Walter Borden

WILL money saved from using clean technology simply be spent on using    more energy? Jevons paradox (or the Jevons effect) is named for economist William Stanley Jevons.  In the 1860’s, he observed that technologically driven increases in the efficiency of coal-use increased coal consumption in a wide range of industries. Counter-intuitively to some, he argued that technological improvements could not be relied upon to reduce fuel consumption. Buyers simply use the savings to buy more energy. Such rebound effects as a batch of recent research reveals, are at work in energy markets yet are often overdetermined and misunderstood. Their occurrence suggests the need for carbon taxes in order to price environmental risk in energy costs. The basic logic of such taxes was sketched out in the 1920′s by another economist, Arthur C. Pigou, as the Pigovian Tax. He argued that landowners who allow their rabbits to overbreed and spill over to neighboring land, therefore damaging  crops, have a financial responsibility for the damage. Such activity, often uncorrected by markets, is seen as a market failure. So its remedy is a tax or law to protect the rights of neighboring landowners.

Interest in both is keen among policymakers, thinktankers, bankers, and the general public as the tension between energy demand  and supply increases. Pollution, global warming, declining oil reserves, and increasing demand for energy in the neoliberalized global marketplace underlie both the interest and the tension.

To the extent that they are at work, Jevons rebound effects in a system vary based on the scale of the market considered. For example Richard York of the University of Oregon finds:

A fundamental, generally implicit, assumption of the Intergovernmental Panel on Climate Change reports and many energy analysts is that each unit of energy supplied by non-fossil-fuel sources takes the place of a unit of energy supplied by fossil-fuel sources 1, 2, 3, 4. However, owing to the complexity of economic systems and human behaviour, it is often the case that changes aimed at reducing one type of resource consumption, either through improvements in efficiency of use or by developing substitutes, do not lead to the intended outcome when net effects are considered.

Dr. York’s work appears to reveal an instantiation of the effect.  Across most nations of the world, developed and developing, he reports an average pattern, “…over the past fifty years is one where each unit of total national energy use from non-fossil-fuel sources displaced less than one-quarter of a unit of fossil-fuel energy use. When looking at electricity specifically, the displacement of each unit of electricity generated by non-fossil-fuel sources is less than one-tenth of a unit of fossil-fuel-generated electricity.”

These conclusions put a useful empirical foundation under recommendations found in Google.org’s clean energy innovation study: meaningful suppression of fossil fuel consumption requires adaptation of mainstream energy policy. Also looking at the international scale, Grist.org published a chart this week titled The mind-boggling rise in Asian coal consumption shown as Exhibit 1.

Exhibit 1: Chinese Coal Consumption vs. Developed World. Source: grist.org

Coal going unconsumed in the U.S. is being burned with little scrubbing in China and India, further arguing for the need to decarbonize via international agreements. Liberalized trade (neoliberalism) needs alignment with a flow of trade that balances externalities – pollution – created by exchanges of resources and capital. This also complements York’s finding: shifts to renewables will be inconsequential if the total decarbonization rate isn’t decelerated, that is, if amounts are merely shifted from one market to another.

When Rebound Effects Are Perceived But Not Found

Then there is the contention of the paradox at work in driver behavior popularized as the ‘Prius Effect” in sources such as Conundrum and the Wall Street Journal. Their argument is that Prius owners drive more and thus erase their net carbon and energy savings for the system. However, the work of Ken Gillingham of Yale University and analysis from CO2 Scorecard show Prius owners rack up comparatively the same vehicle mileage as non-Prius owners.

This Prius Fallacy has a dual premise: Prius drivers drive more because they are paying less for gas, and/or they use their savings on carbon-intensive goods and activities.

Gillingham’s micro-dataset on personal automobiles contains information – further analyzed by Thinkprogess – which refutes premise one as the scale of the consumer. The plot in Exhibit-2 shows no significant difference in Vehicle Miles Traveled (VMT) by Prius owners vs. the rest of  California’s drivers. (For those interested in statistical details on the data and diagnostic regression Thinkprogess’ analysis is worth a good study). Prof. Matthew Kahn of  UCLA writing in the Christian Science Monitor reinforces these conclusions.

So in these cases when consumers switch from conventional cars to a fuel-efficient hybrids a meaningful reduction in gasoline consumption – up to 430 gallons per year for an owner who switches from an SUV— is also observed.

As for premise two, money saved on fuel is spent on carbon intensive purchases, there is a scarcity of data.  It’s a safe bet though that a great many Prius drivers may simply piggy bank their savings, therefore no immediate rebound in carbon emissions, or they invest in a cleantech venture (a case of negative rebound). And, indeed, some may use it to fly to Cancun for the weekend.

There is a lack of published study on the purchasing habits and behavioral economics of hybrid drivers and conventional car drivers. Further data and analysis will be greeted with interest. Most likely, whatever the breakout, the average Prius driver isn’t driving a catastrophic rebound.

Some argue that a dollar spent on energy has a two-or three-fold effect. Thinkprogress goes on to point out:

This online / offline community conversation will continue well beyond the Rio Summit with many stakeholder groups, with the intention of fostering collaborative solutions to our most pressing challenges.

We are calling this initiative “The Road to Rio +20 : Earth Day to Earth Summit – Rio+20 and Beyond” and we invite you to join us! 

This Earth Day weekend, April 21-22  marks the inaugural New York City Green Festival - http://www.greenfestivals.org/

We will be curating the main stage with a series of speakers and panels.  Please see link here for complete program/ schedule - http://read.uberflip.com/i/58249

   Green Bonds, Carbon Taxes, and Market Failures

THE gathering dangers of global warming for life necessitate that humanity collapse its dependency on fossil fuel energy (FFE).  Ecological fiduciary responsibility requires shifting balance from political restraint to action. The challenges of managing a drawdown of FFE’s in concert with economic security, while significant, are often exaggerated. Recent research and analysis show that oil and coal-fired power plants exact pollution damages larger than the economic value they add. For example, accounting for the gross external damages (GED) from coal would add ~17.8¢ per kilowatt-hour (kWh) of electricity generated.  In 2012, German utilities will obtain rooftop solar on long-term contracts for ~23¢/kWh.  Large projects will receive just 18.7¢/kWh.  This makes it very likely that solar electricity will be cheaper than that from coal by late 2013 in Germany.  And as a result of California’s clean air bill A.B. 32 it will not be far behind. It is clear that GED considerations further strengthen the economic argument for decarbonizing our economy and that the trend of lower cost cleaner energy is accelerating. This can be contrasted with growing purchase and societal costs, often going unpaid, of FFEs.

What would a program similar to the Germany’s do for market and external costs in the U.S. market? More abundant sunshine in the many areas of the US (29% in Minneapolis and up to 70% in Los Angeles) makes parity with Germany easily attainable.  Americans could buy solar energy on long-term contract fors 18.6 ¢/kWh in Minneapolis and just 15.4 ¢/kWh in Los Angeles, taking into account only current subsidies.  Factor in the federal 30% solar tax credit, and solar could be had for 14.3¢/kWh in Minneapolis and 11.8 ¢/kWh in Los Angeles.

Impediments remain to growing solar as percentage of US energy sources. For example GEDs and Energy Return on Energy Invested (EROEI) of solar modules are different. Solar cells are built in Europe with its mix of electricity generation of nuclear, wind and other sources and must be compared to building  solar cells in China, which has mostly coal-generated electricity and higher GEDs.  A more robust body of research for Life Cycle Analyses (LCA) of solar plants is needed  as they are increasingly built at scale.

