Pentagon’s climate warnings in 2003 turns out to be a bogus

The seemingly unusual heat in the Philippine capital, which has already claimed some lives, has prompted the government to issue warnings on the increasing risks of heat stroke.

And I’ve seen post hoc based comments associating high temperatures to “global warming”. This is a sign of how the public has been hardwired or brainwashed to view temperature changes as "global warming".

Unfortunately, the public doesn't realize it that the dogma of man made global warming continues to take a beating. 

The Washington Times points to a study commissioned by the Pentagon over a decade ago, which warned of the potential havoc that the world was faced from global warming. The prediction turned out to be blatantly inaccurate.

Here is the intro (ht Gary North)

Yet the 2003 report, “An Abrupt Climate Change Scenario and Its Implications for United States National Security,” is credited with kick-starting the movement that, to this day and perhaps with more vigor than ever, links climate change to national security.

The report also became gospel to climate change doomsayers, who predicted pervasive and more intense hurricanes, tornadoes, floods and droughts.

The release of this report is what likely sparked the ‘modern era’ of security interest in climate affairs,” said Jeff Kueter, president of the George C. Marshall Institute, a nonprofit that examines scientific issues that affect public policy.

“It was widely publicized and very much a tool of the political battles over climate raging at the time,” said Mr. Kueter, who sees as “tenuous” a link between U.S. security and climate change.

Prediction versus reality

Under the section “Warming up to 2010,” here are some of the report’s key scenarios, compared with what has transpired:

• By 2005, “more severe storms and typhoons bring about higher storm surges and floods.”

Today: The most recent U.N. Intergovernmental Panel on Climate Change report said it has “low confidence” of an increase in hurricanes or tornadoes. The U.S. is likely experiencing fewer tornadoes compared with 50 years ago, according to data from the National Oceanic and Atmospheric Administration. This year’s tornado season was historically low.

The U.N. report said: “No robust trends in annual numbers of tropical storms, hurricanes and major hurricane counts have been identified over the past 100 years in the North Atlantic basin.”

In December, Roger Pielke, a scientist who has conducted extensive analysis of storm history, told a Senate panel: “There exists exceedingly little scientific support for claims found in the media and political debate that hurricanes, tornadoes, floods and droughts have increased in frequency or intensity on climate timescales either in the United States or globally.”

The U.S. has not experienced a major hurricane in nearly 10 years.

• Global temperatures will increase by 0.5 degrees Fahrenheit per decade and, in some areas, 0.5 degrees per year.

Today: Scientists skeptical of man-made climate change say satellite data show there has been no increase in 17 years. The Environmental Protection Agency, a strong climate change advocate, puts the decade increase at 0.3 degrees.

• There will be more floods, making coastal cities such as The Hague “unlivable” by 2007.

Today: The Hague is still livable.

The United Nations said this year: “There continues to be a lack of evidence and thus low confidence regarding the sign of trend in the magnitude and/or frequency of floods on a global scale.”

• “Floating ice in the northern polar seas is mostly gone during the summer by 2010.”

Today: Arctic sea ice remains. Warming in the polar region has reduced the ice extent, from 2.8 million square miles at its yearly summer minimum in 1979, when satellite measuring began, to 2.1 million square miles in 2013, according to the National Snow and Ice Data Center.

• Sacramento River levees will fail, creating “an inland sea” in California that “disrupts the aqueduct system transporting water.”

Today: There are no inland seas in California.

Oh Professor North also provides as a link where 31,487 scientists from all over the US signed a petition (via PetitionProject.org) stating that…

“There is NO convincing scientific evidence that human release of carbon dioxide, methane or other greenhouse gases is causing or will, in the foreseeable future, cause catastrophic heating of the Earth’s atmosphere and disruption of the Earth’s climate.”

The religion of climate change has been about promoting environmental scare stories to justify funding from the government, aimed at providing “scientific basis” for the political social engineer’s vision of expanding control over society...Or more economic and political repression in the name of environmentalism.

At the end of the day, these scare stories—backing populist politics—turn out to be a myth.

How Western Environmentalism Shaped China’s One Child Policy

Ideas have consequences. 

China’s one child policy hasn’t been a communist idea, writes author Matthew Ridley. Instead this has emanated from western environmentalist ‘Malthusian’ concept, which had been embraced by a Chinese missile scientist who repackaged and pushed these to Chinese policymakers. The result from the adaption, as usual, has been unintended consequences

A slice from Mr. Ridley:

As China’s one-child policy comes officially to an end, it is time to write the epitaph on this horrible experiment — part of the blame for which lies, surprisingly, in the West and with green, rather than red, philosophy. The policy has left China with a demographic headache: in the mid-2020s its workforce will plummet by 10 million a year, while the number of the elderly rises at a similar rate.

The difficulty and cruelty of enforcing a one-child policy was borne out by two stories last week. The Chinese film director Zhang Yimou, who directed the Beijing Olympics’ opening ceremony in 2008, has been fined more than £700,000 for having three children, while another young woman has come forward with her story (from only two years ago) of being held down and forced to have an abortion at seven months when her second pregnancy was detected by the authorities.

It has been a crime in China to remove an intra-uterine device inserted at the behest of the authorities, and a village can be punished for not reporting an illegally pregnant inhabitant.

I used to assume unthinkingly that the one-child policy was a communist idea, just another instance of Mao’s brutality. But the facts clearly show that it was a green idea, taken almost directly from Malthusiasts in the West. Despite all his cruelty to adults, Mao generally left reproduction alone, confining himself to the family planning slogan “Later, longer, fewer”. After he died, this changed and we now know how.

Susan Greenhalgh, a professor of anthropology at Harvard, has uncovered the tale. In 1978, on his first visit to the West, Song Jian, a mathematician employed in calculating the trajectories of missiles, sat down for a beer with a Dutch professor, Geert Jan Olsder, at the Seventh Triennnial World Congress of the International Federation of Automatic Control in Helsinki to discuss “control theory”. Olsder told Song about the book The Limits to Growth, published by a fashionable think-tank called the Club of Rome, which had forecast the imminent collapse of civilisation under the pressure of expanding population and shrinking resources.

Read the rest here

Video: The great global warming swindle

Watch why environmentalism (the religion of misanthropists) is a huge swindle  (hat tip EPJ)

Bring on the Whale Markets

Prohibition frequently or almost always works in the opposite direction as what populist politics intends them to be. 

The policy failure from the longstanding ban on whale hunting has prompted proposals to commercialize ‘whaling’ as a means of conservation.

