February 22, 2012

WASHINGTON – Whatever happens with the Republican nomination process, the winner is unlikely to truly inspire America. For different reasons, Mitt Romney, Newt Gingrich and Rick Santorum are all very weak candidates. (I shall not even try to assess Ron Paul, who lives all by himself in a world of his own in which America renounces war, while it abolishes the Federal Reserve. For sure his libertarian principles have some appeal, but it is and will be a very narrow appeal). 

Weak Republican candidates

Romney wants to run for CEO of America Inc. Look, to bring to the table proven business and managerial skills is an asset. But being president is a different matter. A president has to be able not only to identity the right priorities but then he must inspire and unite a variety of disparate constituencies, so that real momentum can be built behind those priorities. Romney seem to lack the ability to inspire and convince others that he is steadfast and sincere. And if he cannot convince his party that he should be the nominee after four years of campaigning, and lavish spending on TV commercials, hard to believe that he would be able to get much more support among the millions of independents whose votes he will need in a general election.

Gingrich is an ebullient idea man, but constantly running here and there. He is disorganized and in the end a far less impressive intellect than he would like the rest us to believe. He is arrogant and petulant and his recent past as lobbyist contradicts his efforts to present himself as an immaculate conservative fighter. Should he get the nomination, he would become an easy target for the Obama campaign. I cannot see him getting elected under any scenario.

And then we have Rick Santorum, the sanctimonious Pennsylvania preacher. Unlike overly cautious Romney and mercurial Gingrich, Santorum exudes deep an sincere belief in what he says. And if this is charm it is also his biggest problem. Santorum appeals only to a segment, albeit significant, (30 to 40% in recent polls), of a minority party (the GOP) destined to remain so, if  it does not dramatically broaden its reach beyond middle aged, middle class, white people.

I have no doubt that Santorum is sincere when he talks about restoring his favorite moral values. I am sure that he would really like to see a more Christian (in his own understanding) and more devout America. But his ardent beliefs, be they about abortion, gay marriage, and now birth control are hopelessly out of sync with the vast majority of Americans. Whatever he says about the economy or national security, Santorum has made his moral and social values crusade his trade mark issue. And it is really hard to believe how these divisive moral values  issues, embraced only by a minority (however vocal) within the Republican Party will ever get enough traction nationally to get Santorum elected president. 

Obama will be re-elected

And so, by default, if nothing else, we are back to president Barack Obama. Obama will be re-elected. Besides, aside from the solid advantage of an incumbent running against a weak opponent, the general context is improving somewhat and so Obama’s stock is rising. And the media undoubtedly help him. Since nowadays a bad economy that Obama failed to turn around is accepted by most media as the ”new normal”, even a little bit of good news is presented by analysts as a triumph and thus a credit for this enlightened White House. Indeed, these days the American media are cheering 8.3% unemployment as great news. 8.3% unemployment, three years into a pitiful recovery, is –and should be described as– terrible news. But now we are in different times. The media say that the economy is “improving” (sure enough 8.3% is better than 9% unemployment) and the president’s ratings are up.

Scenario number one: bold leadership

So, the Republicans are very unappealing, the economy is doing a bit better, and Obama gets re-elected. Here are two possible scenarios. In the first one, that I would call good but fanciful, Obama, now free of any election worry, decides to be a statesman. And so he will assemble the best talent, on a truly bipartisan fashion, with the goal of putting together coalitions that will do at least four things: 1) a package of pro-growth economic policies, 2) a credible public spending reform plan, 3) a comprehensive tax reform package, and 4) a solid energy strategy. A fifth issue that would require strong buy-in at the state and local level is truly aggressive public eduction reform, something that would however imply a serious confrontation with the teachers unions.

Difficult but possible

These are admittedly huge issues. However, they are complicated not because they are unknown but only because of deep political divisions. Time and again in the last couple of years we have seen that the intelligent moderates in both parties agree on most of what should be done. We have seen this in the excellent work done by the “Debt Commission” co-chaired by Erskine Bowles (Democrat) and Alan Simpson (Republican) in 2010. We have seen a parallel effort on budgetary reform conducted by Alice Rivlin (Democrat) and Pete Domenici (Republican) around the same time. We have seen a variety of intelligent pro-growth policies put together at the state level by Democrats in Colorado and by Republicans in Indiana, among others. Arne Duncan, president Obama’s Secretary of Education has done much more than most of his predecessors in trying to turn around public education. He is a Democrat respected by Republicans.  Could he god after the teachers’ union in an Obama second term? Of course he could. But he would need political cover.

Which is to say that bipartisan agreement is possible. But it is true that divisions now are very deep and entrenched. For this very reason, it would take a president willing to risk everything to go beyond party lines and unite warring factions behind sensible policies. But this would have to be a new Barack Obama.

Scenario number two: more of the same

In his first four years Obama did not do any of this. His signature issue, health care reform, was passed in the most arrogantly partisan fashion, with only a couple of votes to spare in the House. This is certainly not the way to pass historic legislation with such broad reach. And most recently the president decided to opt for a populist “tax the rich” approach that resonates well with the base but is mostly about politics and little about policy. 

