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CONVENIENT MYTHSthe green revolution perceptions, politics, and facts
By KLAUS L.E. KAISER
AuthorHouseCopyright © 2010 Klaus L.E. Kaiser
All right reserved.
Chapter OneThe Great Myth
One of the greatest myths of all began with alchemists, a long time ago. It pervades much of society's thinking today. The media are no less intrigued by it and like such stories. It is especially liked by many politicians.
This great myth is the idea that politics can direct scientific outcome; some journalists subscribe to this theory too.
Politicians everywhere like to believe that they can enact laws to rule scientific facts. If they just channel funds into the "right" direction, the research results will give them what they want. But they are all mistaken.
Initially, the "overwhelming evidence" (especially in the absence of any research to show the opposite), may "prove them right." However, eventually, more and more inconsistencies and problems arise. After a while then, despite all the efforts to prove their cause and implement solutions, based on the "overwhelming evidence," things do not work out as expected. Notwithstanding the resources dedicated to such ideas, the laws of nature cannot be broken. As W.G. Harding, a former president of the U.S. phrased it:
No statute enacted by man can repeal the inexorable laws of nature.
Despite what many politicians like to think, science should drive politics, not the other way around. I give examples of that throughout this book.
Many events, facts, observations, and changes can be mathematically correlated with others of that kind. Such correlations do not prove any cause-effect relationship whatsoever. Fortuitous relationships exist everywhere. Just to "prove" this fallacy, try on this silly correlation: Carbon dioxide levels have increased in the air above every nation on earth over the last 100 years. Similarly, the number of reported crimes committed has increased in the world over the last 100 years. Ergo, one concludes that there is a causative relationship between carbon dioxide in the air and the number of crimes committed. Of course, that is pure nonsense. But many politicians, media reporters and the public at large fall for that kind of reasoning. Most of them think that they not only understand the problem but also its cause and, naturally, they have a solution. More often than not, it starts with raising taxes, or borrowing money from future generations to spend on their "solution."
Alas, in the end most of these funds are wasted, valuable time is lost, and the problem has not been solved.
It is as much surprising as disconcerting to see how little interest there is by politicians in basic fact finding. Instead, they rely on claims by industries, reports in the media, statements by non-government organizations, movies, and the like. There is a definite lack of "due diligence."
In my estimate, over the last decade or so, various levels of governments in Canada alone could have saved several billions of dollars by spending just a few million dollars on that kind of exercise.
This brings us to the next topic: the role of governments.
The Role of Governments
Information & Propaganda
Governments have a dual role to fulfill. Apart from day-to-day governance, they have a legal and moral responsibility to collect and disseminate factual information to their citizenry. This may sound trivial, but for people living in less democratic societies, access to unbiased information is more difficult and not fostered by the state. In times of crises, most governments resort to highly biased reports as to the actual events. This is known as propaganda, a form of myth. For example, see items available at http://www.mediafreedominternational.org.
In World War I, governments on all sides had active propaganda departments. A detailed account relating to World War I propaganda is found at http://www.spartacus.schoolnet.co.uk/FWWwpb.htm. Some 400 propaganda posters supporting the war effort in the US can be viewed at http://www.firstworldwar.com/posters/usa.htm.
The purpose, methods and efficacy of propaganda have been described by A. Hitler in Mein Kampf, translation by R. Manheim, available at: www.oldamericancentury.org/bb/index.-php?showtopic=19044:
The receptivity of the great masses is very limited, their intelligence is small, but their power of forgetting is enormous. In consequence of these facts, all effective propaganda must be limited to a very few points and must harp on these in slogans until the last member of the public understands what you want him to understand by your slogan.
Even in times of peace and prosperity, in many democratic societies the governments and their agencies often fail to provide unbiased factual information to their citizenry. Sometimes, the governments do not even attempt to obtain such for their own enlightenment. You may find some of the following examples surprising:
Despite their push to alternative (electric) power generation, governments in North America have failed to collect and disseminate even the most rudimentary facts on wind or solar power generated electricity. There is not a single test-turbine for which all facts are available to the public or our politicians themselves. Instead, they rely on various industry- or media-sponsored statements and claims. Needless to say, such information is rarely complete and accurate. The full facts would have to include the cost of construction and maintenance, including associated infrastructure such as access roads and transmission lines, the actual wind speed and the actual energy fed into the electric grid. That information should be obtained and disseminated on at least on an hourly basis and it should be made available on the Internet for anyone to obtain and review.