From Economist Tim Taylor:

The International Whaling Commission imposed a moratorium on commercial whaling in 1986, which is still in effect. However, the moratorium has effectively allowed "scientific" whaling (mainly Japan),  "subsistence" whaling (various aboriginal groups), and limited commercial whaling (mainly by Norway and Iceland).  The total number of whales caught has doubled since the 1990s to about 2,000 per year, which is a pace that many biologists consider to be unsustainably high. After watching the moratorium approach struggle and fail over the last quarter-century, it's time to think about alternatives. In the Spring 2013 edition of Issues in Science and Technology, Ben A. Minteer and Leah R. Gerber discuss the possibility of "Buying Whales to Save Them."

What Minteer and Gerber have in mind is that the International Whaling Commission or some similar body would set a quota for the number of whales that could be taken, based on estimates of sustainable catch from biologists. These quotas would be marketable; in particular, environmentalist groups could purchase the right to take a whale--but then not do so. As they describe it:

"Under this plan, quotas for hunting of whales would be traded in global markets. But again, and unlike most “catch share” programs in fisheries, the whale conservation market would not restrict participation in the market; both pro- and antiwhaling interests could own and trade quotas. The maximum potential harvest for any hunted species in any given year would be established in a conservative manner that ensures sustainability of the marketed species (that is, harvest levels would be established that would not permit taking more individuals than can be replaced) and maintains their functional roles in the ecosystem. The actual harvest, however, would depend on who owns the quotas. Conservation groups, for example, could choose to buy whale shares in order to protect populations that are currently threatened; they could also buy shares to protect populations that are not presently at risk but that conservationists fear might become threatened in the future."

As you might expect, this kind of proposals is controversial. Many environmentalists feel that putting a value on whales is unethical, a betrayal of the underlying values involved. Other environmentalists, especially those with an economic turn of mind, note that if those who would be catching whales sell their quota to those who do not wish to catch whales, both parties can be benefit from the exchange--and the result may be that fewer whales are killed.

Commercialization as means of environmental conservation has great examples. Markets has saved American alligators from extinction (Carpe Diem’s Mark Perry) and so with China’s private and public tiger farms as well as China's creation of “legal domestic market for some wild-life products” (Barun Mitra at PERC). 

So bring on the whale markets.

Has Thomas Malthus been a free market friend or a foe?

Has preeminent demographer and economist Thomas Robert Malthus, whom has been widely criticized for his population time bomb theory, been taken out of context? 

Yes says Michigan State University professor Ross B. Emmett at the FEE

Robert Malthus (his friends called him “Bob”) was one of the primary interpreters of Adam Smith for the generation after Smith. Indeed, a lot of people who pick on “Thomas” Malthus get Bob Malthus wrong.

That’s not to say that Malthus was right about everything. But even more than Smith, Malthus’s economics built upon the idea that all humans similarly respond to incentives; and he thereby rejected the idea of natural hierarchy. Writing in a country that had excessive restrictions on labor markets—take a look at the Poor Laws—Malthus was an advocate of free labor markets. And Malthus argued that private property rights, free markets, and an institution that would ensure that both parents were financially responsible for the children they bore (that is, marriage) were essential features of an advanced civilization.

“Wait a minute,” you may be thinking. “Are we talking about the Malthus who claimed back in 1798 in his Essay on the Principle of Population that population growth would decrease per capita wellbeing? Isn’t this the guy who argued that the combination of population growth and natural resource scarcity would create catastrophic consequences, including disease, starvation, and war for much of the human race? And didn’t he miss the benefits of entrepreneurship and innovation, blinded as he was by the fallacy of land scarcity?”

That Malthus—let’s call this one “Tom”—is more a creature of ideological opponents of markets than of Malthus’s own writings. So maybe we should revisit Malthus and see what he actually said.

It all begins with a thought experiment: what would happen to human population in the absence of any institutions?

The answer is the population principle, which is the only thing most people know about Malthus. And it’s largely correct. In the absence of institutions, humans are reduced to their biological basics: Like animals, humans share the necessity to eat, and the passions that lead to procreation. To eat, humans must produce food. To procreate, humans must have sex. If there are no institutions, human population will behave like any animal population and increase to the limit of their ecology’s carrying capacity.

The biological model is simplistic; it treats humans as mere biological agents. It is this biological model that produces all the results people usually associate with Malthus’s name. And it’s not very far off from people’s conditions when their institutions have suddenly been disrupted by things like conquest, revolution, or war. (Consider the dual problems of war and drought that resulted in famine for Ethiopians in 1983–85, for example.)

But for Bob Malthus, the biological model is only a starting point. The model set up his next concern: the incentives created by different institutional rules for families’ fertility choices (in Malthus’s terms: the decision to delay marriage). The comparative institutional analysis that emerged from his further investigation became the basis for his defense of the institutional framework of a free society.

Read the rest here

On the vilification of Thomas Malthus

It turns out the mainstream view of Tom (as opposed to the real “Bob”) was first created by opponents of markets, sustained throughout the nineteenth century by lovers of hierarchy, and resuscitated in the twentieth century by environmentalists committed to the view that there are natural limits to economic growth. These environmentalists picked out the bits they liked and scrapped the rest, as it suited their agendas.

Mangling of the definitional context of politically sensitive issues such as liberalism, capitalism, inflation or deflation and etc..., has been a typical communications strategy used by statists to skirt on the argumentation of substance.

Earth Hour: Keep Lights ON!

Many people will fall again for the demagoguery of celebrating “earth hour” purportedly for “saving” the environment. 

Most of them will simply follow “feel good” popular politically correct themes rather than understanding the real dynamics or “crony based” green energy politics behind them.  

This serves as example of the Bandwagon effects, not only in the marketplace, but also in the realm of the politics of environmentalism.

Earth Hour advocates avoid explaining the cost benefit tradeoffs between their populist pseudo-environmental interests (which are principally based on highly flawed computer simulations*) and the economic and social value of electricity to humanity. 

*people's lives are supposed to be determined by computer models which can't even predict economies and the markets! Queen Elizabeth even took to task the London School of Economics for failing to predict the 2008 crash.

They fail to take into account that “electricity is the backbone of modern life”. On the other hand, they elude discussing the costs of their themes from which life without electricity equals poverty and death.

North Korea or the medieval life are great examples of life without electricity.

So advocates of earth hour are basically misanthropists. They want people to suffer in the name of preserving the "environment" (ahem, promoting the interests of cronies and of the political class)

 

The following video from the Copenhagen Consensus eloquently showcases the benefits of electricity.

Danish environmentalist Bjorn Lomborg gives further explanations on the benefits of electricity at the Slate.com: (hat tip AEI’s Professor Mark Perry) [bold mine]

Electricity has given humanity huge benefits. Almost 3 billion people still burn dung, twigs, and other traditional fuels indoors to cook and keep warm, generating noxious fumes that kill an estimated 2 million people each year, mostly women and children. Likewise, just 100 years ago, the average American family spent six hours each week during cold months shoveling six tons of coal into the furnace (not to mention cleaning the coal dust from carpets, furniture, curtains, and bedclothes). In the developed world today, electric stoves and heaters have banished indoor air pollution.

