Next Wednesday, October 28, Afghanistan experts Congressman Adam Smith, the Chairman of the Subcommittee on Terrorism, Unconventional Threats and Capabilities of the House Armed Services Committee, and journalist Peter Bergen, the Co-Director of the New America Foundation’s Counterterrorism Strategy Initiative will speak to NDN about America’s challenges in Afghanistan. Both had important contributions to the conversation today in the press, Smith in lead quote in the New York Times and Bergen in an article in The New Republic.
Here's what Adam Smith, who recently traveled to Afghanistan and Pakistan, had to say in a piece on Taliban financing:
Despite efforts by the United States and its allies in the last year to cripple the Taliban's financing, using the military and intelligence, American officials acknowledge they barely made a dent.
"I don’t believe we can significantly alter their effectiveness by cutting off their money right now," said Representative Adam Smith, a Washington State Democrat on the House Intelligence and Armed Services Committees who traveled to Afghanistan and Pakistan last month. "I'm not saying we shouldn’t try. It’s just bigger and more complex than we can effectively stop."
...as President Obama weighs whether to send more troops to Afghanistan, the connection between the region and Al Qaeda has suddenly become a matter of hot dispute in Washington. We are told that September 11 was as much a product of plotting in Hamburg as in Afghanistan; that Al Qaeda and the Taliban are quite distinct groups, and that we can therefore defeat the former while tolerating the latter; that flushing jihadists out of one failing state will merely cause them to pop up in another anarchic corner of the globe; that, in the age of the Internet, denying terrorists a physical safe haven isn't all it's cracked up to be.
These arguments point toward one conclusion: The effort to secure Afghanistan is not a matter of vital U.S. interest. But those who make this case could not be more mistaken. Afghanistan and the areas of Pakistan that border it have always been the epicenter of the war on jihadist terrorism--and, at least for the foreseeable future, they will continue to be. Though it may be tempting to think otherwise, we cannot defeat Al Qaeda without securing Afghanistan.
Last week, I wrote about a David Brooks column that argued that the next great debate in American society is going to be about the best way to promote innovation in the economy. Indeed, innovation has been the lifeblood of the American economy, and it's heartening to see that much of the national conversation has turned to promoting innovation. But not all innovation is beneficial to society. Indeed, one of the sectors that has seen a great deal of innovation recently, some of which created sub-optimal results, was the financial sector. Calvin Trillin, writing in the New York Times, explains, in a sentence, why:
The financial system nearly collapsed…because smart guys had started working on Wall Street.
What Trillin goes onto explain is that smart people, instead of going into for example physics, started going into finance and started innovating. A lot - and much more than their less talented predecessors. (James Kwak at the Baseline Scenario says that this actually is probably true.) But, as Simon Johnson and Kwak have explained, much of the recent innovation in the financial sector hasn't necessarily been beneficial to anyone other than those doing the innovating. They differentiate between innovation that has made things better for consumers – the ATM for example – and innovation that involves easier access to credit, which isn't always as good:
In short, financial innovations whose sole function is to increase access to credit do not in and of themselves make the world a better place. They can help by providing the credit that people need to make the world a better place, but they can also make it possible for people to do irrational and economically destructive things. So when people say that innovation is the source of all progress, that may be true – but not all types of innovation are equal.
In the most recent Democracy Journal, which features a whole series of articles on innovation (incuding one by Johnson and Kwak), NDN's Dr. Rob Shapiro criticizes a proposal promoting the idea of utility capitalism, essentially government regulated monopolies or cartels. Michael Lind, the proponent of utility capitalism, argues that this framework would encourage innovation, which Shapiro debunks by explaining how, according to Nobel Laureate Kenneth Arrow, innovation really works:
Large, incumbent firms try to enhance the efficiency and reduce the costs of what they already do well. Younger firms have to establish a new place in the market, and since their size precludes competing on price, they have to compete in some area of quality, which often means innovation. [Cartels and monopolies, which preserve the incumbent status of large firms, therefore do not lend themselves toward innovation.]
