Is Exxon’s Obfuscation About Climate Change A Crime?

WASHINGTON – Here is the thing. We know now that ExxonMobil’s internal documents reveal that experts working for the company years ago admitted that burning fossil fuels would cause unwanted higher temperatures, and therefore climate change.

Deceit

Exxon’s top management was well aware of these findings. But quite obviously it chose to ignore them. In fact, it did much worse. The oil and gas conglomerate for years funded research organizations that either minimized the impact of fossil fuel emissions on temperature changes, or denied it altogether.

There is no question in my mind that Exxon knew exactly what it was doing. It was engaged in a big lie in order to protect its enormous economic interests. It fought against those who would want to drastically curb the use of fossil fuels, and therefore harm or kill its business, on the basis that burning fossil fuels increases CO2 levels in the atmosphere. There is no doubt that Exxon’s behavior is unethical and despicable.

Is this a crime? 

But is it also criminal? Well, many U.S. public officials think so. Led by New York State Attorney General Eric Schneiderman, they maintain that Exxon’s actions are in fact fraud. By denying evidence that it knew to be true about the harmful impact of its products, Exxon Mobil willfully cheated its investors.

They were told that the company was engaged in safe activities, while it turns out that they are unsafe, given the global warming impact derived from using the fossil fuels that Exxon produces. According to Schneiderman this behavior is very similar or equal to the pattern of conduct exhibited by the tobacco companies when for years they denied that nicotine was addictive and that smoking cigarettes greatly enhances health risks.

Just like the tobacco companies 

The tobacco companies quite clearly knew the truth about the consequences of smoking. But they engaged in a massive disinformation campaign because they wanted to protect their market. If, by doing this, they allowed millions of Americans to die prematurely because of lung cancer and other cigarettes caused diseases, so be it. They just did not care. In order to keep their immense profits, they kept obfuscating for as long as they could. Later on, this was considered criminal behavior. And so the tobacco companies were forced to pay enormous fines.

Well, Exxon’s critics now say that the oil company did pretty much the same. The company withheld from its investors and from the American public the content of internal studies that acknowledged that global warming is the result of humans using fossil fuels on a massive scale, while publicly claiming that the data and the evidence supporting this thesis is ambiguous and inconclusive. Very simply, they knew the truth; but in public they declared the exact opposite.

It is not fraud 

Anyway, is all this criminal? I do not think so. Most investors knew exactly what they were buying when they purchased ExxonMobil stocks. Even though Exxon was engaged in a robust disinformation campaign, people –including investors– had access to plenty of publicly available studies that clearly stated the opposite.

Which is to say that people who bought Exxon stock knew the facts. More broadly, it is clear that Americans keep using fossil fuels and their byproducts (gasoline) out of their own free will, notwithstanding the efforts of scores of NGOs and the Greens who on a daily basis warn everybody that this behavior will lead to planetary catastrophe.

In fact, even those who believe the green arguments against fossil fuels continue to use them simply because as of today there is no plausible, truly cost-effective alternative. Nobody forces the average American to drive a car powered by an internal combustion engine fueled by gasoline produced by Exxon or by any other energy company. But millions drive these vehicles simply because for most people there is no practical alternative.

Immoral but not criminal

So, here is the thing. Exxon’s behavior is clearly immoral and unethical. It had information that would have harmed its business and it chose not to disclose it, while pretending in its public statements that there was no conclusive evidence that burning oil products harms the environment. This is bad behavior.

But this behavior does not amount to fraud on a massive scale. Indeed, if people wanted “the facts” on the relationship between the use of fossil fuels and global warming, they were out there. There were and there are plenty of widely available sources that state the dangers.

It is completely disingenuous to affirm that the poor, innocent investors were duped into buying stocks of a company that makes harmful products only because ExxonMobil lied to them.

 




First Comes Growth Then New Jobs

WASHINGTON – Every day I walk by a giant banner hanging from the U.S. Chamber of Commerce imposing building in Washington, DC., located near the White House. The banner says: “Jobs & Growth”. On the face of it, nothing wrong with this statement. Of course we all want to have more jobs and more growth. if both things happen, we shall all be better off as a nation.

Jobs and Growth

So, we all agree. Still, the way in which the proposition is phrased reveals a profound error which, I believe has been purposely introduced in this “Jobs & Growth” slogan purely for political reasons.

Let me explain. Of course we want “Jobs and Growth”. But in the real world the two elements are sequenced exactly in reverse order. First you have economic growth, and then, because of additional demand and additional capital becoming available thanks to higher growth, companies can create more jobs.

First growth and then Jobs 

In the real economy, real jobs do not just happen because someone wants to. In the real economy new jobs are justified by new demand usually tied to an expanding economy, i.e. the new jobs come along because of higher growth.

