Wednesday Night #1450

Climate Change
There are those who describe a disaster scenario depicting the virtual end of life on earth unless carbon emissions are cut drastically. Others see climate change as inevitable, eternal, slow and incapable of adversely affecting ever-adaptable humans for many generations to come. Still others, pointing to flaws in the initial calculations, believe that the global warming scenario is fabricated and unreal. The only common factor appears to be self-interest, especially for the politicians. Despite the view held by the majority of Canadians, the Canadian Prime Minister, possibly in order to be synchronized with our southern neighbours, possibly in order to ensure continuing revenue from Alberta, does not appear to be supportive of carbon emission reduction. Quebeckers, on the other hand, profiting from clean hydro-electricity, chide Albertans and support any measure that will reduce carbon emissions. Some believe that a better choice than investing money to reduce the emission of carbon dioxide directly would be to invest it in the development of new technologies. Those who support that action point to the relative slowness of global warming, providing scientists with a window within which to achieve a solution to the problem rather than a delay. In addition to these points of view, there are those who firmly believe that climate is cyclical with heat, humidity, volcanic activity and other natural events – at one time attributed to the moods of the gods – occurring while mankind, lacking the ability to alter or attenuate them, possesses the innate skill to adapt and survive. Some point to water supply as ultimately being an even more important world issue than climate change.

Copenhagen Conference
As for the Copenhagen conference itself, it was doomed to disappoint. Aside from the belief of many that money transferred to relatively poor polluting countries would inevitably be diverted to the pockets of unscrupulous politicians, the probability of 45,000 delegates reaching a consensus, especially when national interest inevitably supersedes global problems, is extremely remote, especially when televised globally. Sheer numbers of delegates (most of whom have no say in the deliberations of the national delegations) makes unpublicized agreements impossible. A more realistic view of the problem might be expressed in the attempt to bring ten provinces to a consensus at Meech Lake. The extremely low probability of consensus or even cooperation might be illustrated by the level of organizational skills of those who must face the forty-five thousand invited delegates who have arrived for the conference, said to be able to accommodate only fifteen thousand.
Clearly, despite the best of intentions, the Copenhagen conference will most probably produce little; but any agreement reached will very likely be costly to developed countries. This is but another indication of the need for E.U. style global governance. Certainly, the developed world should, if merely through self-interest, support the development of poor nations, but it should be obvious that the situation is a puppet-puppeteer one in which the politicians speak only for the country that they represent. Whether global warming exists is a less important question to ask than “What will we do”? There will always be winners and losers, no matter what is decided. Rather than planning for the future, Copenhagen appears to be developing into a blame game.

An analogy may be drawn to the recent financial crisis in which costly action was taken because of the panic, but as soon as the panic disappeared we appear to have returned to our previous habits. We never seem to learn; the world will continue to evolve as it always has until politicians plan beyond their term in office and Man plans beyond the lifespan of his generation.

The economy
Economists and technicians continue to analyze and politicians and money managers continue to fine tune and react. There has been a 7% increase in household debt compared to last year. This, in itself, is not the end of the world, but may represent a steady rate of consumer buying at higher prices, consequently steady debt at an unsustainable low interest rate. It is important for Canada to keep interest rates near zero in order to avoid parity with the U.S. dollar. Inevitably though, the current historically low interest rates will rise, creating the possibility of problems in the future. Of greater concern is the ballooning government debt, which could lead to stagflation in the medium term. We do not appear to have learned much, if anything, from the recent crisis. We inevitably appear unable to learn from the past, even the recent past, apparently incapable in 2006 and 2007 of foreseeing the 2008 crisis although the signs were certainly clear. The United States’ serious debt and deficit appear to be accepted without any political will to deal with it, perhaps in the well-founded belief that at this point, it has ballooned to the point that it would be impossible for international lenders to call in that debt. The fact that one percent of the population of the United States holds ninety percent of the wealth is also of some concern to that country’s economy.
Despite the negative bias against the U.S. dollar and the enormous U.S. debt, it remains the most stable currency in the world. The only potential rival would be the euro which, however, is not secure as problems in such member countries as Greece Spain and Italy have threatened the stability of the euro, while China cannot realistically afford to call in or dispose of the U.S. Treasury notes that it holds.

The nature of investment has changed. Securities are no longer to be bought and held; widows and orphans can no longer feel secure with Bell shares, and long term prediction in the stock market is perilous. This has led pension funds to take protective action in pairing liability with bonds, an act that has the potential of either increasing contributions or reducing pensions as current contributors retire. This appears to have changed the habits of the entire world which now appears to be operating on cash flow, spending in anticipation of revenue as opposed to spending following the receipt of revenue.

THE INVITATION

Update:
Paul A. Samuelson, Economist, Dies at 94
The first American Nobel laureate in economics and the foremost academic economist of the 20th century, Mr. Samuelson was credited with transforming his discipline from one that ruminates about economic issues to one that solves problems, answering questions about cause and effect with mathematical rigor and clarity.

Before our doors open for this Wednesday Night, we encourage you to join Robert Gervais and some of his colleagues who “will be slinging drinks in order to raise funds for Multiple Sclerosis. We will be the bartenders for a 5 à 8 at Ye Olde Orchard Pub, 1189 de la Montagne. There is No entry cost and a portion of the sales and all our tips will be donated to MS.”

Pierre Arbour, freshly arrived from Florida, will introduce his friend Paul Allard, President & CEO of Parta Sustainable Solutions, which, with its growing team of professional communication, training and media experts, has become the leading specialist offering turnkey solutions to companies committed to sustainable development.

