Law – Page 30 – a sibilant intake of breath

Liability caps

Often, states choose to cap the liabilities of companies operating dangerous facilities like oil rigs or nuclear power stations. They recognize that companies are hesitant to build or own such things, as long as they might be called upon to pay the full cost associated with any accidents.

Of course, providing these caps is a deeply anti-market thing to do. There are very good reasons to worry about oil spills and nuclear disasters, and heavy costs are borne by many people when they occur. Those risks should be foremost in the minds of people who choose to invest in these facilities.

When governments grant companies ‘protection’ against massive claims in the event of disasters, they are saying that building these facilities is so important that it should be done even if there may ultimately be serious uncompensated harm imposed on the general public. This takes the illusory profits associated with environmentally harmful economic activities to a new level, by saying that even in cases where companies can be proven to have directly caused harm to third parties, in the pursuit of their own profits, those profits will be protected by the wealth and authority of the states.

How cynical should Obama make us?

As the Bush administration was coming to a close, Barack Obama looked like an almost ideal leader for the United States: internationalist, concerned with the constitution and rule of law, apparently concerned about the environment, and so on.

Now, a year and a half after Obama was inaugurated, there are a lot of disappointments to deal with. Guantanamo Bay remains open, the United States maintains an active policy of assassinations in Pakistan, the war in Afghanistan has been a failure in relation to our original aims, and nothing significant has been done on climate change. Instead, the administration can point to its response to the economic crisis and health care as its accomplishments.

As I have said before, I think the credit crisis was a real waste of this administration. It seems like they could have devoted their energy in so much more productive ways, if the banks hadn’t terrified politicians into pulling out all the stops to save them. The unpopularity of doing so has revitalized the Republican Party and sapped public support for the Obama administration. Furthermore, very little has been done to prevent the occurrence of such crises in the future.

What should we take from all of this? Is Obama really as promising a figure as we thought, blocked in his efforts by the political system? Do we need to give the administration more time to effect its policies? Or was the kind of optimism that fueled the Obama campaign misplaced? Perhaps the world simply doesn’t permit the success of idealists.

In fairness, Obama did make an effort to stress how difficult real change would be, while he was campaigning and after he was elected. There is a huge amount of momentum bound up in the status quo, and changing the direction of things in meaningful ways is always difficult. Hopefully, there has been more happening in the background than has been immediately observable to outsiders and the years Obama has left will be filled with meaningful accomplishments.

How good is gas?

Per unit of electricity generated, natural gas is the lowest-carbon fossil fuel. Producing a kilowatt-hour (kWh) of electricity using oil, and especially coal, generates significantly more emissions. While bituminous coal produces about 370g of CO2 per kWh, oil produces about 260g, and natural gas produces about 230g.

A recent MIT report focuses on switching American electricity production to gas, as a way of reducing greenhouse gas emissions:

In the results of a two-year study, released today, the researchers said electric utilities and other sectors of the American economy will use more gas through 2050. Under a scenario that envisions a federal policy aimed at cutting greenhouse gas emissions to 50 percent below 2005 levels by 2050, researchers found a substantial role for natural gas.

“Because national energy use is substantially reduced, the share represented by gas is projected to rise from about 20 percent of the current national total to around 40 percent in 2040,” said the MIT researchers. When used to fire a power plant, gas emits about half of the carbon dioxide emissions as conventional coal plants.

They claim that nuclear power, renewable energy and carbon capture and sequestration are all more expensive than gas, and thus less viable as low-carbon alternatives. They also claim that by 2050, 15% of the U.S. vehicle fleet will be fueled with natural gas.

I have three big objections to all this:

First, an increasing share of natural gas is coming from unconventional sources, using techniques like hydraulic fracturing. This has associated environmental risks, such as the contamination of groundwater.

Secondly, the amount of climate change humanity will cause depends on the total amount of all fossil fuels burned before society becomes carbon neutral. Burning more gas obviously contributes to this cumulative total, changing the atmosphere and climate in ways that will endure for thousands of years. If humanity ever starts to burn the methane embedded in permafrost of methane clathrates, the total quantity of associated emissions could be very worrisome indeed.

Thirdly, building new gas-fired power plants perpetuates fossil fuel dependence. It keeps us wedded to fuels that are inevitably going to become ever more costly and destructive to access, and which can never form the basis for a truly sustainable society.

None of this is to say that gas has no role to play in dealing with climate change. In the short term, substituting gas for coal may be a promising way to reduce emissions during the transitional period before renewables become dominant. In the long run, however, there is no alternative to moving beyond fossil fuels.

Helpfully, the MIT report does not just take energy demand as constant, or ever-increasing. Rather, they model the economic effect of putting a price on greenhouse gas emissions, and find that doing so would keep demand flat in the next few decades. They project that carbon pricing would raise electricity prices by 30% by 2030 and 45% by 2050 – a small price to pay for reducing the extreme risks associated with climate change.

