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Archive for the ‘Economics’ Category

Perhaps the most remarkable candidness in the US Senate’s all-night Iraq Debate came from Washington Senator Maria Cantwell, who examined the idea that has long burned in the hearts of those who engineered the Iraq occupation — the privatization of 70% of Iraq’s oil resources. The crafters of this plan have spent over a decade coming up with reasons to justify this, even though oil production in most countries is done under the auspices of the state or quasi-statal entities. If Americans are really concerned about ending civil strife in Iraq and giving all its citizens a stake in the success of that country, perhaps it is time to abandon pressuring for a Hydrocarbon Law and the application of production-sharing agreements, or PSAs, and try a different approach. (BTW, if you are convinced PSAs are the way to go, it might be worthwhile to review the recent Russian experience of British Petroleum.)

 Current estimates of Iraq’s oil reserves are all over the map, ranging from 112Gbbl to 400Gbbl on the high end. Nevertheless, the big oil companies seem comfortable with figures north of 300 billion barrels. At an oil price of $50 a barrel that’s a treasure of $15 trillion. $30 trillion at $100 a barrel, or roughly a cool $1 million for every Iraqi citizen. Given the value of the assets at stake, it is also clear why Mr. Bush and co-president Cheney scarcely bat an eye at the mention that official Pentagon spending on the efforts in Iraq and Afghanistan now exceed $12 billion a month. That’s chump change.

While the conditions in Iraq are quite different than in Norway, there is obviously an alternative path for Iraq that so far has not received much public discussion, i.e. creation of a national stabilization fund to invest and protect national oil revenues managed with sufficiently little corruption so that covenants with Iraq’s future generations are kept. The added benefit is that, like in Norway, the money can be directed toward diversification of the economy and job creation.

The Senate’s Great Iraq Debate was a flop, but Cantwell may have inadvertantly started a discussion that will help both the people of Iraq and the US in the long term.

Update: C-Span  has the clip up now.

Later update: Suddenly it’s become okay to use the O-word right on the senate floor. Larry Craig did it, too.

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Michael Moore’s Sicko is rolling out in US theaters to generally positive reviews. The premise is simple: for any industrialized country, universal health care should be a no-brainer. Unfortunately, certain institutions of the US medical-industrial complex (e.g. insurers) and many voters do not accept this notion. For video on a piece by CNN’s resident neurosurgeon/reporter Sanjay Gupta that really got to Moore, see this and this.

What I would like to see is a comparison between the Finnish system and the US system. Having been in both, it’s clear to me that the Finnish system wins hands down in terms of life-cycle costs and quality. On the other hand, the variability of quality of US health care can be good for the lucky and the rich — it focuses resources very well. For example, when former Disney CEO Michael Eisner started to have a heart attack, he drove his car to Cedars Sinai in Los Angeles, because he knew that was where the good care was. Such thinking would be odd in the Finnish context. Also, the Finnish system keeps slogging toward a diagnosis until it gets it right (or at least in the ballpark), while doctors in the US may be brilliant diagnosticians or lose interest and never figure out the problem. Second opinion is a big deal. It’s an interesting trade-off the Americans have made: sacrificing reliability and consistency for spectacular successes and a system that badly serves two-thirds of the population.

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Today saw the death of “comprehensive” immigration legislation on the US Senate floor. The proclaimed victors like Jim DeMint  should stop crowing about victory — lobbyists for service sector businesses like hotels and fast food, as well as labor-intense agriculture and construction were the winners. And the crafters of the bill need to recall the basic law of art direction — less is more — and apply that philosophy next time.

Americans are suprisingly unlikely to own a passport — until recently less than 10% of the general population held valid passports. This situation is now changing as passports are finally being required for cross-border travel to neighboring countries and the state department has introduced improvements in security features. The state department’s service fee for processing a passport application (e.g. checking birth records) and production of the physical document is roughly $100. In other words, assuming a population of 300 million, for $30 billion, every US citizen could be put through the passport process and issued a high-tech passport. Obviously, with 6% of the adult population in prison, on parole, or having outstanding warrants, as well as problems such as deadbeats who fail to pay child support and tax-evaders, there is probably a need to consider multiple flavors of passports. But the physical challenge of issuing hard-to-counterfeit passports to all is not insurmountable.