Similarly, electricity has allowed us to mechanize much of our world, ending most backbreaking work. The washing machine liberated women from spending endless hours carrying water and beating clothing on scrub boards. The refrigerator made it possible for almost everyone to eat more fruits and vegetables, and to stop eating rotten food, which is the main reason why the most prevalent cancer for men in the United States in 1930, stomach cancer, is the least prevalent now.

Electricity has allowed us to irrigate fields and synthesize fertilizer from air. The light that it powers has enabled us to have active, productive lives past sunset. The electricity that people in rich countries consume is, on average, equivalent to the energy of 56 servants helping them. Even people in Sub-Saharan Africa have electricity equivalent to about three servants. They need more of it, not less.

This is relevant not only for the world’s poor. Because of rising energy prices from green subsidies, 800,000 German households can no longer pay their electricity bills. In the United Kingdom, there are now more than 5 million fuel-poor people, and the country’s electricity regulator now publicly worries that environmental targets could lead to blackouts in less than nine months.

Today, we produce only a small fraction of the energy that we need from solar and wind—0.7 percent from wind and just 0.1 percent from solar. These technologies currently are too expensive. They are also unreliable (we still have no idea what to do when the wind is not blowing). Even with optimistic assumptions, the International Energy Agency estimates that, by 2035, we will produce just 2.4 percent of our energy from wind and 0.8 percent from solar.

To green the world’s energy, we should abandon the old-fashioned policy of subsidizing unreliable solar and wind—a policy that has failed for 20 years, and that will fail for the next 22. Instead, we should focus on inventing new, more efficient green technologies to outcompete fossil fuels.

If we really want a sustainable future for all of humanity and our planet, we shouldn’t plunge ourselves back into darkness. Tackling climate change by turning off the lights and eating dinner by candlelight smacks of the “let them eat cake” approach to the world’s problems that appeals only to well-electrified, comfortable elites.

So we can’t discount of the "conspiracy theory" where one of the other possible subsidiary reasons for the massive printing of money by central banks could have been meant as subsidies for green energy via the pushing up or inflating prices of fossil fuels, which should make "unreliable" "inefficient" and "costly" green energy "competitive".

Unfortunately, markets know better. The free-market based Shale energy revolution has been proving to be the likely “environmental friendly” alternative more than the politically blessed “green energy” that has been founded on disinformation.

Regret Theory: Japanese Consumers on Electric Cars

Regret theory is the difference between the actual payoff and the payoff that would have been obtained if a different course of action had been chosen (Wikipedia.org) 

In short, regret over a decision made (opportunity loss)

A McKinsey Quarterly research reveals that many electric car buyers in Japan feel remorse or were disappointed over their decision to acquire electric cars:

If electric vehicles (EVs) are to develop from a niche into a mass market, carmakers should learn from early adopters who say they may not buy one again. Our recent research on such consumers in Japan finds that about one-third of them fall into this category. These buyers said they were “seduced” by low energy costs, attractive subsidies, and a good test drive. But they were less well informed about EVs than were environmentally conscious “green enthusiasts” (who love EV technology for its low energy costs and comfortable driving experience) and became less enthusiastic about their purchase when they faced issues such as higher electric bills and locating places to charge their cars.

Japan’s government heavily promotes electric cars through subsidizes and or through tax discounts.

Yet the study exhibits how the stereotyped politically induced projects hardly meets the taste of the consumers, which is the critical reason for their failures.

As the great Austrian economist Ludwig von Mises explained 

The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old  purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.

Of course as I earlier posted, electric cars aren’t exactly "green" or environmental friendly as environmental zealots allege or want the public to believe.

Electric Cars Aren’t Really Green

Contra popular wisdom, and opposite to the thrust by governments, e.g. US and Indonesia, to promote green energy via electric cars; electric cars aren’t really green. 

AEI’s Mark Perry summarizes the Bjorn Lomborg’s explanation published at the Wall Street Journal, (bold original)

1. A 2012 comprehensive life-cycle analysis in the Journal of Industrial Ecology shows that almost half the lifetime carbon-dioxide emissions from an electric car come from the energy used to produce the car, especially the battery. The mining of lithium, for instance, is a less than green activity. When an electric car rolls off the production line, it has already been responsible for 30,000 pounds of carbon-dioxide emission.

2. By contrast, the manufacture of a gas-powered car accounts for 17% of its lifetime carbon-dioxide emissions. The amount for making a conventional car:14,000 pounds.

3. The life-cycle analysis shows that for every mile driven, the average electric car indirectly emits about six ounces of carbon-dioxide. This is still a lot better than a similar-size conventional car, which emits about 12 ounces per mile. But remember, the production of the electric car has already resulted in sizeable emissions—the equivalent of 80,000 miles of travel in the vehicle.

4. If a typical electric car is driven 50,000 miles over its lifetime, the huge initial emissions from its manufacture means the car will actually have put more carbon-dioxide in the atmosphere than a similar-size gasoline-powered car driven the same number of miles. Similarly, if the energy used to recharge the electric car comes mostly from coal-fired power plants, it will be responsible for the emission of almost 15 ounces of carbon-dioxide for every one of the 50,000 miles it is driven—three ounces more than a similar gas-powered car.

5. Even if the electric car is driven for 90,000 miles and the owner stays away from coal-powered electricity, the car will cause just 24% less carbon-dioxide emission than its gas-powered cousin. This is a far cry from “zero emissions.” Over its entire lifetime, the electric car will be responsible for 8.7 tons of carbon dioxide less than the average conventional car.

6. Those 8.7 tons may sound like a considerable amount, but it’s not. The current best estimate of the global warming damage of an extra ton of carbon-dioxide is about $5. This means an optimistic assessment of the avoided carbon-dioxide associated with an electric car will allow the owner to spare the world about $44 in climate damage. On the European emissions market, credit for 8.7 tons of carbon-dioxide costs $48.

7. Yet the U.S. federal government essentially subsidizes electric-car buyers with up to $7,500. In addition, more than $5.5 billion in federal grants and loans go directly to battery and electric-car manufacturers. This is a very poor deal for taxpayers.

The world of politics is about smoke and mirrors.

Failed Predictions From Enviromental Gloom-Mongers

One of the fundamental errors of mainstream analytics is that it focuses mainly on the interpretation of available information from the present angle. It hardly, in layman terms, “put oneself in the shoes” of those who saw it earlier based on their existing knowledge or conditions.

For instance, environmentalism has long been one aspect of a social concern. While the basics (or even the politics) of environmentalism today and the past are the same, the “issues of the day” have been different. And as events are developing, the alarmist concerns of the past are being repeated today.

Yet, these predictions have been utterly wrong.

