Monday, August 17, 2015

The Green Scare Problem

Matt Ridley wrote in WSJ August 13, 2015


Raising constant alarms—about fracking, pesticides, GMO food—in the name of safety is a dangerous game. 


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PHOTO: GETTY IMAGES/IKON IMAGES
‘We’ve heard these same stale arguments before,” said President Obama in his speech on climate change last week, referring to those who worry that the Environmental Protection Agency’s carbon-reduction plan may do more harm than good. The trouble is, we’ve heard his stale argument before, too: that we’re doomed if we don’t do what the environmental pressure groups tell us, and saved if we do. And it has frequently turned out to be really bad advice.
Making dire predictions is what environmental groups do for a living, and it’s a competitive market, so they exaggerate. Virtually every environmental threat of the past few decades has been greatly exaggerated at some point. Pesticides were not causing a cancer epidemic, as Rachel Carson claimed in her 1962 book “Silent Spring”; acid rain was not devastating German forests, as the Green Party in that country said in the 1980s; the ozone hole was not making rabbits and salmon blind, as Al Gore warned in the 1990s. Yet taking precautionary action against pesticides, acid rain and ozone thinning proved manageable, so maybe not much harm was done.
Climate change is different. President Obama’s plan to cut U.S. carbon-dioxide emissions from electricity plants by 32% (from 2005 levels) by 2030 would cut global emissions by about 2%. By that time, according to Energy Information Administration data analyzed by Heritage Foundation statistician Kevin Dayaratna, the carbon plan could cost the U.S. up to $1 trillion in lost GDP. The measures needed to decarbonize world energy are going to be vastly more expensive. So we had better be sure that we are not exaggerating the problem.
But it isn’t just that environmental threats have a habit of turning out less bad than feared; it’s that the remedies sometimes prove worse than the disease.
Genetically modified organisms (GMOs) are a case in point. After 20 years and billions of meals, there is still no evidence that they harm human health, and ample evidence of their environmental and humanitarian benefits. Vitamin-enhanced GM “golden rice” has been ready to save lives for years, but opposed at every step by Greenpeace. Bangladeshieggplant growers spray their crops with insecticides up to 140 times in a season, risking their own health, because the insect-resistant GMO version of the plant is fiercely opposed by environmentalists. Opposition to GMOs has certainly cost lives.
Besides, what did GMOs replace? Before transgenic crop improvement was invented, the main way to breed new varieties was “mutation breeding”: to scramble a plant’s DNA randomly, using gamma rays or chemical mutagens, in the hope that some of the monsters thus produced would have better yields or novel characteristics. Golden Promise barley, for example, a favorite of organic brewers, was produced this way. This method still faces no special regulation, whereas precise transfer of single well known genes, which could not possibly be less safe, does.
Environmentalists are currently opposing neonicotinoid pesticides on the grounds that they may hurt bee populations, even though the European Union notes that honeybee numbers have been rising in the 20 years since they were introduced. The effect in Europe has been to cause farmers to return to much more harmful pyrethroid insecticides, which are sprayed on crops instead of used as seed dressing, hitting innocent bystander insects. And if Europeans had been allowed to grow GMOs, then less pesticide would be necessary. Again, green precaution increases risks.
Nuclear power has been energetically opposed by the environmental lobby for decades, on the grounds of danger. Yet nuclear power causes fewer deaths per unit of energy generated than even wind and solar power. Compared with fossil fuels, nuclear power has prevented 1.84 million more deaths than it caused, according to a study by two NASA researchers. Opposition to nuclear power has cost lives.
Likewise widespread opposition to fracking for shale gas, is based almost entirely onmyths and lies, as Reason magazine’s science correspondent, Ronald Bailey, has reported. This opposition has substantially delayed the growth of onshore gas production in Europe and in parts of the U.S. That has meant more reliance on offshore gas, Russian gas, and coal—all of which have greater safety issues and environmental risks. Opposition to fracking has hurt the environment.
In short, the environmental movement has repeatedly denied people access to safer technologies and forced them to rely on dirtier, riskier or more harmful ones. It is adept at exploiting people’s suspicion of anything new.
Many exaggerated early claims about the dangers of climate change have now been debunked. The Intergovernmental Panel on Climate Change has explicitly abandoned previous claims that malaria will likely get worse, that the Gulf Stream will stop flowing, the Greenland or West Antarctic Ice sheet will disintegrate, a sudden methane release from the Arctic is likely, the monsoon will collapse or long-term droughts will become more likely.
Meanwhile, on the other side of the ledger, in contrast to our experience with acid rain and the ozone layer, the financial, humanitarian and environmental price of decarbonizing the energy supply is proving much steeper than expected. Despite falling costs of solar panels, the system cost of solar power, including land, transmission, maintenance and nighttime backup, remains high. The environmental impact of wind power—deforestation, killing of birds of prey, mining of rare earth metals—is worse than expected. According to the BP Statistical Review of World Energy, these two sources of power provided, between them, just 1.35% of world energy in 2014, cutting emissions by even less than that.
Indoor air pollution, caused mainly by cooking over wood fires indoors, is the world’s biggest cause of environmental death. It kills an estimated four million people every year, as noted by the nonprofit science news website, SciDev.Net. Getting fossil-fueled electricity and gas to them is the cheapest and quickest way to save their lives. To argue that the increasingly small risk of dangerous climate change many decades hence is something they should be more worried about is positively obscene.
Mr. Ridley is the author of “The Rational Optimist: How Prosperity Evolves” (HarperCollins, 2010) and a member of the British House of Lords. His family leases land for coal mining in northern England.