Solar Array Based on the Fibonacci Sequence. Public Domain.

But, what about financing and scaling across the US? The existential   challenges of deploying renewable energy (RE) sources to address global warming can be met like those of the Great Depression, World War II, and space exploration:  21st century versions of War Bonds and Patriot Taxes integrated with coherent public-private partnerships to develop RE sources and infrastructure. Two of the world’s largest economies in Germany and California are leading the way. Yet fossil fuel marketers still dominate the debate contending that higher (FFE) prices hurt the public economy and that renewables are impractical despite the evidence to the contrary.

Ambitious politicians assure the public they can control the cost of energy and low energy prices. They argue that there is no need or, indeed, no substantial benefit from clean energy investment subsidies but support  ~12x more subsidies for FFE over RE . Meanwhile, public investment in RE projects that benefit the economy and ecology are to be found everywhere, and financial, technological, and policy innovations instantiate sustainable growth. Both Germany and California are ahead of schedule for supply from their RE investments. Yet Germany is planning to cut its subsidies via its Feed-In-Tariff (FIT) while RE plants in California come online. So more hard work to implement policy to accelerate deployment and remove market barriers lies ahead.

Growth found with FFE’s is problematic for its unpaid costs as well as low reinvestment rates in society. When gas prices spike, oil industry profits soar. They are rarely reinvested in the nations and people whose lands provided the fuel product. Such growth can be said then to be parasitic of itself and its host — cancerous. Increasingly, underlying issues of the unsustainability of FFE dependence inform serious concerns from unexpected quarters. OPEC stated last month in London at Chatham House:

Greenhouse gas emissions and global warming are among humanity’s most pressing concerns. Societal expectations on climate change are real, and our industry is expected to take a leadership role.

The “drill, baby, drill” consensus of Congress and the administration is about to hit a wall.  FFE extraction methods, such as fracking, drive unit and externalized societal costs higher than advertised. When the true costs of FFE’s are born by the drillers rather than the public, losses will mount for drillers. This economic analysis must take place against a backdrop of resource constraints: many observers worry that the world is now drawing nearer to a new energy crisis. Oil demand now exceeds supply by as much as 500,000 barrels per day. Wide open production even at $105 dollars per barrel is not adding enough new supply. Building new refineries for this resource is a short term solution — but its no substitute for preparation. Public subsidy to refineries for a peaked resource that poisons our planet should be phased out on public health and economic grounds.

Manhattan Solstice, July 13, 2011. Public Domain.

Why Isn’t The Market Signaling the True Cost of FFE?
Stabilizing the amount of Carbon in the atmosphere at  around 450 ppm by 2020 is a very big challenge. Simply eliminating oil subsidies would halve global warming. FFE costs us much more when health and environmental costs are added tripling the average unit cost in the case of coal.    Economists writing in the American Economic Review conclude that this a market failure to set a real price. In cases of  market failures, we know that government intervention increases efficiency. For example, when competition in a market is limited, antitrust laws that prevent monopoly  are intuitively and empirically known to be helpful.

If consumers were paying the true cost, they would use much less    electricity from fossil fuels – maybe even none, depending on the alternatives. Some say its all textbook economics. Externalities like pollution are classic market failures. Economics 101 says that this failure should be remedied through pollution taxes or marketable emissions permits. When numbers are put to these basic propositions — the effects are substantial and real. This would then, by the logic of free market economics, argue for pollution taxes. In the absence of such, the public turns to clean energy subsidies.  Subsidies have brought about the advent of many key industries in U.S. history -  railroads, oil, aviation, and the internet among others.

While a straight Carbon Tax is preferable to address the market failure, its politically impossible in the US at present. FFE marketers fight regulation and subsidy as inefficient, but by looking at GED measures we can see the opposite is true.

Solar Subsidies and FIT’s: Public RE Investments Advance Societal and Private Interests 
Solar subsidies in practice can help inform policy making aimed at limiting carbon emission and pollution.  An informative example of subsidies and tax policies at work for Solar RE was published in the the New York Times in 2011. NRG Energy built a solar array on its California Valley Solar Ranch that will produce enough electricity to power about 100,000 homes. Taxpayers and ratepayers are providing subsidies worth almost as much as the entire $1.6 billion cost of the project.

Government support generally consists of loans, grants, and contracts that require electric customers to pay higher rates. Such programs largely eliminate  private investment risk and assure large profits for years out. Goldman Sachs, Morgan Stanley, General Electric, utilities like Exelon and NRG, Google -  all are beneficiaries.  There are open questions as to whether the public shares equitably in the return beyond a cleaner environment and increased public health. And subsidies for FFEs are phased out, more accurate costs will emerge in the marketplace. Taxes on pollution and carbon will then allow for more accurate societal cost accounting for FFE relative to REs.

The Solyndra bankruptcy was an exception proving a rule: US taxpayers have done well with RE venture finance. The private sector has done well with little risk undertaken.  From 2007 to 2010, federal subsidies jumped to $14.7 billion from $5.1 billion. In  the European Union (EU), 62% of all new energy coming online is from renewable sources. Yet, many point out that current yields from photovoltaic (PV) solar barely scratch the surface of supply needs. In Germany for example, $100 Billion (this number also assumes the liabilities of FIT contracts 20 yrs out) worth of investment has brought PV solar up to only ~3.9 its energy supply mix at 7.5 Gigawatts.

Comparing finite and renewable planetary energy reserves (Terawatt‐years). Total recoverable reserves are shown for the finite resources. Yearly potential is shown for the renewables. Source: Perez & Perez, 2009a from cleantechnica.com

Critics contend that Germany produces more thanworld    combined from solar RE’ and the amount of carbon thereby removed  is negligible. This tragedy of the commons, where one large constituent fails to act and thereby encourages inaction by others.     And, this is why unified  international action is so important. Already,  both California and Germany, two of the world’s largest  economies, are providing society  a road map for   RE transition. Both are ahead of     the projections for power and   return and still have not begun taking FFE’s sources offline.  It will     be a while before we can score the carbon costs    of their efforts. FIT’s may be good, yet different methods and policies may prove better at  reducing emissions and securing economies.    And, further increases in R&D funding are essential.

Either way, as the study undertaken by Google.org  found,  policy breakthroughs must to be matched with technological ones for maximal de-carbinization rates. Beneficiaries of public support should re-invest some portion of their windfalls into R&D for cleaner and renewable energy sources.

NRG sees the government’s largess as once-in-a-generation. This also is a problem. Such efforts should mark the opening of an era of public finance of RE with a contemporaneous draw down of such support for FFE.  So really the question is whether to subsidize fossils or renewables and/or on what differentials. We can see that beyond the short-term increase in construction hiring, they say, cleaner air and lower carbon emissions from renewables will benefit the country for decades.

Public Finance Efforts Can Provide More Climate Leadership
PG&E will pay NRG ~$ 165 a megawatt-hour. At the time the contract was awarded, that was about 50 percent more than the expected market cost of electricity in California from a newly built gas-powered plant. Californians then are paying more for electricity, but are exacting a lower cost on their neighbors by avoiding the environmental costs of fracking and fission. They are also laying the groundwork for LCAs that can help identify overall rates of decarbonization and point to improvements.

