On Syria, Timid West Offers Embarrassing Spectacle

By Paolo von Schirach

Related story:


August 29, 2013

WASHINGTON – I recently argued that America is in no mood to get into another war in Syria. We did poorly in Afghanistan and Iraq, while spending fabulous sums of money, (see link to related story). Besides, right now the US Government is essentially broke. Indeed, the Pentagon, caught in the middle of the ill-advised “sequester”, (automatic, across the board spending cuts that target defense more than any other public spending), is trying to adjust to rapidly declining budgets. Probably the worst possible time to engage in a new conflict. And finally US public opinion does not believe that America must act in order to punish Syria for its use of chemical weapons against civilians. The American public does not want to hear about the Middle East, Muslim countries or any talk of another war, big or small.

Evident reluctance to do anything

I did say that America, acting with British and French support,  would “do something” in order to “punish” Syria. However the action would be limited, symbolic and in the end probably irrelevant. Well, it turns out that perhaps I was too optimistic.

Just a few days later, the political signs out of Washington, London and Paris are quite unclear. Certainly I do not detect any determination to act. French President  Francois Hollande talks about the need to find a “political solution” for the Syrian mess, while the British Parliament is divided. President Obama, supposedly in the lead, stated in a TV interview that he has not made up his mind, while adding that whatever action may be undertaken it would be limited and not aimed at regime change in Damascus. After this rather tepid statement by a President who is obviously most reluctant to act, we heard from US intelligence officials that it would be very difficult to obtain unequivocal, conclusive evidence that chemical weapons were actually used and that the Syrian Government ordered such action. In other words, we are not quite sure that a retaliation would be justified.

Assad should not be afraid

Well, after this impressive display of outrage and determination, may be President Assad will decide to take a break and go fishing in the next few days. Chances are that, in the end, nothing will be done. If the US and its junior European Allies can find a face-saving exit, possibly with Russian cooperation in the guise of some kind of UN Security Council Resolution promising some sort of (non military, of course) action against Syria, then Obama would be able to say that we have made our point, that Assad has been punished by the international community for his illegal actions, and that all is well. 

Well, if this compromise does not work out, then we are back to the symbolic military action. I am convinced that America has the military assets in place in the Eastern Mediterranean (mostly US Navy war ships armed with long-range missiles) to launch an attack against Syria. They can target military installations, command and control centers, critical infrastructure, and a lot more.

A limited attack is pointless

However, short of a prolonged engagement –I mean a real devastating blow that would destroy or seriously impair Syria’s war making capabilities and the ability of the Damascus Government to function– a limited US attack would change very little.

Let’s remember what Carl von Clausewitz wrote a couple of centuries ago. The only purpose of military action is coercion. You use military  means to obtain a political goal: i.e. force your adversary to do what it refuses to do. I do not believe that von Clausewitz would have approved of a limited military action aimed at sending a “signal”. And what if the other side does not get our “signal”, in this case a clear warning that any further use of chemical weapons would have devastating  consequences? Then what? We send another “signal”?

War is not about “sending signals”. War is about the complete destruction of the political will of the adversary. Through decisive military action we bend them to our will. Who knows, may be they stopped teaching von Clausewitz at the US military academies.

The West looks weak

In conclusion, there are two possible scenarios here, both of them indicating Western reluctance and timidity. In the first one, there is some kind of UN inspired “action” that gets Washington, London and Paris off the hook. In the second one, there will be a limited attack against Syrian targets. Such a limited attack will not change the course of the Syrian civil war, while it will be used by all  anti-Western Islamists as further evidence of America’s evil intentions against Arabs and Muslims.

You can bet that, hours after the US missile attacks,  Syrian TV will display the corpses of women and children killed by Americans Tomahawk cruise missiles. In the end, whatever Washington’s intentions, this is the only “signal” that the other side will get. Is this what we want?

