May 19, 2012

WASHINGTON – On May 16 former US President George W. Bush made a speech in Washington, DC at the “Celebration of Freedom”, an event aimed at  presenting the Freedom Collection, interviews with freedom activists. Here is an excerpt from his remarks.

All Humans want freedom?

“These are extraordinary times in the history of freedom. In the Arab Spring, we have seen the broadest challenge to authoritarian rule since the collapse of Soviet communism. Great change has come to a region where many thought it impossible. The idea that Arab people are somehow content with oppression has been discredited forever. Yet we have also seen instability, uncertainty, and the revenge of brutal rulers. The collapse of an old order can unleash resentments and power struggles that a new order is not yet prepared to handle. But there is a reason for the momentum of liberty across the centuries: human beings were not designed for servitude. They were created for better things. And the human soul is forever restless until it rests in freedom.”

Let’s not mix advocacy with historic necessity

Careful Mr. President. Let’s not confuse advocacy, that is the promotion of the cause of freedom, (if and when warranted by reality), with the totally unproven assumption that freedom is what all people across the globe want. Your idea that the “human soul is forever restless until it rests in freedom” is beautiful,  poetic, uplifting and what not, but not at all a proven fact.

However beautiful, the former president assertion that all of mankind is embarked in a more or less linear adventure that will inevitably lead to self-governance, accountable governments, and the active protection of individual rights is his own belief; but it is not all backed by history. 

Democracy is an acquired taste

America is most definitely a nation created with the clear purpose that its governing institutions’ primary functions are to protect individual liberties. And much later many others followed America’s examples. But this idea that all people all over the world yearn liberty in the same way is a fantasy. History shows that “Democracy” is an acquired taste. And even assuming that the taste has been acquired, learning how to practice true democracy –that is serving the people without making a mess of it–  is really complicated. 

Rebellion against tyranny is not the same as having true democratic aspirations

True enough, many people may oppose oppression. But from this it does not follow that they have an understanding of what it takes to organize and resposibly manage self-government, with full respect for all liberties and the rights of political, ethnic and religious minorities.

Bush’s assertion that the Arab Spring, whatever its aches and pains, will eventually lead to genuine democracy “because this is what the people want” is not backed by solid historic evidence. Some people no doubt want a real democracy. Others have fuzzy ideas and the majority are clueless, simply because the whole concept of self-government is totally foreign to them.

The Arab Spring started as a rebellion against tyranny led by educated urban elites. These small elites have now been overwhelmed by more traditional Islamic forces whose commitment to liberal democracy has yet to be proven. Which is to say that the willingness and the ability to forge functioning democracies in the wake of the Arab Spring and that these democracies will be inspired by the genuine desire to protect all basic individual rights is not at all a foregone conclusion. 

America on the side of freedom

Given its history and values, America has every right to be on the side of those who promote freedom in their own countries. But even advocacy has to be practiced judiciously, recognizing the distinction between what we would like to see happen and what is actually possible. When he was president, George W. Bush spent an enormous amount of US treasure and sacrificed thousands of American lives in the pursuit of his dream to democratize Afghanistan and Iraq. While the intention was noble, the price America paid was way too high.

No new reflections

Reading his lofty words today, I would say that Bush has not sufficiently reflected on the experience of his presidency. And the main lesson should be this: ”Assuming that all the others want you want is terribly wrong”. “And, even when it comes to advocacy, what you want and what is possible are not one and the same thing. Noble goals and political realities do not always mesh”.  

Nation building or anything akin to it, when based on exaggerated assumptions of what is possible leads to bad investments and messy results. The notion that it would be possible to bring democracy to Afghanistan simply by having totally illiterate people cast a vote was and is surprisingly naive. And the meager results of this really expensive effort based on outlandish ideas prove the point.

