g m g D e s i g n . c o m

Al is asking for sustainable capitalism. Analysis…

It’s interesting that he seems to go to so much effort to brandish his “science credentials,” whatever those are. He evokes biological evolution as the reason for short-term thinking and also quotes Albert Einstein (note: he quotes non-scientists as well).

Al Gore isn’t completely wrong in his assessment that we need “sustainable capitalism.” My view, however, is that we already have sustainable capitalism (whatever that happens to be), and his true agenda is the usual suspects: a) relevance in a time of decline for him (his worthless Nobel notwithstanding); b) tying his environmental philosophy to economic prosperity (Thomas Friedman, a guy I like even if I don’t always agree with him, has fallen for the same logical fallacy).

As far as Wall Street “fat cats” (not his quote, I just like the term) using short-term thinking, we could go a long way to solving that by real problem by removing absurd restrictions on executive compensation. Those restrictions haven’t reduced CEO pay (CEOs still get huge salaries that they don’t necessarily deserve), but have instead made it more difficult for boards to align incentives such that executives focus on long-term growth and sustainability. Of course, in Gore’s tangential discussion on evolution, he failed to mention something economists are already aware of: incentives matter, and altering those incentives to fit some political agenda has real consequences.

Implications:

This scandal has real implications. Mr. Inhofe notes that international and U.S. efforts to regulate carbon were already on the ropes. The growing fear of Democrats and environmentalists is that the CRU uproar will prove a tipping point, and mark a permanent end to those ambitions.

The scientific, or possibly pseudo-scientific, basis for the quasi-religious zealotry of the climate change movement has been called into question. Hence, the political will to propose dumb ideas like a cap and trade regime will probably not happen. I’m looking forward to the free market, not bureaucrats, deciding on innovative engine designs and cool new alternative fuels. Having said that, I’m not certain that that will be one of the implications.

Per the NY Times:

Two years ago, Congress ordered the nation’s gasoline refiners to do something that is turning out to be mathematically impossible.

To please the farm lobby and to help wean the nation off oil, Congress mandated that refiners blend a rising volume of ethanol and other biofuels into gasoline. They are supposed to use at least 15 billion gallons of biofuels by 2012, up from less than seven billion gallons in 2007.

But nobody at the time counted on fuel demand falling in the United States, which is what has happened during the recession. And that decline could well continue, as cars become more efficient under other recent government mandates.

At the maximum allowable blend, in which gasoline at the pump contains 10 percent ethanol, updated projections suggest that the country is unlikely to be able to use all the ethanol that Congress has ordered up. So something has to give.

The state of Florida has a “public option” for home insurance, per the MR blog site (an economic blog). Like the proposed federal “public option” for health care (i.e., medical insurance), the Floridian home insurance option competes directly with private insurance and drove out a major national insurer from the state (for home insurance; that insurer still insures autos).

Bottom line:

In Florida, the public option has meant a substantial socialization of insurance, subsidization of the public option by those who take a private option, and the creation of a fiscally-unsound public insurance company despite the subsidy.

Security expert Bruce Schneier has a great editorial on zero-tolerance rules. So what are zero-tolerance policies?

These so-called zero-tolerance policies are actually zero-discretion policies. They’re policies that must be followed, no situational discretion allowed. We encounter them whenever we go through airport security: no liquids, gels or aerosols.

Why are they annoying?

These policies enrage us because they are blind to circumstance. Editorial after editorial denounced the suspensions of elementary school children for offenses that anyone with any common sense would agree were accidental and harmless. The Internet is filled with essays demonstrating how the TSA’s rules are nonsensical and sometimes don’t even improve security. I’ve written some of them. What we want is for those involved in the situations to have discretion.

And finally, Schneier’s recommended solution to them! (emphasis added at the end)

The solution is to combine the two, rules and discretion, with procedures to make sure they’re not abused. Provide rules, but don’t make them so rigid that there’s no room for interpretation. Give the people in the situation — the teachers, the airport security agents, the policemen, the judges — discretion to apply the rules to the situation. But — and this is the important part — allow people to appeal the results if they feel they were treated unfairly. And regularly audit the results to ensure there is no discrimination or favoritism. It’s the combination of the four that work: rules plus discretion plus appeal plus audit.

An “economist” at NADA, the National Automobile Dealers Association, suggests that the wealth re-distribution to auto dealers (“cash for clunkers”) was a success, while the Freakonomics blog site scrutinizes the claim.

Per the blog, the “cash for clunkers” scheme cost taxpayers around $24,000 per vehicle sold.