Thursday, March 5, 2009

The Right Way to Determine Executive Pay

The Right Way to Determine Executive Pay. By Richard R Floersch
Compensation is about more than just recruitment and retention.
WSJ, Mar 05, 2009

It's that time again -- proxy season -- when compensation committees, independent advisers and HR executives are making final decisions about executive compensation in public companies for 2009 and beyond. Meanwhile, public anger about big paychecks is at a fever pitch.

In this climate, those responsible for setting the parameters in the private sector need to start asking the right questions and taking actions, even if the results aren't popular among executives. If they don't, Congress will likely seek to change the way compensation is provided.

This would be unfortunate, because aside from disclosure, past attempts to regulate the amount and form of executive compensation have backfired. The $1 million limitation on deductibility of senior executive compensation, which became law in 1993, resulted in many companies increasing CEO salaries to $1 million. Earlier limitations on exit packages had the same effect -- the ceiling became a floor.

Often lost in public debate is a critical point: Compensation is, or should be, an integral part of a business strategy, devised to incentivize executives to accomplish that strategy.

Pay isn't just about recruitment and retention. It's also a form of communication about a company's culture and values, which can impact a company's relationship with its employees, its brand reputation, and ultimately its share value. The boards and executives at leading companies have created a culture of leadership that reinforces a true pay-for-results orientation -- pay goes up with positive results and down when the company does poorly.

Perhaps the best way all companies can demonstrate this orientation is to ask the following questions:

Does your company have incentive measures that address both company performance and its sustainability? A focus on revenue growth means little if the results will have negative long-term effects or result in massive write-downs.

Are the potential payouts under your annual incentive capped at a reasonable level to minimize "swinging for the fences" at the expense of long-term company viability? Does your compensation committee have discretion to adjust payouts that, while reflective of actual performance, do not appear fair in the broader context? Finally, does your compensation committee place a higher priority on doing what's right for the company in the long term ahead of merely copying what competitors and other companies are doing?

Other questions: Are your company's stock ownership and/or retention policies sufficiently rigorous to require executives to own substantial company stock over their careers, and hold it for long periods of time to align pay with shareholder interests? Does your company have a meaningful clawback (recoupment) policy? More than 64% of the Fortune 100 companies have clawback policies. If a company doesn't perform as well as originally believed, then why pay executives as if it did?

The good news is that setting aside the unique Wall Street pay model, which was focused on short-term results and annual bonuses, many large companies already have executive compensation structures that are predominantly focused on compensation for long-term performance. According to Equilar Inc., a leading compensation data and analysis firm, roughly 70% of total compensation for S&P 500 CEOs was in the form of long-term incentives, typically earned over three years or more and predominantly tied to shareholder return.

The debate over executive pay will no doubt persist. Policy makers should abjure knee-jerk reforms and carefully consider the actual impact of proposed changes on pay. And boards and corporate leaders need to earn policy makers' trust by demonstrating that we understand that pay communicates a broader message, and are willing to be part of the solution.

Mr. Floersch is executive vice president of McDonald's Corp. and chairman of the Center on Executive Compensation, which represents the senior HR executives at some of the largest U.S. corporations.

How Obama's Soak-The-Rich Plan Will End Up Hurting Middle Class

How Obama's Soak-The-Rich Plan Will End Up Hurting Middle Class. By Jim Powell
Investor's Business Daily on March 3, 2009

President Obama has claimed that his budget goes after the rich who supposedly will pay the cost of his spending extravaganza. But it is already apparent that the rest of us will pay plenty.

Obama is continuing the crusade against offshore tax havens he began as an Illinois senator. He's targeting places like the Bahamas, Cayman Islands, Isle of Man, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands Antilles and Switzerland, which have low taxes. There are about 50 such tax havens globally.

It's wrong to think that a U.S. crackdown on offshore tax havens would primarily hit disgraced Wall Street high rollers who made fortunes peddling subprime securities. These tax havens are used by many of the biggest U.S.-based corporations to help minimize the massive tax liabilities imposed on multinational operations.

To the extent these corporations are able to minimize their tax liabilities — along with other costs of doing business — their profits and stock valuations are higher.

Why would Obama do anything to make life harder for American consumers in already tough times?

Shares of these corporations are in millions of individual retirement plans as well as the portfolios of colleges, universities, insurance companies, hospitals and charitable institutions.
Some of the corporations would be more adversely affected than others by Obama's effort to bar the use of offshore tax havens, thereby raising corporate taxes, undermining stock valuations — and making it harder to hire people.

Why would Obama choose to attack stock valuations now, after the stock market has already lost about half its value during the past year? Why, when the country is in a serious recession, investment portfolios have been hammered, the banking sector is in turmoil, and unemployment rates are rising, would Obama make it harder for U.S.-based corporations to do business?

Obama's concern seems to be that corporations aren't paying their fair share. But corporations don't really pay taxes anyway. Corporate taxes are passed through to consumers like other costs of doing business — factored into the price of goods and services.

Trying to suppress offshore tax havens means generating upward pressure on the prices Americans pay for food, gasoline, clothing, computers, pharmaceuticals and thousands of other products that affect our daily lives. Why would Obama do anything to make life harder for American consumers in already tough times?

Moreover, corporate taxes amount to double taxation. Profits are taxed at the corporate level, and they're taxed again when investors receive interest on corporate bonds, dividends on corporate stock, or when investors sell stock, bought with personal income previously taxed, that yields a capital gain.

The crusade against offshore tax havens is just one among many Obama initiatives that will have the effect of increasing business costs and reducing returns for investors.

His proposed budget includes $353.5 billion of tax increases for U.S. businesses. Many investors face a tripling of taxes. Other proposed policies would further increase the cost of doing business, such as "green" mandates.

A proposed "card-check" law is intended to revive compulsory unionism in the private sector and make it more expensive for employers to hire people. When something becomes more expensive, demand is likely to fall.

By reducing after-tax returns from investment, Obama will discourage investors from making their funds available. For all practical purposes, investors could go on strike as they did during the 1930s when a succession of soak-the-rich taxes made it hard for investors to estimate their risks and returns, and they remained on the sidelines. Without more capital, it's almost impossible to create more private sector jobs.

Obama's populist rhetoric suggests that he's only going after the super-rich. Yet reportedly half of individuals earning over $250,000 a year are small business owners. During the past 15 years, small businesses have been creating over 90% of net new jobs — altogether, more than 20 million jobs. How smart is it for the heavy hand of government to come down on these employers?

Not very — if the goal of these policies is economic recovery and prosperity.

Outsourcing Peacekeeping

Outsourcing Peacekeeping, by David Isenberg
Cato, Feb 27, 2009

Is the world ready to let private military and security contractors participate in U.N. peace operations? When I ask this, I'm not talking about Hollywood celebrities calling for the firm formerly known as Blackwater to work in Darfur.

In one respect, this is a trick question as contractors have been and are involved in such operations.

In the 1990s Defense Systems Ltd. provided security for the U.N. mission in the Democratic Republic of the Congo, and Lifeguard protected World Vision's operations in Sierra Leone. The U.N. World Food Program employed Hart Security. In East Timor, DynCorp provided logistics for the United Nations while KwaZulu Natal Security and Empower Loss Control Services provided local intelligence. In addition, demining has been contracted out to PMCs like ArmorGroup and Ronco (both bought up by Group 4 Securicor) as well as Saracen in virtually all recent U.N. operations, and DynCorp is one of three main preselected contractors for the U.S. State Department's mine-action programs.