China Declares Currency Independence

dAVID mALPASS WROTE IN wsj aUGUST 14, 2015

Yuan devaluation is part of a shift away from the dollar bloc that has dominated Asia since World War II.
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PHOTO: GETTY IMAGES
On Tuesday China stopped supporting the yuan’s tight link to the strong dollar, allowing its currency to weaken by 3% through Friday. That’s not large by foreign-exchange standards—Japan’s yen has fallen by 35% since 2012. Yet the yuan devaluation unsettled global financial markets that are worried about weak global growth and deflation pressures.
The depreciation of the yuan follows the spectacular boom and bust in China’s stock market: The Shanghai index, up 60% year-to-date at its June 12 peak and is now up only 23%. The two shocks gave new life, probably short-lived, to decade-long predictions of a China hard landing. Some in Washington may interpret Beijing’s latest move as part of a currency war, or an indication of China’s greater ambitions—in the South China Sea, Africa, the global financial system, and toward a yuan bloc through its new Asian Infrastructure Investment Bank (AIIB).
For China, however, the problem was more about the global slowdown and the strengthening dollar. Under current U.S. policies, the dollar has no reliable value—it weakened massively in the 1970s, strengthened in the 1980s and 1990s, weakened in the 2000s, and has been soaring in recent years. This instability makes the dollar an unsuitable long-term link for Beijing and its aspirations for fast economic growth.
Since 1993 China’s leaders have been committed to providing a “strong and stable” yuan throughout the business cycle and, as a result, median income has risen rapidly. That commitment to stability is in marked contrast to the U.S. which lets markets change the value of the dollar based on their perception of economic conditions. This turns often-arbitrary currency trends into a dominant self-reinforcing part of our economic fundamentals, creating momentum-driven boom-bust cycles in the strong-dollar 1990s and the weak-dollar 2000s.

Opinion Journal Video

The risks of devaluing its national currency, the yuan. Plus, Hillary Clinton’s decision to give federal authorities her private computer server and a thumb drive, and the EPAs three million gallon spill of heavy metals into a river.
By opting out of this, China is in effect taking a big step toward currency independence. The yuan’s link to the dollar, whose value has been surging, caused the yuan to rise too high in value to meet Beijing’s goal of price stability, and its goal of fostering commerce with its other trading partners, many of which have devalued. The dollar has been rising against gold and, lately, even against the normally strong Singapore dollar and Swiss franc, so the dollar can’t be considered stable.
China decided that a gradual delinkage from the dollar would help maintain the stability of its own currency. The International Monetary Fund immediately welcomed the new policy of flexibility, which allows the dollar to weaken or strengthen by 2% a day against the yuan. China hopes this float will prepare the yuan to become a reserve currency alongside the dollar, pound, euro and yen, which has been one of China’s highest economic priorities.
Those who are bearish on China keep asserting that China is acting out of panic or weakness. Not so: Beijing is methodically pursuing financial liberalization while responding to the external problems of slower global growth, excessive dollar strength, and the reverberations in China from the U.S. Federal Reserve’s inexplicable policy of setting interest rates near zero six years after the recession. China’s move is another step in the gradual shift away from the dollar bloc and U.S. economic leadership that dominated Asia since World War II. China hopes to replace this with an anchor to the yuan, and China-based institutions like the AIIB.
It remains to be seen whether Beijing’s change in currency policy will provide any near-term boost to the country’s economic slowdown. Monetary conditions in the global economy are bordering on deflation, and China’s move won’t help with that. The yuan devaluation already seems to have worsened the plunge in commodity indexes. Pressure on dollar debtors both in China and elsewhere will increase as China’s devaluation puts downward pressure on dollar prices world-wide.
The magnitude of dollar and yuan strength is reflected in gold’s recent price break below its 10-year average. That’s the same deflation signal that preceded the disastrous Asian devaluation crisis of 1997-98, during which world dollar GDP and corporate earnings shrank as they are doing now.
Asia is in a better position this time to withstand an open-ended strong-dollar policy because less of its private and public debt is denominated in dollars. But the world monetary system is in a worse position.
Central banks in the U.S., Japan and Europe already have used their preferred tools, expanding balance sheets and setting interest rates near zero. Despite that (because of it, in my view), growth remains anemic and inflation in the U.S., rather than moving toward the Federal Reserve’s 2% target, is likely to turn negative given the latest plunge in oil and gasoline prices.
Yet there’s no plan to change the Fed’s top-down, market-distorting misallocation of credit as the first interest-rate hike approaches. This is one factor in China’s decision to create distance between the yuan and the dollar.
Making matters worse for global growth, the reliance on monetary policy has diverted attention from the urgent need for structural reforms in the developed countries, including Europe’s antigrowth labor, tax and spending policies, and the byzantine U.S. tax code and escalating federal regulatory chokehold.
The result has been a huge downgrade in global GDP that adds to China’s economic slowdown. A year ago the IMF looked for a world gross domestic product of $81.6 trillion in 2015. The IMF lowered its projection to $74.6 trillion in April. It’s likely the IMF’s projection will fall below $72 trillion in its October update, to take into account China’s devaluation and the spreading recessions in many emerging markets.
China may have loosened its tie to the unstable dollar, but this won’t suddenly stop the slide in its exports that is the result of the global slowdown. Nor can exchange-rate policy cause businesses to invest more effectively or consumers to open their pocket books.
The urgency for China is to create a framework of effective regulations and rule of law that assures freedom and lets markets rather than the government sort out more of the mistakes—such as the wild April-May Shanghai stock-market bubble. Many parts of China’s system are too big to fail, which is a recipe for being doomed to live in interesting times.
Mr. Malpass is president of Encima Global LLC, an economic consulting firm.