Likewise, his belated (February 22) proposal to reform corporate taxation is deeply suspect.  Tax reform is complicated issue any day of the week. For this president to put it forward at the end of February, with a national election in November, while the parties are deeply divided on almost everything, and while the Republican candidates have nothing nice to say about him indicates that this is not a serious proposal. Obama knows that this corporate tax plan will go nowhere. But, just like his jobs program, this becomes campaign material. He can say that he tried his best; but the mean spirited Republicans (as usual) rejected his constructive ideas.  If this approach continues in an Obama second term, expect nothing good.

Of course it is possible for the Democrats to win everything: White House, House and Senate. But in that case the desire to engage in serious reforms may become even less urgent, with consequent damage for the country. 

To lead or not to lead?

So, here is the deal. If Obama wants to be a great president, then he should forget about the narrower interests of the constituencies he has cultivated and that will no doubt re-elect him in November. He would work instead on long term policy solutions aimed at restoring fiscal soundness and US economic competitiveness. If Obama wants to be a just good Democrat in good standing with minorities, single mothers, unionised workers, public sector employees, teachers and students with student loans, then he will do more of the same.

And so, lacking a new pro-growth impetus, a weakened America will continue to do so-so, or poorly, while entitlements will not be reformed and the national debt will continue to grow, with clear implications for America’s ability to maintain a credible military and lead.  Not a great future for a country that used to be the ”Land of Opportunity” and the world’s economic engine.

Related story:

http://schirachreport.com/index.php/2012/02/19/america-hit-by-2009-recession-as-wages-were-stagnant-due-to-global-competition-citigroup-peter-orszag-argues-that-us-should-invest-smartly-in-education-as-a-way-to-regain-strength/

February 21, 2012

WASHINGTON – Just a few days I reported (see link above) that Peter Orszag, formerly Obama’s Budget Director and now with Citigroup in a recent Chicago speech strongly advocated more organic links between corporations, especially manufacturers, and Community Colleges, so that these vital education institutions will be able to give their students exactly the kind of skills that potential employers do need. This would be a good way to give people jobs, while helping corporations feel positions that will help their economic expansion.

Colleges and companies establish close cooperation

This need for “customization”, for creating a good fit between instruction received and the actual jobs that are out there may seem self-evident, but apparently it is not yet the case, at least not nationwide. And this is why this trend should be encouraged. In his speech, Orszag applauded an initiative under way in the greater Chicago region whereby companies are  structuring a dialogue and closer relationships with area Community Colleges.

The formula works

And just today a very detailed Associated Press story (Speed puts community colleges front and center) illustrates concrete examples of very successful company-college partnerships, including the close cooperation linking Fitzpatrick Manufacturing Co. in Sterling Heights, Michigan and Macomb Community College just a few miles away.

These successful partnerships are possible, the AP reports, because Community Colleges are relatively small and have greater flexibility in adjusting instruction according to employers needs and –most importantly– they can do this adjusting very fast. The downside of custom tailored courses is that they are generally outside the established curriculum, and so they do not count towards a degree. And this may be handicap for the student down the line.

But, all in all, the evidence so far suggest that these close ties between Community Colleges and companies are mutually advantageous. The students get the instruction they need to land a job and the companies get the skilled people they want. 

This approach should become standard

If this approach became dominant, then America could more easily cut down unemployment. In fact the sad irony is that, even in this pretty bad jobs market with unemployment at 8.3%, there are tens of thousands of positions unfilled in America because companies cannot get the people with the specialized skills they need. Customized Community College curricula do help fill this large gap. Time to go national on what seems to be a very successful formula.

February 20, 2012

WASHINGTON – According to a piece in Caixin, a Chinese publication, by Mark Clifford, Executive Director of the Hong Kong-based Asia Business Council, Shi Zhengrong, CEO of China’s Suntech Power and the world largest producer of solar panels stated during the latest Davos gathering that soon enough (by 2015) solar power will be able to compete without subsidies in half the world against conventional fossil fuels. According to Shi, the magic threshold has already been reached in India, Hawaii, Italy and Spain. Other regions will follow.

Cost effective renewable energy?

So, it looks as if we are indeed at a “tipping point” notes Clifford. ”No longer are renewable power sources like solar and wind a luxury of the rich –Clifford writes– They are now starting to compete in the real world without subsidies. Fossil fuels are not going away. But we can at least look forward to a world where our dependence on fossil fuels will decline”.

US has cheap natural gas

Yes, except that here in the United States, while the US government lost money backing unsuccessful solar panel manufacturers like Solyndra, the natural gas revolution has changed energy economics, at least in power generation, beyond recognition. What Mr. Shi stated regarding the ability of solar energy to be price competitive with fossil fuels may be true in most countries. But it is interesting to note that he did not include the US, (except for Hawaii that needs to import all its fuels), in his list of alreday competitive markets.

And there is a reason for that. America has enormous amounts of cheap coal and now it has vast reserves of ultra cheap natural gas that will last more than a century, according to recent projections. (And it should be added that gas, the cleanest of all fossil fuels, carries a much lower environmental cost). In fact, now US gas is so cheap that some major producers like Chesapeake Energy have halted extraction in the hope of seeing prices go up a little bit.