NRG received about 1.4 billion and is projected  to earn ~20% rate of return on equity. By 2015,  NRG expects to be earning at least $300 million  a year in profits from all of its solar projects combined. Its 290-megawatt Agua Caliente Solar Project, when finished in 2014, will produce enough energy to serve about 100,000 typical homes. It will prevent an estimated 5.5 million metric tons of CO2 emissions over 25 years. Consumers will receive its benefits earlier than expected since solar PV generates power in modular units. Unlike FFE and nuclear power, which can not be supplied before the entire project is completed, NRG is in much better shape with regard to future deliveries of clean energy than they would have expected just a year ago.

Taxpayers are uniquely capable of financing largescale clean energy deployment and should disproportionately share in the return given their ability to drive risk so low. Some analysts argue the industry could have delivered more for a lot less price, in terms of subsidy. In these cases, the public should fine tune its negotiations with renewable marketers. A menu of policy options should include:

• A US Treasury Green/Climate Patriot  bond program
• Increase funding for technology and policy research and development
• Formal study of Carbon Tax outcomes in Australia and tracking of A.B. 32 results
• Incentivizing subsidy recipients to invest  in quality employment creation and practice in the US and abroad as based on Human Development Index (HDI) measures

In all cases, the benefits of ensuring security based on clean energy and domestic jobs should be weighed against the costs of corporate welfare for fossil fuel marketers where few technological breakthroughs and little job security accrue to the public.

For example, the Energy Department blocked NRG from certain Treasury grants it was legally entitled to receive. In other cases, the agency required recipients to pay down part of the government-guaranteed construction loans instead of cashing out the equity investors. The concern was the extra subsidy would result in excessive profit. Why not explore allowing for the option of excessive profits in return for underwriting green bonds aimed at national infrastructure and/or building carbon markets? We can and should do this in order to further define the differences between public and private capital.

Public Support for Climate & Energy Policies in November 2011. Yale Project On Climate Change Communication

As the US updates its total exergy - a comparison to the depletion caused by producing the same good (or a different one) using a different set of natural resources -  we can receive win-wins for country and private interests.

Public Engagement of Policymakers is A Must
The public must demand a discussion figuring all energy users about the future of US climate policy in as equals to energy marketers. By maintaining RE subsidies and phasing out ones for FFE sources. we can protect society and advance a healthier economy. This protects our wealth, health, and security. These actions must move us away from a unilateral energy policy towards “green growth” measures as taken by our neighbors and partners across the world. Such policy actions can bring about a dispositive move towards pricing and taxing carbon. A healthier and more productive future that puts people before politics. David Brooks wrote:

…the US public is polarized between ‘drill, baby, drill’ conservatives, who seem suspicious of most regulation, and some environmentalists, who seem to regard fossil fuels as morally corrupt and imagine we can switch to wind and solar overnight.

Yet, recent polls find the public accepts what the majority of the world’s scientists have concluded: the earth is warming and CO2 emissions are the main cause. It is policymakers that display the greatest polarization. Indeed, recent research suggests that political mobilization by elites and advocacy groups is critical in influencing climate change concerns.  The public understands the threat of greenhouse driven global warming. Yet, it is many politicians and their backers that are out of touch. There are proven and burgeoning publicly funded successes for RE in the US and abroad. The public perceives that fossil fuel energy is cheaper, but in reality, we observe the opposite to be true. Plus, we are running out of oil.

by Leland Lehrman

In 2009, Fund Balance emerged from the quant hedge fund and pension world with a relatively innovative and massively underutilized investment thesis we call ESG Long Short Market Neutral.

In a nutshell, our thesis is:

Long: nature, sustainability, culture, and community.

Short: war, pollution, fraud, and corruption. *

We had determined that socially and environmentally conscious (ESG) investors were overlooking a key strategy, and getting hammered because of it.

Long bias, wrongly assumed to be a perennial moral imperative in order to support economic growth, meant that ESG investors had no options other than divestment during down markets. Divestment from good companies is always painful, so most ESG investors just take outsized losses instead. This led to largely unwarranted industry-wide skepticism about cleantech and ESG equities and funds, as they were sometimes more volatile and subject to short-selling than other companies.

Long bias is more often anti-social and anti-environmental than is widely understood.

It presumes that in general, all economic activity is good, hardly a given at the limits to growth and climate stability. One solution: the ESG short strategy, where investors can realize gains in a downmarket by selling short ESG underperformers. **

Asset allocation specialists know that market timing is necessary in order to preserve capital. Look at the literature from David Darst for example and you will see that at a minimum, moving to cash or Treasuries is recommended in order to preserve gains from equity highs. In other words, buy and hold has well-known limitations, despite the incredible ongoing reliance on it even in an age when the S&P 500 is flat (and super volatile) for the last thirteen years. With apparently unattainable industry-wide actuarial expectations of 8% returns the norm, why are more ESG investors not looking at short strategies to balance things out?

There are many answers to that question, from institutional fund consultant and manager group-think to cultural norms, but one is actually rooted in the human psyche, which assumes that positive numbers or attributes are good, and negative ones bad. The problem is that positive badness is negative. By the same token, negative badness is good. Getting a clear understanding of this is vital to acting and investing responsibly, and for the benefit of people and planet.

Our first public short position, Monsanto (NYSE:MON), provides a window into how this type of trade can be effective and profitable, as well as how it ties into the emerging field of social media trend analysis.

We take as a given the fact that Monsanto is an ESG under-perfomer company. We know the debate is not settled for everyone, but the relationship between Monsanto and Blackwater, its unprecedented political revolving door activity and the release of “The World According to Monsanto,” by Marie-Monique Robin, chronicling nearly a century of damage and lawlessness, has convinced us beyond the shadow of a doubt that Monsanto is not only irresponsible, but may be ill-intentioned.

In late January, Fund Balance partner Walter Borden sent along a research note about Monsanto’s cozy but unpopular relationship with the White House suggesting that the time was right to sell Monsanto short. January 23rd saw a huge spike in negative social sentiment with civil society working in concert against the controversial appointment of Monsanto lobbyist Michael Taylor to a senoir position at the FDA. Working the short Monsanto thesis into a proposal, we did a conference call with hedge fund client Dorr Asset Management to assess the tradeworthiness of the idea. During the call, Managing Principal Dave Dorr passed along a social media analytics company, People Browsr, recommending we check it out. Punching in Monsanto to their analysis engine revealed an incredible picture of mounting fury summarized in the above screen shot, and supplemented by sample after sample of networked rage.

Although amazingly the People Browser sentiment engine could not tell, the overwhelming majority of posts were negative. A thrashing storm of tweets, blog posts and facebook notes from the average American to the politically and environmentally active was hitting hurricane strength. Actresses Sophia Bush, Kirstie Alley and Roseanne Barr were the top three influencers according to People Browser, all posting negative sentiment.

Remembering that just last week, I ran into one of the plaintiffs in the lawsuit against Monsanto filed by organic farmers and seed growers in NY’s Federal Court, I decided to punch up the stock price of Monsanto. Down 3%, the broader market was basically flat. I punched in Syngenta, Dow, Dupont and other related companies, all flat. Only Monsanto was getting hit. It was clear that the thesis regarding tradable short signals based on social media intensity and civil society effort was showing extraordinary promise for the ethical investor, not just the quant hedge funds that already use the technique.