Obamacare Will Not Improve America’s Deeply Flawed Health Care System

By Paolo von Schirach

August 25, 2013

WASHINGTON – The real problem with soon to be implemented Obamacare is that, contrary to what many believe, it is not “health care reform”. It is just “health insurance reform”. President Obama’s noble goal  was and is to extend coverage to the many millions of Americans who have no insurance and to many others who (on account of pre-existing conditions) are denied coverage. Indeed, given the exorbitant costs of even routine procedures, getting sick in America, without benefiting from the shield provided by health insurance, means financial ruin.

Improve a bad system?

That said, the fundamental flaw of Obamacare is that it intends to “improve” a really bad system by making it even bigger and more cumbersome. The law is not yet in force. But all we read about its possible impact on those who are currently insured, on employers who will be forced to pay for insurance, and on young people uninsured is that it may make everything more expensive, while causing other distortions. For instance, as the mandate to provide medical insurance would apply to companies with 50 or more full time workers, we see many employers who are now cutting their labor force down to 49 workers and who hire part time laborers in order to get out of the mandate. So, business decisions are influenced by Obamacare, and not in a good way.

By and large, as the law is not yet in force, much of what is said now about its long term impact is based on assumptions that may or may not be correct. However, common sense would dictate that it is difficult to improve upon a bad system by making it bigger. 

“Fee for services” is the problem

And why is the system on top of which Obamacare will be built so bad ? It is bad because it provides the worst incentives to those who theoretically should be the guardians of high quality care at affordable prices.  In America, you have doctors who are in the private sector. And they operate on a “fee for service” basis. The only way in which they make money is to have sick patients in need of care. Of course, doctors want to make money while providing an essential service.

The question is: how much money? Well, there is no built-in restraint. And for a very simple reason. You, the patients, need their services. However, most of you do not pay for those services, because you have medical insurance, usually provided for by your employer.

Over prescription of “everything”

Well, then how does this work? What happens is that, even though there are some price ceilings and certain restrictions on reimbursable procedures negotiated with insurance companies, by and large providers manage to overdo almost everything: diagnostics, therapies, surgeries, procedures, prescription medications.

And why do they do this? Because they have a financial incentive to do so, and because they know they can get away with it, in as much as the patient does not pay out of his/her pocket for most of this “care”. The insurance pays.

Therefore the care recipient will not protest. He/she is not going to ask probing questions like: “Is this really necessary? Are there alternatives to this surgery? How much will this cost? Can I get this cheaper somewhere else? 

Unethical practices

This set up of “I treat you; but someone else pays the bill” is a built-in incentive for unethical practices that essentially boil down to overdoing almost “everything”, from surgeries to physiotherapy sessions. Scores of studies indicate that up to 1/3 of all procedures ordered by doctors in America may be unnecessary. Think of that.  We are talking about billions of dollars, year after year, totally wasted on unneeded procedures.

Treating chronic diseases

And this is not all. This system that will always over prescribe has now the fantastic opportunity to treat tens of millions of chronic patients who actually do need care on account of diseases contracted because of a bad life style. America is now in the midst of an obesity epidemic. And obesity caused an explosion of chronic illnesses ranging from Type 2 diabetes to hypertension and all sorts of cardiovascular conditions. Treating all these patients costs now hundreds of billions, with no end in sight.

No prevention

These treatments are horrendously expensive. However, the good news is that in most cases, assuming proper diet and plenty of exercise, these chronic conditions can be reversed. The bad news is that a system with built-in incentives to treat and over treat people provides no financial incentives to physicians to teach patients anything about preventing or reversing diseases. 

The money is in care, and not in prevention.

No way to improve this system by making it bigger

Well, this is US health care. It takes truly heroic optimism to believe that by broadening this perverse system that blends profit oriented doctors with insurance companies that will always jack up premiums you are going to make it more efficient.

In the end, Obamacare may not be the disaster that its opponents claim it is; but it is impossible that it will amount to a serious reform of a truly bad system.