The U.N. Security Council routinely turns to the commercial sector for the outsourcing of police, such as the International Police Task Force in Bosnia and Herzegovina.

The U.S.-funded Pacific Architects and Engineers along with International Charter Inc. of Oregon provided logistical support to the 1999 Economic Community of West African States Monitoring Group missions to Liberia and Sierra Leone.

Indeed, if one looks at the Feb. 24 U.N. list of registered vendors, one finds such firms as Aegis Defense Services Ltd., DynCorp International, Hart Security, Ronco, and Steele North America, to name a few.

But beyond that, the subject of contractors being used as soldiers in peace operations, and not just providing support, is getting increasingly serious consideration. Remember that at the height of the Rwanda crisis, the Undersecretary-General for Peacekeeping Kofi Annan became so desperate for troops that he even considered hiring DSL to stop the genocide. Not one of 19 states then participating in the U.N. Standby Arrangements System chose to contribute military forces. Ultimately, Annan did not hire a private firm, saying, "The world may not be ready to privatize peace."

While the world still may not be willing to privatize peace, given that the word means not just transferring a capability to the private sector but giving it up entirely, many seem willing to subcontract it out.

Increasingly, military professionals seem to think that the idea is viable.

In a 2005 paper published by the Canadian Forces College, Lt. Col. Daniel Lachance wrote, "The United Nations needs experienced soldiers to fulfill an ever-growing demand for peacekeeping troops but is rarely able to get states to commit to urgent missions. One possible solution is to hire a PMC as a U.N. (Rapid Reaction Force) to stabilize the situation until professional peacekeepers can be deployed. The private military industry is ready and capable for such an assignment as witnessed by the wealth of experience that has been gathered by PMCs in support of U.N. missions."

Consider that one traditional big problem for a U.N. peace operation is merely getting the Security Council to authorize one. Rare is the day when the council is prepared to live up to its role as the final arbiter for international peace and security challenges.

The United Nations needs to radically change the way it does such operations. Many alternatives have been suggested, but one would be to provide the United Nations with its own RRF to enforce its own resolutions. This is hardly new. In 1992, Secretary-General Boutros Boutros-Ghali introduced a report titled "An Agenda for Peace." A key recommendation was the call for the creation of a U.N. standby military force.

Another Canadian Forces College paper, written by Cmdr. Darren Garnier and published in 2006, said that as "PMCs are considered for Standing RRF providers, they would require a level of accountability necessitating strict U.N. oversight on recruiting, training and leadership standards."

He also notes that the concept of the private sector profiting from peace operations has the potential to radically transform the very nature of peace operations, opening up all sorts of new options. For the United Nations to leverage the potential of an agile and flexible PMC option, the organization must evolve from the institution it is today into something more representative of the dramatic realignment within the international power structure of states.

The benefit of that, while it would send neoconservatives into hysterics, would be to move the United States away from its current role as international policeman, thereby permitting a more cohesive and coordinated U.N. response to addressing security concerns.

Last year, in the Journal of Conflict and Security Law, Malcolm Patterson wrote that contract forces appear constitutionally feasible within the prerogatives the Security Council may choose to exercise in Chapter VII of its charter.

As Article 29 of the charter allows for the creation of subsidiary bodies for the performance of Security Council functions, this would allow for the formation of a contractor directorate. This would have two main responsibilities. The first would be assessment of tenderers. Successful applicants would be graded through a certification system that would accredit those holding competencies required to carry out a wide spectrum of peacekeeping and intervention deployments. Contractor companies would bid on fixed-term contracts for which they would periodically retender to the contractor directorate in open competition.

The second responsibility would be the administration of a criminal-justice apparatus. While states have always been reluctant to allow other authorities to exercise criminal jurisdiction over their troops, the better militaries have created standards of process and substantive law that could be adapted to deliver encouraging results in the contractor context.

Corporate forces would, after all, face many comparable scenarios, although the trial of a civilian (rather than military) contractor within a court having military characteristics will arouse criticisms. But given that the United States has starting using the Uniform Code of Military Justice to investigate and prosecute contractors accused of crimes, it is at least feasible.

Furthermore, contractors deployed in any future U.N. operations could be subject to status-of-forces agreements, just as the United States has done in the one it negotiated with Iraq.

WaPo: war crimes charges are unlikely to shake the dictator's hold on power and might lead to a worsening of the situation in Sudan

Hold the Handcuffs. WaPo Editorial
Will an international arrest warrant for Sudan's president help the people of Darfur?
TWP, Thursday, March 5, 2009; Page A18

THE ISSUING of an arrest warrant yesterday for Sudanese President Omar Hassan al-Bashir by the International Criminal Court prompted a predictable blizzard of celebratory statements from human rights groups and other Western advocates for the war-torn region of Darfur. What is interesting is that many of those same groups acknowledged that the war crimes charges are unlikely to shake the dictator's hold on power and might lead to a worsening of the situation in Sudan.

"The more likely outcome is that [Mr. Bashir] will remain in power with no prospect of ending up before the ICC anytime soon," said the International Crisis Group, adding that the regime might react by attacking U.N. relief personnel or refugee camps in Darfur, declaring a state of emergency or cracking down on its political opposition. Physicians for Human Rights anticipates "a likely spike in violent attacks."

It is easy to feel some moral satisfaction when one of the world's most brutal rulers is designated a fugitive from justice. Perhaps the warrant will send a shiver down the spine of Syria's Bashar al-Assad or Burma's Than Shwe. The ICC itself could use a morale boost: Six years after its creation, it has yet to convict a single war criminal and has put only one on trial. But it is hard to imagine much cheer in the camps of Darfur, where a U.N. peacekeeping force has failed to muster adequate troops or even helicopters and has not been able to provide security; or in southern Sudan, where a fragile peace between the Bashir regime and the Sudan People's Liberation Movement is at the point of collapse.

Some advocates appear to hope that the arrest warrant will spur Western governments to make a larger commitment to ending the violence in Sudan -- by supplying troops or helicopters, seeking new U.N. sanctions against the regime, or setting up a no-fly zone over Darfur. A review is underway in the Obama administration, and a special envoy probably will be named. But the factors that deterred President Bush from intervening in Darfur haven't much changed. China is ready to block any forceful action by the Security Council, while Western armies are stretched thin by deployments elsewhere.

So the best use of the ICC warrant may be as a bargaining chip with Mr. Bashir and his Chinese and Arab allies. The court's treaty allows for the Security Council to suspend a prosecution for a renewable one-year-period; Beijing and the Arab League will press for that step. That gives the Obama administration an opportunity to set a price. That price should be Mr. Bashir's exclusion from a presidential election scheduled for this year, the completion of a peace settlement with the principal Darfuri rebel groups and the full implementation of the peace accord in southern Sudan. With Sudan's oil revenue plummeting, Mr. Bashir and his party just might find that such an accommodation is in their interest. If they choose instead to respond to the arrest warrant with another wave of violence, Western governments will have to find means to respond.