Here’s a screen shot of Monsanto’s stock performance vs the S&P, Dupont, Syngenta, and the Dow since the lawsuit and social media frenzy started kicking into overdrive at the beginning of February. That blue line going down is Monsanto.

With intentional coordination between civil society and ESG investors, perhaps the markets can begin to reflect Main Street and Nature’s intentions better. To that end, we’d like to introduce a new hashtag, #shortmonsanto and its companion, the handle @ShortMonsanto.

* Our public equity and fixed income stance is short biased due to the overemphasis of material throughput economics in the public listed sector. However, our alternative assets, green PE, VC and sustainable non-discretionary infrastructure bias is long.

** Another strategy is to reconsider limited liability for companies and investors, which is what protects equity holders from infinite losses.

Science and Sustainability

We at Fund Balance are concerned that the only mention of climate change in President Barack Obama’s 2012 State of the Union address was “The differences in this chamber may be too deep right now to pass a comprehensive plan to fight climate change.”

President Obama, State of the Union address 2012.

The U.S. National Academy of Sciences states, “The world is heating up and humans are primarily responsible. Impacts are already apparent and will increase.” Greenhouse gas (GHG) induced climate change is a clear and present threat to our civilization and way of life. Its continued politicization is dangerous. We accept the consensus of the world’s scientific community which is summarized well by the American Chemical Society:

Careful and comprehensive scientific assessments have clearly demonstrated that the Earth’s climate system is changing in response to growing atmospheric burdens of greenhouse gases (GHGs) and absorbing aerosol particles. (IPCC, 2007) Climate change is occurring, is caused largely by human activities, and poses significant risks for—and in many cases is already affecting—a broad range of human and natural systems. (NRC, 2010a) The potential threats are serious and actions are required to mitigate climate change risks and to adapt to deleterious climate change impacts that probably cannot be avoided. (NRC, 2010b, c).

We further acknowledge and accept the conclusions of our medical community. The American Medical Association (AMA) urges that we as a society confront the health issues of climate change now.

Scientific evidence shows that the world’s climate is changing and that the results have public health consequences. The AMA is working to ensure that physicians and others in health care understand the rise in climate-related illnesses and injuries so they can prepare and respond to them. The Association also is promoting environmentally responsible practices that would reduce waste and energy consumption.

We see that escalating carbon emissions are seriously damaging our oceans depleting them of oxygen and acidification. Carbon dioxide emissions caused by human activities over the last century have increased the acidity of the world’s oceans far beyond the range of natural variations, which may significantly impair the ability of marine organisms to live. We realize that rapid deforestation increasingly impedes nature’s ability to buffer carbon dioxide concentrations in our atmosphere and thus keep our air suitable for breathing.

The time is now for President Obama and Congress to heed science and pursue evidence based policy formation in addressing the real and gathering dangers of Climate Change. Putting a price on carbon is a critical first step.

Economics and Energy
We concur that our nation must responsibly transition away from fossil fuels. We reject the notion that all forms of potential energy are equal in a world confronted with destabilizing weather patterns driven in many instances by atmospheric warming from accumulated GHGs. Oil supply likely has peaked at 75 million barrels per day in spite of price increases of 15 percent each year. The externalities, or outside costs, of coal are a major problem with this energy source and they are not reflected in its market price. While we seemingly purchase and burn coal cheaply, in reality society pays a much higher cost from the perspective of the present and the next generation. Those who benefit from this relatively lower costs of electricity don’t pay for these externalities directly, but the public eventually has to pay in the form of medical bills, real estate depreciation, as well as water and soil detoxification. We call on the President to commission a full cost accounting assessment for the life cycle of coal and all energy sources that incorporates these externalities.

With these principles in mind, we also challenge the conventional wisdom that Natural Gas is a cheaper and cleaner alternative to coal given its requirements for large amounts of fresh water and currently dangerous engineering requirements for extraction from U.S. shale formations. We challenge industry to meet head on the impacts of existing hydroelectric and nuclear baseload sources on fresh water and food supplies.  Safe nuclear still requires a massive uptake of fresh water and the limits of hydroelectric are evident in an overtaxed watershed. Solar technologies must reduce the toxicity of manufacturing and waste, and wind sources must be continually improved. Energy requirements underpin every of sector the economy that sustains our civilization. Only technological breakthroughs combined with carbon pricing can deliver the advances required for our common good.

We see that choosing strategic renewable energy development does not mean impeding job formation or damaging labor markets. We subscribe to the conclusions of Google.org in its report utilizing the McKinsey & Company’s US Low Carbon Economics Tool:

1. Renewable Energy Innovation Benefits Jobs, GDP, Emissions, and Security
2. Delaying Innovation = Delaying Benefits
3. Innovation and Policy Enhance Each Other

Breakthroughs in clean energy technology will reduce the cost associated with clean energy policies implementation, effectively growing the economy while decarbonizing our energy use. These challenges can be met by our public and private sectors. Such efforts will doubtless yield additional benefits just as the internet emerged from the space age.

Policy Making
We further acknowledge the world’s policy making community as codified by the Kyoto Protocol and the United States Department of Defense that has concluded that Climate Change should be elevated to a U.S. national security concern. We contend that since the United States only has ~2% of the world’s oil reserves that pursuing policies of further subsidizing their extraction is a waste of resources.

With this in mind we call on the President and our elected representatives to address the real and gathering threats posed by the climate change with the same sense of urgency as the national debt. Climate change equally threatens the safety and security of our grandchildren and future generations. The world’s food supply and its stability is how we generate and create capital in the first place. And it is thus a moral responsibility of our leadership to take action to address climate change.

To this end we call for all elected officials to cease the politicization of the consensus of the world’s scientific community. In 2007 senators for both major parities in the United States were working together to implement policy to address the dangers posed by man made climate change and the coming Storm Age. Since that time Scientists have re-confirmed the IPCC’s assessment and moved on beyond the basic result that GHGs are warming Earth rapidly. The Republican Party however, once the party of Theodore Roosevelt, a party of Richard Nixon that ushered in the EPA, has moved in the opposite direction. As the scientific evidence has mounted and been re-confirmed by major studies such as BEST the contemporary leadership of this important American political institution has moved away from it.

Lastly, we at Fund Balance acknowledge that philosophical differences about the appropriate response exist. We are committed to rejecting ad hominem in dialogue with those we seek to convince. Some question if anything can be done. Others argue that warming will be better for human civilization. Still others say whatever the consequences, the world’s economic stability is too dependent on carbon emissions so transition away from fossil fuels can only bring wide scale food insecurity and disaster. We peacefully disagree and seek to forge a way forward utilizing a blend of measured transition to renewable energy sources, with research and development of clean alternatives, in concert with sustainable policy innovation. Such approaches do not hold a priori that economic growth in any form constitutes an overall good for humanity.

“The conservation of natural resources is the fundamental problem. Unless we solve that problem it will avail us little to solve all others.”  Theodore Roosevelt

What’s In a Petrodollar?
Fossil Fuel producing nations should extract their resources consistent with the health needs of their people, air, land, and water.  History shows us that regulation plays an essential role in this mandate. Energy marketers insist regulations are counterproductive. Implied though not often stated, nations like Russia and China can more easily form capital and drive labor demand from fossil fuel exploitation because they can act largely unencumbered by regulation. This unproven assumption ignores the escalating costs of unconstrained fossil fuel extraction to present and future generations. Should we be more concerned about poisoning our planet for future generations than leaving large amounts of debt for them? I argue yes. Does the regulation of fossil fuel extraction impede aggregate labor demand? The evidence indicates no. The earth is the source of all money so worrying about debt instead of planetary health puts the cart before the horse. A sick, weakened planet will create less value, profit, and wealth.  Concurrently, as oil supplies wane, systemic risk will form around basing currencies on fossil fuels, oil in particular. Searches for fossil fuel resources will grow into fierce and destabilizing conflicts. Increasingly scarce tracts of clean, fertile land can only deepen them.