Mexico Will Amend Its Constitution, Allowing Foreign Companies To Invest In Its Energy Sector

By Paolo von Schirach

August 13, 2013

WASHINGTON – If I were Vladimir Putin or Ali al-Naimi, Saudi Minister of Petroleum, I would be really worried about the latest news from Mexico. President Enrique Pena Nieto is pushing forward an amendment to the Mexican Constitution that would eliminate or at least curtail existing barriers to foreign investments in the country’s oil and gas sectors. 75 years ago President Lazaro Cardenas nationalized the Mexican oil industry. The sector became  a monopoly managed by Pemex, a state-owned corporation.

Amending the Mexican Constitution

But now the Mexican leaders realize that Pemex is very inefficient. Its technologies are not up to date. However, given the constitutional barriers that prevent outside investments, it is almost impossible to find good ways to involve foreign firms in the energy sector. The push to amend the Constitution comes from the knowledge that Mexico has huge untapped resources, both conventional oil and gas as well as unconventional (mostly shale) gas. Mexico’s official reserves are 115 bln barrels of oil equivalent, comparable to Kuwait. But the figure could be a lot higher.

US energy independence

It is obvious that with the active participation of major American, European and other energy companies, Mexico could start developing all these reserves. Beyond the economic benefits for Mexico, from a geo-political stand point The United States of America would have the opportunity to get a larger share of its oil imports from Mexico. Combined with increased domestic production and greater reliance on Canadian oil, the US would reach “Hemispheric Energy Independence” even sooner than expected.

And this means no more OPEC oil for America.

More gas

Furthermore, Mexico has the fourth largest shale gas deposits in the world. As soon as this gas becomes available, this would further increase world supply. As America has plenty of its own shale gas, most the Mexican gas will be turned into LNG and exported to energy starved Europe, China and Japan.

Russia and OPEC will suffer

This is why Russia and Saudi Arabia should be worried. Their only valuable resource is likely to become less valuable on account of increased global supply. Look, even in a best case scenario it will take a while for Mexico to amend the Constitution and then enact the legislation and all the necessary regulations that will eventually enable foreign energy companies to participate in the exploitation of its vast energy resources. But this is going to happen, for sure.

A new energy map

As a result, in just a few years the world energy map will look entirely different. North America will become a net exporter of shale gas. Thanks to increased domestic output and more supplies from Canada and Mexico the US will get all the oil it needs from North America. As a result, Washington will no longer be obsessed with the danger of oil supplies disruptions originating in the Middle East. Consequently the responsibility for ensuring the unhindered flow of oil through the Strait of Hormuz will shift from America to China and Japan –the major oil importers that rely on those supplies.

But, more than anything else, Russia and Saudi Arabia, countries that today make money because of high oil prices, will see their revenue flow go down and their influence diminished.

Elon Musk, Tesla Motors’ Founder, Came to America Because He Believed That This Country Would Offer Opportunity

By Paolo von Schirach

Related story:


August 12, 2013

WASHINGTON – I wrote recently that it is going to be a while before electric vehicle (EV) maker Tesla Motors and others like it will be able to radically transform the US automotive industry. (See link above to related story). Indeed, while Tesla’s model S is doing very well, it is on track to sell at most 21,000 vehicles this year. This is obviously very good for a company that sells very expensive, high performance EVs; but it is hardly transformative.

The value of new ideas

Still, having said that, it is really important to reflect on the incredible value of entrepreneurs like Elon Musk, Tesla’s founder. What needs to be stressed here is that Musk is a true, modern trail blazer. Musk ventured into practically virgin territory with what appeared to most analysts a really crazy idea: making a high performance, high price, sporty EV. Remember that many years ago when Musk got started people thought that EVs should be designed for young or middle aged tree-huggers, people focused on saving the planet. Whereas Musk focused on an entirely different market: quality conscious wealthy people interested in a brand new experience: a high performance (and consequently high price) EV.

Well, this is beginning to work. Of course, when it comes to market expansion, much will depend on Tesla’s ability to roll out equally interesting but much more affordable electric cars. We shall see.