Some examples from Ihatethemedia.com (hat tip Cafe Hayek)

Here are some of the hilarious, spectacularly wrong predictions made on the occasion of Earth Day 1970.

“We have about five more years at the outside to do something.”
• Kenneth Watt, ecologist

“Civilization will end within 15 or 30 years unless immediate action is taken against problems facing mankind.”
• George Wald, Harvard Biologist

“We are in an environmental crisis which threatens the survival of this nation, and of the world as a suitable place of human habitation.”
• Barry Commoner, Washington University biologist

“Man must stop pollution and conserve his resources, not merely to enhance existence but to save the race from intolerable deterioration and possible extinction.”
• New York Times editorial, the day after the first Earth Day

“Population will inevitably and completely outstrip whatever small increases in food supplies we make. The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.”
• Paul Ehrlich, Stanford University biologist

“By…[1975] some experts feel that food shortages will have escalated the present level of world hunger and starvation into famines of unbelievable proportions. Other experts, more optimistic, think the ultimate food-population collision will not occur until the decade of the 1980s.”
• Paul Ehrlich, Stanford University biologist

“It is already too late to avoid mass starvation.”
• Denis Hayes, chief organizer for Earth Day

“Demographers agree almost unanimously on the following grim timetable: by 1975 widespread famines will begin in India; these will spread by 1990 to include all of India, Pakistan, China and the Near East, Africa. By the year 2000, or conceivably sooner, South and Central America will exist under famine conditions….By the year 2000, thirty years from now, the entire world, with the exception of Western Europe, North America, and Australia, will be in famine.”
• Peter Gunter, professor, North Texas State University

“Scientists have solid experimental and theoretical evidence to support…the following predictions: In a decade, urban dwellers will have to wear gas masks to survive air pollution…by 1985 air pollution will have reduced the amount of sunlight reaching earth by one half….”
• Life Magazine, January 1970

“At the present rate of nitrogen buildup, it’s only a matter of time before light will be filtered out of the atmosphere and none of our land will be usable.”
• Kenneth Watt, Ecologist

“Air pollution…is certainly going to take hundreds of thousands of lives in the next few years alone.”
• Paul Ehrlich, Stanford University biologist

“We are prospecting for the very last of our resources and using up the nonrenewable things many times faster than we are finding new ones.”
• Martin Litton, Sierra Club director

“By the year 2000, if present trends continue, we will be using up crude oil at such a rate…that there won’t be any more crude oil. You’ll drive up to the pump and say, `Fill ‘er up, buddy,’ and he’ll say, `I am very sorry, there isn’t any.’”
• Kenneth Watt, Ecologist

“Dr. S. Dillon Ripley, secretary of the Smithsonian Institute, believes that in 25 years, somewhere between 75 and 80 percent of all the species of living animals will be extinct.”
• Sen. Gaylord Nelson

“The world has been chilling sharply for about twenty years. If present trends continue, the world will be about four degrees colder for the global mean temperature in 1990, but eleven degrees colder in the year 2000. This is about twice what it would take to put us into an ice age.”
• Kenneth Watt, Ecologist

Moral: Realize that the predictions before have been wrong, and today’s alarmism is likely to reflect on the same shortcomings. Don’t fall into the environmental politics trap.

Philippine Environmental Issues: Government Interventionism And Private Property

Finally some eye-popping economic realism from local mainstream media.

While the majority of mainstream media, the church and the public have swallowed hook, line and sinker to the government and academic propaganda that environmental issues have mostly been caused by "market failure" due to "greed", the fact is that markets, composing of acting individuals, respond to incentives.

And unknown to many, government policies shape the incentives that govern the markets.

Here we are reminded of Frédéric Bastiat, who in his classic must read That Which Is Seen and That Which Is Unseen- the book that fundamentally altered my fundamental perception, cautioned us about interpreting on what may seem as the plausible and visible but are fundamentally short term effects as proximate causality.

Instead, we have been advised to dig deeper in order to fathom on the authentic and not the shallow causes; from which mostly have been the baneful long term consequences of populist political actions.

In other words, the politicians and the gullible public severely overestimate on the culpability of the markets while grossly underestimate on the role of government in influencing such behavior.

And it is no different in the populist agenda known as environmentalism.

Here is a splendid article (Kudos to Calixto V. Chikiamco-author of the article) on domestic environmental problems seen in context of how government interventionism, which constricts on private property, have prompted for the aftermath of environmental degredation. [Hat tip: Francis Bonganay]

The intro from the Chikiamco's article on the Businessworldonline, [bold emphasis original]

``When one thinks about being friendly to the environment, one usually counterposes it to private property rights. Along this line of thinking, the government is for the environment and the private sector with its "greed" is anti-environment.

Mr. Chikiamco does a Bastiat,(bold highlights mine)

``How can we then explain the massive denudation of the country? Well, government was and is the culprit.

``The macro-explanation is that the government’s protectionist import-dependent import-substitution economic policy in the fifties encouraged deforestration. This policy, buttressed by an overvalued exchange rate, ensured a persistent trade deficit. To finance the trade deficit, the government encouraged extractive industries -- logging and mining -- in the sixties and seventies to generate foreign exchange. In effect, our natural resources were used to pay for the inefficiency of our protected import-substituting industries.

``However, government exacerbated the situation by two wrong-headed policies.

``One is that it imposed a "reforestation fee" on logging companies, telling the logging companies that the government will assume the responsibility of replanting and sustaining the forests. Of course, the government never did replant and used the reforestation fee wisely. The fee got lost in graft, the government didn’t have the resources and interest to police the forest and keep out the kaingeros (slash-and-burn farmers), and because of population pressures, people started moving upland and cutting trees.

``The other is that the government did not give logging companies secure, long-term property rights. Logging permits were usually short-term (five years or less) and highly political because keeping them was dependent on one’s padrinos and political connections. Because of the long period it takes to plant and grow a tree and recoup one’s investment, the government should have given secure property rights of 25 years or more.

``Property rights analysis, therefore, should be at the core of any plan to preserve and sustain the environment."

Read the rest here.

In contrast to popular wisdom, in effect, the sordid state of our environment hasn't been due to the aftermath of greed, but rather, of the political failure to uphold its touted responsibility (reforestation fee) and importantly the use of environment to award or dispense political privileges known as economic rent to politically favored affiliates, interest groups or patrons via the curtailment of private property.

I would intuitively suggest that there is more to this, albeit I haven't made an indepth research on it.

In short, government failure have resulted to the present environmental decadence and the public being misled by looking at the wrong dimensions would see the aggravation and not the abatement of the present predicament.

The last words of wisdom from Frédéric Bastiat, ``Between a good and a bad economist this constitutes the whole difference - the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, - at the risk of a small present evil."

Prediction Fulfilled: Philippine Mining Index Tops 9,000 (Now 11,300!)