Unregulated Nations and Quality of Air, Water, Land and Life
Russia and its oil country exemplify the realities of unregulated, petrodollar capitalism. Its oil producing areas constitute what experts describe as our planet’s worst ecological oil catastrophe. Based on reporting from the Associated Press, estimates are that roughly one Deepwater Horizon-scale leakage occurs about every two months. Outdated infrastructure, minimal and unenforced regulation allow for oil to contaminate soil, kill plant life, and damage habitats for mammals and birds. State-funded research shows 10-15 percent of Russian oil leakage enters rivers with nearly 500,000 tons flowing into the Arctic.

Source: Bureau of Labor Statistics

From Chernobyl to more recent paper mill pollution seeping into Siberia’s Lake Baikal, which holds one-fifth of the world’s supply of fresh water, Russia’s lax regulatory posture renders great swaths of territory uninhabitable and fallow. Russian oil spills are more numerous than in any other oil-producing nation. “Oil gets spilled literally every day,” said Dr. Grigory Barenboim, senior researcher at the Russian Academy of Sciences’ Institute of Water Problems. His is not alone. And by all accounts the estimate is conservative since under Russian law, leaks less than 8 tons rate as “incidents” and can thus go unreported. By contrast, the U.S., the world’s third-largest oil producer, logged 341 pipeline ruptures in 2010 — compared to Russia’s 18,000 — according to the U.S. Department of Transportation.

The republic of Komi, just south of the Arctic Circle, is the scene of Russia’s largest oil spill. Up to 40 kilometers of two local rivers were polluted, killing thousands of fish. Respiratory diseases rose by over 28 percent in the year following the leak. Komi’s officials blamed neglected infrastructure and oil companies reporting that “companies that extract hydrocarbons focus on making profits rather than how to use the resources rationally.”

Representatives of Lukoil denied claims that they try to conceal spills and leaks saying that no more than 2.7 tons leaked last year from its production areas in Komi. Government officials and environmentalists agree however that such spills and mismanagement typify most any oil field in Russia. They point to outdated systems used by oil companies, but also add that large scale oil spills are not confined to abandoned or aging fields. Major accidents happen at brand new pipelines.

At least 400 tons leaked from a new Transneft pipeline in two separate accidents in Russia’s Far East last year. It brings Russian oil from Eastern Siberia to China and went operational just months before the spills. Oil executives complain that oil spills that routinely happen in plain sight cost too much money to repair. Officials and citizens alike find it hard if not impossible to hold authorities accountable. In the Komi area for example, some 90 percent of the local population comprises oil workers and their families. They point out how they have relocated from other regions of Russian and depend on the industry for their livelihood.

Oil Spill. Eleanor Bay, Alaska

Is there any reason to believe that reduced regulation in the U.S. would lead to different outcomes than seen in Russia? Does there have to be a trade off between employment and keeping ecosystems healthy in Russia, the US, or any other oil bearing nation?

Ruth Greenspan Bell of the World Resources Institute recently pointed out, “Looking only at job losses inevitably ignores a larger truth: environmental spending creates jobs that offset losses.”  She notes that compared to overall spending in the economy, on a per dollar basis, spending on environmental protection and clean-up employs:

• Over twice as many workers in construction
• 25 percent more in manufacturing
• Plant closings and layoffs comprise only one tenth of 1 percent of all layoffs nationwide.
• From 1990-1997 period, 10 million U.S. workers were laid off for non-environmental reasons.

Bell cites a recent report to Congress compiled by the White House Office of Management and Budget, which examined the costs and benefits of environmental regulations. Looking at federal regulations between 1999 and 2009 in which the relevant agencies both estimated and monetized the benefits and costs of those rules, the OMB analysis estimated that the annual benefits of regulation totaled between $128 billion and $616 billion. The annual costs: between $43 billion and $55 billion.

Nonetheless it is held as orthodoxy by many that environmental protection laws i.e. regulations regardless of application are bad for everyone in the economy.

Regulations do not impede labor demand in the ways claimed by polluters and their publicists. But do renewable technologies that mitigate the costs of oil to our society actually increase labor supply and stifle aggregate demand for it, or is renewable energy poised to help tighten labor markets in the long run and thus help families secure their futures? Bloomberg New Energy Finance recently reported that for the first time, global investments in renewable electricity have exceeded investments in fossil fuel power plants. Some of the facts laid out in their reporting:

• The number of solar jobs in America has doubled since 2009
• Today more than 100,000 Americans work in the solar industry at more than 5,000 companies in every single state.
• These include manufacturing, installation, and supply chain jobs.
• The installed base of solar power in the United States doubled
• The solar industry is growing at a rate of 69 percent annually
• The cost of solar panels has fallen 30 percent over just the last two years, continuing a long-term downward trend in the price of solar.

Solar is becoming more cost-competitive with conventional fossil fuels and some estimate photovoltaic solar will achieve price parity by 2020. Two of the world’s three largest employers, the United States Department of Defense and Walmart are looking to solar. Walmart is installing solar panels at 130 stores in California because its solar program has significantly reduced its energy expenses. The United States Marine Corps utilizes solar energy with battery storage to fully power forward operating bases in Afghanistan. Marine Colonel Bob Charette says renewable energy is “about saving lives” by reducing the number of dangerous fuel convoys needed for resupply. The People’s Liberation Army of China is the third, and China is well known for its aggressive push towards renewables as well as towards securing fossil fuels and mineral resources from the Americas to Africa.

There are encouraging signs that the private sector is beginning to understand the urgency of carbon pollution rates and take action. Fund Balance associate South Pole Carbon recently performed a Carbon Scan of S&P 500. It provided a carbon footprint of a USD 1 million investment into the S&P 500:

• Total Emissions for a USD 1 million investment amount to 188 tons of CO2.
• Offsetting those emissions with high quality emission reduction projects costs an investor USD 2,632 (26 basis points in relative terms).
• Roughly 60% of the overall emissions come from just 3.7% utilities exposure meaning just 5 out of the 500 companies are responsible for over a quarter of the emissions.

The private sector has a role to play as well. This analysis shows that News Corp and Google are already climate neutral due to their own offsetting. Rupert Murdoch stated that News Corporation is carbon neutral: “But achieving net zero carbon emissions was never our only goal…Today, I’m pleased to share some of our successes across the Company, as well as our long-term commitment to environmental sustainability.” Quite a statement from the Chairman of a Corporation that counts Saudi Royalty as its second largest shareholder.

Dubai Under Cloud Cover

What Does All This Mean?
The information above is indicative of a great many other studies: nations with sufficient and adequately funded regulatory law compared to those with little to no regulatory law and enforcement have less carbon pollution and higher standards of living. It points to two other policy imperatives.