Hard to make a case for renewables in the US

Given US rock bottom natural gas prices that are now less than half what they were in 2007, it is hard to make a broad economic case in America for solar energy or any other renewable energy source. Sure enough, as Secretary of Energy Chu and others have argued, at some point it will make sense to be heavily involved in solar energy. And it would be problematic at point to start from zero and compete with the likes of China that may have already taken over all the major markets.

How do we stay in this industry? 

Clearly, beyond the US market, there is an entire world market out there that will benefit from renewable energy solutions. The fact that these technologies  are not quite competitive at this time in the US market does not disqualify them for ever, as a matter of course.

So, while America’s immediate and even long term energy needs can be fulfilled by cheap traditional fossil fuels, it is obvious that America cannot stand by as the world develops new generations of potentially disruptive renewable energy technologies.

…Without a viable domestic market?

And, so, what do we do? Do we do nothing? Or do we claim a seat at the table by subsidizing industries  that cannot compete without subsidies in the US, but may provide a foothold in world markets, even at the risk of getting more Solyndra-like lemons? Do we aggressively push R& D in renewable energy but hold on deployments? Do we go for something other than solar? Who knows really.

American ingenuity and inclination to innovate is normally field tested in the enormous US domestic market, always eager to experiment with and adopt new technologies. But here we have a situation in which the market for renewables is no longer ideal in America.  Sure enough, if there are technological breakthroughs and solar becomes ultra cheap, that is cheaper or as cheap as natural gas, then let the different sectors compete. But this may be a while. In the meantime,  chances are that China will have managed to corner the entire world market.

February 19, 2012

WASHINGTON – America is short of breath because we have to deal with the impact of two major issues. The first one is stagnant or declining wages, a global “tectonic shift“ affecting most developed economies that started several years ago. The second one is the gigantic financial crisis that we are very slowly trying to emerge from. This is the analysis provided in a February 15 Chicago speech by Peter Orszag,  Vice President of Global Banking at Citigroup and until July 2010 Director of Management and Budget in the Obama administration. 

Crisis in the middle of a negative trend

If we accept this perspective of a crisis occurring in the middle of a long term negative economic trend, it becomes easier to understand why it is so difficult to get out of this slump. The 2008-2009 financial crisis hit a comparatively less vibrant America made relatively poorer by declining wages, a country in which  family incomes can grow a bit only if both spouses are working.  And this wage stagnation has been brought about by the massive addition to the global labor pool of hundreds of millions of mostly Asian workers, without any commensurate increase of invested capital.

To put it simple terms, in the context of a globalized world economy, we have many more workers competing for employment in economic sectors that have not grown in size at the same speed. And so American wages do not grow because US firms have to compete with mostly Asian counterparts employing very inexpensive workers. To stay competitive, American workers cannot demand higher wages.   

Nobody understood how deep the recession would be

As America was still adjusting to this “tectonic shift” that caused stagnant wages and living standards, we had the 2008-2009 financial disaster. And financial crises, Orszag noted, are much tougher than recessions caused by the business cycle. The Typical “V” shaped curve of rapid decline followed by an equally rapid come back did not happen this time. If it is any consolation, as Orszag observed, nobody got the nature and magnitude of this recession right. And so there was a fundamental mismatch between the problem and the policies offered to fix it. The famous “Stimulus Package” passed at the very beginning of Obama’s term did not work as intended because it could not work. It was designed to fix a temporary crisis, not a long drawn slump.

Unfortunately, it is going to take much longer to emerge from this crisis  because millions of people have to climb up from very high levels of  personal debt. All this debt prevents average Americans to consume, and without the pull of consumption there is not much demand and therefore not much additional employment. 

Smart investments in education can provide a way out

So, what do we do about all this? We should increase America’s skills level, argues Orszag. Indeed, along with the long term trend of wage stagnation, we have to consider that in recent decades there has been no growth in the number of Americans getting a college education.

So, one way out of this stagnation predicament is to get a better educated labor force, this way upgrading America’s human capital pool. Of course, it would take years before we could see any tangible benefits from an increased number of skilled people. But one way to get faster results, says Orszag, is to establish direct and organic links between employers in a particular region and the Community Colleges that provide valuable education services to the local population.

If employers could supply reasonably accurate estimates of the types of skills they will need, then Community Colleges could steer an appropriate number of students towards those subjects, giving them a fairly good chance of getting a job upon completion of their studies. Orszag indicated that employers in the Chicago area have launched exactly this kind of structured dialogue with Community Colleges.

This could make a difference

This approach aimed at optimizing the value and cost effectiveness of investment in education may not be a panacea. But if it were adopted nation wide it would help lower unemployment levels, while giving US corporations the skills levels they need in order to improve their competitiveness. Compared with populist nonsense about fixing unemployment by taxing the rich, something that would do nothing to create jobs, this would be a very good start.