Open thread: campaign finance

Writing for The American Prospect, Robert Reich describes the system of campaign contributions in the United States as “the biggest corruption of our political process,” defining corruption as “actions causing the public to lose confidence that politicians make decisions in the public’s interest rather than in the special interest of those who give them financial support.” He claims that the increasing size and importance of these political donations is primarily a reflection of changing economic circumstances:

Globalization, deregulation, and technological advances — especially computers and the Internet — have been the driving forces. They have shifted almost all industries in almost all rich economies from being organized around stable oligopolies, in which competitive advantage derived mostly from economies of scale, toward far more intense competition in which competitive advantage comes from innovation — and from favorable treatment by government.

He argues that the issues that now occupy the bulk of Congressional time are those that affect competition between firms within an industry, as well as those that affect competing industries.

Climatologist James Hansen also identifies campaign finance reform as one of the most necessary steps for producing effective climate change policies in the United States, by reducing the influence of status quo entities like big coal companies.

What do readers think about the claim that political advertising ought to be a form of protected free speech? How much does it matter whether it is funded by the candidate themselves, campaign donors, or some other mechanism? Would we be better off if all candidates got a set amount of free advertising, and were barred from using other means to promote themselves in mass media? Would such a policy just drive them to use different approaches to achieve the same end, such as cooking up forms of advertising that can be reported as news? Does the current situation in Canada differ in important ways from that in the United States?

Taking political positions in public

U.S. Supreme Court justice Antonin Scalia is not a man who I often find myself in agreement with. That said, I do think a recent comment of his was both true and important. Opponents of gay marriage in the United States are seeking to have their identities kept secret, because they fear that they will suffer for their views. In response, Scalia said that: “The fact is, running a democracy takes a certain amount of civic courage.” He also said that: “you can’t run a democracy this way, with everybody being afraid of having his political positions known.”

Certainly, it is grossly inappropriate for people to be threatening the personal security of those who oppose gay marriage. That being said, having an active and effective public debate over issues of policy and law does require people to openly and honestly express their views. Furthermore, in a free and democratic society, we retain the right to reach judgments about people on the basis of their views. It is perfectly legitimate for me to think that someone is bad at evaluating complex information, because they are a climate change denier. Similarly, it seems legitimate to say that those who do not support equal rights for gay couples don’t really take human rights or the concept of equal treatment under the law seriously.

Whether you agree or disagree with that specific perspective, I think Scalia’s argument that society benefits when people declare their positions honestly and publicly is a strong one. Serious politics, based around competing ideas, relies on that sort of open discussion and debate. The alternative is a shadowy political world in which people try to advance their preferences obliquely, using whatever underhanded techniques might be effective.

Climate change and individual ethics

During today’s earlier discussion of climate change and partisan politics, a distinction was eventually drawn between the key principles that underlie intergenerational justice, the ways in which those principles manifest themselves in individual morality, and the question of how to bring our politics more in line with what those principles demand.

The final question is the topic of the previous discussion, but it seems worth having another about the broad question of what the moral consequences of climate change are for human behaviour. Naturally, this has come up before with reference to specific behaviours (especially voluntary travel). It has also come up in broader discussions, such as on the relative importance of abstaining from emissions, compared with resisting societal structures that perpetuate climate change.

This discussion is meant to be broader than those: what are the moral consequences of climate change, when it comes to individuals?

Progressive fines and deterrence

Here is a question to ponder:

The idea behind fines is mostly to deter unwanted behaviour: ranging from graffiti to oil spills. In this sense, they are distinct from compensation payments, which are intended primarily to restore the victim of an inappropriate act to some semblance of their former state.

Given that the aim of fines is to deter, it seems that their size should be calibrated so as to have a comparable effect on all people. The effect of a $50 fine on someone earning $25,000 a year is different from the effect on someone earning $75,000 a year.

The question then is whether it is appropriate to index fines to some measure of a person’s monetary status? If so, is it more fair to base the level on income or on wealth? Each could produce injustices. In addition, should there be bounded maximums and minimums for fines, even after monetary considerations are taken into account? Also, should there be any distinction between fines levied on individuals, when compared with organizations?

Nixon and Gorbachev

Here’s a bit of Cold War role reversal for you:

Which US president cancelled America’s offensive biological weapons program? Richard Nixon, in 1969, three years before the Biological Weapons Convention.

Which Soviet premier ordered Biopreparat, the Soviet bioweapon program, to weaponize smallpox? Mikhail Gorbachev, in the Five Year Plan launched in December 1987. He also ordered the production of mobile production centres for biological weapons, to try to retain such offensive capabilities despite inspections of suspected bioweapon facilities.

For me, at least, this sits awkwardly with my general perceptions of the two men: Nixon the amoral schemer and Gorbachev the unintending architect of the end of the Communist system.