We will also have an Observer, Hari Thakur, from the Seekers Group, another (highly discriminating) Montreal salon. Hari, the founder and organizer of the Seekers, is a retired banker who has been teaching for a number of years at the Desautels Faculty of Management.  Some 5 years ago, he organized the Group to seek new insights on a wide variety of subjects, not unlike Wednesday Night, but with membership limited to nine invited individuals, most of whom are retired university professors and professionals from Montreal and other countries. He writes that their format is somewhat different from Wednesday Night, but that there are many similarities, and he is seeking the secret of our longevity.

As the Copenhagen Climate Change Conference  winds down, we may have some inkling by Wednesday of where the negotiations are heading; for the  past week, any public information consists mostly in rumors and gossip – and deciphering the jargon (COP tongue twisters) requires expertise at the Times Crossword level. At the end of the first week, news was mixed, e.g. First official draft on climate deal – The world should at least cut its total greenhouse gas emissions by 50 percent by 2050, says the document from a key UN working group.
But Africa downplays chances of a deal – African Union climate negotiator Meles Zenawi says the main obstacle for a climate deal is whether or not rich countries can come up with sufficient funding for developing countries.
And the U.S. and China are squabbling: Chinese official: Stern “irresponsible”
China and the US continue their barbed exchange. The Chinese Vice Foreign Minister He Yafei says that the US chief negotiator either lacks common sense or is “extremely irresponsible”. [Update: It is reported that “In one hopeful sign, China has indicated it will not accept any money from a fund being set up by the West to help poorer nations tackle climate change. The possibility had upset many in the United States, who feel Beijing is now well-enough off to pay to clean up its own act.]
This week the news is of an appalling breakdown in logistics – 45,000+ delegates trying to get accreditation for the 15,000-place Bella Centre and everyone united in anger. As most of us recognize, the wheeling and dealing will continue until the very last minute. After which, we look forward to hearing eye-witness accounts from our Wednesday Nighters who return from Copenhagen in time for Christmas. Meanwhile, we have a few offerings for those among you who prefer discussion of economic matters, and have craftily managed to weave economic theory and the environment together for your consideration.– At least since the 18th century, economists have been borrowing from physics, redeploying everything from thermodynamics and the “conservation of energy” principle to the understanding of macroeconomics and the generation of fancy derivatives. The global financial crisis has, however, seen financiers cast their scientific net further as they try to understand what went wrong and how to make the banking system more stable in future. As a result, they are developing “biology envy”.
Bankers and financial economists are working with mathematical biologists to learn lessons about resilience from natural ecosystems – from fisheries to forests – and from the spread of disease. The exercise is certainly of more than academic interest. Andrew Haldane, executive director for financial stability at the Bank of England, says the regulatory structure for banking may be shaped by studies now in progress that treat global finance as a “complex adaptive system” like a living ecosystem. More  Our favorite economist comments: One should wait for the specifics that emerge. Living ecosystems do provide for naturally caused fires to renew the forest, but I wonder if that could work if each tree and each animal were endowed with a sense of self-interest, and a vote to promote it?– The Next Big Thing: Resilience
Sustainability is a seemingly laudable goal it tells us we need to live within our means, whether economic, ecological, or political but it’s insufficient for uncertain times. Resilience … accepts that change is inevitable and in many cases out of our hands, focusing instead on the need to be able to withstand the unexpected. Greed, accident, or malice may have harmful results, but, barring something truly apocalyptic, a resilient system can absorb such results without its overall health being threatened. Like sustainability, resilience encompasses both strategy and design, guiding how choices are made and how systems are created. Stripped to its essence, it comes down to avoiding being trapped or trapping oneself on a losing path. We know that a number of our Wednesday Nighters will be delighted that Jeff Sachs believes we should End the Politics — Let Scientists and Engineers LeadTwo debates continued – unabated – among a handful of Wednesday Nighters who maintain e-dialogue throughout the week. The executive compensation question has risen to the top of their list again, thanks to Goldman Sachs’ proposed (and rescinded – Goldman blinks) policy for its top 30 executives. But as the WSJ notes: “Goldman’s compensation and benefit pool is on track to top $20 billion this year, a record that would be equivalent to nearly $800,000 per employee.” The British have proposed a form of tax claw-back, but our experts say that it excludes guaranteed bonuses and only goes to April 2010. The Economist  offers more clarification: “The Treasury hopes that by next year other measures to change remuneration practices in banks worldwide, will have kicked in. Alistair Darling, the chancellor of the exchequer, has said he hopes for a ‘change of culture’.
The auguries are not good. Measures to curb bankers’ pay in America, France and Germany have been aimed at only a handful of executives at firms receiving government capital. A worldwide remuneration code agreed by the G20 leaves the size of rewards, and whether they are disclosed, open to wide interpretation. And even in today’s hostile climate, most bankers who were promised bonuses before the crisis have fought successfully for them in the courts.”

The second topic is Gold, prompted by the Bloomberg story earlier this week Gold Can’t Beat Checking Accounts 30 Years After Peak. Umbrage became rampant. Gerald has forwarded an excellent refutation of the Bloomberg story, but without attribution, so we cannot pass it along.

A third item that may have escaped most of you is from the NYT and concerns that (un)loveable rogue AIG: A.I.G. Units Omit Name and Excel Just months after dropping the telltale “AIG” from its sales brochures, the company has leapfrogged its competitors and reclaimed a title it held for many years before its bailout – the top seller of fixed annuities to bank customers. One Wednesday Nighter comments: I also love the way “AIG”, in a form, is rising from the grave. It was never really dead, you know. Makes one believe in Hallow’een, zombies, voodoo, all that stuff and the possibility that The Fed doesn’t really know what it’s doing – or, and here’s the scary part, it does know what it’s doing!