Most of us can agree that for America to maintain its economic standing, our edge in innovation and the modern idea-based economy is crucial. Unfortunately, maintaining an edge in something so inherently dynamic as generating the ideas that create new and powerful companies, products, and services is difficult, and our ability to innovate is certainly not unlimited.
Most would agree that it was a mistake in recent years to focus so much innovation on the financial sector as opposed to science, medicine, and making people's lives better, and Trillin's point paired with Shapiro's are crucial: America needs to create the incentives that move talented people into socially useful professions (like center-left Washington think-tanking) and create the economic incentives to produce socially useful innovation.
Since last week's the freak-out about a weak dollar, cooler heads have responded. Paul Krugman led the way this week with a strong (targeted) critique of the idea, coming from regional Federal Reserve banks, that the Fed's Open Market Committee should make "an early return to tighter money, including higher interests rates." Krugman doesn't think that the raising rates makes sense at all:
After all, the unemployment rate is a horrifying 9.8 percent and still rising, while inflation is running well below the Fed’s long-term target. This suggests that the Fed should be in no hurry to tighten — in fact, standard policy rules of thumb suggest that interest rates should be left on hold for the next two years or more, or until the unemployment rate has fallen to around 7 percent.
Yet some Fed officials want to pull the trigger on rates much sooner. To avoid a "Great Inflation," says Charles Plosser of the Philadelphia Fed, "we will need to act well before unemployment rates and other measures of resource utilization have returned to acceptable levels." Jeffrey Lacker of the Richmond Fed says that rates may need to rise even if "the unemployment rate hasn’t started falling yet."
I don't know what analysis lies behind these itchy trigger fingers. But it probably isn’t about analysis, anyway — it’s about mentality, the sense that central banks are supposed to act tough, not provide easy credit.
And it's crucial that we don’t let this mentality guide policy. We do seem to have avoided a second Great Depression. But giving in to a modern version of our grandfathers' prejudices would be a very good way to ensure the next worst thing: a prolonged era of sluggish growth and very high unemployment.
Martin Wolf sees the dollar not as weakening, but as correcting itself in the wake of the financial crisis. Both he and Krugman point out that the reason the dollar’s value increased so much was because investors ran to it as the world melted down. Both think the correction is a good thing; Krugman because it means growing confidence in the stability of the global economy, while Wolf says:
The dollar's correction is not just natural; it is helpful. It will lower the risk of deflation in the US and facilitate the correction of the global "imbalances" that helped cause the crisis. I agree with a forthcoming article by Fred Bergsten of the Peterson Institute for International Economics that "huge inflows of foreign capital to the US facilitated the over-leveraging and underpricing of risk".* Even those who are sceptical of this agree that the US needs export-led growth.
Finally, what can replace the dollar? Unless and until China removes exchange controls and develops deep and liquid financial markets – probably a generation away – the euro is the dollar's only serious competitor. At present, 65 per cent of the world’s reserves are in dollars and 25 per cent in euros. Yes, there could be some shift. But it is likely to be slow. The eurozone also has high fiscal deficits and debts. The dollar will exist 30 years from now; the euro's fate is less certain.
…
The global role of the dollar is not in the interests of the US. The case for moving to a different system is very strong. This is not because the dollar's role is now endangered. It is rather because it impairs domestic and global stability. The time for alternatives is now.
Over the weekend, Senators John Kerry and Lindsey Graham penned a joint op-ed in the New York Times that has made those of us who care about action on climate change pretty happy. The prospects of Republican support extending beyond the Snow-Collins duo to John McCain's best friend in the Senate this early in the process is exciting, to say the least. And the compromise that Graham wants isn't too far-fetched.