The legal function of passports has traditionally been restricted to use by the federal government in authorizing cross-border travel of citizens. However, there are other functions that passports readily perform. Globally, high-security passports (e.g. using polycarbonates and incorporating holographic features) are far less likely to be counterfeit, which means they provide much better ID security that current state driver’s licenses and US social security cards. (A friend of mine who does Chapt. 7 bankruptcies had one guy come in an offer him five SSNs when he asked “What’s your social security number?” I can’t even figure out how that scheme might work.)

For those of us that have lived the life of stranger in a strange land, the passport has always been the key document. With my passport and various visas I was able to travel about in the Soviet Union and Eastern Europe back in the old days unimpeded (I even hitchhiked). During the late 1970s and early 1980s, I had the privilege of experiencing the iron hand of Eila Käänö, a high-level bureaucrat in the Interior Ministry who oversaw Finland’s foreigner population. (Finland’s opening up to the world in the last three decades is a truly remarkable testament that societies can put aside provincialism and embrace fairly sophisticated international outlooks.)

At the bottom of the Finnish system were (and still are) the very simple administrative devices of the work and residence permits. If a foreigner behaved and contributed to Finnish society, that person was gradually granted longer work and residence permits, kept on learning Finnish and Swedish, began to get taxed on the same basis as the locals, and after a year was brought into the national health care system and ultimately even allowed to vote in local elections. Also, the state retained the right to deny a work permit to people in fields where Finns faced high employment. Most Americans living in Finland today hold university degrees and I have little doubt that foreigners who have chosen to reside in Finland permanently represent a net gain to the society overall. But there is also a further fact that should not be overlooked — almost every Finn currently holds a valid passport, Schengen or no Schengen.

From this perspective, the US does not really have an immigration problem, at least not in the Lou Dobbs sense. Rather, the federal government — for whatever reason — has been administratively negligent. I went through the embarassingly complicated greencarding process with my wife. Because we had done everything in Finland at the US embassy, our paperwork was apparently impeccable. When we came from Samoa to LAX and she went to hand over the paperwork, including a giant lung x-ray, the official cleared her in about 7 minutes, shook her hand, and commented that he’d almost never encountered such a well prepared immigrant. Of course, we’d spent about three months and $3,000 to get to that point. Finland, in contrast, has nothing like the greencard. The closest thing is probably the permanent resident stamp in the passport, but even that has to be renewed each time you get a new passport. And no matter how long you are in the system, you get thrown out if you move abroad. A greencarder has to visit the US every 12 months if they have again moved away from the US.

Thus, by requiring passports for all, citizen and non-citizen alike, a lot of problems can be disposed of rather quickly. When a citizen presents a valid US passport, it can be assumed that the federal government stands behind the document. This cannot be said of a driver’s license, birth certificate or SS card. When a non-citizen presents a passport, it will contain a valid residence permit and work permit with dates that are unambiguous to employers, and it will provide leverage for the employee to make sure that the employer pays the employee’s social contributions and conforms to the law. And it will reduce the gray economy that has been so well served by the Senate’s latest failure.

Regarding Mexico, there needs to be a fundamental acknowledgement, long ago noted by Paul and Anne Ehrlich in the unfortunately titled The Population Explosion that immigration pressures from Mexico need to be damped not mainly because of the shoddy treatment immigrants recieve, but the simple fact that “the world cannot afford any more Americans.” It’s a wierd book, often hodge-podge, but occasionally brilliant. The best idea is the I = PAT equation. Impact = Population x Affluence x Technology. Lou Dobbs, who is after all a trained economist, would do well to incorporate it into his discussion. Mexico has made progress in lowering its population rate, a fact that is seldom mentioned. Mexico’s rising affluence, however, must be accompanied by energy efficient, environmentally friendly technology. Otherwise, there will be a real mess. Also overlooked is the fact that the US is the third most populous country on Earth, after China and India. Make of that what you will.

Pretty good for a couple that spent all their summers in Telluride.

US immigration issues can and should be handled administratively. Illegal immigrants are rarely involved in crimes of moral turpitude, but rather statute violations that have no intent requirement. An administrative approach also makes it possible to apportion costs between the immigrant, employer and government. Under the current regime, immigrants and employers avoid costs, and the government only spends what it can. An administrative approach would also avoid the need to build big fences. Simple, probably not as cheap as Congress would like (but then this is the same Congress that is now spending $11 billion a month on activities in Iraq and Afghanistan), and effective.  