We can double the output of solar and wind, and double it again. We'll still depend on hydrocarbons

Let's Get Real About Renewable Energy, by Robert Bryce
We can double the output of solar and wind, and double it again. We'll still depend on hydrocarbons.
WSJ, Mar 05, 2009

During his address to Congress last week, President Barack Obama declared, "We will double this nation's supply of renewable energy in the next three years."
While that statement -- along with his pledge to impose a "cap on carbon pollution" -- drew applause, let's slow down for a moment and get realistic about this country's energy future. Consider two factors that are too-often overlooked: George W. Bush's record on renewables, and the problem of scale.

By promising to double our supply of renewables, Mr. Obama is only trying to keep pace with his predecessor. Yes, that's right: From 2005 to 2007, the former Texas oil man oversaw a near-doubling of the electrical output from solar and wind power. And between 2007 and 2008, output from those sources grew by another 30%.

Mr. Bush's record aside, the key problem facing Mr. Obama, and anyone else advocating a rapid transition away from the hydrocarbons that have dominated the world's energy mix since the dawn of the Industrial Age, is the same issue that dogs every alternative energy idea: scale.
Let's start by deciphering exactly what Mr. Obama includes in his definition of "renewable" energy. If he's including hydropower, which now provides about 2.4% of America's total primary energy needs, then the president clearly has no concept of what he is promising. Hydro now provides more than 16 times as much energy as wind and solar power combined. Yet more dams are being dismantled than built. Since 1999, more than 200 dams in the U.S. have been removed.

If Mr. Obama is only counting wind power and solar power as renewables, then his promise is clearly doable. But the unfortunate truth is that even if he matches Mr. Bush's effort by doubling wind and solar output by 2012, the contribution of those two sources to America's overall energy needs will still be almost inconsequential.

Here's why. The latest data from the U.S. Energy Information Administration show that total solar and wind output for 2008 will likely be about 45,493,000 megawatt-hours. That sounds significant until you consider this number: 4,118,198,000 megawatt-hours. That's the total amount of electricity generated during the rolling 12-month period that ended last November. Solar and wind, in other words, produce about 1.1% of America's total electricity consumption.

Of course, you might respond that renewables need to start somewhere. True enough -- and to be clear, I'm not opposed to renewables. I have solar panels on the roof of my house here in Texas that generate 3,200 watts. And those panels (which were heavily subsidized by Austin Energy, the city-owned utility) provide about one-third of the electricity my family of five consumes. Better still, solar panel producers like First Solar Inc. are lowering the cost of solar cells. On the day of Mr. Obama's speech, the company announced that it is now producing solar cells for $0.98 per watt, thereby breaking the important $1-per-watt price barrier.

And yet, while price reductions are important, the wind is intermittent, and so are sunny days. That means they cannot provide the baseload power, i.e., the amount of electricity required to meet minimum demand, that Americans want.

That issue aside, the scale problem persists. For the sake of convenience, let's convert the energy produced by U.S. wind and solar installations into oil equivalents.

The conversion of electricity into oil terms is straightforward: one barrel of oil contains the energy equivalent of 1.64 megawatt-hours of electricity. Thus, 45,493,000 megawatt-hours divided by 1.64 megawatt-hours per barrel of oil equals 27.7 million barrels of oil equivalent from solar and wind for all of 2008.

Now divide that 27.7 million barrels by 365 days and you find that solar and wind sources are providing the equivalent of 76,000 barrels of oil per day. America's total primary energy use is about 47.4 million barrels of oil equivalent per day.

Of that 47.4 million barrels of oil equivalent, oil itself has the biggest share -- we consume about 19 million barrels per day. Natural gas is the second-biggest contributor, supplying the equivalent of 11.9 million barrels of oil, while coal provides the equivalent of 11.5 million barrels of oil per day. The balance comes from nuclear power (about 3.8 million barrels per day), and hydropower (about 1.1 million barrels), with smaller contributions coming from wind, solar, geothermal, wood waste, and other sources.

Here's another way to consider the 76,000 barrels of oil equivalent per day that come from solar and wind: It's approximately equal to the raw energy output of one average-sized coal mine.
During his address to Congress, Mr. Obama did not mention coal -- the fuel that provides nearly a quarter of total primary energy and about half of America's electricity -- except to say that the U.S. should develop "clean coal." He didn't mention nuclear power, only "nuclear proliferation," even though nuclear power is likely the best long-term solution to policy makers' desire to cut U.S. carbon emissions. He didn't mention natural gas, even though it provides about 25% of America's total primary energy needs. Furthermore, the U.S. has huge quantities of gas, and it's the only fuel source that can provide the stand-by generation capacity needed for wind and solar installations. Finally, he didn't mention oil, the backbone fuel of the world transportation sector, except to say that the U.S. imports too much of it.

Perhaps the president's omissions are understandable. America has an intense love-hate relationship with hydrocarbons in general, and with coal and oil in particular. And with increasing political pressure to cut carbon-dioxide emissions, that love-hate relationship has only gotten more complicated.

But the problem of scale means that these hydrocarbons just won't go away. Sure, Mr. Obama can double the output from solar and wind. And then double it again. And again. And again. But getting from 76,000 barrels of oil equivalent per day to something close to the 47.4 million barrels of oil equivalent per day needed to keep the U.S. economy running is going to take a long, long time. It would be refreshing if the president or perhaps a few of the Democrats on Capitol Hill would admit that fact.

Mr. Bryce is the managing editor of Energy Tribune. His latest book is "Gusher of Lies: The Dangerous Delusions of 'Energy Independence'"(Public Affairs, 2008).

WSJ Editorial Page: Pre-empting Drug Innovation - So much for the 'pro-business' Court

Pre-empting Drug Innovation. WSJ Editorial
So much for the 'pro-business' Court.
WSJ, Mar 05, 2009

The Supreme Court ruled 6-3 yesterday that drug companies can be held liable for harm even when their products are improperly administered by a third party despite warning labels that were obvious and approved by federal regulators. The decision is a huge victory for plaintiffs lawyers, but it's a much bigger defeat for drug innovation and public health.

Wyeth v. Levine involved Diana Levine, a Vermont woman who lost an arm to gangrene after an antinausea medication produced by Wyeth Pharmaceuticals was improperly injected into an artery. Ms. Levine sued the clinic and won a settlement. But then she also sued Wyeth, arguing that the company should have put stronger warnings on the label of the drug, Phenergan, and a Vermont jury awarded her $6.7 million in damages. Wyeth appealed, arguing that the warning label had been approved by the federal Food and Drug Administration, which should pre-empt liability under state law.

A majority of the Court, in an opinion written by Justice John Paul Stevens, sided with Ms. Levine. But the ruling is difficult to square with the Riegel decision last term, where a 7-2 majority held that FDA approval shields medical devices from most lawsuits. Moreover, it's unclear that a stronger warning would have mattered.

The drug's label clearly stated that the "IV push" method employed to deliver the drug to Ms. Levine should be used as a last resort and that "INADVERTENT INTRA-ARTERIAL INJECTION CAN RESULT IN GANGRENE OF THE AFFECTED EXTREMITY." As Justice Samuel Alito explains in his dissent, "the physician assistant who treated [Ms. Levine] disregarded at least six separate warnings that are already on Phenergan's labeling, so [Ms. Levine] would be hard pressed to prove that a seventh would have made a difference."