February 18, 2012

WASHINGTON – A recent WSJ op-ed piece, Europe’s Supply-Side Revolution, by Donald L. Luskin and Lorcan Roche Kelly of Trend Macrolytics, (February 17, 2012), makes predictions about the future of Europe so bright and so positive that they frankly border on absurdity. As the writers put it, following Germany’s example, Europe is bravely starting its own supply side revolution. Italy and Spain will turn into business friendly, market oriented countries. The discipline of debt is driving Europe to closer political integration. If Europe’s countries could erase their political boundaries, their debt problems would vanish. And so on.

Europe is stuck because there is no political will to reform

I must be looking at a different Europe. A Europe that is not necessarily doomed; but a Continent that is stuck, precisely because there is no political will to do most of the things that the authors consider either a done deal or so necessary that they become inevitable. The implicit assumption in this article is that Europe has had its moment of reckoning. Now it is “do or die”. And Europe  chose to live –and live bravely, at that.

No “moment of truth” in Europe, just muddling through

But this is a major fallacy. This notion that Europe had only two choices: disaster and doom or vigorous renaissance and that it chose renaissance is just wrong. The idea that at this juncture all the Europeans, having just stared into the abyss of the debt crisis, have irrevocably decided to finally do the right thing, is just fanciful. By the way, I really wish that it were so. But there is zero evidence to justify this optimism. My sense is instead that many European countries, and this would include all of Southern Europe, will just muddle through, with enough wisdom to avoid disaster but insufficient political courage to really start the serious reforms the authors assume to be just behind the corner. 

Political union a distant dream

As for this irresistible drive towards political unification starting with fiscal union, again, I must be looking at a different Continent. Political union is nobly advocated as a goal by many well meaning Europeans. But it is a distant goal without any agreed upon road map and clear set of mile stones. Sure enough, the Europeans recently agreed in principle to harmonize their fiscal policies in order to avoid a repeat of the debt crisis. But this is no done deal. And nobody has the foggiest idea as to how this generic agreement will become binding and, after that, how it will be implemented and monitored.

Germany succeeded, others will follow?

The op-ed authors premise is that since Germany could see the light at the turn of the millennium and embarked in serious labor market reform through which it regained economic vibrancy, it follows that the rest of Europe will see the value of such a historic change and follow suit. Well, that would be wonderful. But it would entail a dramatic change of politics, psychology, ethics and business practices that, while possible in principle, cannot be taken for granted only on the basis that it would be the smart thing to do.

In Italy Monti wants reforms, but the country will not follow

Getting into specifics, to say that Italy’s Mario Monti would like to liberalize and open the professions, introducing needed competition and that his heart is in the right place is not the same as saying that Italy is with him and that he will succeed. And, by the way, Monti’s government plans to reform the “Workers Statute” caused the ire of the unions who are absolutely not on board on the issue of flexible contracts and more labor mobility –one of the key preconditions to attract investments and new enterprise. 

Technocrat with no political base

And the authors should also know that Monti is an economics professor and not a politician with organized following. He did not win any elections. He has no popular mandate. Late last year he was appointed as chief rescuer, as a technocratic Prime Minister with the limited job of extricating Italy from the pain of the debt crisis. Monti came in as the trusted fire man with no political agenda of his own. He has done a good job regarding the stabilization of Italian debt. But, so far, he has done nothing to bring the national debt (now at 120% of GDP) down to the agreed Maastricht levels of 60% of GDP .

Besides, he  he has a limited mandate. Any serious reform aimed at making Italy a lot more like Germany would require broad and durable political agreement binding the left, the right and the powerful trade union. Nothing like this ever happened in Italy. That does not make it impossible; but it makes it unlikely.

Corruption

And let me add that other factors do not inspire confidence. Italy has third world level scores regarding corruption, (according to Transparency International) and “easiness of doing business”, (according to the World Bank). Just days ago, Italy’s ”Corte dei Conti’, something like a General Accountability Office, issued a scathing report regarding corruption and lack of ethics throughout Italys’s public administration. This creates an environment that discourages investments, enterprise and therefore new growth. (Italy is now in a recession).

Demographic crisis

Add to all this a serious, systemic demographic crisis, with one of the lowest fertility levels among developed countries, (1.38 children per woman), coupled with the steady influx of difficult to assimilate, poor and mostly illiterate, immigrants from Africa.

Sure enough, all this can and, in fact should, change. But let’s not mix wishful thinking and reality. Monti may like to modernize Italy; but I am not sure that the country’s mood and long term systemic trends support optimism about success. 

If Southern Europe changed its values…

If the Southern Europeans really changed their values, their ethics and their business sense, this revolution envisaged by the op-ed piece authors would take place. But this is the same as saying that if the Indians were more organized and less corrupt, and if they put together a credible national infrastructure master plan, all kinds of good things would happen to India. By the same token, if Angola’s leaders were not corrupt, the vast oil and mineral riches of the country could do wonders to finance sustainable development, lifting millions out of poverty. And we could add that, if the Arab countries would finally understand that they should adopt modern, pro-growth economic policies, this would unleash new economic growth. And so on.