Enterprise is our future

But this is not the point today. The point today is to celebrate Elon Musk and many others like him. These are the people willing to take huge chances in order to see if they can indeed push the envelope. It is obvious that when it comes to innovation many “Grand Ideas” are destined to fail. But some will not. And the record shows how, failures notwithstanding, many determined entrepreneurs will keep going at it. May be on their second or third try they will come up with something really important.

Focus on stagnant sectors

And we should be grateful for all these efforts. Indeed, it is mostly because of people like Musk that America can keep its position as technology leader. In a recent TV appearance Musk  indicated that innovators should really focus on sectors that have been stagnant, sectors that no longer deliver any special value. Real entrepreneurs should really look at ways in which they can introduce disruptive innovation that will cause a real paradigm shift. He talked for instance about the “Hyperloop”. This is really science fiction stuff. A totally new idea for an ultra fast inter city transportation system that is light years ahead of even the best super fast trains that still rely on tracks and locomotives, however advanced.

The “Hyperloop” is on the drawing boards, and most likely it will not happen any time soon. Still, this is just an example of Musk’s ability to think big and think boldly, even when some of his ideas may invite jokes.

Once again, many “Bold Ideas” that promise huge technological transformation will be failures. Sometimes costly failures. But it does not matter. Hopefully, those who tried and failed will not be discouraged. They will learn from their  lessons and try something else.

Policy makers have to keep America’s unique pro-business environment

That said, US policy makers must realize that they need to put in place every possible incentive for innovators. Indeed, for America to keep its coveted position as the world’s premiere “Innovation Hub”, it needs to attract people like Elon Musk who are willing to think big and take big chances. To this end, we need to do our best to reaffirm America’s credentials as the best place for true innovators. Do keep in mind that Tesla’s Elon Musk was born in South Africa. He came to America because he thought that the US would be an ideal home base. If people around the world stop believing this, if we lose this edge, the smart innovators will go somewhere else. 


Cost Competitive Solar Power? Coming Soon, But Not Here Yet

By Paolo von Schirach

August 9, 2013

WASHINGTON – The FT published a big spread on solar power, (A rising power, August 9, 2013), accompanied by this intriguing subtitle: “Plunging prices are finally making solar power competitive with conventional sources of energy…” Now, if it were really so, this would be the announcement of a major breakthrough, both technological and economic. This would mean that finally a key component of the renewable energy sector can actually make it on its own, without mandates, rebates or other subsidies, that is.

Mostly subsidized

Well, reading the long article was rather disappointing. True enough, the cost of solar panels has gone down, in fact it has plummeted in the last decade –by 80% in the last five years alone. This is truly remarkable. And certainly, in specific markets where there is a lot of sun and high electricity prices, solar power is becoming a viable alternative. But while this may be the case here and there, it is not true worldwide. Most of the installed solar power in place today is there only thanks to subsidies or mandates.

In fact, the very same FT story tells us that only 0.1% of total solar installations are unsubsidized. So what happened to the headline of solar power having finally become competitive? Well, we are moving in that direction; but we are not quite there, yet.

Solar technology will improve

Look, solar technology has improved and I have confidence that it will keep getting better. Costs have come down rapidly. And soon enough we shall get to a point in which people will place inexpensive solar panels  on their roofs in order to generate their own low-cost electricity, because it is the smart thing to do. I am looking forward to this new era.

But we are not quite there yet. For the moment, amidst overcapacity, bankruptcies, industry consolidation, Chinese dumping, murky regulations, political pressures and what not, renewable energy is still not capable of making it on its own.

AARP Magazine Placed A Good Article On Bill Clinton’s Healthy Diet On Page 38 – Why Not The Cover Story?

By Paolo von Schirach

August 8, 2013

WASHINGTON – The 38 million strong AARP (formerly the American Association of Retired Persons) is often described as one of the most powerful lobbies in America. It is in fact the voice of the vast army of US pensioners. For this reason AARP is a staunch defender of the status quo when it comes to protecting existing Social Security and Medicare ( federal health insurance) programs and benefits for senior citizens.

