Germany discovers it's not easy (or cheap) being green

To the surprise of (I'm guessing) nobody, the latest report on climate change from the IPCC says the same as all of its earlier reports: the earth's climate is changing, and it's your fault.

The scientists have reached this conclusion despite the fact that global temperatures seem to have stopped rising in about 1998.  Their response to "deniers" who say this means the climate change consensus may need rethinking is interesting:  they point out that the past decade was on average warmer than the decade before.  You probably don't need a degree in advanced statistics to figure out that such a statement is fully compatible with the possibility that warming stopped dead in 1998: it's just a "baseline effect".

Anyway, when the climate scientists deign to admit that maybe things haven't been going as forecast for the last decade and more, they refer to the apparent slowing in global warming as a "hiatus".  It's not one that they predicted, but don't you dare suggest that the science might need a tweak.  In fact, there's now a favoured hypothesis to explain the "hiatus":  all the extra energy being produced by man's depredations is being stored in the deep oceans, a process that can't go on for ever.  There's no evidence whatsoever to support this hypothesis, and again it's something that nobody forecast, but that isn't stopping the experts from attempting to stifle further debate by asserting that "the science is settled' -- which always strikes me as being a profoundly unscientific thing to say.  

Be that as it may, it looks as though the UN will summon its members together sometime next year to try to strong-arm them into taking action to prevent the supposedly looming climatic disaster.  Good luck persuading China or India or any other rapidly-industrialising country to go along with that.  Richer countries may be easier to persuade, however, and indeed one -- Germany -- is already hurtling along the green path.  And as this recent article from the New York Times makes clear, it's not a pretty sight.  

Chancellor Merkel's government, under pressure from the country's sizeable Green Party, has set a goal of closing all the country's nuclear plants, phasing out the use of coal and moving to 80% renewable energy by mid-century.  The costs are staggering, and they're leading to real changes in ordinary people's lifestyles -- like that of the man who told the NYT that high energy bills compelled him to use only one 5 watt light in his home and to stay out of his unheated living room!  The engineering challenge of connecting all of the renewables to the grid is proving formidable, even for the Germans, and businesses are fretting about losing their competitiveness.

And here's the real killer point: it isn't working.  As the article points out, Germany's carbon emissions actually rose last year, because coal-fired plants have to be fired up on the very frequent occasions when it's not sunny enough or windy enough for the renewable sources to be effective.  Unless someone comes up with a whole new way of storing energy efficiently, this will always be the case.

If you want to eliminate fossil fuel-based power generation, there's a tested and reliable alternative out there: nuclear.  But Germany has already ruled that out, and there's little enthusiasm for it in the rest of the developed world either, so we face a future of expensive and inherently unreliable energy supplies.  The fact a major determinant of energy policies these days seems to be the Fukushima disaster -- which was caused by a catastrophic Act of God, and has led to precisely no radiation-related casualties -- is simply insane.  

Who are "the one percent"? Mark Steyn elucidates for you

"Everybody knows the game is fixed
the poor get poor and the rich get rich.
That's how it goes; everybody knows".

(Leonard Cohen, "Everybody knows")

Nowadays, just about everybody knows that the rich in America are getting exponentially richer, while the middle and working classes are finding it harder than ever to make ends meet. And if you asked most people who's fixing the game, they'd point to the rich, with their lawyers and their lobbyists.  And if you asked them to name some rich people, they'd probably identify a Larry Ellison, or a Jamie Dimon, or a Carl Icahn, or just say, "Wall Streeters and hedge fund managers".

But if you asked Mark Steyn, you'd get a different answer altogether.  This is from one of his columns written in the past few days, as the US lurches toward a government shutdown and possible debt default.

In 2012, the top 10 percent were taking home 50.4 percent of the nation’s income. That’s an all-time record, beating out the 49 percent they were taking just before the 1929 market crash. With government redistributing more money than ever before, we’ve mysteriously wound up with greater income inequality than ever before. Across the country, “middle-class” Americans have accumulated a trillion dollars in college debt in order to live a less-comfortable life than their high school-educated parents and grandparents did in the Fifties and Sixties. That’s banana republic, too: no middle class, but only a government elite and its cronies, and a big dysfunctional mass underneath, with very little social mobility between the two.