Good outlook for Northern Europe

Yes, Germany reformed labor markets years ago and we can safely assume that the countries of Northern Europe that have more cultural affinity with Germany have already been positively influenced by this pro-business climate. So we can expect Germany, The Netherlands, Austria, Sweden, Denmark and Finland and may be a few others to do well. (I am not so sure about France, flirting with the idea of electing a Socialist President).

Southern Europe a different story

But I would not bet on these wise choices to be embraced by the rest of the EU members, whatever Britain may or may not do as the perennial dissenter among the 27 EU members. Do not count on Southern Europe getting the medicine. And do not tell me that this going go down well in far less developed Romania, Bulgaria or Hungary.    

Political union a distant dream 

As for Europe finally becoming a federation, with one government, one army, and one foreign policy, this is not impossible;  but it is so unlikely that it is indeed peculiar to read in this article that it is sort of a done deal, with only a few details to be ironed out.

February 17, 2012

WASHINGTON – China’s economy powers on. But the country is running out of water. This is not just an inconvenience. Unless the Chinese can find a powerful remedy, this is potentially a catastrophe. No water, or insufficient clean water supply, means much less economic growth, if any. Agriculture cannot survive without water, people in cities cannot survive and many industries will be in trouble, as they consume water and are also responsible for polluting the rest with their waste.

Authorities openly describe the problem

Interestingly enough there is no attempt to hide the problem. The authorities are now publicly recognizing the seriousness of the water crisis. Hu Siyi, vice minister of water resources, upon releasing a study that illustrates how bad China’s water outlook really is, stated that:

“The situation is extremely serious in many areas…If we do not take strong and firm measures, it will be hard to reverse the severe shortages and daily exacerbation of the water situation…If our original weak water resource management policies and methods are continued, the pressing demands for water that is needed to improve people’s livelihoods and economic development will be difficult to meet”. 

In a country in which public officials normally do not dwell on problems, this is a pretty blunt description of a water crisis that has reached dramatic proportions.

How bad is it?

But so, how bad is it? Well, according to official data, 2/3 of Chinese cities have insufficient water supplies. And do consider that since no about 50% of the total population is urban, this means that about 400 million people, more than  the entire US population, are affected. The Chinese people on average have only 28% of the water available to people in other countries. And then there are severe shortages. At least 300 million Chinese lack access to sufficient clean water.

Pollution and accidents

Besides, due to human and industrial waste regularly dumped in waterways, the existing water supply is highly polluted. According to the government, one fifth of all Chinese rivers are considered category 5 which means too toxic for any possible use.

And then there are also major accidents. A cadmium spill in the Longjiang river contaminated more than 200 miles, creating a panic. Add to all that severe drought that has occurred regularly in Southwest China for years. Insufficient rain fall has devastated agricultural production and consequently the livelihoods of millions.  More recently, it has been reported that in the Sichuan city of Zigong, over 700,000 residents lack reliable access to water.

Lack of water is an impediment to growth

Even assuming success, trying to fix this water crisis will take time and it will have a negative impact on economic development. Clearly chronic water shortages do not go well with the runaway construction boom that has been one of the main drivers of China’s impressive growth. Better water management and conservation measures will force the scaling back of large construction   projects.

In the end, it remains to be seen if more effective public policy can actually be crafted and enforced. Managing dwindling water supplies for a country of 1.3 billion people in no easy task. For China, lack of water, can become an objective “limit to growth”.

Below, a Xinhua story on this water crisis. Important to note it because it is an official statement that describes in some detail the severity of the situation. 

_________________

“Water shortage, pollution threaten China’s growth”

Xinhua, February 16, 2012

“China faces a tougher situation in water resources in the future as demand increases amid the country’s rapid industrialization and urbanization, an official said Thursday at a press conference.

Hu Siyi, vice minister of water resources, said water shortages, serious river pollution and the deteriorating aquatic ecology are “quite outstanding” and may threaten the country’s sustainable growth.

With a population of 1.3 billion people, China now consumes more than 600 billion cubic meters of water a year, or about three-quarters of its exploitable water resources, Hu said.

“Because of the grave situation, we must put in place the strictest water resources management system,” he said.

According to the Ministry of Water Resources, the average per capita of water resources is only 2,100 cubic meters annually, or about 28 percent of the world’s average level.

About two-thirds of Chinese cities are water-needy, while nearly 300 million rural residents lack access to safe drinking water, leading to a national water shortage of over 50 billion cubic meters on average every year, Hu noted.

The ministry’s data showed that 40 percent of Chinese rivers were seriously polluted and unfit for drinking after 75 billion tonnes of sewage and waste water were discharged in 2010.

Moreover, about one-fifth of the rivers are so polluted that their water quality is rated Category V. China rates its water quality from Category I to Category V, with Category V being too toxic even to touch.

Adding to the country’s water safety pressure are ambitious development plans announced by local governments this year, which experts say will inevitably greatly increase water demand for industrial and residential use.

“Unless we take decisive and compulsory measures to stop the over-exploitation activities, the water shortage will get worse in the future,” Hu said.