First, nations such as the US and Norway that strictly regulate pollution maintain healthier environments and have higher living standards than those that do not. They are also better positioned to thrive in an era of constrained access to fossil fuels as the health of their aquifers and atmospheres renders them more productive.

Second, there can be no doubt of the continued need for fossil fuel energy resources for the immediate future. During this process what can we do to protect our food and water supply and its viability for future generations and their ability to live and create wealth? History provides few examples of mining and energy concerns protecting resources if not required. Society can and should incrementally redirect the funding and effort to extract fossil fuels towards renewables. This includes those resources utilized for lobbying,  deregulation, and publicity campaigns designed to produce the misconception of legitimate scientific debate that Global Warming is primarily man made. Society must honestly and rigorously assess regulations that may interfere with short term job creation and adapt job training, industrial, and agricultural programs accordingly. Policy must encourage steady elimination of the linkage between our currencies and oil. Cultivate Heliodollars.

Such redirection should include subsidies. As energy concerns move to the Arctic and other remote ecosystems to exploit hard-to-get oil and gas reserves, let’s listen to scientists and policy makers as they register concern for potential environmental calamities. These will just as surely affect the entire planet’s ability to support life and create wealth in future generations as inherited balance sheet debt among nation states.

What Can We Conclude?
When our air and water are protected from exposure to excessive carbon dioxide or mercury the entire Earth profits. 20th century notions of wealth and productivity should adapt as they did when the great nation states abandoned slavery as an economic system within the rule of law. All of this means that moving forward even GDP as a measure of value will necessarily serve a limited role in climate and economic scenarios. Petrodollars may no longer serve as the best store of wealth.

We need policies that address preservation of the resources that provide us with food and water. This requires the will and action to regulate polluters, building on the successes these regulations bring  to the United Sates, and remaining mindful of current and future realities for “pollutacracies” like Russia. This requires new thinking and refinement of money and debt. A  recent economic analysis found coal-generated electricity imposing more in public health costs than the electricity is worth on the market. In short our current approach to resource extraction, sustenance cultivation, and wealth preservation “reduces the Earth Herself and Her People to a form of slavery via economic vampirism” as Fund Balance partner Leland Lehrman recently wrote.

The urgency of this matter does not reduce well to comfortable partisan positioning. President Obama has dismissed environmentalists as “pointy headed greens.” His Commerce Secretary William Daley actively works to prevent new EPA regulations. As recently as 2007, GOP stalwarts such as Lindsay Graham and Newt Gingrich acknowledged the urgency of Global Warming only to totally reverse their positions even as the science solidified around a consensus that Global Warming is real and manmade. And contrary to popular belief, the Obama administration is on track to approve fewer regulations than their predecessor.

This isn’t to say all regulations are useful only that the characteristics of nations whose energy industries are well regulated help define their economic opportunity and public health.

Regulations and the rule of law are at the heart of what has protected America’s resources from over-exploitation. Abraham Lincoln moved to protect California’s Yosemite Valley in 1864 laying the groundwork for Yosemite National Park.  Theodore Roosevelt later created hundreds of national forests and bird sanctuaries as well as  reclamation projects during his tenure. Dwight D. Eisenhower established the Arctic National Wildlife Refuge. Richard Nixon signed almost every major piece of environmental legislation that we know of today.

Sunset at North Pole. Photo/composite by Brian Krassenstein

While campaigning, President Obama proclaimed his “intergenerational” perspective and recognition that “we are borrowing this planet from our children and our grandchildren.” After years of supporting the coal industry in Illinois, he supported cutting carbon emissions 80 percent by 2050. There was to be a much greater commitment to conservation. So far little has been done. While Congressional intransigence, well funded lobbying, and PR campaigns often broadcast on News Corporation’s Fox News network matter, there has also been scarce leadership from the Obama administration.

Weakening environmental regulations does little to create jobs and and makes us both poorer and sicker. Enforceable and enforced regulations protect future generations’ wealth and health. We need to transition away from reliance on petrodollars as a medium of exchange. The oil industry in Komi, Russia has been sapping nature for decades, killing or forcing out reindeer and fish. Locals like 63-year-old Yuri Bratenkov recount that when big oil leaves, only poisoned terrain is left in its wake. “Fishing, hunting — it’s all gone”.

Mayor Bloomberg, Chair C40

Is Michael Bloomberg really getting serious about sustainability and the climate?

Is the upcoming free and now completely full ESG 2011 USA event a huddle of the region’s best sustainability practitioners? We’ll be getting the scoop from Bloomberg CEO Daniel Doctoroff, and Thomas DiNapoli, Comptroller of the State of NY, the top official of the massive $150B New York Common Retirement Fund.

Talks leading up to the C40 (top 40 cities) conference just prior to Rio+20 are starting to raise the bar on fixing the problem of urban emissions (60-80% of the total).

Mayor Bloomberg is the Chair of the C40.

Here’s his welcome message to C40 Sao Paulo attendees:

Former London Mayor Nicky Gavron: “Every single financial centre is at sea level.”

“Over the past six years, C40 Summits have brought together mayors of the world’s largest cities to share information on their respective experiences in dealing with climate change. This is our fourth Summit, the first to be hosted in the Southern Hemisphere, and my first as Chair of the C40.

For the first time in history, cities are home to more than half of the world’s population, and together account for more than 80% of the world’s greenhouse gas emissions. The Summit in São Paulo will provide us with an excellent opportunity to explore and exchange new ideas and initiatives, and to discuss new partnerships among mayors and governors that can address climate change and promote sustainability. ”

The race is on.

London’s former mayor Nicky Gavron tipped everyone’s hand with a pointed comment about the geographical location of the world’s financial centers:

“Big cities need to raise the game because they’re so responsible for such a high proportion of greenhouse gas [GHG] emissions and they’re very vulnerable to [climate change],” Gavron told Environmental Finance. Around 60% of global GHGs come from cities. “Every single financial centre is at sea level.”

Simultaneously it seems, Bloomberg’s home page just created a new top level tab, “Sustainability”, featuring some of the excellent work of Bloomberg New Energy Finance.

Having recently investigated the ESG features of a BNEF equipped Bloomberg terminal, I can tell you: it rocks.

Mayor Bloomberg also passed legislation improving the buy local profile of his NYC Administration:

Buy Local, the Mayor Says

So screamed the headline from Matt Flegenheimer’s NY Times blog:

Energy and pollution salesmen extol the market value of fossil fuels underneath our land and sea based on a certain doctrine. It asserts that job creation requires prolific fossil fuel extraction, and consequently, such operations deserve taxpayer entitlements and subsidies. These operators argue further that vast sums of wealth go unformed if we do not extract and sell fossil fuels. To restrain their immediate extraction will impoverish laborers, immiserate business owners, and impede capital creation. I have addressed how renewable energy and cleantech create jobs. This post primarily concerns the morality of continuing to structure economies around climate destroying carbon emissions.

The consensus of the world’s scientists and a plurality of its policy makers is that fossil fuel dependency will extract a terrible and deadly price from future generations. Yet we are told that questions of ecology must always defer to classical economic ones. Very little mainstream thinking addresses why and how this doctrine is prerequisite for thriving labor markets.

But this doctrine in question has nonetheless been extremely influential.

