decades upon decades to fully industrialize, with progress continuing (and accelerating) to this day.

The rapid industrialization and urbanization in India and China has been going on for, maybe, 10 years. That means 36%, or one third of the entire planet, is moving at light speed towards Western-style lifestyles and consumption rates. Raw materials are at record prices, as China in particular requires ever-more food, oil, steel, concrete, ...

The law of supply and demand is like the law of gravity: it just is. When there is more demand, prices will go up and consumption will go down. When there is less demand, the reverse occurs. Politicians cannot wish away the increases in demand from China and India.

American politicans — both Democrats and Republicans — have their favorite blame targets (evil oil companies, evil environmentalists that prevent domestic drilling), but don't believe the hype.

We need to prepare our country for some fundamental shifts, such as a country four times as big as ours, all wanting cars and Taco Bell.

And don't even get me started on looming demographics in Western countries (thanks D for the link), and what happens when you build monetary programs like Social Security on the assumption that population will always increase over time.

The most powerful NGOs

Foreign Policy lists the world's most powerful NGOs.

Cuba abolishes equal pay

One more step towards reform?

BBC: Cuba to abandon salary equality

Windfall profits tax?

Please tell me... in what universe will a windfall profits tax on the oil industry actually lower gas prices? (ref LA Times editorial, "economy puts heat on pols") Congressional Democrats are proposing this, and Obama is running ads here in North Carolina proposing same.

Looming over everything else is rising global demand, particularly from societies that are industrializing at light speed.

The law of supply and demand is like the law of gravity: it's fundamental.

If oil supply remains flat while demand rises, the price will go up. You cannot wish or tax that away.

McCain and some Congressional Repubs proposed reducing various gas taxes during the summer months. But even if we assume zero state and federal taxes for the sake of argument, this cannot change the underlying fundamentals of the commodity, thus not affect gas prices more than a dime or quarter or so.

Reducing US consumption of fossil fuels will help mitigate prices -- but with rising global demand elsewhere, any reduction in US consumption will easily be matched and exceeded by demand elsewhere.

Perversely, some environmental weenies like this situation, because economics forces use to consider alternatives. Alt-energy research is quite active, true, but we shouldn't hope for high prices to force events in that direction. Any increase in oil prices has a ripple effect that hurts the poor most of all. Gas and personal transportation costs go up. Food prices go up (getting it to market costs more). Wal-Mart prices go up (like it or not, the poor shop there, prices are cheap). Those that are the neediest, hurt the most when gas and food prices go up.

Palestine and the slow war

Is this what a 100-years war feels like? The constant, though relatively "contained" skirmishes between Israel and Everyone Else have seemingly inured the combatants and the world to the constant violence. Israel is even thriving, as this ETF illustrates.

Has this constant, low rumble of slow war become simply a fenced-in football field, a proxy for the world to work out the angst between Muslim peoples and the western, Christian-originated democracies?

(And did Bush tear a hole in the fence of that football field?)

South America, the land of gumdrops and happy smiles

Venezuela and Colombia restore ties. Ecuador considers the incident resolved.

Given the relative strengths of the armies, Colombia has a strong advantage (link anyone?), so this largely amounted to a textbook drill on resolving a dangerous situation peacefully.

Chavez no doubt hoped to score points domestically by looking tough, and score points abroad by resolving a situation diplomatically, quickly, and with [the appearance of] finality.

Did he succeed? I'm doubtful.

Venezuela, Colombia and FARC

Colombia killed a very high level FARC rebel. Chavez seizes the spotlight by rushing troops to the border, and talking of war with Colombia.

Does this have even the slightest potential of drawing the U.S. into a skirmish or war with Venezuela? I don't know what treaties we have with Colombia, but I wonder.

Update: Ecudor follows suit, pulling its diplomats and sending troops to the border.

Life in Iraq

Damien Cave of the Baghdad Bureau of the New York Times answered questions about life in Iraq. He quoted one of the post's commenters, Joe Millsap, a marine officer who said he spent two tours in [Baghdad?]:

“Ten days of calm can be followed by ten hours of intense violence and chaos,” [Joe] wrote. “It is a surreal experience, one that cannot help but affect your psyche.”

It strikes me that this is the new face of urban warfare. Punishing, highly precise urban strikes with little or no warning, touching off a brief retaliatory exchange or flurry of activity. Followed by stretches of eerie calm and normalcy.

Turkey and slow motion war

Responding to this FP blog post about the global silence that ensued when Turkey invaded Iraq to attack the PKK....

Certainly Baghdad cannot take many concrete steps to counteract the incursion, but just as wise public companies telegraph their moves to the stock market months or years in advance, Turkey did the same to the world.

In addition to words, the Turkish military started with small, infrequent missions. Over time, the frequency and potency of the military incursions increased. This slow-build strategy gave the world plenty of time to analyze and debate this new conflict -- while the conflict was happening in real-time, albeit slow motion.

If that were not so, one would assume the [non-PKK] Kurds would be making far more noise, including making life ever more difficult for the fledgling government in Baghdad. Shia blocs may dominate the government, but the Kurds retain the ability to throw a hefty monkey wrench into the works.

Branding the PKK is officially as a terrorist group enables additional avenues of pressure due to the War on Terror, pushing Iraq (particularly the Kurds) into grumbling non-action.

Also: Though I haven't seen much written about this, Iran also appears happy to give Turkey a free hand.