``A cynic is a man who knows the price of everything but the value of nothing.”-Oscar Wilde

WAY back in 2003, I turned bullish on gold and wrote a series called the “Rip Van Winkle in Gold”. (No blogging yet for me)

Not content with newsletters to our clients, I submitted my article entitled, “The Philippine Mining Index Lags the World” to two international websites (see link: safehaven.com and goldseek.com) who promptly published my outlook. Of course, I would like to thank safehaven’s Mr. Bruce Stratton and Goldseek’s Mr. Peter Spina for this.

My underlying message: Philippine mining industry, which should benefit from a secular global bullmarket in gold prices, will eventually become a dominant theme for the PSE. In addition, not only in terms of stock prices, but likewise from an increasing share of contributions to the domestic economy.

The last time I followed up my prediction for the Philippine Mining Industry to test the 9,000 level was in May 6, 2007 [see Philippine Mining Index: Reliving The March to 9,000!]

How time flies!

Anyway, the red arrow in 2003 shows that the Philippine Mining Index was at around 1,500 when I made the audaciously unorthodox call. The light orange arrow, where the Philippine Mining Index reached its high in 1987, served as my benchmark. The blue arrow marks today’s milestone breakout.

It’s isn’t easy to be a contrarian. Aside from being ostracized for espousing unpopular unconventional views, we occasionally get ridiculed or scoffed or mocked at. I never realized that publication can also be a humbling experience, aside from the self-effacing trait one has learned and gleaned from dealing with markets.

Speculative Stigma, Resource Curse

Anyway, the sharp downside volatility of 2008 meltdown likewise placed into a stern ordeal my beliefs. The mining index got bludgeoned the hardest. This goes to show local investors have yet to assimilate on the risk reward prospects of the industry aside from the realization of the diminishing risk premium relative to the reckless policies engaged by policymakers that enhances the value of mining products.

Moreover, the speculative stigma has yet to be eschewed by public. This has been quite evident even in the political context where populist politics have equated mining as anti-environment. This is where reason has been blinded by unthinking populism predicated on ipse dixitism and of the farcical nobility from the socialist mindset.

By prohibiting trade, supply is taken off the markets from which, in the face of limitless fiat currency issuance by global governments, would only provoke a supply shock that would send prices spiraling higher.

And a spillover of high prices to a wider basket of goods would only result to increased economic hardship in the name of environmental preservation. Moreover there are other opportunity costs from preventing commercial operations (such as increased employment and livelihood, technology transfers and other business opportunities).

Yet if mining has been generalized as totally environmentally destructive then it follows that we should expect economies as Australia, Canada, Chile, New Zealand and others to be vast wastelands. Conversely, considering that the domestic mining industry has largely been in the doldrums due to two decades of falling commodity prices, then the Philippines must have been an environmental model. Unfortunately, none of the two arguments are valid, demagoguery has been unsupported by facts. To add, environmentalism has been converted to religion-where reasoning is proscribed.

At the end of the day, high commodity prices would only compel for a “resource curse”. This means that eventually the political elite and their supporters or the economic rent seeking interests tied to them will use state power to engage in resource extraction. And by preventing trade and competition and by monopolizing commercial activities by the greasing of the public officials, these actions will effectively undermine social and political institutions which should impede growth-the recipe for the resource curse.

Examining The Mining Index

Going back to the mining index, compared to the previous boom, which had been premised on foreign investors buying into the local industry, today’s mining index breakout seems to have been based on several Godfathers’ (to borrow Joe Studwell moniker of domestic economic elite) interests on the publicly listed mines. Perhaps the dynamics mentioned above could be in play.

Principally the mining index boom has mainly been prompted for by the recent explosion of Philex Mining [PX] prices.

PX, a gold mining company, which price per share almost doubled from last month constitutes more than 60% of the Philippine Mining index weighting. In addition Philex’s market cap as a Phisix composite member has stormed to 4.19% as of Friday’s close.

Philex, which has surprisingly surpassed Metrobank [MBT], Globe Telecoms [GLO], Banco De Oro [BDO] and etc., is now among the top 10 or among the Phisix big leaguers.

Although as a caveat, the recent price action of Philex appears to have reached bubble like proportions. PX’s turnover this week constituted about 25% of the Philippine Stock Exchange’s total. The hefty turnover somehow replicates the Meralco saga [see Bubble Thoughts Over Meralco’s Bubble] which makes us leery of the attention PX has been getting.

But don’t get me wrong. Whether it is Meralco or PX they are all headed higher over the longer term. In a bullmarket-generally- all stocks go up to paraphrase Edwin Lefevre.

It is just that the unwarranted short term attention that could pose as a barrier for sustained new interim highs following a record breathtaking run.

It is true that size and heft matters, and this has been the reason for what we might call “survivorship bias” or the tendency to focus on winners at the expense of the mediocre.

The fact of the matter is Nihao Minerals Resources [NI], another mining outfit which could be classified as exploratory since the company has yet to make a buck from actual mine operations, has been a far stellar performer than PX.

NI’s chart has been parabolic or vertical (black candle), has returned almost 5x or 500% since the first quarter of this year and has breached to a new record high prices along with PX.

Moreover given the chart above of the other mining components as part of the local mining index, we can note that all the mines-Apex Mining (light orange) [APX], Lepanto Consolidated (dark green) [LC], Manila Mining (light green) [MA], Atlas Consolidated (blue) [AT] and Geograce Resources (gray) [GEO] have all made substantial moves, but unlike PX and NI are still far from the 2007 highs.

The chart excludes other mining index members particularly Omico Mining [OM] and oil companies Philodrill [OV] and Oriental Petroleum [OPM]

My Two Cents On The Domestic Mining Industry

So here are my thoughts on mining industry:

1. Given the recent explosion of NI and PX, corporate or mine product price fundamentals does not appear to be the key drivers but from alleged interests from new class of investors [including Godfathers] to partake of key stakes in the firm. Of course, loose monetary policies have been the unseen or unrecognized factor behind the reanimation of local equities in general.

2. Since the domestic mining industry remains broadly underinvested and where current crops of mining firms lack the capital to expand or operate, the major catalysts for prospective runs would be speculations on joint ventures and or prospective M&A developments from new investors (they could be foreign or local godfathers)

3. Actions among the mining components appear to be rotational- a classic symptom of bullmarket driven by inflation. This implies that the next major moves could likely come from those that have been in a reprieve.

4. A sustained bullmarket in commodities- arising from monetary “pass through” or from BRIC and emerging markets demand- is likely to underpin the secular case for investing in local mines.

5. Compared to other sectors mines are likely to generate ALPHA. As in the case of PX which traded at about .50 cents (dividend adjusted) per share in 2005, and closed 16.75 per share last Friday or a 3,300% for 4 years (285% p.a,) in spite of the volatility, should be very rewarding for long term investors.