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An issue arises when some fact is in dispute. Despite claims we may live in a 10,11, or even 26 dimension universe, it appears media discussion has a binary compulsion even when there may be less than two or more than two sides to an issue.

Take oil, for instance. The global economy burns about a thousand barrels a second, so access to this resource is fairly important to those who want to be economic participants . Given that the geological characteristics of oil deposits are fairly specific, estimates that we have between 1.0 and 1.5 trillion barrels of oil remaining seem fairly reasonable. At the current consumption rate, then, we have 1 to 1.5 billion seconds of oil left. With a bit over 31.5 million seconds a year, we are consuming at a rate of 31.5 billion barrels a year (which is quite in line with the oft-mentioned daily world consumption of 80-82 million barrels a day), that would put the day all the oil runs out at 31-48 years from now. So here’s how the issue usually gets debated. On one side are the peak oil folks, who argue that the end of the petroleum era will lead to a drastic cutting back on our life styles — or worse! On the other side are those who say that our hydrocarbon resources are plentiful, and even if the oil runs out there’s always coal, gas, and clathrate bound methane.

What’s missing here? Well, this debate excludes future generations. Don’t they have any vested rights in global oil wealth?

Traditional property law recognizes several possessory interests in land, including the tenancy for life or life estate. The duty of the tenant is to “maintain” the property while in possession, and thus not to commit waste, either detrimental or ameliorative. At the end of his or her life, the tenant is expected to hand over the property in about the same shape as it was given. Of course, tenants can’t exercise the same dominion and control over land that an owner of property can.  Indeed, the state may be so reluctant to step in that the most ambitious landowners among us may even abuse land so much as to create a superfund site.

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Unlike chief Seattle, who saw us as life tenants, landowners don’t have to worry that much about their environmental legacy or how they “sever” mineral, plant, and animal wealth from the land.

The oil debate may not even be a very good example of how voiceless interests get framed out of public debate. The debate over the development of Australia may be more appropriate. From the start white settlers framed the discussion based on a legal assumption that the country was a terra nullius and simply overlooked the fact that people, speaking perhaps as many as 800 languages, had been living there for the past 60,000 years. Today we often hear network slogans such as “fair and balanced” that are by definition two-dimensional. Of course, this forces both sides to bring it on, but it also reflects the infantilism pushed by modern advertisers. Instant gratification, “kidults”, and rejuvenalia, suggest a commercial motivation for pushing simplified views. Yet what adult actually sees himself or herself as a consumer, much less a kidult? Perhaps we need to be alert to moves to “frame out” voiceless interest groups, and wherever possible, point out that our reality is not 2D as it was for the residents of Flatland. What a great idea for a movie!

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A friend was talking to me yesterday about the challenges of scaling technology. His example was the wind turbine, a fairly environmentally friendly means of generating electrical power. How much electricity would you get if you broke that wind power machine down into 10,000 machines instead? If it was perfectly scalable you would get the same amount, but as you go smaller and smaller, you run into manufacturing problems (you need to use lasers for cutting and the materials behavior becomes a larger issue), simple mechanical challenges in overcoming friction effects (bearings and driveshafts), and I guess if you go small enough you have to deal with (like in the movies Fantastic Voyage) Brownian motion. Nevertheless, the ability to scale up and down presents surprising opportunities for engineers.

 Physicists have always been arguing about the limits at which “man the builder” could scale his creations. Richard Feynman’s 1959 lecture, There’s plenty of room at the bottom, sets out the basics for what we today call nanotechnology, and includes the interesting insight that smallness makes quality control easier. In that same year, Feynman’s cohort, Freeman Dyson came up with the notion that we might be able to identify advanced civilizations by their ability to make Dyson spheres, megaengineering projects designed to take full advantage of the light from a star (most likely a red dwarf). Ironically, these thoughts arose at the end of an era when architects had been pushing to keep our living at the “human scale.” For Alvar Aalto and Frank Lloyd Wright, it meant shoving their well-heeled clientele into fairly cramped sleeping spaces.