May 18, 2012

WASHINGTON – After the Fukushima disaster that highlighted the vulnerability of its nuclear power plants, Japan decided to shut them all down. Whatever the merit of this shift, the loss of this electric power generation capacity will be made up by increased reliance on natural gas as fuel for electricity. This has led to much larger Japanese natural gas imports (mostly from Qatar and Indonesia) and a consequent price rise for Liquefied Natural Gas, (LNG). Asian spot prices, driven up by Japanese demand, are now at $ 18 per million British Thermal Unit, mBTU, and this is 35% higher than last year.

US natural gas is cheap

This new Asian market outlook, with sky high prices, caused some new thinking in America. The US is enjoying extremely low natural gas prices, around $ 2 per mBTU, on account of the shale gas revolution which greatly increased supply, driving prices down.  Conceivably, US gas producers could build LNG  facilities in America in order to export much of the excess US gas to Asia, at a very considerable profit.

Better to use natural gas at home

No doubt, there is a pretty good economic case for exporting US natural gas.  But I believe that strategically this is not in America’s long term interest. America should take advantage of ridiculously low natural gas prices to use it as transportation fuel. All the experts agree that while the re-engineering of US manufacturing plants so that they will produce engines for trucks and cars running on natural gas is quite expensive, there would be demand for such vehicles, given the low cost of natural gas as transportation fuel, as opposed to diesel or gasoline. It would make sense to start with trucks. Trucks consume a lot of diesel, while fleets generally have centralized refueling stations. Once more natural gas refueling stations have been built, then cars would follow. For both business and consumers the motivation to choose natural gas powered vehicles is evident: significantly lower fuel prices.

Multiple economic advantages

If America managed to do this switch, there would be multiple economic advantages. First of all we would be using a domestic resource, produced by American companies employing workers. This is American wealth used at home. But, even more significantly, by fueling our vehicles with domestic energy we would need to import much less oil, this way improving our balance of payments. Finally, by requiring much less imported oil we would greatly increase American energy security. The more self-sufficient in our energy supply, the less exposed America will be to any future political shocks in the Middle East that may affect the flow of oil.

Long term, a better deal than selling LNG

All in all, while selling natural gas to Japan or China may look like an excellent  business proposition, given the huge price differential, I would argue that creating a new domestic market for all this gas would be a much better idea. Running fleets of trucks (and moving on to cars later) on US produced energy is a lot better for America than having to import millions of barrels of oil every day, at a very high price. And, just in case, do not forget that natural gas has fewer emissions than diesel or gasoline. It is by far the cleanest fossil fuel.

May 17, 2012

WASHINGTON – I am quite uneasy with the hype surrounding the Facebook IPO. I thought I was in a minority of one when I saw an equally skeptical The Wall Street Journal op-ed piece by Rich Karlgaard, Forbes publisher. (The Future Is More Than Facebook, May 17, 2012). Well, at least some seasoned observers are also not so enthused.

Facebook is the story

Facebook is “the” story. And this is all what the business media have been talking about. Saturation coverage on Bloomberg TV and CNBC. It is assumed that the IPO will be a smashing success, bringing the company to a market capitalization of over $ 100 billion. Mark Zuckerberg, Facebook founder and CEO will be worth $ 18 billion. This is truly astonishing for a company that does not make anything.

Well, not so, others would argue. “This is yet another American story of entrepreneurship appropriately rewarded”. Well, if money is the standard, that’s what it looks like. But I am still uneasy because Facebook is all about fluff. No doubt, given its exceptionally high number of users, Facebook is a great platform allowing people to socialize (I have an account). So, let’s stipulate that it is useful in creating valuable connections, and may be more. Still,  Facebook is not a “product”. It does not help the economy. It does not increase productivity. Sure, you may argue that precisely because it is a neutral platform it will allow people to use it creatively and do great things through it. Who knows, may be so.