To address the problem, the State Council, or China’s cabinet, unveiled a guideline on Thursday to regulate the use of water under “the strictest criteria,” capping the maximum volume of water use at 700 billion cubic meters by the end of 2030.

According to the guideline, China will work to keep its total volume of water use below 670 billion cubic meters in 2020.

Also, the government will tighten its supervision over exploitation of underground water, further protect sources of drinking water, and restore the aquatic ecological system by introducing water-use licenses and other measures.

The central government has planned 4 trillion yuan (634.9 billion U.S. dollars) of investment in water resources conservation projects over the next 10 years, of which 1.8 trillion yuan will be invested during the 2011-2015 period.

Zhou Xuewen, chief planner with the Ministry of Water Resources, said he expects investment in water conservation projects in 2012 to exceed last year’s 345.2 billion yuan, of which more than 140 billion yuan will be funded by the central government.

“It will be our top priority to ensure safe and adequate water supply for residential use,” Zhou added.”

February 16, 2012

WASHINGTON – The United Nations General Assembly voted overwhelmingly on February 16 in favor of a resolution that condemns Syria’s government violent repression of the ongoing uprising. The vote was 137 to 12, with 17 abstentions. So, the  message is clear. The world condemns Syria.

US joins in condemnation

Susan Rice, US Ambassador to the UN issued this statement after the vote:

“Today, the UN General Assembly sent a clear message to the people of Syria: the world is with you. An overwhelming majority of UN member states have backed the plan put forward by the Arab League to end the suffering of Syrians. Bashar al-Assad has never been more isolated. A rapid transition to democracy in Syria has garnered the resounding support of the international community. Change must now come.

This resolution strongly condemns Assad’s 11-month campaign of murder and torture. It demands an end to the killing machine. It demands that the Syrian government release all political prisoners; assure the freedom of peaceful demonstrations; and guarantee full and safe access to Arab League representatives and international media, and to humanitarian aid workers, who seek only to protect a people who have endured unimaginable violence.

The international community has just given its firm support to the Arab League’s plan to facilitate a Syrian-led political transition to a democratic, plural political system, “in which citizens are equal regardless of their affiliations or ethnicities or beliefs.” The only question is how many more women, men and children—from demonstrators on Syria’s streets to those taking shelter in homes and hospitals—will suffer or be killed by Assad before that transition begins.

The people of Syria, from Homs and Damascus to Hama and Idlib, from Aleppo to Daraa, should now know that the nations of the world stand with you and support you as you pursue a future of freedom and safety”.

General Assembly vote means little

So, there you have it. The UN condemns. The United States, the world most important power, fully endorses. “Change must now come”. The US Permanent Representative tells the Syrian people “thew world is with you”. Assad has to go, and so on. All very noble and lofty. But what does it mean, in practice? Well, not much.

Talk is cheap

And, quite frankly talk is cheap, including US Government talk, if there is no will to follow up. Which is to say that the strong words used by Ambassador Rice are essentially empty words. We all know this. As symbolically significant as it may be, a General Assembly vote has no teeth. The vote is non binding. There is no enforcement mechanism attached. It may change the atmosphere somewhat. It may send a message to the people in Syria that they are not totally isolated. But that’ s about it. This action has no consequences.

Ambassador Rice, who had previously expressed “disgust” (on behalf of the US Government) when Russia and China vetoed a UN Security Council Resolution that would have provided for Assad to step down in Syria, now proclaims that the world is united against the nefarious regime, etc. But she knows that no UN action will follow.

Real issue: will US take action outside of UN system?

And here is the real issue. If the US Government feels that this is all it can do: push for action at the UN, with full knowledge that Russia and China will continue to block any substantive action, then this is a joke that. Worse than that, it exposed American weakness. In a different world, a world in which the US would lead, the US Government would say that, given the Russia-China UN vetoes, America would act on it own, outside of the UN system.

Of course it would be nice to find consensus within this international body and have unanimity on taking military action against Assad. But, since we have seen that this is impossible, as some key Security Council members are determited to block any concrete steps, then America, if it wants to be credible as the super power that leads, should do something. 

Obama does not want a new US war a few months before the elections

But my sense is that Washington will do nothing. America may still be the world’s largest power, with the biggest defense budget and all that. But America is exhausted an hesitant. It is absolutely not in the mood to start another conflict in the Middle East. President Obama is not willing to lead. He is running for re-election. Right now things are looking good for him. The US economy is doing better, his approval rating are much higher. The Republicans are really messed up and likely to field a weak opponent. Why introduce a huge element of political uncertainty by doing “the right thing” on Syria?

Let Ambassador Rice express America’s ”disgust” at the Russia-China veto. Let her rejoice after the General Assembly toothless vote of condemnation. Let her express America’ s best wishes to the struggling Syrians and call it a day.

February 15, 2012

WASHINGTON – Thanks to C-SPAN TV I have watched many times Congressman Roscoe Bartlett of Maryland give several “special orders” speeches, (speeches on whatever topic delivered at the end of the day for a duration of up to 60 minutes), on “peak oil”. Bartlett is a pleasant old gentleman who speaks well. Armed with charts and graphs he made the case that the US and the world had gone past ”peak oil”, that is the time in which extraction had reached its maximum, and that now, because of dwindling resources, supplies will shrink more and more, while prices will go up. And, as the US started sucking all its oil long time ago and used most of it, the Congressman warned that America, as the largest user, is much worse off than other countries. 