That’s because using the “follow the money trail” analysis underinvestment in a world where money is given for free should translate to a gush into the industry which equally becomes rife for M&A rumors.

6. Market trends are social trends. As mentioned above, the speculative label on the mining industry is a symptom of the lack of social acceptance or persistent aversion emanating from over two decades of depression. Essentially such resistance is psychologically bullish. That’s because despite present levels, only a handful have been invested. In social terms, bandwagon effect occurs when trends are reinforced by confirmation of expectations. In other words, long term trends draws in more converts.

It’s when commodities or the mining industry is seen as “risk free” or deemed as blue chips or becomes the public’s favorite object of discussion- is where the red flag should be raised. As far as we are concerned, such social dynamic seems distant.

From this juncture, we believe that the mining index next goal would conservatively be at least 20,000.

Important disclosure: I am not fortunate to own any of today’s star performers. So it would seem like a pyrrhic victory-right in essence but less lucky in selection.

Clean Air Basics: Carbon Capture and Storage

Learn Carbon Capture and Storage from this interactive presentation (McKinsey Quarterly)

First word from McKinsey, ``Climate change has businesses, governments, and nonprofits examining how to stabilize atmospheric greenhouse gases while still maintaining economic growth. In plotting the course to a low-carbon economy, they will weigh a number of methods for addressing the various risks and opportunities. Carbon capture and storage (CCS)—or more accurately, the sequestration of carbon dioxide—is an important topic in the emerging field of climate change. It represents one possible approach for stabilizing atmospheric greenhouse gases—although there are many economic, technical, and legal barriers to its implementation. As background for informed discussion, we offer this interactive depiction of the technologies involved in CCS."

Press on image to redirect link...

The Green Religion: Do As They Say and Not As They Do

Interesting article from the Guardian on the political rhetoric of environmentalism....

``People who believe they have the greenest lifestyles can be seen as some of the main culprits behind global warming, says a team of researchers, who claim that many ideas about sustainable living are a myth.

``According to the researchers, people who regularly recycle rubbish and save energy at home are also the most likely to take frequent long-haul flights abroad. The carbon emissions from such flights can swamp the green savings made at home, the researchers claim.

``Stewart Barr, of Exeter University, who led the research, said: "Green living is largely something of a myth. There is this middle class environmentalism where being green is part of the desired image. But another part of the desired image is to fly off skiing twice a year. And the carbon savings they make by not driving their kids to school will be obliterated by the pollution from their flights."

``Some people even said they deserved such flights as a reward for their green efforts, he added.

Read the rest here

Lesson: Be wary of holier than thou preaching. They may be sounding noble, but the preachers themselves don't practice what they advocate.

Energy and Food Crisis: The Fallacy of Government Heroism

``The genius of capitalism lies in its ability to make self-interest serve the wider interest. The potential of a big financial return for innovation unleashes a broad set of talented people in pursuit of many different discoveries. This system driven by self-interest is responsible for the great innovations that have improved the lives of billions.” –Bill Gates

I’d like to profusely thank profound thinker and international fund manager, Mr. Louis Vincent Gave, CEO of the Hong Kong based Gavekal Capital for bequeathing two of their latest marvelous books to your lowly analyst, the Roadmap for Troubling Times and Jesus: The Unknown Economist. It feels wonderful to be in good graces with people whom I wish to emulate.

****

Over the week we came across an article where a high ranking church personality, South Cotabato Bishop Dinualdo Gutierrez, threatened to withhold communion rites to rice hoarders because of “greed” and correspondingly called on the Philippine President to impose “political will” to resolve the crisis.

GMANews quotes Bishop Guiterrez ``Something is wrong. The reason is greed of the businessmen. Some people are hoarding and the others are taking advantage of the crisis to get more money….She has all the power, so use the power to solve the rice crisis because there is supply but the price is critical. There is rice so it’s only a matter of will power of the president."

In a world of villains and heroes, Bishop Guiterrez espouses “hook line and sinker” the government propaganda that business people are “evil” and government as the “savior”.

And since rice is only a “matter of willpower of the president” this implies that Philippine government has an infinite stash, or like money, can “print up” the supply of rice that the people requires-where all PGMA needs to do is to wave the magical fairy wand and everybody’s problem will be settled. What Hooey!

This is exactly the oversimplistic socialist fantasy that has brought about the present predicament. When absurd politicking overwhelms economic reality or commonsense, then populist solutions will only lead to short term appeasement at the expense of greater and prolonged pain.

In a skewed sense, Bishop Guiterrez is right. More government “power” leads…not to resolve the crisis but to further exacerbate it.

Since the food crisis is related to the soaring oil and energy prices we might as well give some illustrations on why more government “heroism” or euphemism of interventionism is nothing but a fallacy.

Saudi’s King Abdullah, US President Bush Does Not Need The Bishop’s Communion

Hoarders and speculators have been vilified by the government, the pious and the populace as having “caused” today’s troubles.

But at $135 oil who is doing the hoarding?

From Reuters last April 13^th (highlight mine),

``Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations, the official Saudi Press Agency (SPA) reported.

``"I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'," King Abdullah said in remarks made late on Saturday, SPA said.

``The U.S. President George W. Bush in January urged the Saudi king to help tame soaring prices by encouraging OPEC to pump more oil. On separate trips to Saudi Arabia this year, the U.S. energy secretary also asked for more oil, while the vice president discussed high prices with the king.

``The kingdom has spent billions on building over 2 million bpd of spare crude capacity and is the only country in the world able to bring online large volumes of crude supply quickly to deal with unexpected supply shortages.”

More from the Business Intelligence, ``During the meeting, King Abdullah highlighted the significance of oil revenue and said that as long as there is oil, the Kingdom would not experience economic problems. “I told them once, 'may God give it long life'... they asked me what is that... I told them petrol. As long as petrol is there, we will remain well. Our country will not have any problems,” he said.

So not only has the request of the US President, the world’s most powerful nation, been rebuffed, the world’s largest oil producer has openly declared that it has purposely been withholding supplies because “their children need it”.

According to Swaminathan S. Anklesaria Aiyar of the Cato Institute, ``But countries imposing export controls, have, in effect, become hoarders themselves, creating an artificial scarcity in the world market, and an artificially high world price.” (underscore mine)

This simply epitomizes the escalating symptoms of the politics of RESOURCE NATIONALISM where government themselves have been the major hoarders and price manipulators of oil! Stated differently, the world’s oil or food crisis has been MOSTLY about geopolitics, or global governments’ attempt to control natural resources as an instrument to exercise the political heft.

From this perspective it wouldn’t be a farfetched notion to expect the increasing likelihood of prospective military conflicts emanating from heightening resource competition.