But Justice Alito's larger point is that "drug labeling by jury verdict" undermines the workability of the federal drug-labeling regime. Juries are presented with tragic plaintiffs who were injured, not the unknown patients who are helped, by a product. Hence, they tend to focus on risks more than overall benefits. By contrast, federal regulators are tasked to take the long view and factor in the interests of all potential users of a drug. Just as importantly, "the FDA conveys its warning with one voice," writes Justice Alito, "rather than whipsawing the medical community with 50 (or more) potentially conflicting ones."

A consequence of this ruling is an almost-certain spike in product-liability suits aimed at drug companies. Merck's Vioxx litigation has already cost the company $4 billion, and Eli Lilly has paid out more than $1 billion to settle suits related to the antipsychotic drug Zyprexa. A legal standard that said the FDA, not a state tort jury, is responsible for regulating warning labels would have given both drug companies a stronger position in these lawsuits.

Yesterday's ruling will expose drug companies to a kind of double innovation jeopardy. They typically spend $1 billion on research and development to bring a drug to market, with an 11% success rate on average. But they endure that burden on the understanding that FDA approval will give them a period to sell that drug with patent protection and that FDA approval provides some protection from lawsuits. Now they will have to contemplate paying up front -- and paying later, even if the tragic mistake in applying the drug is someone else's. Wyeth is a dream come true for the plaintiffs bar.

Global and Northern Hemisphere Tropical Cyclone Activity [still] lowest in 30-years

Global and Northern Hemisphere Tropical Cyclone Activity [still] lowest in 30-years, by Ryan Maue

Tropical cyclone (TC) activity worldwide has completely and utterly collapsed during the past 2 to 3 years with TC energy levels sinking to levels not seen since the late 1970s. This should not be a surprise to scientists since the natural variability in climate dominates any detectable or perceived global warming impact when it comes to measuring yearly integrated tropical cyclone activity. With the continuation (persistence) of colder Pacific tropical sea-surface temperatures associated with the effects of La Nina, the upcoming 2009 Atlantic hurricane season should be above average, as we saw in 2008. Nevertheless, since the Atlantic only makes up 10-15% of overall global TC activity each year (climatological average during the past 30 years), continued Northern Hemispheric and global TC inactivity as a whole likely will continue.

Ryan Maue: Center for Ocean-Atmospheric Prediction Studies, Department of Meteorology, Florida State University, Tallahassee, Florida, USA

Article: Maue, R. N. (2009), Northern Hemisphere tropical cyclone activity, Geophys. Res. Lett., 36, L05805, doi:10.1029/2008GL035946.

Abstract: Recent historical Northern Hemisphere (NH) tropical cyclone (TC) inactivity is compared with strikingly large observed variability during the past three decades. Yearly totals of the combined active-basin NH accumulated cyclone energy (ACE) are highly correlated with boreal spring sea-surface temperature (SST) in the North Pacific Ocean and are representative of an evolving dual-gyre, trans-hemispheric correlation pattern throughout the calendar year. The observed offsetting nature of Eastern Pacific and North Atlantic basin ACE during the past three decades and a strong dependence of combined Pacific TC activity upon the El NiƱo-Southern Oscillation reflect the interrelated modulation of overall NH integrated TC energy by large-scale modes of climate variability. Thus, the quiescent period of overall integrated NH TC ACE continuing throughout 2008 is not unexpected in the context of previous periods of colder Pacific SSTs.

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Stimulus Plan's Delayed Job Creation: Some Won't Get Jobs Until 2012 or Later

Stimulus Plan's Delayed Job Creation: Some Won't Get Jobs Until 2012 or Later. By Ronald D. Utt, Ph.D.
Heritage, March 4, 2009
WebMemo #2325

See complete article w/references here.

As Congress took up the debate on the President's massive stimulus plan, the American Recovery and Reinvestment Act, efforts by skeptical Members of Congress to subject the package to committee hearings and a thorough debate were rejected, including the simple request that Members be provided with enough time to at least read the 407 page bill. Those in favor of haste argued that the nation confronted a time of grave economic peril and that even a day of delay could mean catastrophe for tens of thousands of ordinary Americans who were at risk.

If Members had read the bill before voting on it, they might have seen that the claims of immediate economic activity through infrastructure spending are less than the Administration indicated.

Time Is of the Essence?

President Obama told an audience in Elkhart, Indiana:

We have inherited an economic crisis as deep and as dire as any since the Great Depression. Economists from across the spectrum have warned that if we don't act immediately, millions of more jobs will be lost. The national unemployment rates will approach double digits not just here in Elkhart, [but] all across the country. More people will lose their homes and their health care. And our nation will sink into a crisis that at some point we may be unable to reverse. So we can't afford to wait. We can't wait and see and hope for the best. We can't posture and bicker and resort to the same failed ideas that got us into this mess in the first place.[1]

Well, chief among the failed ideas is the notion that a nation can spend its way to prosperity, despite abundant evidence to the contrary. Massive government spending under the New Deal did not end the Great Depression of the 1930s, nor did an ambitious infrastructure program help the Japanese to avoid the "Lost Decade" in the 1990s, which is more accurately described as the Lost Two Decades. Nonetheless, a majority in Congress passed the stimulus bill in February 2009, and in early March, President Obama claimed that the act's transportation component alone will create or save 150,000 jobs in the first year.

This seems unlikely, however, given the leisurely pace the act allows for all of the infrastructure spending authorized in the legislation. As the language of the act reveals, some of the unemployed may have to wait until 2012, or even later, for their piece of this pie.

The Road to Recovery?

The largest infrastructure component of the bill is the $27.5 billion for highways, most of which will be distributed by existing formulas to the states, territories, and Indian tribes. The delay begins with the provision that states have up to one year to obligate the money, meaning only that they have to identify a project and set aside money for it. Still to be done might be the design and engineering work, request for bids, and the selection of the winning contractor.

Under this new law, projects that should be given "priority" are those that can be done within a three-year timeframe, but the definition of the timeframe is never specified, in contrast to other limits in the bill that define it as beginning with the enactment of the act. However lax this definition might be, the three-year limit is merely a legislative preference, not a requirement, and there is no prohibition against approving projects that may take longer.

Funding in Transit

A new program is created to provide another $1.5 billion for surface transportation programs that will be allocated as competitive grants. Since the program does not now exist, the U.S. Department of Transportation (USDOT) will need to draw up the rules and guidelines (90 days are allowed), time must be allowed for states to submit proposals (180 days), and USDOT must be given time to pick winners (up to one year after act's enactment). Thus, the approval process can take up to a year for projects that are expected--but not required--to be completed within three years.

The $1.1 billion for Grants-in-Aid for Airports allows the USDOT secretary up to one year to make grants "with priority given to those projects that demonstrate to his satisfaction their ability to be completed within two years." Again, no requirement, just a suggestion.

Transit programs (buses, commuter rail, trolley cars, etc.) receive $6.9 billion in capital assistance, and states and urban areas have up to one year to obligate the money, but that could be extended if certain problems are encountered. Reflecting the long lead time involved in many transit projects and the difficulties getting them approved, the new law includes no time limit on their completion.

High-Speed Rail on the Fast Track

One of the big surprises in the bill was the $8 billion it commits to high-speed rail (HSR) corridors--the House bill included nothing for HSR, and the Senate bill included $2 billion. Apparently the $8 billion was added at the last minute in conference, allegedly at the request of President Obama, despite his commitment to "transparency." In 1991 legislation was enacted to permit the Federal Railroad Administration to designate 10 high speed rail corridors.[2] Because of the exceptionally high costs and limited benefits of HSR (the California proposal is optimistically estimated to cost $42 billion for a system that will achieve surface speeds of up to one-fourth that common to commercial aviation), nothing has ever been done to get anything underway on any of these corridors--until now, that is.