AARP endorses services

It should also be noted that the AARP has built alliances with others who benefit from the status quo, such as companies that sell supplemental insurance that will pay for some of the medical expenses that the federally funded Medicare program will not cover. In other words, while the picture is not entirely clear, the AARP seems to have a bias in favor of keeping a system in which there is a high demand for medical services, some subsidized through federal entitlement programs, and some paid for by patients.

Preventable illnesses

That said, to place all this in context, we should also point out that the extremely high and rising cost of Medicare and of all the additional services offered to Medicare recipients, (some of them with the blessing of the AARP), is in large measure due to the extremely bad personal habits of most Americans –and that certainly includes senior citizens.

Yes, America has become an obese nation. Bad nutrition and lack of exercise are the root causes of many illnesses. And it is a fact that a huge portion of the national health care bill is due to the need to treat totally preventable chronic diseases. And that includes the cost of Medicare for seniors. Yes, it is well known and now properly documented that chronic diseases, such as type 2 diabetes, are totally preventable. Indeed, if most Americans, young and old, embraced a healthy life style in terms of diet and exercise, millions of people would not require medical attention, or at the very least they would require a lot less –and that includes the retirees that make up AARP’s membership. 

Nothing on wellness education

In this context of high but preventable health care costs, it should be noted that the AARP magazine, the main vehicle used by the association to communicate with its members, does not focus on issues of wellness education and/or advice to seniors on how to stay healthy. Knowing what we know today about the value of prevention and the importance of spreading information about “wellness” and a healthy life style this silence is rather stunning. Is this reticence due to the fact that AARP does not want to cause problems with all the service providers who benefit financially from a high demand for medical care? I do not know for sure.

An article on Bill Clinton’s vegetarian diet

Still, given this background, I found it interesting that the AARP magazine published a fairly extensive spread on former President Bill Clinton (My Lunch With Bill, August/September 2013) focusing on his post-heart surgery super healthy eating habits. The article clearly explains what motivated Bill Clinton to adopt a vegan diet. He avoids meat and fish, processed foods, cheese and dairy products because eating them caused him to develop a serious heart disease that almost killed him. Being a smart man, Clinton finally learned what any American nutritionist can tell you: a mostly vegetarian diet is a ticket to good health and a longer life. And he is a pretty good living advertisement of the benefits of healthy nutrition. Now a senior citizen, Bill Clinton looks positively great. He is lean, healthy and in almost perfect shape.

The value of a good life style

His secret? His secret is simple: lots of veggies and fruits. The article provides details on what Clinton eats every day and it includes Clinton’s advice to all Americans to follow a similar healthy eating regime. He clearly explains how healthy food equals a healthier, mostly disease free, life. Coming from a well respected, intellectually gifted former President involved in all sorts of worthy causes, I would say that Clinton’s message is both credible and pretty compelling: “America: Change your diet. Adopt good eating habits in order to stay healthy and live longer”.

And yet, while the AARP magazine editors published the piece with some relevance, they put singer Gloria Estefan on the cover of the August/September issue, and not Bill Clinton and his diet.

And why is that? Clearly making the Clinton diet the cover story would have forced millions of readers to really focus on it. Whereas, by relegating it on page 38, this story can be viewed by many readers as a “color piece” on the somewhat bizarre eating habits of an ex President with a rather nerdish reputation. “Alright, this is interesting. Well, if eating carrots and broccoli works for him, let him do it. As for me, well, pass the ribs and corn bread, if you please”.

Why so little effort to educate seniors?

The AARP magazine has an enormous reach. I praise them for publishing this story on Bill Clinton’s healthy diet. However, if they were really serious about wellness education and its transformative effects, they could do a lot more. They talk mostly to millions of senior citizens, most of them with health issues. If they really wanted to help them, they should educate them on the life changing value of healthy eating. And do consider the compounded effects of a healthier America. This would translate into a lower demand for health care services and consequently a much reduced national health care bill. In case you wonder how big that bill is, it amounts to a stunning 17.5% of GDP, well over 1/3 higher than what other rich countries pay for health. And yet Americans are unhealthy and do not live long lives.