We used to reward those who made things

And yet there is a difference between this and what we used to call successful enterprise. America used to celebrate innovation that brings real economic value. As Karlgaard pointed out in his WSJ piece, Bill Gates was another young entrepreneur who became fabulously rich at an extremely early age. But he created the first mass produced operating system for personal computers. And Microsoft products have been and still are key components of the incredible IT revolution that has revolutionized most economic sectors and introduced unthinkable efficiencies worldwide. Now, this is “value”.

More recently, the more eccentric yet incredibly creative Steve Jobs revolutionized the phone and tablet experience with products that blend in all sorts of magic features. Some fluff there too, but also real value. Apple “makes things”.

Facebook is a social media platform. I do not know; but I can hardly believe that a vehicle for chatting and exchanging pictures is the best of the American innovation genius and this is why it will be so handsomely rewarded by investors who really want to have a piece of it.

the ongoing energy revolution does not get the same coverage

I can think of other industries we should be focusing on. As we speak, in the US we have a major hydrocarbon revolution. (I have written a lot about it). “Hydraulic fracturing” allows the exploitation of natural gas and oil trapped in rock formations. Thanks to “fracking” North Dakota with an oil output above 500,000 a day is now the second oil producer in America. And abundant natural gas, (a lot of it in Pennsylvania, Ohio, West Virgina and New York), is already driving down the cost of electricity, with economic benefits for tens of millions of consumers and key industries that are large users of electricity (steel), not to mention others (petro-chemicals and plastics) that use natural gas as feedstock.

And finally inexpensive natural gas will soon be used as transportation fuel, allowing America to save billions on imported oil. Now, this is big stuff.  “Fracking” is a revolutionary technology that transformed the oil and gas industries. But, beyond the experts, few people know about any of this.  It does not get major media coverage. Sure there is plenty of money in energy and some companies and investors are getting rich. But the hype is not with the energy that literally powers the nation. It is with Facebook, as if creating platforms for social interaction is really America’s future. Quite frankly, I hope we have more to offer.

Vertical farming

And others are offering. But nobody pays much attention. Think about those who are experimenting with vertical urban farming, a truly revolutionary way to grow food right in the middle of the cities where people live. This way we will spare the environment, minimize (precious) water consumption, while cutting down all the cost related to food production, storage, transporation and distribution. Now, this is a big deal, potentially a revolution. Ad yet, hardly a mention in the media. At best it is treated as a curiosity promoted by some eccentric people.

Too much value for a platform

Look, I do not want to diminish the importance of any innovation that may indeed enhance the quality of our lives by improving social interactions.  Facebook has earned its rightful place in this sphere. Still, too much hype and too high a valuation for a company that does not make anything and does not have any content.

May 15, 2012

WASHINGTON – If you leave out Germany and the northern countries, Europe does not grow and belonging to the Eurozone right now does not help growth for those southern members (Greece, Italy, Spain and Portugal) that are doing so poorly. Being in the Euro they cannot devalue, while they are now committed to austerity policies that are strangling them, as they are unable to restart the growth engine. But what I find bizarre is that instead of rethinking their failed economic growth models, the leaders of the laggard states keep saying that “Europe” should lead in promoting pro-growth policies. This is amazing. Since when the fundamentals of domestic economic growth are delivered from abroad?

French digressions

A variation of this way of trying to change the subject is French president Hollande insistence that the stringent (Germany inspired) austerity diet included in the recently approved EU Fiscal Compact be diluted to allow for pro-growth spending measures, even though this would imply exceeding spending limits. Fine, let’s assume for a moment that the Germans say yes to this. And then what? The only pro-growth public policy the Europeans (and most other leaders for that matter) know is stimulus produced with (borrowed) government funds that supports more consumption. Yes, the magic formula is more of the same stuff that produced no real upgrade in productive capacity, while simply adding to the deficit and the debt. So, basically Hollande and the others want an authorization to circumvent the new rules without any real plan that would eventually generate genuine growth while re-balancing the books.

Real market reforms, anyone?