Got that?  Inequality is rising because the Obama government is trying to redistribute income; and the rich are federal public servants and their "cronies".  It's hard to imagine that Steyn really believes this, but then again, it's hard to imagine that he really believes a lot of the stuff that he writes.  Still, if this really is the way that Tea Partiers and others on the right think, then they're even crazier than the rest of us thought they were.

The wonders of science

Saw a Bell Canada truck in a shopping mall parking lot today, with a sign on the side advertising the company's new "Fibe" TV service.  The sign read:  "Wireless TV.  Yes, really".

Wow, you mean the pictures materialize on your screen right out of the air?  No cables or anything??  What will they think of next?

***

PS -- Should have my "real" PC reconnected and be back to normal blogging by the end of this week.

The Bernanke put

If printing money were the key to economic success, Weimar Germany would have been the richest country in the world back in the 1920s, and Zimbabwe would be at the top of the rich list today.  And of course, the US would now be booming merrily away, fueled by the Fed's $85 billion a month of "quantitative easing".

It hasn't quite happened like that.  The US economy is moving ahead, but apparently the rate of progress, particularly in terms of employment, is still insufficient for the Federal Reserve's liking.  In consequence, and defying most pundits' predictions, the Fed has decided to maintain the QE program at its existing level for the time being.  Markets have breathed a big sigh of relief, propelling equity indices to fresh all-time highs.

The good times may not last long.  With the Republican party almost entirely in thrall to the Tea Party, and President Obama vowing no compromise, it seems certain that the next few months will see a series of bruising fiscal battles.  A government shutdown seems almost unavoidable, and some Republicans are perfectly willing to see the United States default on its debts for the first time since the Civil War.  The Fed cited the possibility of fiscal mayhem as one of its reasons for standing pat on the monetary front for now.

Looking further ahead, it's at least possible that the tapering of QE is now many months away.  The fiscal follies will last through the fall, and by year-end Ben Bernanke's term at the head of the Fed will have just a couple of months to run.  He may well be disinclined to make a major shift in policy at that point, particularly if his successor is to be Janet Yellen, who is perceived to be more open to maintaining monetary ease.

We will not be able to judge whether QE has been a success until we see how the US economy (and that of the rest of the world) copes without it.  After today's decision, it seems we may have to wait quite a while longer to find out.

Bad debts

It seems former Bank of Canada Governor Mark Carney may have spoken too soon when he asserted that Canadian household indebtedness was starting to decline from recent record levels.  Statistics Canada reported this week that the ratio of household debt to disposable income rose to a new record high of 163.4 percent in the second quarter of this year, after falling very marginally in the two preceding quarters.

Mark Carney, his successor Stephen Poloz, Finance Minister Jim Flaherty and just about every economist in the country have been warning for months that debt levels will start to become a serious burden as soon as interest rates start to rise.  You can maybe understand why the average Canadian might not entirely get the message:  cheap money is cheap money, so why not take advantage?  But you'd surely think the banks would know better than to keep shoveling out money to people who are all but certain to start defaulting in ever-increasing numbers as rates move back toward more historically normal levels.

Easy credit is artificially inflating house prices in Toronto and Vancouver, and setting up people all across the country for a nasty financial mess in the not-too-distant future.  Do these guys never learn?

Apologies for the hiatus!

I have been unable to post here for the last ten days or so because our heating and a/c system has failed and is being replaced.  A lot of the very messy work is taking place in my home office, so my main computer is temporarily out of commission.  This situation is likely to last for another week or two.

In the meantime, if you want something to read, can I recommend an excellent piece on the Guardian website, marking the fifth anniversary of the Lehman Bros. collapse. Here's a link:
www.theguardian.com/business/2013/sep/13/lehman-brothers-collapse

Looks like a lump of labour

I've written here once or twice before about the "lump of labour fallacy".  Supposedly, most economists think it is wrong to assume that there is demand for a fixed amount of labour in an economy.  After all, employed people spend their earnings, and that demand creates more jobs for other people.  This reasoning leads the majority of economists to favour immigration and increased female participation in the workforce, and to reject measures like shortening the workweek (as France did a few years ago) as being unlikely to lower the unemployment rate.