Prisoner of the status quo?

The only reason for not educating seniors about wellness is that the AARP may be prisoner of a really cynical calculation whereby there is nothing to be gained by upsetting the status quo, including the interests of all the medical insurance providers who benefit from AARP endorsements. As for the average AARP members, let them eat poorly so that they will have to go to the doctor who will prescribe cholesterol lowering medications.

Even though it is manifestly stupid to spend money to treat a condition that could be easily prevented, the fact is that doctors and pharmaceutical companies do not make any money when people are healthy. Under the present –horribly wasteful– system some people make lots of money. 


The State Is Not A Competent Entrepreneur – Huge Distinction Between Awarding Grants And Running Companies

By Paolo von Schirach

August 5, 2013

WASHINGTON – “The state is the real engine of innovation“. Under this strange FT headline (August 5, 2013) we read a review by economics commentator Martin Wolf extolling the brilliance of a book by Sussex University economist Marianna Mazzucato titled “The Entrepreneurial State“. Wolf tells us that, while it might sound preposterous, it is in fact true that public –as opposed to private–  investments are at the foundation of major technological revolutions that have transformed our world. Think of jet engines, teflon, the internet, and so on.

The critical role of the state in funding R&D

Indeed, contrary to what free market capitalism dogma would like you to believe, the state does good things. In fact, the state performs a role that the private sector would routinely shun: investing in open-ended basic science projects that do not have a compelling economic rationale.

Fine. This is all true. We know that most of the electronics and IT discoveries were made through the aid of government grants. And, yes, there was and there still is an irreplaceable role for open-ended basic R&D that is not tied to a marketable product that will bring in a cash return for the investors.

Entrepreneurial State?

But, while Martin Wolf  does not say so, some readers may inadvertently confuse the quite separate roles of grant making and running an enterprise. I have not  read the book. However, the title “The Entrepreneurial State” conveys the notion of enterprises run by public bodies. I believe that it is important to draw a sharp distinction between “funding” and “managing”. Funding research is one thing. Running an enterprise quite another.

Washington is not running GM

In the US experience, the Federal Government played and still plays a critical role in funding R&D. But Washington, with very few and limited exceptions, has no record in running anything. Even in the most extraordinary case of the recent, (and truly gigantic), General Motors bail out, while providing the massive liquidity injection that saved GM, Washington  did  not send Department of Commerce and Transportation bureaucrats to run the company. It left management in the hands of professionals.

The Soviet Union should have been a real leader

More broadly, think of this. If the state were a natural entrepreneur, then the Soviet Union should have been the most successful economy. During Communism the state run everything, from car factories to barber shops. And surely the Soviet Government ability to direct scarce resources into mostly military R&D was in some measure quite successful. Russia did build impressive tanks, jet fighters and ICBMs.

But, overall, despite its technological successes the state proved to be a lousy entrepreneur and a horrible manager. In the end, the whole country collapsed under the weight of colossal inefficiencies.

And even in mixed Western economies, like France or Italy, on balance the state proved to be a mediocre to bad entrepreneur. Otherwise, exploiting the advantages of abundant state funding for R&D, all state-run conglomerates should be world-class sector leaders. 

Awarding Grants and Enterprise: not the same

I fully agree with Wolf that it is important to debunk the ideologically biased and false notion whereby the state is by definition  incompetent, and therefore it should stay out of any and all economic activities. We know that the state did and still does perform an invaluable function by funding research in areas that the private sector would not touch.

But there is a huge distinction between awarding grants and being an entrepreneur.