There is, however, one piece of the op-ed that has made many who understand that combating climate change is a multilateral challenge nervous:
Fourth, we cannot sacrifice another job to competitors overseas. China and India are among the many countries investing heavily in clean-energy technologies that will produce millions of jobs. There is no reason we should surrender our marketplace to countries that do not accept environmental standards. For this reason, we should consider a border tax on items produced in countries that avoid these standards. This is consistent with our obligations under the World Trade Organization and creates strong incentives for other countries to adopt tough environmental protections.
I agree that we can't sacrifice jobs to overseas competitors. Competitiveness is one of the best reasons to pass climate legislation that spurs innovation and deployment of a whole generation of low-carbon technologies domestically. That said, climate change is a pressing global challenge that inherently requires unprecedented levels of global cooperation, but the proposed punitive trade policies are expressly unilateral mechanisms. This is a policy mismatch that will not help us solve this challenge.
If we want the developing world – from which the vast majority of emissions growth is expected in the coming decades – to be on board with creating a solution to climate change and to buy our climate-friendly goods, slapping a tariff on them right away is not the way to make friends and influence people. And it's not as if the United States has been leading on climate issues – Imagine the American response if Europeans had imposed these tariffs. I don't want to begin to imagine the retaliation that other nations may decide upon; what do we do if China and India – who already have high barriers to climate friendly technologies – decide that they're not quite high enough, especially for American goods?
Additionally, it's crucial to note that climate legislation already allots (as opposed to auctions) permits to energy intensive industries. Tariffs amount to a double correction. Here's leading international economist Jagdish Bhagwati at a recent NDN-New Policy Institute event speaking about the tariffs and the WTO compliance of a cap and trade regime:
Some important people are wary of or opposed to these tariffs: The head Intergovernmental Panel on Climate Change, Rajendra Pachauri, thinks they're a bad idea:
"This is a dangerous thing, and I think people in Congress must understand this," said Pachauri, who spoke with the AP after he addressed the National Press Club. "Please don't use this weapon. I'm afraid that those that have been pushing these provisions probably don’t realize that all of this can cause a major negative reaction," Pachauri added. "The United States has always stood for a free market system. … Legislation to move away from that principle is clearly counterproductive."
At a time when the economy worldwide is still deep in recession and we've seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there. There were a number of provisions that were already in place, prior to this last provision you talked about, to provide transitional assistance to heavy manufacturers. A lot of the offsets were outdated to those industries. I think we're going to have to do a careful analysis to determine whether the prospects of tariffs are necessary, given all the other stuff that was done and had been negotiated on behalf of energy-intensive industries.
So certainly it is a legitimate concern on the part of American businesses that they are not disadvantaged vis-a-vis their global competitors. Now, keep in mind, European industries are looking at an even more ambitious approach than we are. And they obviously have confidence that they can compete internationally under a regime that controls carbons. I think the Chinese are starting to move in the direction of recognizing that the future requires them to take a clean energy approach. In fact, in some ways they're already ahead of us -- on fuel efficiency standards, for example, they've moved beyond where we've moved on this.
There are going to be a series of negotiations around this and I am very mindful of wanting to make sure that there's a level playing field internationally. I think there may be other ways of doing it than with a tariff approach.
I'm excited that the chances for getting climate change legislation through the Senate have grown, I just don't want to see them destroy the chances for multilateral climate action. Both are important for American competitiveness, jobs, and the creation of a low-carbon economy.
David Brooks has authored a somewhat amusing column on the future of innovation policy in the United States. He tells a story of Mr. Bentham and Mr. Hume, each of whom has a distinct approach to innovating toward solutions to major governing challenges. Bentham, the expert, designs complex, wonk informed solutions to the challenges of the day, while Hume, the underachiever, admits that he has no idea how such things work, and just tries to create markets that do the job for him. Here's Brooks' conclusion:
I've introduced you to my friends Mr. Bentham and Mr. Hume because they represent the choices we face on issue after issue. This country is about to have a big debate on the role of government. The polarizers on cable TV think it’s going to be a debate between socialism and free-market purism. But it’s really going to be a debate about how to promote innovation.
