The Weakening Dollar

After the American Century

For much of the twentieth century the American dollar was the benchmark currency. Whenever a crisis arose, world investors moved money into the dollar. For decades, the dollar was a good investment for anyone living in an inflation-prone economy, like those in Latin America or Africa. Likewise, because the dollar was stable, it was the preferred currency in the oil market.

The apparent rock-like stability of the dollar began to weaken already in the 1970s, when President Richard Nixon took the dollar off the gold standard. Until then, at least for very large investors, one could redeem dollars in gold. After then, the dollar was a little less rock-like, but on the whole was the preferred currency in any crisis. One could see this again in the wake of the financial collapse during the fall of 2008. Even though American banks were largely responsible for the sudden downturn, many people around the world instinctively moved money into the dollar.

Those days are over, and probably over forever. Rationally speaking, the dollar is not a smart investment at the moment. It has been declining in value for months, and has reached its lowest point in 14 years against the Japanese yen. The current interest rate on dollar savings accounts is also very low, so that even assuming the dollar's decline ends soon, nevertheless, the rate of return is better in the Euro zone.

The Chinese, meanwhile, are keeping their currency artificially weak, as a way to stimulate exports and continue building up already massive foreign reserves. In effect, the United States is letting its currency fall in value for the same reason, to stimulate exports and dampen the desire for imports. But China is way ahead in this race to the bottom, while Japan and Europe are both being hurt. Because China and to a lesser extent the United States have weak currencies, both Japanese and European goods cost more - forcing some factories to close or to move overseas where labor costs are lower. Japan and Europe have higher unemployment and fewer exports because their currency is too strong.

This is a dangerous game for all concerned. As President Obama pointedly told the Chinese leadership on his state visit, Asian economies need to play by the same rules as the rest of the world. Asian consumers, particularly in China, need to buy more, and their currencies should be worth more, to bring the world's economic system into balance.

For the United States, the danger is that it will soon be forced to increase interest rates in order to fund its growing national debt. This will increase the dollar's value, but it will also slow or halt economic recovery. This in turn will reduce American demand for foreign goods, as the economy stagnates.

Unfortunately, precisely this scenario (in which the US weakens) might be what China wants. For if it comes to pass, then China's massive holdings in American dollars will increase in value, while the US itself will grow slowly or not at all. The Chinese economy might then outpace US growth by 5% or more per year, until, in perhaps a decade, perhaps less, the US currency would enter a more definitive decline.

I hope this scenario is wrong. Should it prove at all accurate, then the dollar's reign as the world's reserve currency might not last longer than about 2020. Clearly this is not a happy thought for anyone with a pension or investments in the United States. Just as importantly, the relative decline of the US economy vis-a-vis the rest of the world will soon necessitate a major realignment that takes account of new players: Brazil, India, Indonesia, and most of all, China.

Obama and the Copenhagen Climate Summit

After the American Century

President Obama has announced that he will briefly attend the Copenhagen Climate Summit. This is welcome news. But the timing of the visit (early) and its length (brief) suggest that the White House does not expect a major breakthrough to occur. After all, in the American system of government the President can only carry out what the independent Congress has mandated, and no laws are yet on the books that endorse even the modest 17% cutbacks that Obama has proposed.

One weakness of the preparations for the Copenhagen Summit is that there seem to be no clear guidelines on the methods of calculation that all nations share in advance. So when Obama says the US will cut CO2 emissions by 30% in 2025, this sounds much like what the EU is offering to achieve by 2020. It is not. The EU calculates from 1990 while the US is using a 2005 baseline. What the US is actually promising is to make reductions back to about where it was in 1990, while the EU is promising to go 20% lower than the 1990 level.

A second problem is that the focus really ought to be on per capita energy use and CO2 emissions. The United States uses about twice as much energy per person as Japan, so the US would need to reduce its total energy use by one half just to get to get even. Nations such as China and India, which each have more than four times as many people as the United States, look at per capita energy use, and relatively speaking do not see themselves as the problem. India uses less energy that the United States, and millions of its people still do not have regular electrical service. China is now the world's largest polluter, but the United States is by far the largest per capita.

A third problem is that the summit seems to be focused primarily on ends - CO2 reductions - without a corresponding showcase for the technological means to achieve it. Some nations, notably the UK, are adopting atomic energy as the way forward, since nuclear plants produce almost no CO2 compared to coal-fired ones. The problem is that atomic energy does produce serious amounts of toxic waste, and it must be stored for hundreds, or in some cases for thousands of years. Look around for examples of hermetically sealed buildings that have been constantly guarded for even 100 years. There are none. When all the long-term costs and dangers of atomic power are included, is it not likely that wind, tide, thermal, and solar power are more desirable?