But the U.S. Chamber of Commerce, (whose motto is, by the way, “The Spirit of Enterprise” and not “The Spirit of Jobs Creation”), chose to put “Jobs” first on its gigantic banner, even though this is illogical and untrue. And why did they do this? Because this is the politically correct phrasing.

In our distorted world the social benefits of higher growth  –new jobs– have to come first, before growth itself. And so, “jobs creation” becomes a political imperative, somehow disconnected from the economic fundamentals –new growth– that should instead be at the foundation of new jobs.

Politically correct 

And so the U.S. Chamber of Commerce, this bastion of free market capitalism and rugged enterprise, has now joined the herd of the politically correct who have to tell you that their primary policy goal is of course to have better social outcomes –more jobs– irrespective of the economic fundamentals.

In the USSR everybody had a job 

Well, unless we all forgot, in the good old Soviet Union there was full employment. Everybody had a job. Officially in the old Workers’ Paradise there was zero unemployment. And yet, as we all know, things did not go so well under Communist Party mandated full employment. And this was because most jobs were fake, unproductive jobs. Yes, you can create jobs. But, unless they are tied to real demand for more high quality products and services, they will add nothing to the economy, while salaries paid to unproductive workers will waste scarce resources.

Government jobs in Saudi Arabia 

In our time, we have the example of Saudi Arabia, an oil rich country in which almost the entire population has a government job or subsidy. Most of these “workers” do practically nothing. But it is politically expedient for the Saudi government to burn cash (derived from its gigantic oil revenue) paying salaries for fake jobs. This is viewed as a way to keep the population reasonably happy, and therefore quiet.

Governments create fake jobs 

Despite the gigantic failures of all socialist systems, in western societies politicians and interest groups routinely try to get on the good side of voters by proclaiming that before anything else they are committed to better social outcomes: i.e more jobs, whatever the underlying economic fundamentals.

And, in many cases, if the private sector fails to deliver this socially desirable outcome, the government will step in, creating fake (subsidized government) jobs that will make at least some people happy. Needless to say, unproductive jobs are a drain on society’s resources. But who cares anyway? the goal is to create more employment, making more people happy.

Much to my surprise, a quick internet search proved that this U.S. Chamber political correctness about jobs first, growth later is by no means an isolated phenomenon. Variations on the “Jobs & Growth”, with “Jobs” always placed first, are common place.

Deliberate efforts to place jobs ahead of growth 

Interestingly enough, a major EU Commission initiative was promoted under the banner of “Jobs, Growth and Investment“. Think of that: Jobs come first, while Investments come last. Really? Is this how things happen in the real world?

However, the second line of the title reversed the sequencing to its proper order. Indeed, the second line, said “Stimulating investments for the purpose of jobs creation”. So, the first line (in big, bold letters) is the crowd pleaser: “Jobs for everybody, folks! That’s what we are going to deliver”. So jobs first then growth and then investments.

Mercifully, the language in the smaller print of the second line recreates the proper sequencing: first you need investments, investments lead to higher growth, and, yes, higher growth leads to more jobs. So, in the same headline two mutually exclusive propositions. This is the EU way to make everybody happy, I guess.

Interestingly enough, the World Bank convened a high level meeting to determine which comes first, jobs or growth. And I thought that the place was run by sophisticated economists. Well, in that meeting it was observed that, especially in emerging countries, quite often more growth does not create more jobs. And this is true.

Sometimes growth does not create jobs 

Indeed, when I was working in Mozambique, many years ago, there was the case of a brand new large investment that led to the construction of Mozal, a state of the art aluminum smelter. For poor Mozambique this seemed a big deal. A new large smelter. Except that this large investment created practically no new jobs for a horribly poor country with massive unemployment. Which is to say that higher growth does not necessarily lead to more jobs, especially in poorer countries.

Still, while this is true, in most cases new “real” jobs are the result of higher growth. I fail to see how it can be possible to create more sustainable jobs without new growth. Who will create these new jobs not tied to increased demand? Where will the money necessary to pay salaries come from? How would a for profit private enterprise justify paying for new jobs divorced from real demand? jobs that cost money without producing any real value?

Political jobs 

It cannot be that hard to come to the conclusion that jobs untied to objective economic circumstances are essentially political jobs. Therefore they are a gimmick. And if we want this gimmick to be the economic new policy, I cannot see how this can be a good thing.

Still, the large interest groups, including bastions of capitalism such as the US Chamber of Commerce, have to say the “right political thing”, even though it is both false and misleading. However, in so doing, they help perpetuate a state of intellectual confusion among the general public.

Give me a job, now 

Of course, if you are not an economist and you are told by supposedly smart people that it is perfectly possible to have jobs first and growth later, then you will demand that politicians will make jobs happen, now.

And if they don’t, they will be punished at the next election. And this is how populism undermines capitalism, the only system that –with all its shortcomings– over time can deliver both: growth and jobs.