Of course the recent volatility in the marketplace has prompted the Saudi leadership to moderate its outlook, according to the New York Times, ``Saudi Arabia is currently pumping 9.45 million barrels a day, which is an increase of about 300,000 barrels from last month.

``While they are reaping record profits, the Saudis are concerned that today’s record prices might eventually damp economic growth and lead to lower oil demand, as is already happening in the United States and other developed countries. The current prices are also making alternative fuels more viable, threatening the long-term prospects of the oil-based economy.”

As you can see, when the winds of the political interest shifts, the Saudi leadership has shown its willingness to adjust accordingly in order to maintain its advantage.

But this is not just about Saudi, the US is the MOTHER of all “hoarders” with an above ground oil stockpile of 702.7 million barrels or representing 97% of capacity which is more than twice the size of private crude inventories with enough reserves to cover against 58 days of supply disruptions (AFP) through its Strategic Petroleum Reserves. Nevertheless, the US congress recently compelled the Bush administration to halt its shipments to the SPR.

And this is not restricted to the US alone, above ground stockpiles or strategic oil/petroleum reserves in China has been estimated at 292 million barrels or 30 days of import (eMediawire) and keeps growing.

Coming from both the supply-export side to the demand-import side, the proverbial 800 lb gorilla in the room has been global governments in the race to corral oil stockpiles! Yet it has been the small fries, who have been simply responding to the incentives set by the authorities, who always take the blame.

Unfortunately, for our beloved Bishop Saudi’s King Abdullah, US President George Bush and China’s Premier Wen Jiabao won’t need his blessings.

The Tragedy Of The Commons

Has the world run out of oil to justify today’s price?

Figure 1: BP: World Oil Reserves in 2007 at 1237.9 billion barrels!

Not if you ask British Petroleum, see figure 1.

From BP’s website, ``Reserves have grown 107.8 billion barrels since 2001 and 168.5 billion barrels, or 14%, over the last decade.” Proven Oil Reserves are estimated at 1.23 TRILLION barrels! Wow that’s a lot of oil out there.

So why has oil prices been climbing?

Like us, British Petroleum chief honcho, Tony Hayward argues that it is due to policy instituted distortions.

From the Economist (highlight mine), ``Mr Hayward blames poor policy-making or, in his florid phrase, “the madness of men”. Some 80% of the world’s oil reserves, he says, are in the hands of state-owned oil firms, which tend to allow firms like his only limited access. He believes that if these riches were fully exploited, the world could easily produce 100m barrels a day (b/d) or more. That’s a big increase on last year’s figure of 82m b/d, and a level that other oilmen, such as the boss of Total, another big Western firm, think impossible.”

Figure 2: API: Myth of Big Oil, 80% of Oil Reserves are Controlled by National Oil companies!

Figure 2 from API shows that government owned companies control 80% of oil supplies!

Since global government owned companies control 80% (some says more) of the world’s proven reserves, any speculation or hoarding can handily be counteracted upon simply by the release surpluses or by producing more supplies as previously discussed in If Oil Is A Bubble, Then It Is A Government Sponsored Bubble!, but has this happened? Unfortunately for us the answer is a NO.

In theory, in a well functioning market, rising prices should trigger supply side responses by attracting and increasing investments that should lead to more production output that would meet demand thereby lowering prices in the future. But, with national governments essentially CONTROLLING and RESTRICTING ACCESS to oil for political (resource nationalism, environmentalism et. al.) or other reasons (lack of capital or technology, unrest and etc…), this hasn’t happened.

And this applies within the US too. High prices simply mean demand far exceeds supply, so much so as bidders are willing to bid up prices for whatever reasons. In corollary, this means that the solution to high prices is to introduce more supplies.

Figure 3: Prof. Mark Perry: Environmental Restrictions

Figure 3 courtesy of Professor Mark Perry at the University of Michigan demarcates the areas from which the US government has restricted oil or energy drilling because of environmental concerns.

To consider, even the world’s premiere capitalist country can be shackled by politics.

CNSNews notes that there are about 279 million acres under Federal management with a potential 117 billion barrels broken down into onshore 31 billion barrels onshore (19 billion barrels inaccessible & 2 billion barrels for standard lease) and offshore 85.9 billion barrels (all off limits).

This is a concrete example of how political based regulations have basically stymied the supply equation contributing to the imbalances reflected in today’s record high oil prices!

Nonetheless, the distortions are also seen from the demand side, Christof Rühl author of the BP’s Statistical Review of World Energy 2008 says taxes and subsidies likewise impact the demand dynamics, again from the Economist, ``According to Mr Rühl, consumption is falling in countries with heavy taxes and rising only sluggishly where taxes are moderate. But in countries with subsidies, it is rising faster than normal, and fastest of all in the countries with the highest subsidies.”

RGE Monitor quotes CIBC (Hat Tip: Craig McCarty), ``Fuel subsidies breed soaring rates of domestic fuel consumption, particularly in OPEC countries, where gasoline is 25 cents/gal in Venezuela and 50-60cents/gal in Saudi Arabia, Kuwait and Iran. No sign of plans to remove subsidies soon in any of these countries.”

Yes, with oil prices drifting at near record levels, additional revenues for oil exporters is expected to reach $400 billion while official assets of oil exporting economies could expand by $800 billion at a conservative estimated average oil price of $115 bbl (Brad Setser), thus curbing consumer subsidies is indeed an unlikely scenario.

True enough, some countries mostly in Asia have acted to ease the government’s fiscal burden by passing the price increases to its consumers at some political costs as previously discussed in Philippine Politics: The Nationalist Hysteria Over Energy Issues.

But overall, where it counts most, like China which accounted for 50% of the global energy consumption growth in 2007 (Tanser-Kiplinger), gasoline prices remain heavily subsidized ($2.6 per gallon-LA Times), which means they are unlikely to get negatively impacted compared to other countries with less subsidies. Let us not forget China’s forex reserved climbed to a new record $1.76 trillion at the end of April (AFP) which also means China can afford to sustain such subsidy for a longer period. This is bad news for us because China and the other Oil exporting countries will continue to ravenously consume oil from which the pain of higher prices will be felt by those incapable of subsidies.

The Economist concludes, ``In other words, the root of the high oil price in BP’s view is not a mismatch between strong demand and feeble supply, but failure on the part of various governments to allow markets to work their magic. There are hints of an improvement on the demand side: several Asian governments have recently decided they can no longer afford subsidies. But it is hard to imagine the world’s ardent energy nationalists suddenly throwing their doors open to foreign investment.”

Politics, Not Greed Result To Higher Food Prices!

