RealCurrents

I was reading Jessica Mah’s post on how a lot of her high-school and college-age friends are really scared about global warming. Here in the U.S., it’s often reported that folks in other countries are more concerned than the average American, but little attention has been given to how the issue is impacting younger Americans.

It occurred to me that they need a little perspective on this. I grew up in the 1970s, and for those of us Americans who went through this period when the U.S. was in a severe technophobic angst, and there were constant pronouncements about all the terrible things that were going to happen, I suppose we’re just not so quick to be convinced the world is coming to an end every time scientists start preaching doom and gloom.

This was a very long list of crises that 1960s-70s experts insisted were soon to befall us, most of which I’ve probably (thankfully) forgotten, but which included such calamities as pollution, endangered species, population, overcrowded skies, the San Andreas and yes, even a looming ice age. I guess being terrified of nuclear armageddon just wasn’t enough anymore. The funny thing was, very few of these scientists were talking about an energy crisis.

Of course, even the “energy crisis” didn’t last long, once investors started pouring hundreds of billions into oil, which was $35 when I got out of high school but less than $10 when I got out of college. Jessica titled her post “Scared of Global Warming? Bring in the entrepreneurs!” and so yes, I think she’s right that entrepreneurs and the free market are a lot of the answer to global warming.

In general, though, I think we ought to stop and notice something. It sure seems to me that scientists can get into a negative funk about stuff, and end up focussing too much on the problems rather than the solutions. In fact, I can’t help wondering if it’s sort of the same dynamic as with investment newsletters - negativity and fear apparently sell a lot more newsletters, and a crisis may, sadly, be the only thing that will finally garner a research project any funding.

Now, this is certainly not all the scientists’ fault, nor is the business world off the hook. Just look at the American car industry, one of the most pitiful examples of research budgeting in modern history. Perhaps GM, Ford and Chrysler may be excused for being caught unprepared on fuel economy in the early 70s, since they were already struggling with new emissions restrictions. On the other hand, here we are again thirty years later and, sadly, it seems that only the recent combination of high oil prices, a dropping dollar, and concerns over carbon emissions was finally enough to get them serious again about improving fuel economy.

Amidst all the prognostications, it’s still not clear how global warming is going to play out. Besides the many questions of specific effects in specific places, there’s at least three basic questions involved. First is the question of how fast temperatures will go up. Second, how much will they rise long-term (or is it a runaway increase with no end in sight)? Third, if temperatures can be stabilized, will (can?) they then head back down?

We hear virtually nothing of potentially beneficial effects, but clearly there’s going to be some winners among the many losers from effects of global warming. Interestingly, so far the Russians seem to be the only ones thinking ahead about any positive outcomes from it. As Jessica suggests, entrepreneurs ought to be also. Again, though, we must keep a proper perspective - a long-term perspective.

While there’s a lot we don’t know, we can say that at least for practical purposes, whatever we can do will take place over decades. Realistically, it’s far too late to do anything about changes that may take place within the next decade or so. In other words, whatever research and changes - technological or political - that are to be made must be done consistently over a decades-long time frame.

This is, for example, why I strongly disagree with the basic Kyoto (Treaty) framework. Already China is producing as much carbon emissions as the U.S., and will likely continue to increase. Kyoto might be effective in reducing the emissions of Western industrialized nations, but given these reductions and the continued growth of China, India and other large industrializing countries, within a few years this extremely costly plan will prove ineffective in reducing the bulk of emissions.

We’ve heard from the scientists on global warming, but have yet to hear from the engineers, who are going to be the folks who have to make reductions in carbon emissions actually happen. We need to think about cost/benefit ratios. We also need to think about sustaining research investments over decades, which as the history of NASA indicates, is awfully difficult to do when you start out with crash-program type overbudgeting.

I think it’s a good bet that a lot of these new technologies are going to come from both big American businesses (such as Boeing with its new 787) and American entrepreneurs. This realization may not play well overseas, but any approach such as Kyoto that hobbles the American economy is going to be counterproductive.

Like it or not, the U.S. is still a (if not the) major innovation engine in the world. Companies in Silicon Valley (1, 2, 3) and elsewhere in the U.S. are working on hundreds of different technologies, everything from emission controls to cheap solar to electric cars to wind power and so on. Here in Texas, it’s become common to see the giant parts of wind turbines rolling down the highway on their way west, where hundreds are being put up.

We must remember that innovation, not political decrees, is the only way to solve the problems from global warming, and while we’re at it, let’s not forget to also think about taking advantage of the benefits.

First of all, in case anyone’s looking for it, here’s the official details on the IRS’ reasons for making April 17th the national deadline for filing your personal income taxes this year. It’s certainly also a good time to be thinking about how we could improve the system, something we all agree needs to be done, but can’t seem to agree how.

Of course, when you really get down to details, I’m not sure any of us quite knows quite what kind of tax system we’d prefer, but there are some basic qualities we could probably agree on. We need a system that no longer penalizes American business competitiveness, we need a simpler system (need I say more?), and we need a system that encourages - or at least doesn’t penalize - savings and various forms of investment and capital formation.

