Monday, September 26, 2016

"Climate: The Politicization of Science"

Sydney M. Williams

Thought of the Day
“Climate: The Politicization of Science”
September 26, 2016

 “It will be like weather forecasting on earth…
One can’t predict the weather more than a few days in advance.”
                                                                               Stephan Hawkins (1942-)
                                                                               Information, Preservation and Weather Forecasting for Black Holes, 2014

“If you don’t like the weather in New England now, just wait a few minutes,” is a saying generally attributed to Mark Twain, a Missouri native, but Hartford resident for seventeen years. Having grown up in New Hampshire and having lived my adult life in Connecticut, I can attest to the validity of his observation.

At a time when politicians (and politics) have become more divisive than at any point since the 1960s, few issues generate more hyperbole than “climate change,” or “global warming,” as it was called last year. Climate, as those of us from New England well know, is in constant flux and always has been. Global warming is a phenomenon that appears to be fact…at least in certain parts of the world. Arctic ice caps are shrinking, but those in Antarctica are getting bigger. During the 1970s, the media was concerned about global cooling. Over millennia, the earth has warmed and cooled thousands of times. Mountains have risen, seas have been altered and deserts and jungles created…all before the advent of man.

William Happer, a physicist at Princeton and former director of the Department of Energy’s Office of Science during the first Bush administration recently wrote a paper, “Harmful Politicization of Science.” He has been maligned by those who forbid counter-arguments to the narrative that man bears responsibility for climate change. In the paper, Professor Happer explained he did not see great risk in warming trends, as they have not reached the same intensity as they had from roughly 900 AD to 1250 AD when Vikings settled Iceland and Greenland. He wrote: “The current debates about global climate change are complicated by our not understanding the physics of the sun or the earth’s atmosphere and oceans well enough to dismiss them as major causes of climate change on the earth.” Is his skepticism ill-informed?

The Left’s adamancy assumes that the science of climate change is settled – that all relevant knowledge has been considered, that answers are known. If we reduce our emissions all will be well? It is an attitude not dissimilar to those who said the earth was flat, or that we were the center of the universe. The truth is that the search for scientific answers is more akin to Stuart Little’s quest for Margalo…we may feel we are on the right path, but the quest continues. The risks in their simplistic, but politically expedient responses are that their focus detracts from could be a real need to adapt, as life has had to do since it first appeared billions of years ago – not to try to change what may not be changeable, but to adapt. It was adaption that caused people to move to low-lying islands a thousand or more years ago. They may have to move again.

While I am a skeptic as to causes, I also believe we have a responsibility to treat the planet with respect and to improve the environment wherever we can. And that is what man has done, especially over the past century. It is our wealth (ironically, much of it derived from natural resources) that has allowed man to clean up the environment. A Hundred years ago, the Connecticut River, in whose valley I reside, was far dirtier than it is today. Seventy-five years ago, most of New York City’s apartments were heated by coal. Fifty years ago Los Angeles was smog-bound. It is natural for our species to improve our habitats.

But, if one disagrees with the assertion that “climate change” is the greatest risk we face and that man bears principal responsibility, one is labeled a “denier.” End of debate. Senator Sheldon Whitehouse (D-RI) even urged that “deniers” be prosecuted. Such allegations and charges are both asinine and nescient. They are used for political advantage. “Believers” express opinions as fact, based on observations that accord with a preconceived narrative. They brook no dissension. Whatever happened to scientific inquiry? Whatever happened to free speech?

At some point the earth will end, but probably not for a billion or more years. Whether it explodes because its orbit carries it too close to the sun, or if the sun burns out and the earth becomes nothing more than a frozen planet veering off into space, I don’t know, and, I suspect no one else does either. But man will likely not be the cause. Did man cause the continents to split, or the Sahara Deserts to develop seven million years ago? Did man cause Vesuvius to erupt 2,000 years ago, or the Rocky Mountains to arise seventy million years ago? The earth has been around for a few billion years. Was man responsible for the earthquake that devastated Shaanxi, China in 1556, which killed almost two-thirds of the region’s population, or the heavy rains that flooded the Yangtze River in 1931 that took 3.7 million lives? Did man cause Katrina, which devastated New Orleans in 2004, or the earthquake in San Francisco in 1906?  How much more time does the earth have? Can anyone answer? To claim that one can is fatuous. I am not a denier; I am, though, skeptical of those who claim that the science of climate change is settled.

Technology has allowed us to anticipate and to monitor hurricanes like Sandy or typhoons like Haiyan, but we cannot stop them, or even re-direct them. We can warn people; but the energy they release is greater than anything man has ever devised. In a 2006 article written for NASA’s publication Earth Observatory, science writers Steve Graham and Holli Riebeek wrote: “…during its life cycle a hurricane can expend as much energy as 10,000 nuclear bombs.” Which should we fear most: one of nature’s devastating storms, an unfortunate movement of one of the earth’s tectonic plates, or a coal-fired plant in Kentucky or another in Inner Mongolia? While we can do something about coal plants, there is little, at this point, that we can do to subdue nature when she decides to act up.