Basically, the same dynamics apply to food crisis seen in rice or the wheat markets but with an additional twist,

This quote again from Swaminathan S. Anklesaria Aiyar of the Cato Institute,

``International rice and wheat prices have doubled or tripled in the last two years, but world grain production will reach a record high this year. So how come millions are falling into poverty and starting food riots across the world? The answer lies not in any outsized surge in world demand or fall in world supply, but in the fact that several countries have imposed duties, quotas and outright bans on agricultural exports. This has reduced the amount of grain available for world trade.

``The United Nations Food and Agriculture Organization estimates that world production of cereals was a record 2,108 million tons in 2007, and will hit a new record of 2,164 million tons in 2008. Rice production will rise by 7.3 million tons and wheat by 41 million tons. World cereal consumption has been growing slightly faster (3%) than production (2%) for a decade, so global stocks have fallen to 405 million tons. But this is not a disaster scenario, and it hardly explains skyrocketing prices.

``In the U.S., one-fifth of the corn crop has been diverted to ethanol, and in Europe, some vegetable oil has been diverted to biodiesel. These ill-conceived policies have induced farmers to switch significant acreage from wheat to corn, soybeans and rapeseed, but world wheat output has nevertheless risen from 596.5 million tons in 2006 to an estimated 647.3 million tons in 2008. Corn-based ethanol cannot explain the runaway increase in the price of rice, which grows in very different conditions.”

Yes the added twist comes with the subsidies to biofuels, which was nobly aimed at reducing dependence on fossil based fuels. Of course since regulations by nature are responses to unfolding predicaments then the great tendency for the lack of indepth appraisal. Hence, unintended consequence occur, in this case biofuel subsidies distorts the farmer’s incentives for cropping, see Figure 4.

Figure 4 courtesy of Prof. Mark Perry: Corn From Food to Gas

Figure 4 courtesy of Professor Mark Perry at the University of Michigan shows of how agriculture as signified by corn production originally intended for food to feed people now has to compete with feeding the gas tank…US Corn production for ethanol is expected to climb to nearly 30% of total harvest in 2008!

Nonetheless, since growing corn requires fertilizers- about 90% of the cost of manufacturing nitrogen fertilizer depends on natural gas prices- this leads to a parallel increase in demand for natural gas which means higher prices for natural gas!

From James Finch (highlight mine), ``Nearly 95 percent of U.S. ethanol distilleries use natural gas boilers. Citigroup analyst Gil Yang estimated 28 billion cubic feet of natural gas would be consumed for every one billion gallons of ethanol produced. Cumulative ethanol production could surpass 12 billion gallons. Some analysts are predicted a natural gas demand increase up to one percent from the ethanol boom. But their estimates do not include increased fertilizer demand to increase corn yields.”

``Corn acreage is one of the largest consumers of nitrogen-based fertilizer. And because of the recent ethanol subsidies, more corn will be planted this year than in the past six decades. According to the U.S. Department of Agriculture, corn growers intend to plant 90.5 million acres in 2007. Because forecasts of ethanol production are expected to increase, expect more corn to be grown. In 2008, about 25 percent of U.S. corn production is planned to produce ethanol. By 2012, 4.3 billion bushels of corn are anticipated for ethanol production. It takes about 450 pounds of corn to produce 25 gallons of ethanol fuel to power an SUV.”

So by tweaking on one sector’s incentives, i.e. corn for biofuels, via policy directives, this creates a feed back loop- where more demand for natural gas equals higher energy-and a vicious chain effect of rising energy and food prices!

Moreover, the US corn based ethanol story doesn’t here.

Brazil’s sugar based ethanol, the world’s largest and the most efficient producer (Ethacane is twice as productive as ethacorn -- 6,800 liters per hectare for the former and 3,100 liters per hectare for the latter. It also produces 24 percent more fuel per hectare than the beet- or wheat-based ethanol common in Europe.-Alexandre Marinis) has been restricted entry to the US by virtue of a tariff of 54 cents per gallon. The tariff was introduced in 1980 with the intention of protecting US corn based ethanol producers.

Yet who benefits from the tariffs and farm subsidies instituted by the US government?

Figure 5: Heritage Foundation: Subsidies for the Rich, Famous and the Elected

The rich, the famous and the elected as shown in Figure 5 by the Heritage Foundation.

According to Heritage Foundation’s Brian M. Riedl, ``Eligibility for farm subsidies is determined by crop, not by income or poverty standards. Growers of corn, wheat, cotton, soybeans, and rice receive more than 90 percent of all farm subsidies: Growers of nearly all of the 400 other domestic crops are completely shut out of farm subsidy programs. Further skewing these awards, the amounts of subsidies increase as a farmer plants more crops.

``Thus, large farms and agribusinesses--which not only have the most land, but also are the nation's most profitable farms because of their economies of scale--receive the largest subsidies. Meanwhile, family farmers with few acres receive little or nothing in subsidies. Farm subsidies have evolved from a safety net for poor farmers to America's largest corporate welfare program.”

The recent passage of the expanded subsidies of the Farm bill has generated uproar among other WTO member countries. Why? According to Reuters, ``Critics say high U.S. farm subsidies distort the world trading system and squeeze poor-country farmers out of their markets, as well as putting a burden on U.S. taxpayers and giving incentives to U.S. farm businesses that do not need them.”

So again you have governments subsidizing the rich and maligning market signals (which impacts spending investment cropping etc) to the detriment of less fortunate American farmers or the taxpayers as well as farmers in the emerging markets as the Philippines.

Of course, subsidies in the US or Europe (Common Agriculture Policy) isn’t the only story. It’s almost everywhere. And collectively speaking such imbalances have been building overtime.

An example, Steve Hanke of Forbes magazine on Japan’s subsidies, ``Japan announced last month that it wants to export rice. The Japanese rice industry is superprotected, and the government holds huge stockpiles. Part of these stocks are accumulated because Japan agreed, as part of a World Trade Organization deal, to make regular purchases from foreign producers, mainly the U.S. To keep domestic rice prices high, the Japanese government hoards its WTO-mandated imports. Now that Japan wants to unload some of its rice, opposition is flaring up in Washington and other capitals, claiming that re-exports are not allowed under the agreement. When it comes to filling or releasing government stockpiles, politics clearly rules the roost.”

Again with politics as the top agenda for global governments instead of allowing market forces to seek direction, we can be assured that energy and food prices will continue with its upward trek until market forces will ultimately prevail via a recession or crisis of sorts.

The belief that governments can micromanage an economy in a highly globalized world is an illusion. Why? Because, to quote Steve Hanke, ``it assumes that government bureaucrats possess the same knowledge of market fundamentals and face the same incentives as well-financed, farsighted private traders. It also assumes that politics will not raise its ugly head. Both of these heroic assumptions are not met in the real world. Government buffer-stock schemes are rife with politics, and instead of generating profits from buying low and selling high, they tend to generate losses.”

So we suggest that our venerable bishop visit instead the embassies of the countries mentioned above and deliver his sermon of “greed” on the politicos.