The definition of HSR, as applied to those in European and Asian countries, is passenger rail service that averages more than 150 miles per hour, which can only be achieved on very expensive, dedicated lines that serve only HSR. Since no such lines exist in the U.S., any HSR would have to first acquire a right of way, buy the land in it, lay the very costly track, and buy the new equipment.

Under the circumstances, the $8 billion is woefully short of what is needed to complete a single system, and the President and Congress know it, which is why the $8 billion should be viewed as little more than an amuse-bouche to keep the nation's influential rail hobbyists happy and content. Indeed, the law recognizes the folly of the aspiration by allowing the money also to be spent on intercity passenger rail service (Amtrak) and "congestion" grants. And the act includes no time limits on when these projects are to be completed; it states only that the money will remain available for three and one-half years.

Don't Get Your Hopes Up

Several of the other infrastructure components of the act (public housing, for example) are also permitted a lengthy period of time to get underway and be completed. As a consequence, these costly components of the bill will do nothing to alleviate the immediate downward slide in economic activity--and little or nothing to support jobs during the current year.

Ronald D. Utt, Ph.D., is Herbert and Joyce Morgan Senior Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

PPI: Tariffs Are One Percent of American Tax Revenue, But Once Were Half

Tariffs Are One Percent of American Tax Revenue, But Once Were Half
PPI Trade Fact of the Week March 4, 2009

The Numbers: U.S. government tax revenue:

[see table in the original article]

What They Mean:

How has taxation changed in a century?

For one thing, it is larger. In 1909, William Taft's revenue men collected $604 million in taxes, or about 5 percent of GDP. By comparison, the $2.2 trillion forecast for 2009 will be about 16 percent of GDP, with the extra money going to pay for a long series of 20th-century innovations. In rough chronological order: food-safety inspections, a permanent standing army, Social Security, national highways, Medicare, clean air programs, space exploration, AIDS research, and so on.

For another, it is fairer. Of Taft's $604 million, $301 million came from tariffs, with clothes and food bringing in half of tariff revenue and a quarter of federal money: $84 million from clothes and household linens; $56 million from sugar; $18 million from other foods. As in every age, taxation of clothes and food hits poorer families hardest, as they spend more of their income on necessities; the then Ways and Means Committee Chairman, Tennessean Benton McMillin, called the tariff system a "tax on want."

Woodrow Wilson's creation of the income tax in 1913, joined by the 1916 estate tax, remains the most revolutionary of all American tax reforms. It shrank the tariff system to 5 percent of revenue by 1920, shifted tax payment from poor to rich, and joins the payroll tax Franklin Roosevelt created in 1936 to pay for Social Security and later for Medicare at the heart of the 2009 tax system. The 1040 forms American workers fill out in coming weeks will accordingly raise about 45 percent of the government's money this year; payroll taxes add 40 percent. Another 9 percent comes from corporate taxes, and 1 percent from estate taxes. Taft's tax system survives in vestigial form, with excise taxes raising 3 percent and tariffs 1 percent.

But though taxation generally has changed, the tariff system has not. Now a small part of the tax system, tariffs nonetheless remain the government's most effective tax on want, as it still relies on clothes, shoes, and food for most of its money. Of last year's $26 billion in tariff revenue, clothes brought in $9.5 billion. Shoes added $1.9 billion, about the same as cars; household linens and luggage came in at a billion each. Altogether, low-cost household necessities account for about 6 percent of imports, but raise 60 percent of tariff money; and foods -- mainly orange juice, cheese, and canned tuna -- raise another half billion. Further tilting tariff policy against poor families, the system taxes the cheapest products most heavily: acrylic sweaters are taxed at 32 percent, and cashmeres at 4 percent; women's polyester underwear is taxed at 16 percent, but 0.9 percent on silks; 48 percent tax on cheap sneakers, but 8.5 percent on leather dress shoes; and so on. A triviality for most Americans, the tariff system likely costs single-mother families (whose clothing and food bills are highest relative to income) a week's salary each year, more than any tax but the payroll tax, as it quietly raises prices for life necessities.

Further Reading:

New -- The Internal Revenue Service traces its ancestry to Abraham Lincoln's Civil War revenue policy, which imposed the first income tax and created the excise taxes. Tax forms and advice, for free from the IRS:

Old -- The modern Harmonized Tariff System stretches out through 97 chapters and about 11,000 separate products, from live horses to statuary. See chapters 61 and 62 for high clothing tariffs, chapter 27 for zero-tariff energy, chapter 64 for shoes, and chapter 79 for goods made entirely of zinc:

And money -- The 2009 Budget's Summary Tables lay out grim tax revenue forecasts for 2009:

Analysis and ideas -

Next wave -- PPI's Paul Weinstein suggests a reshaping of the tax system:

PPI's Ed Gresser looks at tariffs, taxes and the single mom:

... and, in left-right collaboration with the Heritage Foundation's Daniella Markheim, on shoe tariffs as America's single-worst tax:

And context -

Tariffs around the world -- Japan, Europe, and Switzerland join America in drawing about 1 percent of revenue from tariffs. Norway, Hong Kong, and Singapore are lower, at zero or essentially zero; Korea is a bit higher at 3 percent. The World Bank's World Development Indicators 2008 finds only a few Sub-Saharan African nations -- Namibia, Lesotho, Swaziland, Cote d'Ivoire -- relying on tariffs for 40 percent or more of tax revenue. Latin American countries are usually below 10 percent, and the normal range for mid-tier developing countries tops out at the 15 percent and 20 percent recorded for India and the Philippines. The WTO's world tariff summary:

Tariffs as employment policy -- Tariffs in the United States are rarely debated as tax policy; the standard arguments revolve around trade flows and employment. But as 2009 passes, tariffs (at least the light-industry tariffs that bring in the most money) have mostly lost their power to affect employment and trade flows, and are reverting instead to their 18th-century origins as excise taxes whose sole function is to raise money. In 1970, the four big high-tariff industries -- clothes, shoes, linens, and luggage -- accounted for 1.7 million out of the 58 million private-sector U.S. jobs. By 1980, they were down to 1.4 million; then 1.0 million in 1990, 0.6 million in 2000, 0.35 million by the end of the textile quota system in 2004, and now 0.22 million out of 112 million private-sector jobs.

On Ledbetter and the media

Distorting the News, to Obama’s Advantage, by Hans Bader
Open Market/CEI, March 04, 2009 @ 3:29 pm

Distorted press coverage of a Supreme Court decision gave a big boost to the Obama campaign, which made the decision a major campaign issue by bashing and distorting it. The New York Times has since refused to correct its erroneous coverage of that decision, refusing to even read relevant portions of the very decision on which it reported, and court documents in the case, which plainly contradict its coverage. The Obama Administration and Obama campaign also made easily verifiable false claims about the decision, about which the press seems to have no interest. As a journalism professor, and legal commentator Stuart Taylor, have noted, press coverage of the decision “stank“, and was simply “lousy.”