While a lot of conservatives might not agree on this last point, I think we also need a system that is modestly progressive, i.e. that gives a break to the poorest members of society. Even if you don’t agree with this philosophically, there is certainly a public interest in seeing these folks succeed financially, rather than linger on welfare rolls.

I don’t know all the specifics of the FairTax Plan, but this morning Houston City Councilman Michael Berry had Americans for Fair Taxation’s David C. Polyansky on, discussing this proposal. Here’s a summary taken from their website:

“The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.

The FairTax Act (HR 25, S 1025) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.

The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. …”

In other words, the FairTax plan would be based on consumption, not income or savings, so if you made a lot of money but lived frugally, saving and investing what you made - and so creating jobs and wealth - then you wouldn’t get taxed that badly. On the other hand, if you wanted to live like the robber barons, then you’d pay considerable tax - 23% (plus state sales tax, I presume) - but you wouldn’t have to hire an army of accountants and lawyers, nor would you need to worry about estate taxes. That last part alone would probably save wealthy folks enough to where many would gladly pay the 23% on consumption in order to have more financial flexibility.

Of course, I don’t know how they come up with these numbers, but that 23% would apparently include all Social Security and Medicare taxes, and since it’s a straight number, it would be easy to predict the tax impact of any transaction and, like sales taxes, the amount would apparently only be levied on the final purchase, so there wouldn’t be a bunch of “built-in” taxes that add to the cost of goods. While the combined federal and state tax would be about 30%, twice the European VAT, if it had a downward impact on inflation - and interest rates - it might prove a bargain for these reasons as well, without having the regressive characteristics for which value-added taxes have been criticized.

The FairTax Plan, which currently has about 60 mostly Republican co-sponsors in Congress, including Texas Sen. John Cornyn, is reportedly most strongly opposed by Washington lobbyists and some Congressmen in powerful committees, who would lose a lot of influence were it to pass. Perhaps this is the best reason of all for supporting it.

The FairTax would basically be a 23% federal sales tax on everything, that would be balanced by a “prebate” that would rebate the tax burden that would be paid by a family living at the poverty level. So as I understand it, you’d only be paying this consumption tax on purchases above the poverty level.

Moving to a consumption tax is key, because this would put our industries on a much more competitive basis with those of other countries. Right now, in Texas at least (I know some states are different), if you buy a $100,000 home, you have to pay property tax, on the order of 2.5%, every year on that home, which is made in America, of course. On the other hand, if you buy a $100,000 car imported from Germany, England, or wherever, you generally don’t have to pay this tax every year. But if you you buy a $100,000 aircraft made in Wichita, Kansas, you do!

Of course, this is property, not income tax, but it’s just one glaring example of how our system in some many subtle ways (double taxation of overseas earnings is another) rewards importers over domestic industries. A consumption tax would lower the effective cost of our goods overseas and make our manufacturing, agricultural, and other industries more competitive, while at the same time likely doing more to improve conservation of resources and protection of the environment than a lot of other measures would.

Pittsburgh Business Times is reporting that the Nuclear Regulatory Commission has approved Westinghouse Electric’s design for its AP1000 pressurized water reactor. This could lead to the building of new reactors in the U.S. by 2010. Westinghouse reportedly already has a contract with Duke Energy for two AP1000s.

Well, it’s about time that nuclear gets another shot in the U.S. When you consider all the health effects from hydrocarbon pollution, plus acid rain and potential greenhouse warming, nuclear can come out looking pretty good. I have long felt that if we were really serious about energy in the U.S., nuclear would be an important part of the picture.

The big problems with nuclear in the U.S. have been management of reactor construction, extensive legal interference by those opposed, and disposal of nuclear waste. Of these, the first is industry’s fault, whereas the latter two are mostly political (and with waste, somewhat technological).

Regarding management, the U.S. historically had a lot of problems because reactor designs were not sufficiently standardized. France took a different approach, developing a standard 900MW reactor. Such standardization brings both economic and safety advantages, and it’s important that the new AP1000 design, which also may be built in China, be managed in this way.

Protests and legal wrangling have been a big problem in the U.S., and I hope that the government and industry (what little is left of it) can somehow educate the public better about the relative safety of nuclear power. While natural gas is pretty clean burning, most places would probably be far better off with a nuclear plant than a coal-burning one. Of course, one of the reasons nuclear is garnering attention now is because of the rapid rises in natural gas prices. A lot of gas power plants have been built here in Texas since deregulation, and their economics are certainly not as attractive as they once were.

Disposal of nuclear waste is really the biggest sticking point. I think a lot of the protesting would really diminish if this issue was satisfactorily resolved. Compared to Western Europe, the U.S. is in a great position for handling wastes, with much dry and virtually unpopulated land, seemingly geologically stable, but politically it’s been difficult to move forward on a permanent site. Of course, the close majorities in the U.S. Senate in recent years increases the power of even a small-population western state to stall the project.

The French developed a vitrification process for containing some waste, which is an example of how technology could provide an extra margin of safety that might make a permanent site more acceptable. I haven’t looked into the French nuclear industry in a number of years, but their approach in the past seemed much more intelligent than ours, and we could probably learn a lot from them.

I guess that’s really the bottom line. An intelligent nuclear policy is what’s needed in the U.S. I just hope it’s politically feasible.