Peak Oil

As Bartlett put it: 

“Oil and natural gas are not forever. They are finite resources. The U.S is relying upon countries that do not like us to sell us their oil. We are competing against other countries to buy oil, such as China, which is now the world’s #2 importer behind the United States. Increasing world demand and global peak oil, or stagnating production, means that oil prices will rise.

The end of cheap oil and natural gas is coming and coming fast. My hope is that more attention is going to be focused not only on the problem of global “Peak Oil”, but possible solutions to meet this challenge with the same drive and ingenuity our leaders and great minds put into getting a man to the moon.

To further this initiative, in 2005, I along with Rep. Tom Udall established the Congressional Peak Oil Caucus. I also introduced a House Resolution that expresses “the sense of the House of Representatives that the United States, in collaboration with other international allies, should establish an energy project with the magnitude, creativity, and sense of urgency that was incorporated in the `Man on the Moon’ project to address the inevitable challenges of `Peak Oil’.”

America relies on imports, but we have more domestic production

Well, Bartlett was right in stating that the US, the world largest consumer along with China, has little oil left and that it has to rely on imports. But he was totally wrong in predicting an oil thirsty world in which the US would have to compete with China, Japan, India and Europe for ever smaller and ever more expensive amounts of oil. The whole peak oil idea is just not true. Plenty of oil world wide.

It is true that America does not have much oil left. Still, we have made progress considered unthinkable by peak oil proponents. Thanks to shale oil extraction, US production has actually  increased and it will increase even more in the years ahead. Furthermore, if we combine additional US output and enormous Canadian reserves coming from Alberta’s oil sands, North America will soon be energy self-sufficient. The US will still import oil, but it will be from Canada, not from Nigeria or Saudi Arabia, and this is much better.

More broadly, beyond the vastly improved US outlook, the whole “peak oil” idea awas just wrong. It simply did not factor the abundance of yet undiscovered world wide oil reserves and the technological advances that make it possible to recover shale oil.

Oil for more than a century

Let’s look at the big numbers. In 1980, as Bloomberg Businessweek reports,  it was thought that the world had only 1 trillion barrels left. Well, new projections made in 2010 indicate reserves up to 1.5 trillion of “conventional oil”, enough for 38 years. Add to that shale oil and that’s an additional 4.8 trillion. And then throw in oil sand in Canada and elsewhere and you have an additional 6 trillion. That’s oil that will last for well over a century and a half. By that time, I have no doubt that there will be viable alternatives.

There you go. The whole “peak oil” prediction was just flat wrong. There is plenty of oil in the world. And so the dire scenario of an oil dependent America withering away because of lack of access to depleted and super expensive residual world resources is just not going to happen.

Conservation still a good idea, oil is expensive

Look, Bartlett and others are still right when they encourage conservation, smart use of what we have, supplies diversification and what not. While the US has more oil than we thought, it will still be a net importer. And oil is expensive. Certainly the possibility to import all we need from Canada in the years ahead  is comforting. Good to have reliable supplies coming from a friendly neighbor. This improves energy security.

But this no justification for complacency, as we do not produce half the oil we need. And this is why we should seriously look at using US plentiful natural gas, another unexpected and cheap additional energy resource, as transportation fuel. That would help America cut down imports and help our balance of payments at the same time.

Still, even with all these caveats in mind, we can breath a bit more easily. The world has plenty of oil and America is an a much better place than what Congressman Bartlett thought. And this is good news.

February 15, 2012

WASHINGTON – The President of Greece, Karolos Papoulias, made headlines by criticizing the German Finance Minister, Wolfgang Schauble, because he has said unkind things about Greece being a bottomless pit, or something to that effect. So, the old patriotic President got irritated and reacted against the  arrogance of these Northern Europeans, (you have to add the Dutch and the Finns to the mix), who –think of that– have little confidence in Greece being able to put its house in order. Like they have no cause for being skeptical, right?

Greek President gave up salary

Beyond that,  President Papoulias had already made a political gesture for home consumption by refusing to get his salary. This is his way of saying that he as President will do his bit to lighten the country’s debt burden. All very good and very patriotic.

However, one detail is worth mentioning. Do you know how the much he makes? Well, he makes the equivalent of $ 370,000 a year. If you consider that the post is almost entirely ceremonial, since the real executive powers in Greece are with the Prime Minister and the line Ministers in the cabinet, this was a pretty good salary for doing essentially nothing, aside from ceremonial duties.

US President makes $ 400,000; Greek counterpart (only ceremonial duties) makes $ 370,000 

In contrast, the US president, who is the real chief executive of the nation, with full responsibility to run the entire federal government, makes a just a bit more: $ 400,000. And this is recent. The salary used to be only $ 200,000. So, $ 370,000 for doing very little, and $ 400,000 for running the government of a super power, the world largest economy, overseeing a 3.8 trillion budget, including the largest military in the world. If you use the US President as reference, isn’t there a bit of a discrepancy between lavish compensation and work actually required of a Greek President?  