In Ledbetter v. Goodyear (2007), the Supreme Court held that a woman who had waited five years after learning of pay disparities to file an EEOC complaint, and decades after her pay was allegedly set lower than her male peers, could not later sue for discrimination under a civil-rights law known as Title VII, since that law has a 180-deadline. In its ruling, the Court held that plaintiffs generally must sue within 180 days after a discriminatory pay level is set, and that it is not enough that the plaintiff sued within 180 days after a subsequent paycheck or pension benefit affected by the discrimination, which could be many, many years later.

The court specifically left open, however, the possibility that a plaintiff could sue more than 180 days after the discriminatory pay decision if the plaintiff did not discover that the decision was discriminatory until much later. In footnote 10 of its decision, it wrote, “We have previously declined to address whether Title VII suits are amenable to a discovery rule. . .Because Ledbetter does not argue that such a rule would change the outcome in her case, we have no occasion to address this issue.”

Despite that fact, however, New York Times reporter Linda Greenhouse falsely reported that the 180-day deadline “applies, according to the decision, even if the effects of the initial discriminatory act were not immediately apparent to the worker.” See Linda Greenhouse, “Justices Ruling Limits Suits on Pay Disparities,” New York Times, May 30, 2007.

Although the plaintiff, Lilly Ledbetter, had admitted in her deposition that she had been informed by 1992 of the pay disparity she later sued over, and had cited it herself to her boss by 1995, Greenhouse also falsely claimed that the Supreme Court rejected Ledbetter’s claim because “she learned of her fate” at the end of her career, “too late, according to the Supreme Court’s majority.”

Despite the fact that the Supreme Court had explicitly left open the possibility that Ledbetter could have sued if she hadn’t known about the discrimination against her, other New York Times reporters, relying on Greenhouse, stated just the contrary. For example, Adam Liptak stated that “Ms. Ledbetter lost her case because she had discovered the disparity between her pay and that of her male colleagues too late.” See Liptak, “Justices Hear Bias Case on Maternity, Pensions, and Timing,” New York Times, Dec. 11, 2008, at pg. B7. And Sheryl Gay Stolberg similarly stated that Ledbetter discovered only “when she was nearing retirement that her male colleagues were earning much more than she was.” See Stolberg, “Obama Signs Equal-Pay Legislation,” New York Times, January 29, 2009.

Other papers, such as the Los Angeles Times, made more extreme, and obviously false, claims about the decision. The Los Angeles Times falsely claimed that under the Ledbetter ruling, “any employer that could hide discrimination for six months could get away with it.” And the Pittsburgh Post-Gazette erroneously stated that Lilly Ledbetter was not allowed to sue more than 180 days after her first unequal paycheck even though “she did not know she was being discriminated against until near the end of her career when she sued.” And the Washington Post incorrectly claimed that the decision “limited Ledbetter’s ability to sue after she discovered that Goodyear had been paying higher salaries to her male counterparts for nearly 20 years.” See Editorial, “The Lilly Ledbetter Fair Pay Act Is Back,” Los Angeles Times, Jan. 10, 2009; Editorial, “Lilly’s Cause: Obama Can Correct An Injustice of the Bush Years,” Pittsburgh Post-Gazette, Jan. 12, 2009; Richard Leiby, “A Signature with the First Lady’s Hand on It,” Washington Post, Jan. 30, 2009, at C1.

But as even the liberal employment lawyer David Copus, who brought landmark pay discrimination lawsuits for the EEOC, has noted, Ledbetter suspected for years that she was discriminated against, and the Supreme Court left intact employees’ ability to sue when employer deception leaves employees unaware of discrimination against them. See Davis A. Copus, “Pay Discrimination Claims After Ledbetter,” Defense Counsel Journal, Volume 75, page 300 (Oct. 1, 2008).

As Copus notes, “Ledbetter admitted at her deposition that ‘different people that [she] worked for along the way had always told [her] that [her] pay was extremely low.’ She recalled that her manager told her in 1992 that her pay was lower than that of other Area Managers, and that by 1994 or 1995, she had learned the amount of the difference. In 1995, Ledbetter told her supervisor that she ‘needed to earn an increase in pay’ because she ‘wanted to get in line with where [her] peers were, because . . . at that time [she] knew definitely that they were all making a thousand [dollars] at least more per month.’” Yet she waited to sue until shortly before she retired, and after the supervisor she accused of discrimination died!

As legal commentator Stuart Taylor observed in the National Journal, “Ledbetter waited more than five years after learning that she was paid substantially less than most male co-workers to file her Title VII claim.” See Stuart Taylor, “Does the Ledbetter Law Benefit Workers, or Lawyers? Democrats and the Media Have Distorted the Facts Underlying the New Equal Pay Law,” National Journal, Jan. 31, 2009.

Given Ledbetter’s tardiness and longstanding knowledge that she might have been discriminated against, her lawyer didn’t even claim that she could take advantage of the Supreme Court’s exceptions to the deadlines for workers whose employers conceal evidence of discrimination, leaving them unaware of discrimination, such as “equitable tolling” and “estoppel.” See Zipes v. Trans World Airlines, 455 U.S. 385, 393 (1982) (”filing a timely charge of discrimination with the EEOC is . . . a requirement that, like a statute of limitations, is subject to waiver, estoppel, and equitable tolling”).

When I, a lawyer with expertise in discrimination claims, sent an email to the New York Times noting its inaccurate reporting, and citing its conflict with Ledbetter’s deposition, and the writings by legal commentators like David Copus and Stuart Taylor, I received an email in response from senior editor Greg Brock, claiming that the New York Times’ reporting couldn’t possibly be wrong. Why? Because so many other newspapers had made the same claims the New York Times did, and because its reporting was consistent with the self-serving claims that the plaintiff Ledbetter later made (with no evidence whatsoever) — never mind that those claims were inconsistent with plaintiff Ledbetter’s own admissions in her deposition, and inconsistent with what the Supreme Court said in its decision! Apparently, the pervasiveness of a media error makes it unquestionable.

In his January 30 email, Mr. Brock wrote:

“I do not know where Mr. Taylor came by his information. But if you do your research, you will see that dozens of news organizations have consistently reported the following background on the Ledbetter case:

Lilly Ledbetter worked for Goodyear for 19 years before accepting an early retirement offer in 1998. Shortly before she left Goodyear, Ledbetter received an anonymous memo revealing that the other shift supervisors with the same title and the job responsibilities she had, were paid between 14-30% more than she was earning. The decision to pay Ledbetter less than her male co-worker had been made years earlier by a supervisor who did not believe women belonged at Goodyear, and certainly not working as supervisors. Until Ledbetter got this memo, she did not know she had been shortchanged all those years. Ledbetter sued, and in the course of the lawsuit, Goodyear’s records confirmed the anonymous tip — the sole woman supervisor was paid far less than the men in the same positions.

The following statement was also presented by Ms. Ledbetter in testimony before Congress, when she explained:

‘I only started to get some hard evidence of what men were making when someone anonymously left a piece of paper in my mailbox at work, showing what I got paid and what three other male managers were getting paid. I thought about just moving on, but in the end, I could not let Goodyear get away with their discrimination. So I filed another complaint with the EEOC in 1998. After I filed my EEOC complaint and then filed a lawsuit, I was finally able to get the whole picture on my pay compared to the men’s. It turned out that I ended up getting paid what I did because of the accumulated effect of pay raise decisions over the years.’
She retired in 1998. So this shows that she did indeed learn the story not long before her retirement.”