In short, in addition to having a big political circus with heads of state coming that negotiate on the ends, the world needs an equally big demonstration of what is already possible. We already have the means available to build houses that are close to self-sufficient. We already can make automobiles that are twice as efficient as the average vehicle on the road today. There are hundreds of new technologies and best practices that just need to become better known and put to use.

The Kyoto agreement focused on noble ends, but they have not been achieved. In practice, not even one of the major industrial nations that signed the Kyoto agreement has in fact managed to do what they promised. In every case, energy use has continued to rise. (See my October 1, 2009 blog on this.) It is time to focus more on the technological means. The leaders can promise whatever they like, but will they know how to achieve those noble ends?

Senator Inhofe from Oklahoma Champions Copenhagen Consensus

After the American Century

My American readers may be embarassed, but those from Europe will perhaps be delighted to hear that the buffoon of the United States Senate, James Inhofe says he plans to come to Copenhagen for the December climate conference. Since the media yesterday told us that the great powers have informally agreed that nothing binding will actually happen in Copenhagen, it is good to know that other entertainment is on the way.

Senator Inhofe is a most militant opponent of environmentalists. He famously declared that global warming is “the greatest hoax ever perpetrated on the American people.” For years during the Bush majority he chaired the Senate's Environment and Public Works Committee. Inhofe favors drilling for oil and gas in the Alaskan wilderness, and he resists efforts to save endangered species. He frequently quotes the Bible in his speeches.

Danes should not feel too smug when laughing at Inhofe, however, as he also likes to quote their own Bjorn Lomborg, whose crusade against global warming has been, well, warmly supported by their own government. Inhofe has used Lomborg's arguments at some length in an op-ed piece in The Washington Post.

The Copenhagen Consensus, Lomborg's "think tank" gets a direct grant from the government. Lomborg is not a scientist, but a statistician. If he has actually had an original scientific idea of his own, I am not aware of it. However, he says what big oil and coal companies like to hear, and he gets major economists to confuse talking about apples as though they were oranges, (i.e. with such questions as which is better, to solve the global warming problem (orange) or to save children who are malnourished (apple)?) When Inhofe comes to Copenhagen to declare that there is no global warming problem, count on Lomborg to line up some compliant Danes to sing backup vocals.

And so, the Danish government will have it both ways. They will sponsor the conference and appear to be leading a reluctant world toward a cooler and greener future. But for years the same government has paid Lomborg and funded his center to attack the whole idea that any money should be spent on global warming at all. With one hand they admonish the Obama Administration to help stop global warming, and with the other hand they give completely different advice to Senator Inhofe.

Unsustainable Cheney vs. Sustainable Gore

After the American Century

In recent weeks two vice-presidents have been in the headlines. If either of them were a prospective presidential candidate, this would hardly be unusual. But Dick Cheney is too old to be considered realistically as a candidate, and his health is also a question. And Al Gore clearly does not want to run for president again, after passing up the 2008 campaign.

Both men are in the news because they can be taken to represent opposed elements in American politics. Cheney the former oil executive who is a hard-liner on foreign policy stands in stark contrast to Gore, the advocate of green energy who won the Nobel Peace Prize.

Both men have been willing to "put their money where their mouth is," by which I mean they have invested their personal fortunes in the kinds of industries they believe in. Curiously, however, only Gore seems to be in the spotlight this week. He has been criticized for investing in the green technologies that he wants governments to adopt. This is no different than Cheney, who vigorously defended the coal and oil industries while serving as vice-president, except that Gore is not in office. He is a private citizen, and there is no conflict of interest in his case. Gore has never worked as a lobbyist. So the charge that Gore might profit from green energy investments seems idiotic coming from Republicans. Do they have something against business now?

It would be in order, however, for Congress to hold an investigation into Dick Cheney's relationship to Halliburton while he served as Vice President. Cheney retained many personal ties with Halliburton while in office, and that corporation was given multi-billion dollar contracts to rebuild Iraq - often with no competitive bidding - on the grounds that the response had to be rapid and asking for and evaluating bids took too much time.

Then there was Dick Cheney's big gift to Halliburton in the 2005 Energy Bill. A provision was added to that bill, at Cheney's request, which took away from the Environmental Protection Agency the right to regulate some forms of oil drilling. In particular, a process invented by Halliburton called hydraulic fracturing was exempted from EPA control. And, yes, hydraulic fracturing can lead to pollution of the water table, as toxic chemicals are involved. For more on this, see the article in the New York Times. This addition to the 2005 Energy Bill is often called the Halliburton Loophole.