The people on Mr. Bentham's side believe that government can get actively involved in organizing innovation. (I've taken his proposals from the Waxman-Markey energy bill and the Baucus health care bill.)
The people on Mr. Hume's side believe government should actively tilt the playing field to promote social goods and set off decentralized networks of reform, but they don't think government knows enough to intimately organize dynamic innovation.
So let's have the debate. But before we do, let's understand that Mr. Bentham is going to win. The lobbyists love Bentham’s intricacies and his stacks of spending proposals, which they need in order to advance their agendas. If you want to pass anything through Congress, Bentham's your man.
In all fairness to Congressional efforts, it's important to note that both Health Care and Energy/Climate legislation include the market based, low government involvement ideas that Brooks/Hume seems to prefer – health care in an exchange and climate in a market based carbon pricing regime.
The truth is that it’s not as if the Bentham-esque details of reform proposals are some sort of new arrival to policymaking; rather, many are sought to counter decades of policies that benefit incumbents. For example, fossil fuels are still massively out-subsidized compared to clean technology, so of course clean tech advocates should fight for theirs. (Many policy intricacies obviously still do help incumbents – climate legislation does give permits away to energy intensive industries as opposed President Obama’s desired 100% auction.)
Rather, the question for Brooks is: Who will make Mr. Hume's case? I feel for Brooks, I want his debate to happen now (Can Mr. Hume have Glenn Beck's pulpit?), and I'm all for elegant policymaking. I'm also pretty sure Brooks is right that complexity is going to win because legislating is complex. And the likeliest outcome is that Mr. Hume isn't even going to make it to the table. What I know for certain is that Brooks can't possibly be implying that this Republican Party is capable of assuming the role of Mr. Hume. That would be a party worth having.
Yesterday, NDN hosted three experts in the automobile industry to discuss the future of clean transportation. NDN Green Project Director Michael Moynihan moderated this wide-ranging and well attended discussion, the video of which can be found below.
Kim Hill, the Associate Director of Research at the Center for Automotive Research and the Director of the Sustainable Transportation and Communities Group, spoke about a recent study he conducted on the economic impact ATT’s shift to a more efficient vehicle fleet. The short version: the conversion to CNG and hybrid vehicles saved fuel and money and created jobs. The detailed study can be found here.
Mike Granoff, the Head of Oil Independence Policies for Better Place, the first service provider for electric cars, building infrastructure, software and the user interfaces to make electric cars available for mass adoption, spoke about the Better Place vision and business model and updated us on Better Place's progress. During the session, he mentioned the video of the battery swap station at work, which can be found here on the Better Place website.
Finally, Dr. Kathryn Clay, the Director of Research for the Alliance of Automobile Manufacturers spoke about the industry's efforts to innovate to cut greenhouse gas emissions and the regulatory environment around those efforts. More on the Auto Alliance can be found here.
One of the most important pieces for the future of transportation, energy, and climate is how we power automobiles. An interesting piece from the Wall Street Journal's "Environmental Capital" blog discusses a new study on the future of global oil supplies:
Here's an intriguing thought: Global oil supplies are indeed set to peak within a few years, and no, that is not bullish for oil. Quite the contrary—it will spell the end of the "oil age."
That's the take from Deutsche Bank's new report, "The Peak Oil Market." In a nutshell: The oil industry chronically under invests in finding new supplies, exemplified both by Big Oil’s recent love of share buybacks and under-investment by big oil-producing nations. That spells a looming supply crunch.
That will send oil to $175 a barrel by 2016—and will simultaneously put the final nail in oil's coffin and send prices plummeting back to $70 by 2030. That’s because there's an even more important "peak" moment on the horizon: A global peak in oil demand. That has already begun in the world’s biggest oil-consuming nation, Deutsche Bank notes:
US demand is the key. It is the last market-priced, oil inefficient, major oil consumer. We believe Obama’s environmental agenda, the bankruptcy of the US auto industry, the war in Iraq, and global oil supply challenges have dovetailed to spell the end of the oil era.