My sense is that these two trends are still colliding. Our children are now expected to go to work in factories the size of a matchbox, live in huge sprawling metropolises and somehow behave ethically in the meatgrinder of the global economy. At the same time, they should be experiencing a sense of community and the same connection with nature our ancestors enjoyed. As we scale our technologies up and down, we should remember that our ventures into new scales will expose not just new strengths, but also our frailties. Joan Didion’s observation that “everything can change in a moment” suggests there is a danger in getting too comfortable with a moment or a certain scale of thought. Architects that break expectation are in fact doing us a great service. Steve Holl’s Helsinki Museum of Contemporary Art comes to mind here. (There is an interesting discussion of his latest work in China here and here.)    

Finally, both Dyson and Feynman worked in the early years of nuclear power. Dyson was on a team that came up with the “safe” nuclear reactors used in submarines. To my knowledge, the idea of distributed nuclear power (say, four of five little nukes per household) died with the atomic train. Yet if we can consider putting a half-million little windmills on the skins of buildings, why not? And if we can imagine engineering to any scale, why not come up with criteria for optimal scale that could please scientists and artists alike?

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In the classic Prisoner’s Dilemma of game theory, the police can only make misdemeanor cases against two persons they have caught unless one prisoner betrays the other. If the police break one, the betrayer walks free while the other is punished with a felony. The optimal solution for both players (as any mafioso knows) is to stay mum and accept the minor punishment, but this means overcoming an incredible urge to screw your partner in crime in order to save your own skin. In more benign terms, cooperation, even if counterintuitive, is the right course of action.

The current goings-on at the G8 summit in Germany suggest the most powerful countries in the world are nowhere near adopting an optimal solution in fighting global warming.

The agreement reached Thursday does not include a mandatory 50 percent reduction in global emissions by 2050, a key provision sought by Chancellor Angela Merkel, nor does it commit the United States or Russia to specific reductions.

Nevertheless, Mrs. Merkel, the host of the Group of 8 meeting, proclaimed it a major victory. She had placed climate change at the top of the agenda for the gathering, and put heavy pressure on Mr. Bush in recent days to relax his opposition to mandatory cuts in emissions, though he ultimately did not.

Indeed, it appears a distracted and disengaged W has had his eye on the door pretty much from the minute he appeared at the summit. And with that kind of a crack in the solidarity, it is hard to see why anybody else at the meeting would feel they still have much incentive to fight global warming. Whatever they do merely subsidizes the bad (but profitable) behavior of others. For those of us living outside the US media bubble, perhaps the most frightening aspect of this sorry spectacle is the tepidness of the American response this latest Bush snub (cue to crickets). Rather than hanging together, Americans generally seem quite comfortable with a second-best world where everybody else hangs separately. Under this logic, being the first to torpedo even relatively modest measures to fight global warming means the US walks free (or drives off into the sunset in a Hummer), just like that prisoner guy. Right?

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The creation of Fennovoima, a new consortium comprising of E.ON, Katternö, Outokumpu and Rauma Energia, aims to build within ten years a 1-1.8GW nuclear plant that would produce cheap power. Being a hydrocarbons poor country, it’s understandable that Finland wants to lessen as much dependence as possible on foreign energy imports from countries like Russia.

Finland is presently building a sixth nuclear plant in Olkiluoto, where there are already two nuclear plants in operation. The country’s two other nuke plants are in Loviisa.

While industry lobbies for more nuclear capacity, Finland’s power markets are mainly operated by two giants: Fortum and Vattenfall of Sweden. The creation of Fennovoima is a healthy sign since it’ll bring a new player to the market.

It’s a lamentable trend in the European Union that the number of power companies is shrinking, not growing. A while back there were nine large power companies in Germany and today there are only four. The same trend is happening in Spain, where three energy companies – Gas Natural, E.ON and Enel – courted Endesa, the country’s largest power utility. After having five power companies — Endesa, Iberdrola, Union Fenosa, Hidrocantábrico and Viesgo — it may end up with two.

While some may argue for more nuclear power, I believe the real issue to be greater competition in the European power sector. It is the only assurance that power prices will remain at acceptable levels to consumers and that there will be enough generating capacity for everyone to enjoy.

Finland doesn’t need more nuclear capacity — it needs more competition.

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