This then is the contrast. On the one side, Dick Cheney, a vice-president who used his office to protect and enrich the company where he used to be chief executive. On the other side, Al Gore, a former vice-president who as a private citizen has put his own money into green technologies. Is it really impossible for Republicans to see that Cheney is a reprehensible self-serving pawn of special interests? Apparently so. Is it really impossible for Republicans to see that Gore is an idealist working within the capitalist system, risking his own money on what he believes in? Again, apparently the Republicans really are this inconsistent and blind.

The persistence of such Republican misconceptions helps us to understand why they are able to see "drill baby drill" Sarah Palin as a feasible presidential candidate.

On winning a book prize

After the American Century

Some readers of this blog already know that my 2006 book, Technology Matters: Questions to Live With, was selected as the winner of this year's Sally Hacker Prize by the Society for the History of Technology (SHOT). The award was handed over at the annual banquet of that association in Pittsburgh, October 17 amid what seemed to me to be wild cheering for at least 2 or 3 seconds.

In previous years the winners of various prizes each made a little speech, thanking friends, family, and fellow scholars for their support. We have all heard such speeches, and know why SHOT might think it a good idea not to have them. So I did not give a moving testimony or tell any humorous anecdotes, but simply stood to have my picture taken with the prize.

Getting rid of the other acceptance speeches was a good idea, but in my case, of course, it was not. I had many important ideas to communicate at just that time, and indeed the wine of the previous hours had enhanced my thinking considerably. I am only sorry that these deep insights into the nature and purpose of research and "the meaning of it all" did not get out, because these penetrating thoughts now seem to have evaporated.

Instead, I will merely note that the prize was given for a work published in the previous three years that best explains some aspects of the history of technology to a wider audience. The plaque abbreviates this to "the best popular book." While I was extremely pleased to have fooled the usually more alert jury and gotten this award, one now former friend dryly asserted that this was the prize for the "least unreadable academic book."

If any of my loyal readers are interested, Technology Matters is in paperback for only a few dollars more than it costs to download it in the format of Amazon's Kindle reader. There is also a strange French translation that eliminates most of the notes and some passages of the work, clearly in an attempt to make it even more popular and better suited for the general audience. A German translation has also appeared. This is much longer and seems more scholarly than my original. Indeed, it appears to be so much more profound and more heavily-footnoted in German that I am hoping it will win a prize as a work written not for the general public but for specialists.

Should it win in German, I will insist on giving the speech I have forgotten from the banquet in Pittsburgh.

The Peace Prize, Unexpected but Deserved

After the American Century
Yes, it is a bit surprising that Obama received the Peace Prize already in his first year as President. But no, I do not think it is undeserved, though this seems to be the standard pundit's response in the US today, where I happened to hear the news while driving across Pennsylvania. Obama has done quite a bit for a man in office far less than a year. Not one commentator that I heard over the afternoon noted it, but he has abandoned the Bush program of installing missiles in Eastern Europe, while angered the Russians and blocked progress in many other areas. This was a major change that opens the way for progress while giving up on an idea that did not make a great deal of sense in strategic or military terms. (It also would cost a lot of money, now saved.) Then there was a major speech given at the University of Cairo, opening a useful dialogue with the Arab world. These two things alone are more than George W. Bush did for peace in 8 years.

But this is not the whole list. Obama has talented full-time negotiators trying to get the Israelis and the Palestinians to talk again, and he has tried to be an honest broker, pushing the Israelis to stop the illegal settlements on the West Bank. Obama has also pressured Iran to abandon its nuclear program, but done so with softer rhetoric than Bush, and tried to begin a dialogue, albeit an almost impossible task with the current leaders in Teheran.

And what about saving the American economy from collapsing? This in itself has been a major achievement of his administration, and it did help to keep the world from spiralling downwards into economic collapse. Peace is not so easy to work for in poverty as it is in prosperity.

But most of all, Obama's achievement of becoming the first non-white person to be elected to the highest office anywhere in Europe or the Americas, must have looked to the Norwegian committee like a powerful demonstration that racial differences can be transcended, that millions of white people could trust and vote for a black person. Apparently, not only the Republican Party but also the pundits, just do not get this. But it made a tremendous impact in the rest of the world, and Obama is not only a symbol of hope, but proof that hope is not delusional.

Ironically, most Europeans and the Nobel Prize committee can see Obama more clearly than the blathering commentators on American radio and television. I admit that I am a little surprised he won this soon, but he would have to be on anyone's short list for the years immediately to come, had he not received it now.

The Olympics: Chicago or Rio in 2016?

After the American Century

Tomorrow, in Copenhagen, the International Olympic Committee will decide where the 2016 Olympics will be held. I gather that the odds makers think Tokyo has little chance of getting it and Madrid only slightly better prospects. Apparently the real battle is between Brazil and the United States, or Rio and Chicago.