The only pro-growth public policies that may actually stimulate genuine new economic activities consist in lower corporate taxes, R&D tax credits, labor market liberalization, regulatory simplification, improvement in the delivery of basic public services. Indeed, it does not help “growth” if it takes 25 permits and two years to open up a store or to obtain any operating licence. Sure, the state could help by investing in critical infrastructure, such as transportation nodes. Yet even an inspired public investment program takes time.

But I do not see any of that happening. I do not see any aggressive plans to simplify national bureaucracies. I do not see anybody embracing labor markets liberalization. In fact people riot against them. Therefore, hobbled by all these constraints, it is no wonder that the Southern Europeans do not grow. In fact, they contract.

Professor Monti does not do miracle

Look at Italy. When it changed management at the end of last year it looked like a new awakening. Out went discredited Silvio Berlusconi. Unelected Professor Mario Monti, distinguished economist, took the helm with the help of a team of first class technocrats and the tacit support of the weakened political parties. This was a good development. And yet the crazy idea soon took roots  that a new unelected leader in Rome, with no popular mandate, would have the magic powers to transform Italy –all by himself. Well, he did not. Sure enough, he managed to force the Italians to swallow more austerity. He cut spending and greatly improved the fiscal picture. This much he did.

Italy is in a recession

And now? Well, after three consecutive negative quarters Italy is in a recession. And the fruits of the vaunted fiscal success have evaporated. Blame Greece if you want easy scape goats, but Italy’s 10 year bonds are almost back to 6%, (Spain does just a little worse), with a 4.4% spread against the German bonds. And, by the way, Moody’s just downgraded 26 Italian banks. Their response? Indignation and an official request that the EU from now should disregard these (offensive?) downgrades. Now, that would no doubt help.

No commitment to real reforms

In fairness to Monti, he did try to reform Italian labor laws, and a lot more. The problem is, as the unelected technocrat discovered, the Italians do not want real reforms. Sure they want growth. But they also want to keep every possible rent niche that may exist, while every profession and every labor union wants to keep its privileges and perks. In other words, overall the Italians are not committed to a radical plan that would make their economy and society really nimble and competitive. And without that, invoking Brussels delivered “growth” has the same policy impact of a rain dance.

For a long time the standard joke about Italy was that “The situation is dramatic…but not serious”. Sadly, this still applies. Mario Monti is a serious man; but most of his fellow Italians are not.

May 14, 2012

WASHINGTON – An item in the May 14 News Hour on PBS caught my attention, for two reasons. The first one was the issue itself: long term unemployment in America, something that is becoming a real tragedy, with millions of people out of a job for so long that it will become practically impossible for them to get back into the labor market. But the second reason is even more important. The issue was discussed by two scholars from opposite end of the political spectrum who worked together in order to propose a bipartisan policy solution to this awful economic and social problem.

How to prevent more unemployment

The two, Dean Baker, co-director of the liberal Center for Economic Research and Kevin Hassett, director of economic policy studies at the conservative American Enterprise Institute, agree on everything. So much so that they wrote an op-ed piece in The New York Times advocating ways to alleviate this problem of long term unemployment.

Co-operation, almost unheard of in Washington

These are not politicians. But Hassett works for the Romney campaign. In general two analysts from opposite camps would go on TV to disagree, often times rudely, on anything and everything. Policy experts are not politicians; but these days they usually function as surrogates for politicians. The fact that Baker and Hassett agree that long term unemployment is a real problem, without fighting over whose fault is it that we have so much of it, is a real mile stone in this ideologically poisoned Washington scene in which the two sides will not agree on anything at all, as a matter of principle.

Work-sharing, a pragmatic solution

It turns out that the two of them made a truly sensible suggestion, something that is already legally available in many states but apparently not used enough. Hassett developed the idea, on the basis of the German experience. The two of them worked on it together thereafter. It is called work-sharing. Instead of firing some workers in difficult times, a company should have the option of reducing the hours of all workers, so that its total labor costs will go down. The state will pick up the cost of paying the workers for some of the lost hours, about half of what is lost.