Americans Have Discovered Hummus – Growing Sales For The Sabra Brand

By Paolo von Schirach

August 4, 2013

WASHINGTON – For once there seems to be  a positive connection between healthier eating habits practiced by a growing number of Americans, increased sales of  chickpeas based hummus, and the opportunity for Virginia farmers  to start growing a new variety of chickpeas instead of tobacco. It all started with the successful marketing of Sabra products (a joint venture between Israel’s Sabra and Pepsico) in the US market.

Hummus for America

As a result, more and more Americans have discovered hummus, a delicious Middle Eastern dip made with chickpeas. Sabra dips, along with other varieties produced by different brands such as Tribe, are becoming quite popular in America. While hummus sales volumes are still way behind salsa and other dips and snack foods, Sabra products are doing better, year after year. 

 Chickpeas will replace tobacco in Virginia

Well, now Sabra has established a new production plant in Virginia. The problem is that US chickpeas are grown mostly in the North West, creating thus a supply chain uncertainty. Indeed, it may be a problem for East Coast based Sabra to depend entirely on the reliable delivery from the West Coast of  its most essential ingredient.  

For this reason, the firm, (that now runs its main processing plant in Chesterfield County, Virginia),  turned to crop specialists at the Virginia State University for help. There they connected with India born Dr. Harbans Bhardwaj. He started experimenting with different varieties of chickpeas that would grow well in Virginia’s more humid climate. Most importantly, he has to select a variety that will develop resistance against a nasty fungus that attacks chickpeas plants, potentially destroying entire crops.

If Dr. Bhardway will succeed, then many Virginia farmers will have a good opportunity to start planting chickpeas instead of tobacco, in order to supply the Sabra processing facility.

Health dietary habits spur good business

And here is the real story. Tobacco is bad for you, as it is the basic ingredient to make cigarettes. And cigarettes may kill you. Chickpeas instead are really good for you. This humble legume is packed with proteins, several phytonutrients and fiber. 

The fact that Americans like hummus made with chickpeas represents a positive dietary change for a population that is in general addicted to unhealthy stuff. So, here is the happy picture. Americans develop a healthy eating habit. Sabra makes money selling hummus, and Virginia farmers will also make good money growing chickpeas, (instead of nasty tobacco), this way ensuring a reliable supply for the Sabra processing plant.


Mediocre July Jobs Report Points To Lower Standards Of Living In The US

By Paolo von Schirach

August 3, 2013

WASHINGTON – The latest US jobs figures are alarming. Sure, we added 162,000 ne jobs in July. While these numbers are not wonderful, more people working is progress. On the surface this growth looks at least decent. The unemployment rate actually went down a bit, from 7.6% to 7.4%. Even though this is largely due to people who stopped looking for work and dropped out, this is the lowest jobless rate we have had since 2008.

Lousy jobs

So, why the unhappiness? Very simple: we are not creating great or at least decent jobs. We are creating mostly lousy, low paying jobs, mostly in retail and in the hospitality industry. On top of that, the percentage of part-time jobs for people who would really like to have full-time employment is growing, while the average worker has shorter work days.

Look, if you were jobless, getting something is surely better than having nothing. Still, these new jobs figures are part of a trend that indicates at best economic stagnation, (we know the economy grows at a mediocre 2% a year), and at worst downward mobility. And this is a problem.

Education, education

Here are the hard facts. In America, if you have a very good education and a super degree from a super university you have good chances to get into a vibrant sector, perhaps a into an industry leader, a GE or an IBM perfectly at ease in the globalized economy. If you are really smart, you will move up and do very well financially. You will have the money to give your kids the same excellent education that gave you a major advantage in life. The problem  is that there are very few of you. Very, very few who are doing and will be doing well.

Mundane jobs

Indeed, if you only have  a so-so degree, then you will be competing for mundane administrative jobs that now pay far less than they used to. Without top qualifications, your chances to move up are small. And if you only have a high school degree, then your chances of getting anything decent, let alone climbing the socio-economic ladder, are really poor. You get part-time jobs in bad times. In good times you get a low paying  job in retail, health care or equivalent. And that’s about it.

Good-bye to the American Dream?