The lump of labour fallacy keeps coming to mind when I hear about older workers hanging on to their jobs because they can't afford to retire.  If "lump of labour" really is a fallacy, this shouldn't make it harder for young people to get a job.  After all, the oldies are earning and spending, right?  At the very least, however, it seems to me that the greying of the workforce must change the type of jobs the young can get.  If the CFO is planning to hang around until he's 70, there's a knock-on effect right through the finance department; down at the bottom there's no immediate need to take on a new graduate trainee.  Instead, that guy or gal winds up at Starbucks, making the CFO's skinny latte each morning*.

That's serious enough in itself.  This week, however, Avery Shenfeld at CIBC has put out a short piece arguing that the problem is worse than that.  As he puts it, "Why can't your precious Tyler and Chloe find an after school job?  Because you're in it."  Avery didn't get to be head of CIBC's economics department by parroting fallacies.  So maybe, like me, he's wondering whether the "lump of labour" really isn't a fallacy at all.

* The CFO knows you must never drink latte or cappuccino later in the day. 

Name and shame

Courtesy of our local talk radio station, CKTB, we learn of a new initiative from a climate change lobby group called 350.org.   They are raising a petition to demand that hurricanes and major storms, currently given alternating male and female names according to a pre-set list. should instead be named after politicians who deny climate change.  This whole movement really is turning into an intolerant cult, isn't it?  What's next, tarring and feathering?

Anyway, great timing, guys.  At the time of writing, we have now gone longer into any Atlantic hurricane season since records were kept, without a single tropical storm reaching hurricane strength.  It's also been an unusually long time since any hurricane hit the US mainland*.

So it certainly seems as if the climate is changing.  Just not in the way that 350.org seems to believe.

* Sandy, last November, was only a tropical storm when it made landfall.  That's why the media hastily renamed it "Superstorm Sandy". 

Old money

Before taking his leave of the Bank of Canada to take up his new post in the UK, Mark Carney noted a welcome deceleration in the growth of consumer credit.  A fascinating new report by the consumer credit rating agency, Equifax, largely confirms this: growth in consumer indebtedness in Canada is indeed slowing (though not to the degree seen in the United States) and both delinquencies and bankruptcies have been heading steadily lower in the past few years.

There is one exception to this trend, however, and it's a worrying one.  Canadians over the age of 65 are continuing to accumulate debt.  Seniors' average borrowings rose by 6.5% in the year to mid-2013, and have been growing faster than the debts of other age cohorts for the past several years, although for now they remain lower than the average for all other groups apart from the credit-starved under 25s.  It looks as if baby boomers, having failed to put aside enough savings during their high earning years, are now borrowing to maintain the lifestyle to which they consider themselves entitled.

You can maybe see why seniors would want to do this, but it's a bit harder to see why lenders are so willing to accommodate them.  It's true that more and more people are working beyond traditional retirement age, but it remains the case that this is a group of people on incomes that are largely fixed.  It may be some time before interest rates start to rise in Canada, but once that happens,  indebted seniors will be among the first to feel the pinch.  Of course, a lot of seniors have assets to pledge against their debts, mainly the family homestead, but that shouldn't give bankers too much comfort.  You wouldn't want to be the first banker that starts to turn delinquent seniors out onto the streets in order to sell the home and recover the debt.  The squawking would be heard from coast to coast, and since seniors vote in much larger numbers than the young. politicians would be quick to tell the banks to back off.

Then there are the societal implications.  For a good many generations now, Canadians have been passing on to their heirs much greater wealth than they inherited from their own forebears.  It's unlikely the baby boomers will be doing the same: the next generation, those now approaching middle age, are likely to find that the house and everything else that their parents leave behind is encumbered six ways to Sunday, with little net value left once all the creditors have been satisfied.

Did you ever drive down the highway behind a huge Winnebago with a bumper sticker bragging that 'We're spending our kids' inheritance"?  Indeed they are, and at least here in Canada, there's no sign they're about to stop.