The big driver? The coming-of-age of electric and hybrid vehicles, which promise massive fuel-economy gains for short-hop commuting but which so far have not been economic.
Peak Oil, which used to be dismissed by many as kind of wacky theory (even though the idea was originally formulated by an oil company geologist), seems to have arrived firmly in the mainstream with the likes of Deutsche Bank onboard. Some argue that the arrival of peak oil will generate a massive shock to civilization, but, true or not, it will certainly be a game-changer that necessitates and speeds the deployment of new technologies. So if the Peak Oil believers are right, it's incumbent on us to start investing in these technologies today: Oil prices spikes have generally been economically problematic – or worse – some have triggered recessions.
For more on the "coming-of-age of electric and hybrid vehicles" and the general future of clean transportation and automaking, join us at NDN at noon today for Insights into the future of Clean Transportation, which will showcase speakers from the Center for Automobile Research, the Auto Alliance, and Better Place. If you can't make it, watch the event live online.
Ryan Lizza has a new profile of Larry Summers in the upcoming issue of the New Yorker. A lot of the details about Summers’ time at Harvard are pretty well known, but it includes some interesting details about how decisions, especially around the stimulus and the banking programs, were made in times of crisis.
Summers played the role of "the ultimate murder board," according to Sperling, making the Treasury officials defend their ideas the way a Ph.D. student must defend a dissertation. He challenged and provoked Geithner to make sure that he had thought through every aspect of the plan. They argued back and forth, as they had done in the Clinton Administration, and their intensity was often jarring to the other Obama advisers. Summers didn’t trust the regulators, and was particularly worried about whether the stress tests designed by them were sufficiently tough on the banks. He pointed out that, in the days before Lehman, Bear Stearns, and Washington Mutual crashed, the same regulators had said that capital at those institutions was more than adequate.
In the end, though, Summers acknowledged that there were no better options, and Geithner’s plan survived intact. On March 31st, Summers sent the President a page-and-a-half memo outlining the reasoning behind the decision not to nationalize any banks. Obama was on his way to the G-20 meeting in London, and he wanted to be prepared with the best case against it.
Another piece with an interesting thesis, despite its muddled premises and pot-shots at liberalism, was Ross Douthat's column from the New York Times yesterday that argued:
So it's fair to say that if a period of Democratic dominance doesn’t close the gap between the rich and the rest of us, it will represent a significant policy failure for contemporary liberalism.
I don't really want to examine the recent policy failures of conservatism, and Douthat's argument is in many ways very wrong, but that one sentence is right. One way to close this gap is to retrain workers to be qualified for high skilled jobs that are currently, even with 9.8 percent unemployment, unfilled:
Even with 15 million people hunting for work, even with the unemployment rate nearing 10 percent, some employers can't find enough qualified people for good-paying career jobs.
Ask Steve Jones, a hospital recruiter in Indianapolis who's struggling to find qualified nurses, pharmacists and MRI technicians. Or Ed Baker, who's looking to hire at a U.S. Energy Department research lab in Richland, Wash., for $60,000 each.
Economists say the main problem is a mismatch between available work and people qualified to do it. Millions of jobs with attractive pay and benefits that once drew legions of workers to the auto industry, construction, Wall Street and other sectors are gone, probably for good. And those who lost those jobs generally lack the right experience for new positions popping up in health care, energy and engineering.
Seems like a national commitment to prepare the future workforce and train the "army of unemployed" referred to in this article is necessary. NDN took a first step in this, offering a proposal that would offer free computer training to all Americans through the nation's community colleges. More broadly, as Simon has argued, increasing the wages and incomes of every day Americans is the primary governing challenge facing policymakers today, a challenge made even more pressing given the severity of the great recession.
With Friday's revelation from the Director of the White House Office of Energy and Climate Policy Carol Browner that President Obama's signature finding its way onto a climate bill was "not going to happen" prior to Copenhagen, it's time to go to Plan B to get the most out of the international conference. Although the US may not be leading on what many consider the most important piece of limiting climate harming emissions, there are still other areas in which we can show leadership.