Canada’s climate plans a flop

As discussed in a post of the Pembina Institute’s blog Canada’s record of failure in dealing with climate change continues to worsen. While the government once promised that Canadian emissions would peak forever sometime between 2010 and 2012, they now expect them to rise all across that span.

Policies the government expected to reduce emissions by 52 million tonnes (megatonnes) of CO2 in 2010 are now expected to produce reductions of just 5 megatonnes. Furthermore, the $1.5 billion Clean Air and Climate Change Trust Fund, distributed to provinces in 2007, did not produce the expected 16 megatonne reduction. Now, the government claims it cut emissions by just 0.34 megatonnes, with 3 more to follow by 2015.

These lackluster results, coupled with ever-rising emissions (especially from the oil and gas sector) demonstrate convincingly that Canada just isn’t doing its part on climate change mitigation. Future generations are likely to see this quite correctly as evidence of short-sightedness and irresponsibility.

The credit crunch, bailouts, and moral hazard

Why did governments bail out failing financial institutions?

They said it was because banks and insurance companies were so interconnected with the rest of the economy that, if they failed, they would cause a cascade of other failures. If the banks went broke, firms that actually have sound businesses would fall as well. That supposedly risked turning the credit crunch into a general depression.

Assuming this argument is correct, the natural question is what we should do to eliminate that vulnerability, termed ‘systemic risk’ by economists. It is as though we are mountain climbers attached by a tether to the banks. When they start to slip, we need to save them, in order to keep from being pulled over ourselves. Once we have done that, however, we need to start thinking about how to get rid of tether.

According to the argument that politicians are making, we got dragged to the edge of the cliff this time. To experience that and not think seriously about how to get ourselves untethered is stupid and irresponsible.

1) Make banks smaller

No single bank should be large enough that its collapse could threaten the economy as a whole. Banks should be small enough to fail.

2) Make finance more boring

Get rid of complex new products like collateralized debt obligations and credit default swaps. Treat new financial products like new pharmaceuticals, with the onus on those developing them to show that they are safe, and with tough oversight and regulation.

These things seem to spread risk around in the financial system in ways that make it possible for relatively minor players (even non-banks) to really screw things up.

3) Separate the safe and risky sides of banking

There should be two sorts of banks.

The first sort will take deposits and make very safe loans, like well-secured mortgages or loans to businesses with a strong plan for paying them back. These banks should be insured, so that if they fail the depositors don’t lose their money.

These banks should be allowed to call themselves ‘safe banks’ or ‘guaranteed banks’ or something similar, so it is clear to everybody that they are in a special category that excludes the second type.

The second sort can basically do whatever they like. They can invest in all sorts of unusual financial instruments, and try to make profits. When they fail, their depositors get nothing. The only things they cannot do are get too big (see point 1) or sell products that threaten the system (see point 2).

The government loves to boast about how well Canada weathered the financial crisis. The basic reason for that seems to be how boring our banks were forced to remain, as the result of heavy regulation. The places with laissez faire regulatory approaches – like the United States, Ireland, and Iceland – are the ones that have had the most to fear from the credit crunch.

4) Accept the drawbacks

This plan has a number of drawbacks.

First, it might make the financial system less efficient at allocating capital. That’s what banks claim is their value added to society: they match up people who have wealth but no ideas for using it productively with people with ideas and talents, but not enough money.

Making the financial industry safer would reduce returns for savers, and reduce the financing opportunities for firms and entrepreneurs. We might be turning a Ferrari into a Volkswagen, but there are good reasons to do so. For one, it is better to ride in a Volkswagen at 90 km/h than in a Ferrari that goes 120 km/h but sometimes explodes and kills everyone inside. For another, banks and bankers will always have the financial means to manipulate politicians. They are well placed to get a good deal for themselves, whereas the general public is in a weaker position. Since there is a built-in bias in politics towards making things easier for the rich, having some special protection for the general welfare of the population seems justified and appropriate.

Second, making the system safer will make it harder for poor people to get credit. The safe banks won’t offer mortgages to people who are likely to default on them, and the risky banks are likely to change an arm and a leg for them. That said, it was probably always a fantasy for people of modest means to buy big houses in cities with overpriced property markets. Also, by reducing the speculative froth in real estate markets, the approach outlined here could end up helping such people in the long run.

That being said, I think a plan basically resembling this one is worthwhile. Most importantly, it would largely eliminate the systemic risk which we are creating right now by bailing out the institutions that have been the least responsible, because of the threat they pose to everyone else. What that approach will ultimately produce is another, larger crisis.

Of course, this is all a pipe dream. Politicians don’t have the bravery or far-sightedness to do any of this, and bankers are clever enough and rich enough to convince them and bribe them into leaving them basically alone. Besides, that next crisis will probably happen when another lots of politicians are in charge, and those who organized today’s bailouts are occupying well-paid seats on the boards of the banks they rescued.