No one denies the changing climate of our planet. And no one I know denies that man bears some responsibility. The question is how critical has man’s role been? I submit that no one knows. It has been the politicization of the issue that I find reprehensible. It is offensive when individuals with whom we have entrusted our nation’s highest offices – people like Al Gore – exploit climate change for personal gain. Scientists should be encouraged to continue to seek answers.

Do you truly believe that the science of climate is “settled,” that we know all there is to know, that there is no knowledge yet to be gained? It was once “settled” science that the earth was flat and that our planet was the center of the universe, that man could not fly. The earth is large and complex, and scientists can only guess at its measurements. Its weight is estimated at 1.3 X 10(25) pounds; yet it ‘floats’ in space. Its land mass (about 30% of its surface) covers about 196.9 million square miles. Its oceans – 97% of its water – contain (according to NOAA) 321 million cubic miles of water. The earth’s center – four thousand miles beneath where you now sit – is composed of molten iron, with a temperature estimated at 10,800°F.  Its age, estimated at 4 billion years, is a moving target. The United Nations Environment Program estimates that there are 8,700,000 species on earth, “give or take a million.” Man is but one. And, keep in mind, the earth is but a speck in the universe. We know a lot, but there is much we have to learn.

To claim that the elimination of greenhouse gasses will cause the planet to cool and seas to recede is not only disingenuous, it is dangerous. Doctrinaire advocates of climate change have turned what should be a bi-partisan field of research for the benefit of all into a politicization of science for the gain of a few.


Monday, September 19, 2016

"Negative Interest Rates: An Uncharted Land"

Sydney M. Williams

Thought of the Day
“Negative Interest Rates: An Uncharted Land”
September 15, 2016

“No pessimist ever discovered the secret of the stars,
or sailed to unchartered land, or opened a new doorway for the human spirit.”
                                                                                                            Helen Keller (1880-1968)

Uncharted lands are not always doorways to a better life. While I believe that confidence is essential to success, I also feel that Ambrose Bierce was onto something when he defined optimism in The Devil’s Dictionary: “It is held most firmly by those most accustomed to the mischance of falling into adversity…”
I am not an economist and profess no real knowledge of that dismal science; however, when I think of the Federal Reserve over the past several years I am reminded of the Apostle Paul writing to the Romans: “Professing to be wise, they became fools.” In the years since the end of recession in 2009, central bankers have marched into Robert Lewis Stevenson’s “Land of Nod:” “The strangest things are there for me, both things to eat and things to see, and many frightening sights abroad till morning in the Land of Nod.” Was it morning that brought today’s ‘new normal,’ with its pitiful economic results?

Since 2006, the balance sheets of central banks have risen from just under $5 trillion to almost $17 trillion. Two weeks ago Mario Draghi, Chairman of the European Central Bank suggested they were running out of assets to buy. When central banks borrow reserves from the banking system, they are, in effect, removing credit from the private economy. Asset prices have increased, but growth has been feeble.

Two weeks ago, Sanofi, the French pharmaceutical company borrowed €1,000,000,000 for three and a half years with an interest rate of minus 0.5 percent. On the same day, the German consumer goods company Henkel borrowed €500,000,000 of two-year debt at the same rate. According to Grant’s Interest Rate Observer, there are outstanding about $13 trillion worth of negative yielding bonds – most of it sovereign debt issued by governments of Germany, Japan and Switzerland. Think about that for a minute. An investor willing to lend $1,000,000 for two to three years would receive back a mere $950,000! That’s an easy way to run out of money. Is Hans Christian Anderson’s Emperor naked?

Both Sanofi and Henkel have good balance sheets. (We cannot say the same for governments, but they have the power to tax.) Neither company needed the money. They were not looking for investment opportunities. The money was raised because they could. In his A History of Interest Rates, which covers 5,000 years of lending, Sidney Homer does not mention any period of extended negative interest rates. During the 1930s some U.S. Treasury Bills were issued with rates close to zero, but at that time the world was in a world-wide Depression, Fascism and Communism were on the rise and a world war was in the offing. Today, despite aggressive and innovative tactics by central banks, global growth has been anemic. Last week, in the U.S., the Administration proudly promoted last year’s household wage increase of 5.2%, but only noted in whispers that the number was still below inflation adjusted income for 2007. We are in an uncharted land, and have been led there by creative central bankers and deceptive politicians!

Consider the consequences of near-zero and negative rates in just four areas: personal savings; national debt; pension and entitlement accounting, and life and long-term care insurance.