One place to start is by building on something the G-20 did: a global agreement on the phase-out of fossil fuel subsidies. Taking the agreement from that smaller group and getting buy-in from additional nations (most of whom were obviously not at the G-20), would be helpful. Additional teeth should be put into such an agreement, such as an actual timeline – the current one is a somewhat laughable “medium term.” America can lead by acknowledging that our subsidies to fossil fuel industries easily outpace those given to clean technology and commit to changing that.
For many developing countries, fuel subsidies are something of a prisoner’s dilemma and policy trap. Governments artificially lower prices via subsidy thereby increasing demand – when, if nation’s acted in concert to eliminate these subsidies – markets would see to diminished demand and a lower world price. (Of course subsidies for low-income and vulnerable populations would remain appropriate.) Copenhagen is the perfect place to agree to such an outcome.
There are other important ideas, some of which we'll be writing about and advocating in the coming months before Copenhagen. Domestically, a Renewable Electricity Standard and strong clean technology incentives are an achievable necessity. A robust agenda for reforming our electricity markets and slow-moving utilities is also a conversation we can begin.
Internationally, a Global Environmental Organization that adequately represents rising powers and developing nations and that builds and guards the structure and rules for the complicated climate regime, as Ed Gresser advocated in the latest Democracy Journal, is another good idea. And, as you'll be hearing about more in the near future, an agreement to remove the significant barriers to the global deployment of clean technology and environmental services is crucial.
President Obama will be in a difficult position – he is in the right place on the issue, but the Senate is bogged down with healthcare, and getting to 60 on climate is not a forgone conclusion anyway. His team will therefore have to prepare a robust agenda of demonstrable accomplishments that showcases American leadership and gets the most out of this important conference.
For more on preparing for Copenhagen, check out the Washington Post, where NDN Globalization Initiative Chair Dr. Robert Shapiro continues his advocacy for a carbon tax.
Electric cars, natural gas trucks, plug-in hybrids, fuel cell vehicles... As the global auto industry retools and re-emerges following the financial crisis, new technologies, players and business models are promising to reinvent not only how we drive but one of the key engines of global growth. Clean vehicles have the potential to provide energy security, help solve climate change and create new jobs and wealth. But just how the industry re-emerges, where it thrives and what technologies and companies will come out on top remain vital questions, the answers to which will impact not only America’s future but the world’s.
To understand the future of clean transportation, NDN will convene a panel of experts for discussion on clean vehicles and the future of the auto industry. Joining us will be Dave McCurdy, former Congressman and President and CEO of the Auto Alliance, Kim Hill of the Center for Automotive Research, who has recently completed a study on jobs and environmental benefits resulting from fleet conversion, using AT&T as a case study and Mike Granoff, Head of Oil Independence Policies for Better Place, the transformative, Palo Alto-based electric car infrastructure company. Moderating the forum will be NDN Green Project Director, Michael Moynihan.
Tuesday, October 6, 12:00 p.m. NDN: 729 15th St. NW, 1st Floor A live webcast will begin at 12:15 p.m. ET RSVP : Watch Webcast
Our panel of experts will discuss new technologies on the horizon, how clean vehicles will create jobs and transform the economy, the connection between electric cars, renewable energy and the electricity network and how clean vehicles can provide energy security and address climate change.
The Auto Alliance is an organization of the leading global makers of cars and other vehicles. The Center for Automotive Research is the leading organization providing research on the global car industry and impact of cars on the economy. Better Place which is integrating electric transportation solutions in Israel, Australia, Denmark, the United States, Canada and Japan is the first service provider for electric cars, building infrastructure, software and the user interfaces to make electric cars available for mass adoption.
The NDN Green Project is working to facilitate the transition to a clean, low-carbon economy to advance the goals of solving climate change, improving energy security, and promoting economic growth.
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