Historical precedents do exist for civilizations abandoning a specific market and writing down large sums of perceived value based on moral reasoning. At the end of the Civil War the value of slaves held in the U.S. was estimated to be approximately $2 Billion USD, approximately $70 Billion in 2011 USD. Yet, at the end of the Civil War this value was entirely written down. Abolition of chattel slavery meant morality superseding profit. Recently publicized results from BEST confirm earth is warming rapidly.  Adding to the scientific consensus that global warming is man made, should we not apply similar moral reasoning to our fossil fueled society?

Clearly then continued extraction and consumption of fossil fuels has a definite moral component. Oil, coal, and natural gas might be there and possess an imputed market value, but does this constitute a prima facie argument for their extraction or rationalize the pollution created? An instructive case in point is the XL pipeline. We are told that building it will help free the US from dependency on foreign oil. Leaving aside for a second this dubious assumption, let us look at Nebraska. Many of XL’s would-be owners sell on the open international market and no covenants exist for any portion of the crude to be reserved for the U.S and Canada, though some Canadian officials are threatening to selectively provide the oil to other nations should the U.S. decline to participate.

The proposed XL Pipeline would cut over and across the Ogallala Aquifer. Ogallala emanates from Nebraska to roughly 27% of the irrigated land in the United States according to the United States Geological Survey. It yields about 30% of the nation’s ground water used for irrigation. The aquifer system provides drinking water to 82% of the people who live within its boundary. Regardless of how small the chances for a major spill might be in the estimation of industry funded analyses, after a year of operation, the project’s forerunner, Keystone 1, had leaked 13 times and was shut down temporarily by regulators. But is any chance at all too much of a risk? This is, as financial engineers might say, an awful lot of Value at Risk (VAR). And in a financial context, while current models for VAR don’t value systems like aquifers, isn’t it time they do so?

Do questions like this point to a critical qualitative difference between dirty energy and clean energy jobs? In the New York Times recently:

“But the energy industries eat one another’s lunch. Jay Apt, executive director of the Energy Industry Center at Carnegie Mellon University in Pittsburgh, said it was possible to calculate the amount of electricity produced at a coal plant per person who works there…Build enough solar plants and some coal plants will shut down; that would amount to firing Peter to hire Paul.”

This is specious logic. A fossil fuel energy job definitionally is not a clean energy job. The price the public pays in polluted water and a toxified atmosphere for dirty energy jobs is a clear and present danger and all the more so for future generations. As much so as our public debt since the earth is the source of all money, and all the riches in the world cannot replace a poisoned planet.

Clearly there are some uses for petroleum for which no immediate replacement options exist yet: medicine and agriculture. Medicine needs large amounts of petroleum for plastic and agriculture for fertilizers. We must preserve carbon resources for our health and food supply and work to deploy renewable energy resource for our civilization’s energy needs. This must happen in concert with adopting new policies for the storage and transfer of value. We need to plan increasingly for energy consumption in terms of “negawatts” — the unit of energy that can be saved and not used. Not only are most conservati­on solutions cheaper to implement than new power plants or exploiting new and farther-to­-get-to oil fields, they will leave healthy climates and sustainable economies for future generations.

Humans Impact the Ocean. Courtesy of NOAA

What will the price for future generations be for our failure to realize rapid and concentrated deployment of renewable energy infrastructure? The rest of the world has figured this out, making the US less efficient than other nations with each passing year. Many strong and mature technologies for the US to utilize exist. Yet massive subsidies doled out to oil, gas, coal and nuclear power suppliers further drive degradation of our climate systems.

The more America makes fossil fuels artificial­ly cheap the greater the burden we create for future generations. This is because in the US nearly all “external costs” are associated with energy usage side effects (pollution­, risk of a meltdown, massive military costs) and are borne by the taxpayer. The suppliers as well as the direct purchasers­ of energy are allowed to pretend that pollution has no societal cost, i.e impact on their neighbors irrespective of participation in the market. Naturally then they strongly resist conservati­on efforts. Energy producers like any marketer will resist attempts to reduce demand for their products and to hold them in abeyance since such efforts impact both the amount sold as well as the price. Just as the Confederacy did with respect to the holding slaves. It’s worth noting that by the outbreak of the US Civil War many nations had abolished slavery yet the Confederacy continued to promote slavery markets.

The legacy of the W.P.A. further points to the moral imperatives for a nationwide effort to deploy clean energy for the security and sustainability of future generations as well as to address the unemployment crisis in the US. According to historian Nick Taylor the W.P.A.:

“….employed 8.5 million people in its eight years, and there were always eligible people on the waiting list for jobs….brought America’s infrastructure into the twentieth century, adding 650,000 miles of roads and 78,000 bridges to the country’s transportation network. It improved the nation’s health with water and sewer treatment systems and new hospitals that were among 125,000 new WPA-built civilian and military buildings. “

Recent studies such as BEST reinforce the position of US National Academy of Sciences that anthropogenic global warming should be “regarded as settled facts”. Our economic competitors like Germany and China regularly surpass the U.S in renewable energy investments. The argument that oil, gas, and coal possess market value is not a sufficient condition to pollute air, poison aquifers, and degrade our climate. History also shows that often writing down one asset allows for new benefits to emerge. As chemists, engineers, and farmers focus more tightly on renewable and clean technology innovation humanity can progress to more rational economic and ecologic modes for utilizing our shared resources. By some estimates, the EU gets about 60% more GDP out of its total energy use than America. As a moral imperative we owe it to future generations to catch-up.

We do indeed have a great deal of value at risk when we threaten the capacity of aquifers and oceans to produce food and of forests to clean air. Now then is the time to apply much greater moral and ethical scrutiny to fossil fuel extraction even if it indicates that some profit must be sacrificed and entire asset classes written down for a certain gilded few.

AIG vs Bank of America

Like Godzilla and King Kong in the Japanese movies, the lawsuit between AIG and Bank of America appears set in a kind of apocalyptic timeframe with cliffhanger debt ceiling negotiations happening during record heat waves, climate disruption and collapsing stock markets. Top corporate leaders, socially close and invested in the same system, nevertheless fight over the bones of a resource constrained “economy.”

Tyler Durden, the pseudonymous editor of the hotly commented and rebellious financial blog zerohedge.com called the AIG lawsuit against Bank of America “ironic.” The fight club anti-establishment trader points out that “it is AIG which takes down the financial system for the second time after its lawsuit against BAC filed last night kills Bank of America.” As gory as the details are, they are less important than the larger themes.

The Phoenix, “penciled” in by the Economist for 2018 is slated to rise from the ashes of other currencies. Following the crash of 1987, the anonymous editors in London wrote

“Thirty years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the phoenix. The phoenix will be favoured by companies and shoppers because it will be more convenient than today’s national currencies, which by then will seem a quaint cause of much

Economist Calls for Global Currency, 1988

disruption to economic life in the last twentieth century…Something will be, almost certainly in the course of 1988. And not long after the next currency agreement is signed it will go the same way as the last one. It will collapse. Governments are far from ready to subordinate their domestic objectives to the goal of international stability. Several more big exchange-rate upsets, a few more stockmarket crashes and probably a slump or two will be needed before politicians are willing to face squarely up to that choice. This points to a muddled sequence of emergency followed by a patch-up followed by emergency, stretching out far beyond 2018 – except for two things. As time passes, the damage caused by currency instability is gradually going to mount; and the very tends that will make it mount are making the utopia of monetary union feasible.”