My generation was the first to live in an age of abundance. We came to maturity in the years after Depression and War. For most of the fifty-five years after 1945 the economy did well – unemployment was low, consumer products became ubiquitous and ever-cheaper, stocks rose, credit became common and, if one worked for a large company, pensions were provided. Sometime in the late 1970s and early 1980s businesses began to abandon defined benefit pension plans due to costs, and turned to defined contribution plans. That meant workers had to save for retirement. The single biggest victim of the Fed’s policy of pursuing low interest rates has been the nation’s savers and elderly. Reduced rates hinder savings, which has had a fundamental impact on the economy. As John Tamny writes in his recent book, Who Needs the Fed?: “True economic advantage results from entrepreneurial ideas being matched with savings.”[1]   

U.S. federal debt exceeds U.S. GDP by a trillion dollars. As a percent of GDP, it is at record levels for peacetime. Mitch Daniels, in last Wednesday’s Wall Street Journal, wrote, “Our national debt…is heading for territory where other nations have spiraled into default...” Low rates make borrowing less painful, and therefore easier for prodigal politicians. Interest expense, as a percent of the federal budget (roughly 6%), is no higher than it was ten years ago, but when rates normalize, which they will at some point, interest expense will be three times larger. Entitlement spending, plus other safety-net programs and benefits for federal workers and the VA, along with interest expenses consume 73% of the budget. When (not if) interest costs rise to normal levels, 85% of the budget will go to those two areas, leaving little for defense, education, infrastructure, research and national parks. Is this where we want to be?    

Besides having the obvious consequence of deterring those saving for retirement, negative rates effect the way pension liabilities are calculated. When calculating pension obligations (the same math is used for determining entitlement obligations) a “risk-free” rate of return is assumed – historically the yield on the U.S. Ten-year, currently 1.7 percent. The problem is most acute in the public arena, as most companies have abandoned defined benefit plans. Public pension plans, which cover roughly 20 million workers, have reduced assumed returns to 7.68%, a rate four times that of “risk-free” returns. Any shortfall – as the mayors and governors responsible for these plans well know – will have to be made up by taxpayers. The hope of these ‘fiduciaries’ is that the problem will not surface on their watch. It is the same math that informs us that unfunded liabilities of myriad entitlement programs are a problem of growing intensity – that Americans have been misled about the promises of our fundamental social welfare programs.  

Life and long-term care insurance rates are rising – another consequence of central bank’s policies of keeping interest rates at sub-normal levels. Insurance companies take in premiums, invest them and then pay out obligations. Actuaries are employed to determine investment returns, as well as life expectancies and myriad health risks; premiums are priced accordingly.  Obligations, while fixed in life insurance, are a moving target in long-term health plans. Policies that were sold a few years ago, when interest rates were five or six percent, are now at risk. When profits disappear, so do companies.   

It is the abandonment of free market principles that is concerning – letting markets set interest rates. The motives may be honorable – hoping to prevent economic hardships and to smooth out inequalities – but the unintended consequences of penalizing savers, minimizing the effect of our national debt, ignoring pension accounting discounting rules, and increasing insurance premiums is devastating. Just as universities cannot protect students against language they find disagreeable, no system can protect all investors and employees, but free-markets, with their accountability and self-discipline, have been the most beneficial to the greatest number. The path we are on leads to an uncharted land where tears outdo smiles.



[1] While I disagree with Mr. Tamny’s conclusion that the Fed should be abolished. The Fed was founded in the aftermath of the Panic of 1907; it has and it should continue to serve as lender of last resort.  

Monday, September 12, 2016

"The Election: Issues, Not Personalities"

Sydney M. Williams

Thought of the Day
“The Election: Issues, Not Personalities”
September 12, 2016

“There comes a time when one must take a position that is neither safe, nor politic,
nor popular, but he must take it because conscience tells him he is right.”
                                                                                           Martin Luther King, Jr. (1929-1968)
                                                                                           “A Testament of Hope: The Essential Writings & Speeches” 1969  

Cheered on by the media, abusive and personal invective have dominated the campaign. But beneath the mud-slinging, the election is really about issues that are critical – policies that will shape the country over the next one or two decades. To the extent these topics get ignored, we the people are the losers.

There are dozens of issues facing the electorate: public school education; the economy; the Supreme Court; immigration; race relations; inequality; political correctness; national security; the war against Islamic terror and extremism; cyber-attacks; disintegrating democracies in Latin America; and relations with Russia, China, Iran, Israel and Europe.  This essay will focus on the first two problems: public school education and the economy.