I would be happy to see the games held in either nation. As an American, I certainly can see Chicago as a good choice. I spent considerable time there in 2003, and was impressed by the city's continued growth and resilience. On the other hand, I have to admit that it seems unfair that no Olympics have ever been held anywhere in South America - though they were once in Mexico, which is Latin America but still part of North America.

There is another argument for Brazil that goes like this. The 2012 summer games are going to be held in London. Is it a good thing to have the games in the United States right after they are in Britain? Shouldn't they be moving around to different cultural and linguistic zones?

What does not come out in the all too brief news stories I have seen, is any detail about the actual facilities these nations are prepared to build or already have on hand. This is not only about the sporting facilities, but also the airports, security systems, hotels, roads, and public transport. Then there is the question of the safety of these cities. Where is the rate of robbery and petty crime high and low? Tokyo might have the edge on that particular issue, for example. Unfortunately, the public does not get a detailed explanation of why a particular city was chosen. London beat Paris last time, in 2005, but it was hard to see why.

We will soon know the result, and of course it could be any one of the four applicants. I have a sneaking suspicion that President Obama would not be coming personally to represent his home town if he did not think there was an excellent chance of success. But then, the President of Brazil came too.

Is Anyone Really Saving Energy?

After the American Century

Is anyone really saving energy? Time for a little reality check, as all the green rhetoric might make one believe the use of electricity and gasoline is falling.

The Kyoto Protocol was intended to help reduce pollution and CO2 levels. Signed by most of the world's nations beginning in 1997, it went into effect in 2005. However, during this eight-year interval, the signatory nations failed even to restrain consumer demand, which galloped ahead each year by an average of 500 billion additional kilowatts.

According to the US Energy Information Administration, in 2005 the world was using one third more electricity annually than it had in 1997. This growth was by no means evenly distributed. Japan, whose economy was not growing much anyway, nearly achieved zero energy growth (4%) in contrast to China's rampant 223% increase. Germany (10%), France (17%), and the United Kingdom (12%) grew rather than shrank their demand, but they were less profligate than Ireland (51%), India (40%), Argentina (39%), or Brazil (27%). Almost everywhere the consumer wanted more and no nation had managed to reverse the trend.

The failure to reduce energy use cannot be explained by cost-benefit analysis. US energy efficiency could be improved by 23% through off-the-shelf technologies such as better insulation, replacement of inefficient appliances and light bulbs, and the like. The cost of making these changes would quickly be recovered through large savings on electricity bills. But consumers do not want to invest up front to get the longer term benefits.

Likewise, automobiles are on sale that are twice as efficient as the average car on the American road. Moreover, Europeans and Asians, who once could sneer at Americans for driving so much have adopted the car in ever increasing numbers. Indeed, earlier this year for the first time the Chinese topped the US in new car sales, with more than 1 million new vehicles sold each month. Not much help for global warming there.

Do not be lulled by green rhetoric into thinking that politicians have actually done anything much to stop global warming. CO2 emissions are rising along with consumer demand. This is a global problem and no nation has yet really demonstrated that it can reduce its level of emissions and consumption to below the 1997 level - which was the idea of the Kyoto Protocol. So far, it is all wishful thinking.

7,000 Killed by Drivers on Mobile Phones

After the American Century

We hear about it each time a soldier is killed in Iraq, but more people die each year on American highways, the victims of drivers who are busy texting or using their mobile phones. Studies have found they drive no better than drunks, causing more than 200,000 accidents every year.

I have written before in this space about the danger of texting or using mobile phones while driving. Now it turns out that the US National Highway Safety Administration did studies of this problem when it was just beginning to be serious, back in 2002. Guess what. They estimated that drivers talking on mobile phones were responsible for 955 highway deaths in that single year, plus a large number of non-fatal accidents. This number can only have risen higher since then, as more people now use these mobile devices than in 2002.

It gets worse. The bureaucrats in Washington decided to suppress these findings. The public never heard about it. The toadies did not want to anger Congress. Am I being unfair when I ask this, but is it not the duty of the National Highway Safety Administration to keep the roads safe? Hide the fact that annually 955 people (more now almost certainly) are dying on the highways because we should not anger legislators? Please recall that the idea of democracy is to serve the public, not Congress. A death toll of more than 7,000? More than 1.5 million accidents, with many maimed and damaged for life? In a statistical sense, this is about double the casualty toll from the 9/11 attacks. But these deaths happen just a few at a time, about 2 or 3 people killed every day.

Should we blame this on George W. Bush? Did anyone on his team ask that this information be squashed? Only now, due to pressure from journalists using the Freedom of Information Act, do we know that slaughter on the highways was thought preferable to riling up Congress. For more on this shameful episode, click here. But please do not read about it while driving.