This is not painless, of course. There will be a salary reduction. But it will not be major, as the state will pay something. In the meantime, however, nobody gets fired, while the firm reduces its operating costs without losing valuable manpower that will be there when business picks up again.

This will not solve the problem of today’s long term unemployed. But it will prevent the swelling of their ranks. All in all, a classic win win situation. Sure enough, the workers still take a hit, but not a major one as the state pays for some of their lost hours, while the tax payers also take a hit because they end up subsidizing the scheme. But it is a small subsidy, and certainly preferable to having people out of job, may be for years.

When we leave the vitriol out, all is possible

What do you know, when we leave the vitriol out, sensible people come up with good ideas that can actually help solve a problem. I thank Hassett and Baker for being constructive pragmatists. I wish others would follow.

May 13, 2012

WASHINGTON – On balance The Economist editorials (they call them “Leaders”) are insightful, balanced and realistic. But when it comes to “Europe”, even though the writers mean well, there are a lot of unrealistic expectations regarding what the EU is capable of.  And I suspect that the foundation of these fantasies rests in the biggest fantasy of all: namely that there is such a thing as “Europe”.

The Union that isn’t

Sorry. There is no such thing, if by that we mean a cohesive union of like minded states. Europe is not and I doubt it will even be a federation. Sewitzerland is a successful, multi-lingual federation that has endured and will endure. Europe is not even close. Europe, with all its pretences of flags, same color for all passports, European Anthem and what not, is still a just a few notches above a Super Charged Chamber of Commerce. The European Union is no union at all. It is mostly a fairly loose arrangement among sovereign states.

And I do not sense any burning desire to move away from this arrangement towards a real federation. While it is easy to talk about all members being “Europeans”, there is no legitimate source of political legitimacy for Europe. True, key elements of national sovereignty have been surrendered to Brussels; still the bulk still rests with the states and their elected leaders.

An impossible to do list 

If we deny this, then we can indulge in fantasies, just like the The Economist does (Europe’s Achilles heel, May 12, 2012) when it writes this:

“The euro zone needs to do a lot of hard things. Our list would include at the very least: in the short term, slower fiscal adjusment, more investment, looser monetary policy to promote grwoth and a thicker financial firewall to protect the weaklings on the periphery from contagion (all of which the Germans dislike; in the medium term, structural reforms to Europe’s rigid markest and outsize welafare states (not popular in southern Europe), coupled with a plan to mutualise at least soem of the oustanding debt and to set up a Europe-wide bank-resolution mechanism (a tricky idea for everyone)”.

Well, undeniably all these are solid, good ideas. Except that there is not even a shred of evidence that it may be possible to get the unity of purpose and the lasting politicl agreement necessary to push them forward. Much easier things have not been done. The Economist knows full well that the Greek solvency crisis started at the then of 2009 and it is till not fixed. Puny Greece not fixed. And in fact it may never get fixed. And in large part the obstacles are political. deep down, the Northern Europeans have been and are reluctant to help their “Greek Brothers”, simply because the feeling of brotherhood is not that deep.

Good ideas whose time has not come

And this is why all the suggestions made by this Leader are just wishful thinking. This kind of wish list could be extended to other parts of the world by arguing is that North Korea would be better off without a dictatorship, that Saudi Arabia should become a democracy, with full equality for women, that African countries should get rid of corruption in order to grow much faster, that India should create more effective governance and that Americans should embrace healthy eating habits so that they could live longer. All excellent ideas. But ideas whose time has not come, yet.  

A truly federal Europe could handle crises much better

It is self-evident that a truly federal Europe with a strong cohesion, unity of purpose and strong leaders would be much more effective that this hodge podge of 27 states held together by just a little Brussels glue, dispensed by colorless Herman Van Rompuy. Of course it would be. But the will to achieve this vision of a European State is not there. And without this shared vision it is next to impossible to conceive, implement and support complex policies such as those outlined by The Economist.