This is not to trivialize other issues. A Democrat victory in November will assure that the Supreme Court becomes more activist – with relativism subsuming universal moral truths, and the bending of the Constitution to fit an interpretation that suits current mores. Immigration has been elemental to our success as a nation; but we need a policy that promotes legal immigration and that relies on secure borders.  While it is unrealistic to deport eleven million illegals, we cannot allow criminal aliens to remain, nor should we permit sanctuary cities to take the law into their own hands. Does anyone believe that United Health and Aetna dropping out of ObamaCare markets will be positive for the pricing of health insurance? Or that a single payer will allow for better and less expensive healthcare? Sadly, our first African-American President has presided over worsening race relations. National security remains a priority. The next President needs to be forthright with the American people about Islamic terrorism and how long the war against it might last. She or he needs resolve and leadership. We cannot back away from our responsibilities and commitments. The world is fortunate that the strongest nation on the planet is one with democratic principles and free market capitalism.

However, education and economics are fundamental to success in all endeavors. A democratic republic requires an educated electorate. Similarly, we cannot do all we want, or be all we would like, without a robust economy based on free market principles. When children graduate from high school without basic groundings in English, math, history, science and geography, we assign them to lives of deprivation. When our economy is seen principally as a source of revenue to government, and when regulation is biased toward the large and the favored, we find ourselves on the path to diminished economic returns.

The most highly regarded indicator of high school competence is the Program for International Student Assessment (PISA), which every three years tests half a million 15-year-olds in math, science and reading, in 70 countries and educational jurisdictions including the other 34 OECD nations. Results for the 2015 tests will be released in December, but the ones for 2012 showed American students lagging in achievement. They ranked 17th in reading, 20th in science and 27th in math – essentially unchanged from tests taken twelve years earlier. The problem is not our children – the success of Basis charter schools in Arizona and Success Academy charter schools in New York show the capability of minority and impoverished students. The problem, in one word, is unions. Union leaders are more interested in expanding membership than in producing qualified graduates. Non-teaching administrative jobs have proliferated. In most cities and towns, public schools are monopolies. Unions don’t want school competition, especially from those that hire non-union employees, which is why they fight charter schools and voucher programs with such intensity.

The problem of substandard public school education is biggest in inner cities, and especially for poor and minority children. The wealthy have choices. They can opt for private schools, or they can move. Without people like Olga Block (co-founder of Basis charter schools) and Eva Moskowitz (founder of Success Academy charter schools), the poor have no options. Yet charter schools are in constant battle with union leaders. Fifty million children are educated in roughly 100,000 public schools in the U.S., and about 7,000 charter schools. (Another 5 million attend private schools.) It is little wonder that minority parents scramble to get their children admitted to these alternate venues. Often they must resort to a lottery system and live with the angst that brings. While Democrats and progressives claim to represent the people most negatively affected by this situation, they don’t because of large dollar donations teachers’ unions make to their political campaigns. In 2014, the NEA (National Education Association) and the AFT (American Federation of Teachers) gave $50 million to political campaigns, with over 99% going to Democrats. I accept that unions have improved labor conditions for millions of workers over decades, but I also believe that the power they have in our public schools works to the detriment of students. They have essentially shut off competition – the single most important factor in driving down costs and improving results.

The anemic economic recovery of the last seven years – since recession ended in June 2009 – is not the natural consequence of the credit collapse that preceded it. It is because the Obama Administration relied on a stimulus plan that, in primarily supporting existing public sector unions, did not stimulate. They ignored the recommendations of the Simpson-Bowles Commission. They depended on the Federal Reserve to keep interest rates artificially low, which served to mask the increased federal deficit. They raised taxes, diverting money from the private sector, and implemented a series of regressive regulations that hampered new business development. According to a February 12, 2015 article in The Washington Post, the number of business start-ups has declined by over 20% since 2008, while the number of businesses that have closed has increased. For the first time, more businesses are now closing than opening. Success in human development and progress is based on failure, on the concept of “creative destruction.” If a hundred and fifty years ago I was making harnesses and you were developing an internal combustion engine we know that you became rich and I poor.  When people in New York found it difficult to get a cab on a rainy evening at rush hour, Uber came up with differentiated pricing. It was what people wanted, even if they had not known that they did. Central planning cannot solve myriad problems people face in a dynamic economy. Only free market capitalism can do so.

Others may disagree with the issues I find most important, but education and the economy are too important to ignore. A democracy cannot function without the former. And our financial well-being is dependent on the latter. The key to both is increased competition, giving hope to aspirant youth and letting markets discover prices. Monopolies, whether the Trusts of Theodore Roosevelt’s day, a single payer in health insurance, or public schools today, inhibit creativity, curb development and keep prices high. If AT&T still had a monopoly, would cell phones be as sophisticated, ubiquitous and inexpensive as they are?

There is much in the character of Donald Trump I don’t like, and he is untested in public office. Can I, or anyone, be certain he will endorse those policies I believe are decisive? No. But the path we are on leads in the wrong direction; so a change seems necessary and the choice seems clear…at least to me.