If you do not even have a high school degree, then your chances of ending up in jail are much higher than you having any kind of career.  This is what the July jobs numbers indicate. Unless we shake up our truly mediocre public education system, while at the same time creating a more robust pro-growth policy environment, it is good-bye to the American Dream.

America used to be the land where everything was possible. In large part this was due to affordable, quality public education. Now the rich get their own high quality private education and the opportunities that it opens up . The uneducated get little, often times just the crumbs. 

Given these trends, the already horrendous income gap between the rich and a somewhat impoverished middle class is going to get wider; and we shall live in an overall poorer country marked by even deeper socio-economic divisions. This is not a good prospect for what used to be the most dynamic and optimistic society on earth.

Global Warming Is Real – Still, Do Not Force The Adoption Of Imperfect Renewable Energy, Put More Money into R&D

WASHINGTON – If we knew for sure that man-made global warming were accelerating at a dramatic pace, threatening an imminent global catastrophe and the very survival of the world, then the most desperate counter measures would be appropriate. But we are not there. We have a major problem that is progressively getting worse; but not a catastrophe. The environmentalists of course believe the opposite, and therefore believe that in order to save the earth it is appropriate to impose punitive taxes against carbon based energy, while at the same time forcing the immediate adoption of still imperfect renewable energy technologies.

Green tech not quite mature

The fact is, as Biorn Lomborg, Director of the Copenhagen Consensus Center, argues in a compelling FT piece (Only cheaper “green” fuels will force changes in energy use, July 30, 2013), that: A) while global warming is real and is a serious problem, we do not have an impending catastrophe; B) the early adoption of green technologies as they exist today would not do much to reverse global warming; C) this “solution” amounts to imposing an enormous cost on consumers forced to use electricity that is much more expensive, because it is produced by as yet immature renewable energy technologies.

To be clear, Lomborg does not dismiss global warming as a fantasy, nor does he believe that the pursuit of renewable energy is wasteful.  He has no “pro-carbon” bias. His argument is against the early adoption of green technologies that, while promising, are still not cost-effective. His simple point is that when wind, solar or whatever else will be really cost competitive, they will replace carbon based energy sources, as a matter of course, without any subsidies, special taxes or other ad hoc policy mandates.

Better technologies always displace older ones

As he points out, we did not get the world to adopt personal computers by subsidizing rudimentary electronics and by taxing typewriters, so that people would be forced to buy ineffective, primitive personal computers. Indeed, we had to wait for a certain level of technological development to allow innovators to come up with viable PCs that people really wanted to buy. When they became available and proved to be reliable, then typewriters became immediately obsolete.

By the same token, as soon as renewable energy will become truly competitive, it will not take much for the market to abandon fossil fuels, no matter how plentiful. If state of the art solar panels can provide reliable cheaper electricity, then it is good-bye to coal, natural gas and whatever else we have been using. As history demonstrates, when technologies become obsolete, they are tossed away, without even a second thought.

Promote green tech by spending a lot more on R&D

In order to get faster to our coveted “green tech” future, Lomborg proposed to subsidize R&D, as opposed to forcing the early adoption of the still imperfect technologies we have today. Of course spending a lot more on R&D is no guarantee of success. But it will create more opportunities for innovators to come up with real qualitative changes that may indeed create a new energy technology environment.

If we can produce electricity through solar at a fraction of what it costs to do so by using natural gas, you can bet that, just as the new cost-effective solar panels are rolled out, the gas wells will be closed down in no time. But to force people to abandon gas today, and use still imperfect wind or solar is bad policy and bad economics. And it gets even worse if you need to convince reluctant taxpayers that they really have to swallow this –today–because we are cooking up the planet and soon enough there will be gigantic floods and other man-made catastrophes.

Global warming is a serious matter. But it is best addressed by producing something truly viable that will replace carbon based energy sources. Therefore let’s redouble our research efforts in “green tech”. Forcing the adoption of  half backed technologies ahead of time translates into additional costs, political resistance and negligible improvements. All in all, a bad idea.