Europe’s real ”Achiles heel” is that there is no Europe.

May 12, 2012

WASHINGTON - A Fox TV interview by John Stossel with Luis Fortuno, the Governor of Puerto Rico, made me curious to learn more. This boysh (just 51 years old, and looking more like 31) Republican has had the courage to meet head on the challenge of a gigantic state debt he inherited, bloated government pay roll and awfully inefficient services. As Deroy Murdock wrote in Human Events, (Puerto Rico’s Gov. Fortuno Show Washington the Way, November 18, 2011), after his 2009 inauguration, Fortuno did what the US Federal Government is politically incapable of even trying, when it comes to re-establishing some degree of fiscal sanity. (And it is not just Washington. We know what is going on in Europe. Everybody knows that super expensive and inefficient government is unsustainable and should be reformed. But resistance to change is extremely powerful. Civil servants want to keep their cushy jobs. And people in general prefer the status quo).

Cutting expenditures while improving regulations

And yet here,  from Puerto Rico,  this relatively poor US Territory that historically lagged behind the Continental US, we get a lesson in what is politically possible. Fortuno acted simultaneously on two equally treacherous fronts: cutting expenditures and public jobs; while creating at the same time a more business friendly climate by cutting taxes, while simplifying and streamlining permits and regulations.

Very unpopular at first

Kissing popularity good bye, Fortuno did what most elected leaders do not dare even think of doing. And it was really ugly. In fact, at the beginning, there was massive opposition. There were demonstrations and strikes. Fortuno was called a “fascist”. But he persevered and managed a major fiscal turnaround. Here are excerpts from Murdock’s interview with Fortuno. 

“When I came into office, we were facing…the worst budget deficit in America, proportionally. We were literally broke. We did not have enough money to meet our first payroll. We had to take out a loan to do that. 
 
Fortuño gave himself a 10 percent pay cut. He trimmed his agency heads salaries by 5 percent… He booted some 20,000 government workers, through attrition as well as layoffs, saving $935 million…Fortuño has shifted remaining government workers from old-fashioned, statist, defined-benefit pensions to modern, market-friendly, defined-contribution plans.
 
Ranked No. 51 in 2009, behind each of the United States, in terms of deficit-to-revenue, Puerto Rico now is 15th, with the $3.3 billion deficit Fortuño inherited (44 percent of revenues) now macheted to $610 million (7.1 percent)…Fortuño has sliced taxes. The corporate tax rate plunged last January 1 from 41 percent to 30, en route to 25 percent in 2014. He cut average individual tax rates by one quarter in 2011 and in half within six years.
 
You needed to obtain an average of 28 permits and endorsements to do anything, Fortuño says, regarding regulatory relief. You had to go to 20-plus different agencies to do that. Today, you go to one agency, and you get your permit there, or you can go to PR.gov, and get it online.
 
CVS, Nordstroms, Pet Smart, P.F. Changs, Saks Fifth Avenue, and Victoria’s Secret all are opening in Puerto Rico. They’re coming in…for the first time, ever, Fortuño says. Honeywell and Merck are expanding manufacturing facilities.”

Getting cheaper electricity

And there is more.  Fortuno is trying to switch power generation in Puerto Rico from oil to natural gas. Given the very low price of US natural gas and the high price of oil this makes a lot of sense. There is a huge constraint (coming from US federal law) to do this. Fortuno would need to get an exemption from the 1920 Jones Act mandating that all commerce between US ports has to sail on US ships. In the case of transporting Liquefied Natural Gas , (LNG), this is silly, as America has no fleet of LNG tankers.

A lesson on what is possible

That said, if a Governor of Puerto Rico, a perennial under performer, can manage to generate support if not enthusiasm behind truly drastic yet visionary reforms aimed at making for the first time the island fiscally sound and more competitive, it means that eventually people do get it.