There are other time-tested ways to handle currency instability using fixed exchange rates and asset backing for example. Were these “quaint” tools of Bretton Woods and earlier monetary regimes discarded in favor of inherently unstable hedging instruments known as derivatives because a period of systemic instability was useful to provide the appearance of the necessity of centralized global governance and currency?

Only a truly sovereign people can repudiate a debt yoke deceptively laid on its shoulders by a predatory financial class. Michael Lewis’ book Liar’s Poker offers example after example of the shark-like demeanor of bond traders and financial captains, endlessly feeding off pension funds around the world so arrogantly for so long that the eventual backlash they encounter is considered uppity.

So where can that sovereign people be found today? Increasingly in the street.

The Arab Spring, paralleled on May 25th by the rise of the European acampada culture in Spain, richly updates the flavor and genetic code of human evolution. Rather than a function of arms, evolution is now a function of the courage to assemble and live together physically and peacefully long enough to develop new, more representative social and governance forms. “Build a new model that makes the existing model obsolete,” as Buckminster Fuller once said. Manuel Castells beautifully illustrated the good news from Spain in a thought piece for Adbusters’ most recent issue, wherein he described one new model from a few angles: “Everything is worked out through functional theme-based autonomous multiple commissions, coordinated by an intercommission whose members rotated…What is transformative is the process more than the product.”

Ignoring youth is no longer an option

Those who have not been reading Adbusters or its constellation of authors may not be aware that the intellectual tradition of evolution, liberation and its political philosophy are alive and well. Even if not well enough informed of the historic manipulation of the revolutionary form by those it opposes, the modern evolution contains seeds of joy, primarily derived from its focus on biology, physical community, cooperation, and ecology. My heart soars as I read the words of Saul Newman on the latest iteration of the socio-political sphere:

“Democracy today consists in the invention or reinvention of spaces, movements, ways of life, economic exchanges and political practices that resist the imprint of the state and which foster relations of equal liberty. The struggles that take place today against capitalism and the state are democratic struggles. At the same time, however, we might sound a certain note of dissatisfaction with the term “democracy.” We can echo Bakunin, who finds the term democracy “not sufficient.” As Derrida himself said of democracy: “[A]s a term it’s not sacred. I can some day or other, say, ‘No, it’s not the right term. The situation allows or demands that we use another term …’” The situation is changing, and the new forms of autonomous politics that are currently emerging demand the use of another term: anarchism.”

There is a range of human political organization, from the indigenous, no-contact tribes to the power elite in their underground bunkers. I see a balance point in the networked ecovillage. Although the evolutionary discourse is sometimes scarred by the nihilistic intellectualism and desperate madness of the urban prisoner, there is a broader coalition here. Indigenous people, campesinos, environmentalists, libertarians, farmers and independent businesspeople are now coming to winnow the past together, separating that which we will take into our future, and that we will leave behind. This same process is at work in the well-known cooperation between liberal Representative and Presidential candidate Dennis Kucinich and his libertarian counterpart Ron Paul. Kucinich’s office once acknowledged to Tina Richards, campaign manager for Adam Kokesh in 2008 that Kucinich and Paul work more closely with each other than with those in their own party. Stitching together the legitimate philosophical, humanistic, and ecological impulses of both right and left will produce a populist coalition that finally overwhelms the influence of money, especially as the influence of money decays along with its value.

The importance of the Arab Spring flies far beyond the national, racial, and religious issues of its particular geographic location. The style of the modern revolution, invented by Gandhi and popularized by Martin Luther King and the student movements of the Sixties, has now penetrated all the way to Tel Aviv, where a record 250,000 people camped on Rothschild Boulevard earlier this month to demand social justice, fair access to housing and regime change. Look at the video. These are not just peace rallies, but permanent gatherings to address systemic issues widely appreciated by a broad and diverse cross section of humanity. And they are coming to a city near you. Actions in September in New York and October in Washington, DC are brewing. These US events, as much as they have in common with those of our recent and distant past, will all be of the species Tunis – Egyptus Tahriri.

#occupywallstreet

And thus we come to the most important question of all. As Kalle Lasn puts it, what is our one demand? Let us not be bound by the soundbite and twitter feed. Our power to do good derives from our ability to slow down, and make time for the important things in life. Let us take the time to think on this question – ruminating upon it – as even the best answers are usually fleeting and temporary by contrast to the eternal questions.

Before imagining an answer today, let me describe my assumptions. If we are to accept, as I believe we can, that there is a place for the rational, technological civilization with its comforts and culture in brotherhood alongside the indigenous way, we must examine it carefully to determine the heredity of its inherent flaws, so manifestly apparent today. If I were to name the flaw in this civilization’s design from which so many other ills derive, I might point to the money issuance methodology by which collective decision-making is accomplished. No other intellectual tradition has served so effectively to ensnare more and more of the Earth in the compounding growth of its “interest.”

But interest in what?

The inherent mathematical impossibility of long term compound growth in a physical world was revealed by silverback asset manager Jeremy Grantham in his April 2011 newsletter:

Jeremy Grantham: Not exactly a radical

“Failure to Appreciate the Impossibility of Sustained Compound Growth:

I briefly referred to our lack of numeracy as a species, and I would like to look at one aspect of this in greater detail: our inability to understand and internalize the effects of compound growth. This incapacity has played a large role in our willingness to ignore the effects of our compounding growth in demand on limited resources. Four years ago I was talking to a group of super quants, mostly PhDs in mathematics, about finance and the environment. I used the growth rate of the global economy back then – 4.5% for two years, back to back – and I argued that it was the growth rate to which we now aspired. To point to the ludicrous unsustainability of this compound growth I suggested that we imagine the Ancient Egyptians (an example I had offered in my July 2008 Letter) whose gods, pharaohs, language, and general culture lasted for well over 3,000 years. Starting with only a cubic meter of physical possessions (to make calculations easy), I asked how much physical wealth they would have had 3,000 years later at 4.5% compounded growth. Now, these were trained mathematicians, so I teased them: “Come on, make a guess. Internalize the general idea. You know it’s a very big number.” And the answers came back: “Miles deep around the planet,” “No, it’s much bigger than that, from here to the moon.” Big quantities to be sure, but no one came close. In fact, not one of these potential experts came within one billionth of 1% of the actual number, which is approximately 1057, a number so vast that it could not be squeezed into a billion of our Solar Systems.”

Juxtaposing the logical impossibility of compound growth to the unfazed obsession with it by almost the entirety of the financial, business and political class reveals that the primary decision-making capacity of the originators of currency is faulty at best.

Money, like mathematics and music, is largely based on abstractions and assumptions, some of which bother to harmonize with Nature, some of which do not. Like a bad organist in a crumbling church playing the discordant music of the malcontent, today’s arbiters of issuance have succeeded even in raising doubt about the capacity of the global mind to deviate from an increasingly disastrous course, and thus have thrown doubt upon the value of mind itself.

Solar Rooftiles on Saint Silas Church, Central London

Abstraction falls into an even larger and older category: the tool. Some tools are associated more with creation, some with destruction. Can we say with certainty that money is a tool more like a spade than a sword? After years of reflection on the subject, I cannot say for certain. But if we can answer this fairly yes, then shall we not simply commission a new composer and organist? Perhaps we might rebuild the church and its garden, a LEED certified organic CSA, with solar panels and a biomass combined heat and power unit to keep it warm and well-lit for the needy citizens we welcome to sanctuary during the stormy months ahead – as Godzilla and King Kong fight over the bones of the “economy.”