This is not the only error made by the Times. As the Wall Street Journal’s James Taranto has pointed out, the Times falsely suggested, contrary to all evidence, that the Ledbetter decision was the result of a supposedly pro-plaintiff female justice — Sandra Day O’Connor — being replaced by a supposedly pro-defendant male justice — Samuel Alito. Linda Greenhouse, the Times’ Supreme Court reporter, claimed that the 5-to-4 decision “showed the impact of Justice Alito’s presence on the court. Justice Sandra Day O’Connor, whom he succeeded, would almost certainly have voted the other way, bringing the opposite outcome.”

In reality, Justice Sandra Day O’Connor was at least as tough in enforcing deadlines for suing against discrimination plaintiffs as the male justice who replaced her, Samuel Alito. She had dissented against the Supreme Court’s earlier generous interpretation of the statutory deadline for sexual and racial harassment plaintiffs in the case of National Railroad Passenger Corporation v. Morgan, 536 U.S. 101 (2002), arguing that the deadline as interpreted by Justice Clarence Thomas’s majority opinion was too generous to plaintiffs.

By contrast, on the Third Circuit Court of Appeals, then-judge Alito, prior to his elevation to the Supreme Court, had argued for a more generous interpretation of the deadline for suing under another discrimination law, 42 USC 1981, arguing it should be expanded to four years (see Zubi v. AT&T, 219 F.3d 220 (3d Cir. 2001)) — a position that conflicted with some federal court rulings, but was ultimately upheld by the Supreme Court in Jones v. R.R. Donnelley & Sons, 541 U.S. 369 (2004).

In signing his first bill into law — a bill to override the Supreme Court’s Ledbetter decision — Obama didn’t let facts get in the way of a good story, or milking a political wedge issue. He falsely claimed that Lilly Ledbetter, whose pay discrimination claim was dismissed by the Supreme Court as untimely, worked at Goodyear “for nearly two decades before discovering that for years, she was paid less than her male colleagues for doing the very same work.” Actually, Ledbetter knew by 1992, if not earlier, that she was being paid less than the male employees she claimed should have been paid the same as her. Small wonder that the Supreme Court’s 2007 ruling in Ledbetter v. Goodyear dismissed her claim as untimely.

Similarly, the White House falsely claimed that “The Court ruled that employees subject to pay discrimination like Lilly Ledbetter must file a claim within 180 days of the employer’s original decision to pay them less . . . even if the employee did not discover the discriminatory reduction in pay until much later (check out Justice Alito’s arguments in the Court’s opinion).”

This is misleading, and perhaps knowingly so, since the White House linked to the very court decision it distorts. First, the Court never said there was a rigid deadline that bars claims by employees who “did not discover” discrimination “until much later.” Ledbetter never argued that the deadline should be suspended based on her employer concealing discrimination against her, because she in fact knew for years about the pay disparity she later sued over. If she truly had been in the dark about the alleged discrimination, she could have sought to take advantage of exceptions to the deadline that suspend it, like waiver, estoppel, and equitable tolling, under the Supreme Court’s decision in Zipes v. Trans World Airlines, 451 U.S. 385, 398 (1982). But she never made that argument, because, as she testified in her deposition, she had been told many years earlier that she was being paid less than the men she later claimed ought to have been paid the same as her.

Nor did she argue that the outcome of her case would have been changed if the Supreme Court recognized an even broader extension to the deadline for employees who are unaware of the discrimination against them, the so-called discovery rule. As the Supreme Court specifically noted in footnote 10 of its opinion, “we have previously declined to address whether Title VII suits are amenable to a discovery rule. . . .Because Ledbetter does not argue that such a rule would change the outcome in her case, we have no occasion to address this issue.” In short, since Ledbetter had long known of the facts underlying her discrimination claim, relaxing the deadline for employees who “did not discover” the discrimination until much later would have done her no good.

But in the 2008 election campaign, Obama and state democratic parties falsely claimed that the Supreme Court had created a rigid 180-day deadline for bringing discrimination claims, regardless of whether the employer conceals evidence of discrimination. The 2008 campaign featured TV ads from Obama, and mass mailings by state Democratic Parties, falsely claiming that McCain backed wage discrimination against women, simply because he did not support a bill to override the Supreme Court’s Ledbetter decision. Amazingly, the McCain campaign did almost nothing to counter those attacks.

Press coverage suggesting that the Ledbetter decision created a rigid 180-day deadline for pay discrimination claims was also faulty because it ignored the fact that the 180-day deadline only applies to plaintiffs who choose to sue only under the law with the shortest deadline, Title VII. Pay discrimination claims can also be brought under the Equal Pay Act, which has a longer three-year deadline for most claims, and more generous accrual rules as well. And race discrimination claims can be brought under 42 USC 1981, which has a long four-year deadline.

The Supreme Court specifically noted that the plaintiff could have sued instead under the Equal Pay Act, observing that plaintiff “having abandoned her claim under the Equal Pay Act, asks us to deviate from our prior decisions in order to permit her to assert her claim under Title VII.” Plaintiff Ledbetter’s lawyer admitted to the court that he had goofed by failing to press her claim under that law.

In short, it wasn’t the Supreme Court that prevented Ledbetter from suing: it was her own incompetent lawyer, and her own tardiness in suing after she learned of the pay disparities she claimed were discriminatory.

TreasSec Geithner: oil and natural gas companies should not receive tax breaks because they contribute to global warming

Geithner vs. the Oil and Gas Industry, by Greg Pollowitz
Planet Gore/NRO, Wednesday, March 04, 2009


WASHINGTON, March 4 (Reuters) — U.S. oil and natural gas producing companies should not receive federal subsidies in the form of tax breaks because their businesses contribute to global warming, U.S. Treasury Secretary Timothy Geithner told Congress on Wednesday.

It was one of the sharpest attacks yet on the oil and gas industry by a top Obama administration official, reinforcing the White House stance that new U.S. energy policy will focus on promoting renewable energy sources like wind and solar power and rely less on traditional fossil fuels like oil as America tackles climate change.

"We don't believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem). We don't think that's good economic policy and we think changing those incentives is good for the country," Geithner told the Senate Finance Committee at a hearing on the White House's proposed budget for the 2010 spending year.

The Obama administration's budget would levy an excise tax on oil and natural gas produced in the Gulf of Mexico, raising $5.3 billion in revenue from 2011 to 2019.

This new 13 percent tax on all oil and gas production in the Gulf would only affect those companies enjoying a loophole that allows them to avoid paying royalties on the energy supplies they drill. Companies already paying royalties would get a tax credit.

The Anti-Green Ecologist: James Lovelock

The Anti-Green Ecologist, by Myron Ebell
CEI, March 1, 2009

James Lovelock is a creative scientist and inventor, a visionary thinker, and a fascinating individual. Not the least remarkable thing about him is that at the age of 89 he still writes clearly and beautifully. The Vanishing Face of Gaia is his second book on global warming and covers much the same ground as The Revenge of Gaia, published in 2006. However, both books, indeed all his books, contain interesting and often charming excursions into a number of topics scientific, personal, and speculative.