Slimmer, efficient, business friendly government is a good thing. Attracting new investors is a good thing. Private sector jobs are better than government jobs. Think of that.

May 11, 2012

WASHINGTON – American enthusiasm for renewable energy, not too deep to begin with, has gone away. In part this has to do with loss of interest in “climate change” and its dire consequences. Unfortunately, climate change has been and is mostly an issue of political belief, rather than upholding science. And as the intensity of the political fervor somehow waned, in large part replaced by more immediate economic fears, so did political support for all the renewable energy technologies that were supposed to create, relatively quickly it was thought, workable alternatives to carbon based energy.

Unpopular subsidies

An additional reason for waning support is that keeping renewable energy alive means also subsidizing it for a few more years. And this is less and less politically palatable at a time of budgetary constraints at every level. Paying more for electricity simply because this kind is clean looks like an unaffordable luxury, whatever the consequences of burning more (cheaper) fossil fuels may be.

Cheap shale gas

And if  there was reluctance about paying more for clean energy, the rather sudden and unexpected shale gas revolution provided the knock out punch against renewables. In just a few years, and thanks to shale gas, America (with dwindling  conventional gas reserves in 2008) has turned into the biggest world producer of natural gas, with ridiculously low prices, now back to their 2001 levels. And now low natural gas prices have become the most potent argument against subsidized wind or solar. Very hard to make a case in favor of more subsidized wind farms with gas so cheap. And we know that the natural gas glut will last for decades; therefore prices most likely will stay low for much longer.

Spend money to adapt to climate change

Of course, if one could make a truly compelling case about man made climate change theories, than it would not matter how cheap natural gas and/or coal are. If indeed their use will inevitably lead to planetary destruction, then it would be criminal to continue using them, even if they were totally free. But, as strong as the case against fossil fuels may be, it is not strong enough.

Besides, whatever the state of climate change science, the  prevailing policy orientation to rising temperatures is that its is much more cost effective to spend money to adapt to the impact of climate change than on measures aimed at reversing it. Indeed, many have noted that even massive investments in super efficient renewables would not do the trick fast enough. It would still take trillions of dollars invested over decades to see even a modest temperature decline. Nobody has this kind of money and this level of commitment.

Regarding renewables, spend on R&D

So, what should be done about renewables? Some argue, and I agree, that the public policy error has been in forcing the adoption of still non cost effective technologies, hoping that a larger demand would help create economies of scale that would drive down cost. But, while costs are down, they are still too high compared to fossil fuels. Add to this the unexpected head wind represented by super cheap natural gas made possible by the shale revolution and you have a public policy fiasco.

That said, what should be the way forward for renewable energy in America? The way forward should be in subsidizing basic research and not in imposing the early adoption of still non competitive systems. Right now renewable energy survives because of mandates that force utilities to produce a percentage of their electricity from renewable sources and because of subsidies that allow renewable technology producers to survive. This is not a good way to build a new industrial sector.

There is no doubt that over time better technologies will be devised that will drive costs down. Therefore it is appropriate for the Government to spend money on research. But Government funds should be devoted to non commercially driven new research that the private sector would not undertake. The moment of renewable energy will come.  But it has not not arrived yet.

Natural gas is the cleanest fossil fuel

In the meantime, (while trying to be smart about efficiency and conservation measures that will reduce energy consumption wherever possible), we should consider the significant economic benefits brought about to the US economy by cheap natural gas.  And all those who fear man made climate change should appreciate that natural gas is not just cheaper than renewables. It is also cheaper than dirty, high emission coal, and so it will displace it. Gas is still a fossil fuel, but it is the cleanest around.

May 10, 2012

WASHINGTON – Dream for a moment. Imagine a world in which any student can have access via the internet to the best teachers, providing the best instruction on any given subject. And the instruction is delivered in many different formats, allowing for the different starting skills of the students and  individual pace of learning. Imagine that all this is available and provided for free or for nominal charges by dedicated NGOs that want to make education a public good accessible to all who wish to have it. Imagine the tremendous leap forward for many societies that would greatly benefit from having additional millions of educated people. More creativity, more innovation. A better world no doubt.