The Greeks have lived in a fantasy land

The point here is that the Greeks have lived in a fantasy world of public jobs for everyone, huge benefits and inflated salaries for way too long. A ceremonial head of state of a small country who makes almost the same as the US president who has a real job provides an instructive comparison. The fact that Papoulias now decided to forgo his pay is noble. What is absolutely ridiculous is that he was getting it to begin with.

February 14, 2012

WASHINGTON – General Electric is hosting a major event in Washington, DC, titled American Competitiveness: What Works. Given GE’s convening power, lots of interesting people from industry, government, the media and think tanks are attending and speaking. And mostly the panelists and speakers talk about the right things. America needs to regain its competitiveness. The federal Government should help by simplifying taxation and regulations, by providing more focused incentives for work force retraining and by having a more strategic approach to energy policies.

A panel with federal, state and local officials

One particular panel attracted my attention: Recharging American Manufacturing: City, State and Federal Perspectives. The participants included a US Senator,  Rob Portman, Colorado Governor John Hickenlooper, and Louisville (Kentucky) Mayor Greg Fisher. There was also Jay Timmons, President & CEO of The National Association of Manufacturers, (NAM), who had prior policy experience in state government.

Passion about pro-growth strategies

There were two important aspects about this panel. The first one was the passion with which all the speakers discussed competitiveness issues and how they have (at different levels of government and public policy) embarked on new plans to promote investments, work force development, training programs, sensible taxation, cooperative agreements with universities and federal research labs and a lot more.

We heard about “Coin”,  the Colorado Innovation Network, and about Bluegrass Manufacturing in Lexington. We heard everybody on the panel agree that the US has to diminish its costs of doing business because at the moment they are about 20% higher than the international competition. And there was agreement that the US has to exploit to the fullest the fantastic opportunity provided by the shale gas revolution, with consequent lowering of energy costs for many American industries.

Total agreement between Democrats and Republicans

But the second aspect is truly astonishing. Everybody really agreed with one another. No dissonance. No polemics. There were two Democrats, (The Governor and the Mayor), one Republican (the Senator) and a very pro-business NAM CEO. Although coming from different angles, given the different perspectives from city to state to federal to trade association, they agreed essentially on everything: the nature of the problem regarding lack of US competitiveness and what to do to regain the edge. In fact, not knowing the actual party affiliations, it could have been quite possible to assume that all speakers were sensible, middle of the road pro-growth Republicans, or all of them centrist to conservative pro-business Democrats. 

Of course, this tangible evidence of a fundamental convergence on critical issues of growth and competitiveness between these  elected Democrats and Republicans, should be saluted as good news. It should mean that there is ample common ground and that, on this basis, it should be quite possible to fashion a broad, truly bipartisan national economic strategy that will enable America to regain lost ground and move up.

Yet zero agreement at the national level

And yet at the level of American national politics this is absolutely not so. Washington is totally frozen. At the national level, Democrats and Republicans agree basically on nothing, except for indulging in the nasty habit of calling each other names. Back in December 2010, there was no deal on the rather sensible policy recommendations produced by the Bowles-Simpson “Debt Commission”. That Report, provided the same spirit of cooperation displayed at the GE Conference, should have become the starting point for serious action on real public spending and tax reform. But instead it got killed.

Later on, in 2011 zero agreement between the White House and the House Republicans on spending reductions. And then there was the more recent failure of the congressional “Super Committee” that should have decided on a combination of major spending cuts and tax increases. And now, on February 13 we had the unveiling of Obama’s last budget before the November elections, immediately dismissed by the Republicans as a political campaign document, pure posturing, and therefore not a serious public policy proposal.

The ideologues dominate policy positions in both parties

So why this disconnect? Unfortunately, the fact is that the two parties extreme wings have managed to take control of the debate in Washington. The Democratic left and the Republican right dominate and determine positions. And this intransigence guarantees gridlock. The Republicans who control the House have the votes to block any legislation, but they have no power to impose their will. Likewise, the Democrats controlling the White House and the Senate cannot pass anything without the concurrence of the House.

Beyond that, looking at the presidential campaign, the Republicans are flirting with the idea of nominating conservatives ideologues like Newt Gingrich and Rick Santorum who think that Obama is really a socialist bent on destroying the very moral fabric of America. Obama in turn is portraying himself as the new Robin Hood who wants to take from the rich to give to the deserving poor. If these silly and in a sense dangerous positions continue to dominate, zero hope of getting any agreement on anything.

Will the pragmatists regain control?

Yet, the fact that at least some Senators, Governors and Mayors of different parties can have a constructive dialogue, because they truly agree on the fundamentals, allows some hope. It means that there is some sanity left. At some point middle America, made out of pragmatists and problem solvers just like the public officials at the GE Washington Conference, should be able to  prevail, force the end of these completely useless Washington ideological fights and finally produce the needed pro-growth environment.