Lovelock believes that it is not possible to understand the looming global warming crisis and to know what to do about it without taking Gaia into account. The name Gaia, which was suggested to him 40 years ago by his country neighbour, the novelist William Golding, is the ancient Greeks’ goddess of Earth and is the etymological root of words such as geology. By Gaia, Lovelock means that the biosphere – the totality of life on Earth – regulates itself and the air, water and rocks upon which it depends so as to maintain favourable conditions for itself. Lovelock promotes Gaia as both a public religion (we humans need to realise that we are merely parts of a larger organism) and as a scientific theory (the biosphere should be studied as a self-regulating system analogous to an organism).

The current scientific consensus on global warming, as represented by the assessment reports of the UN Intergovernmental Panel on Climate Change, is far off the mark, according to Lovelock. Consensus has no legitimate role in science. It’s rather a way of resolving political differences than pursuing truth. Moreover, this specific consensus is based on agreeing that computer models can predict what global temperatures will be in 50 or 100 years, which Lovelock argues is preposterous. Instead of models, science must be based on observations and measurements.
What do observations and measurements tell us about the global climate? Lovelock says that the evidence is unambiguous: the rate of warming is much faster than predicted by the computer model forecasts of steady, gradual warming. The almost certain result is that the self-regulating feedbacks that maintain the climate in its current rather cool state will collapse and the climate will change suddenly to a much hotter state.

That is fine for Gaia, which looks after itself, but spells calamity for humankind. Lovelock believes that jumping to a hot climate is probably inevitable and that most of the Earth will become desert. Human beings, if they are clever enough to save themselves, will be able to survive only in the most northern and southern land masses and on a few islands, including the British Isles. This hot new world will support at most a billion people.

Thus for Lovelock the programme undertaken with the Kyoto Protocol to try to limit warming by reducing greenhouse gas emissions is catastrophically foolish. We should be concentrating on how to adapt to the hotter world. Even if it is not too late to stop global warming, Lovelock cannot contain his scorn for the promoters of wind farms and biofuels and for the silly people who adopt a green lifestyle to lower their carbon footprints. Instead of windmills and fuel from crops, which will enrich special interest groups without reducing emissions, Lovelock argues that the only effective measures are geo-engineering (that is, climate modification by means such as adding aerosols to the upper atmosphere or increasing algae growth in the oceans) and a crash programme to build nuclear reactors.

It is with Lovelock’s enthusiasm for nuclear power that his fundamental disagreement with and antipathy for the Green movement becomes most apparent. The Greens have turned people against nuclear power with “a concatenation of lies”. Ironically, Lovelock acknowledges that he played a small but essential role in creating modern environmentalism. His invention of the electron capture detector in 1957 provided Rachel Carson with evidence that industrial toxins were present in everything, including human tissue. Lovelock points out that everyone knows that the dose makes the poison. Minute traces of chemicals pose no threat to human beings, nor do the low levels of radiation found in nuclear waste. The most potent carcinogen, Lovelock observes, is oxygen.

Blatantly dishonest opposition to nuclear power is not, however, the heart of Lovelock’s hatred of what he calls the “urban green ideology” and which he describes as perhaps the most deadly and most environmentally damaging of all ideologies. Lovelock has spent most of his life working as an independent scientist, that quaintest of callings, partly because it suits his quirky character, but largely because it has allowed him to live in that quaintest of locales, the English countryside. He deeply loves the landscape that has been intensively managed by people since time out of mind and that he has watched over the course of his life being destroyed by mechanised agriculture. Now, what’s left is being obliterated by hundreds of thousands of acres of crops to produce biofuels, and the views are being ruined by gigantic windmills.

Lovelock blames this destruction on “urban imperialist infiltrators” who know nothing of the beauties of plants and animals or the pleasures of country life and who have been duped by the Greens into thinking that the worst things imaginable are trace pesticides in their food, or electricity provided by politically incorrect sources. As a countryman who is passionate about the country and who sees citification as the greatest threat to what is best in being human, Lovelock draws on a much deeper stream of Western culture than is present in his Gaia theory. He partakes of the tradition represented by Henry Williamson and J. R. R. Tolkien in England in the 20th century and by Coleridge and Wordsworth in the 19th.

I recommend The Vanishing Face of Gaia as a book worth reading, despite the fact that I disagree with both Lovelock and the conventional alarmists that global warming is a crisis. I agree with Lovelock on consensus, the computer models and on the primacy of observation. But he seems unaware of the wide array of observational evidence that does not support his position. For example, he quotes one study that sea levels are now rising at a rate much faster than the models predict. That study is not supported by the scientific literature or by the satellite measurements of sea levels that have recently become available. Lovelock is not alone in this: my experience is that global warming alarmism depends on cherry-picking the evidence.

Even on the small chance that he is right that we face a much hotter world, there have been similar climate eras in Earth’s history that were times of lush vegetation and a flourishing of the biosphere rather than widespread droughts and deserts. That’s not necessarily due to temperature: plants need carbon dioxide to photosynthesise and higher carbon dioxide levels cause nearly all classes of plants to grow more vigorously and to withstand adversity better, as hundreds of agricultural experiments have demonstrated. Maybe Lovelock is right, but he pushes it much too far. He claims that humanity would have done better causing the next ice age to start “even though we would have had to abandon much of the northern temperate land to the glaciers” (including much of Britain).

I would like the chance to discuss the entire issue with Lovelock and would undoubtedly profit handsomely from listening to him. That is because he is a most unusually open and honest scientist in today’s global warming debate. Unlike most of the scientists pushing alarmism, Jim Lovelock does not mould the scientific evidence to fit a political agenda. Instead of dismissing global warming sceptics as “deniers”, he praises Nigel Lawson’s sceptical book, An Appeal To Reason: ”...I applaud his astringency and his disapproval of the trendy populism that now attaches to anything and everything seen as Green.”

And if I have serious philosophical doubts about Gaia, it goes without saying that I agree with Lovelock on windmills and biofuels, nuclear reactors, Rachel Carson and pesticides, urban green imperialist ideology and the ridiculous and futile commitments to reduce emissions.

John and Mary Gribbin’s He Knew He Was Right is advertised by the publisher Allen Lane as the “definitive, authorised biography” of Lovelock. It’s not remotely definitive, but it’s not as bad as the Trollopian title portends. The Gribbins recount many episodes large and small in Lovelock’s life based on conversations with him and on his autobiography. They also provide much historical background on climate science and on the precursors of Gaia theory.

Their aim is to show Gaia as one of the great breakthroughs in the history of science and Lovelock as Gaia’s prophet. This is bad enough, but they then shorten their book’s shelf life by tying it all up to the global warming fad.

As an uncritical look at some episodes in Lovelock’s scientific career and life, the book cannot compete with Lovelock’s own autobiography, Homage to Gaia, because it lacks Lovelock’s charm. But it does have one or two moments that reveal his remarkable character. In a chapter titled “What doesn’t kill you makes you strong”, the Gribbins recount Lovelock’s coronary problems that almost killed him because he didn’t want to have surgery in the United States in 1972 on the grounds that it would cost too much. After a decade of misdiagnoses and delay, during which he might have had a fatal heart attack at any time, the National Health Service finally operated in 1982. The bypass was “a complete success”.

Unfortunately, a catheter had not been sterilised properly due to a labour dispute that was taken out on patients by working to rule. The result has been continual urinary tract infections, at least 40 operations, and “pain and misery that persists to the present day”. The Gribbins cheerily report that Lovelock “holds no ill will towards the hospital or the National Health Service. If anything, his experiences over the next 25 years reinforced his belief in a free medical service available to all.”