High quality on line education already available

Guess what: this is no longer just an aspiration. Pioneering innovators like Salman Khan, founder of Khan Academy and Sebastian Thrun, a Stanford University Professor who founded Udacity, are clear examples of what can be done and in fact is being done today. Salman Khan started almost by accident, by producing short on line tutorials to teach younger relatives.

Professor Thrun decided to experiment by making his Stanford University lectures available on line. He was a popular professor. He had 200 student attending his class. Much to his surprise, just days after placing his material on line he had an audience of 5,000 that turned to 10,000 and then 14,000. After many other changes and different iterations, now through Udacity, of which he is a co-founder, he recahes 160,000 students around the world. And this is about complicated computer science stuff.  Khan Academy, whose material is aimed at younger students with tutorials in many more subjects, has more than 140 million views and 320,000 subscribers. These are staggering numbers.

Just the beginning

And these brilliant pioneers are just the the vanguard of an education revolution just beginning to unfold. No doubt there will be more ways to deliver content, more ways to customize it. Given these already astonishing results, I think that in just a few years we shall see a true revolution. And this will be the democratization of  high quality education, education being the most valuable capital one can acquire, as it is the precondition for almost anything else in the modern world.

Accessible to all

Think for a moment of the implications of this change. Until now high quality education was considered a privilege for the super smart and the super rich. So, given what we are used to, it is hard to imagine a future world in which one’s principal source of intellectual growth is  delivered free of charge or almost free of charge through a computer by some of the best instructors available. Impossible to assess all the implications and the incredibly disruptive impact that this will have on highly structured and mostly mediocre education institutions that deliver average instruction for a very high price.

Education is the most valuable asset

Indeed, we know how valuable a good education is in today’s world and how difficult it is to get it. We know that in today’s highly competitive knowledge economy how well one can master any given subject is the passport to good jobs, great careers, upward mobility and financial success. Within the current system, most highly competent individuals are the products of the best schools and the best universities. Therefore getting on the right track to a great private school and then using that as a spring board to a super university is considered an essential  precondition to making it later on in life.

The problem is that this system providing excellent education is open only to a small minority of the student population: the really talented who get scholarships and the very rich who can afford its extremely high cost. The rest can aspire only to passable, mediocre or bad public education. After that, the truly motivated will go to a decent or so-so college where they will get a so-so higher education.

Only few get the best

Therefore, only a tiny sliver of the student population will get a superior education. Many more will get a mediocre education; while the majority of the population is lucky to get a high school diploma. And the cost of all this inefficient apparatus that breeds inequality keeps growing, up a point in which it will become unaffordable for most middle class students.

And bear in mind that here we are talking about the happy few. If you put together all the students who get any type of education, superior and average, these are privileged young people living in developed countries who have schools and universities they can attend. The rest of the world gets little or nothing at all. Even basic literacy is an elusive goal for hundreds of millions.

Democratizing education

But here come the likes of Salman Khan and Sebastian Thrun. These brave visionaries lead the way to a new world in which almost anybody can get a real education, not just a smattering of something delivered by mediocre instructors. Everyody can have access to the smartest, most brilliant teachers who can open up entire universes of new knowledge to any student with a computer and a decent internet connection.

This is a revolution

I am sure that many more will follow this new trend and deliver new education material on line through other innovative modalities. Therefore it is impossible to predict how education will look like 10 or 20 years from now. But one thing is clear. The ability to deliver high quality at a low price to millions is a revolution and its impact will be revolutionary. The ability to democratize learning so that it is truly accessible to all those who crave it may be one of the most dramatic and farther reaching transformations brought about by the internet era, with consequences for society, the economy, and governance that it is hard to even fathom. Our thanks should go to those who are leading the way.