Given the fact that both regional and federal politicians are constantly espousing "green" alternative energy sources (such as wind power), it is quite unfathomable that these politicians would not be pressing for such test systems and availability of the information at the very least for themselves, never mind for the public at large. Where are the due diligence reports for these ideas?
There are other examples of a total lack of pertinent factual tests and information to substantiate policies and government decisions. They are dealt with in more detail in the following sections and, therefore, are presented here only in point form below. To mention just a couple:
Governments need to provide accurate, timely and complete factual information to their citizenries. Anything else is propaganda, misinformation, or myth.
The world history shows that great empires have risen and declined, many disappeared entirely. They all share some commonalities in terms of economic principles, namely over-extending their physical and economic ability to back-up their aspirations. Whether such aspirations involved armed conquest or not, people were unwilling or unable to provide the resources the government needed to maintain their system.
From ancient Babylon, to the pharaohs of Egypt, to the Roman Empire, to the Soviet Union in the 20th century, the political desires outstripped the countries' ability to sustain the economic demands placed on it. These empires believed in the myth of their ability to overcome the natural boundaries of revenue versus expenses.
With such demands often come decrees to streamline resources, construction, agricultural production, and a host of other instructions. Furthermore, mid-stream corrections, U-turns, and new policies and directives typically appear more frequently towards the end of such empires. They usually hasten the demise of the system.
In this context, a recent article by the economics scholar M.J. Boskin is of interest [Source: Boskin, 2009]. Under the headline "Government can't pick the winners, the return of industrial policy," he writes:
One of the worst official responses to the financial crisis and recession has been the revival of 'industrial policy.' Once again, governments are using subsidies, mandates, regulation and capital investment to pick industrial winners and losers, rather than employing a broad, even-handed approach.
Industrial policy appeals to politicians - it allows them to favour key constituencies while claiming to be helping the economy as a whole. But it usually does far more harm than good.
And, what I consider to be most important
Most markets function best when the returns are received and the risks are borne by private owners, but for basic scientific research, the potential return is broadly available to any and all. Because private investors are unable to appropriate the returns, private markets invest too little in basic science. That's why economists of all political persuasions agree that governments should fund basic science and technology.
and, in conclusion:
Industrial policy failed miserably in the 1970s and 1980s. It's just as bad an idea today.
The real problem here is accounting. If governments were to follow good accounting principles, these follies would quickly be discovered and rectified. But they rarely do and if they do, it often is much too late to prevent major problems from becoming manifest.
In ancient times, accounting of the country's treasury content was simple. The coins in it could be weighed or counted. With the modern world's financial instruments, assets and obligations are far less obvious. "Credit default swaps" and similar financial instruments have blurred the accounting process. "Off-balance-sheet" obligations can mean the difference between solvency and financial ruin.
The most recent worldwide economic slowdown during 2008 and 2009 was met with a firm commitment by many governments to "spend their way out of the hole." However, few governments if any had ever saved for such a "rainy day." Therefore, they all need to borrow, and major sums at that.
Where do these borrowed funds really come from?
Young people will be discouraged by the answer: these funds can only come from the income they will have to earn to sustain their own lives. The savings accumulated by the current generation are spoken for already.
The way most governments hope to pay for the borrowed funds, known as budget deficits in a fiscal year, and cumulatively as debt, is by inflation. More on these in the sections following.
Deficits, Debt & Inflation
Many governments worldwide incur large budget deficits. They spend much more than they gather in taxes. This shortfall must be compensated with borrowing from somewhere, and a certain interest will have to be paid to the lender. The table below shows the budget deficits by country as percentage of the countries' Gross Domestic Products (GDPs) in 2009. In total, the current deficits approach several trillion (1012) dollars equivalent. Obviously, that deficit spending has all the political support needed in these countries.
In principle, the GDP is a good measurement to compare countries in terms of their economies and finances. However, the measurement of the GDP is not uniform. For example, Canada includes much "labour of love" (such as raising children) in its measurement while other countries do not. This fact inflates Canada's GDP numbers in relation to other countries and, consequently, shows the country's finances in a better picture than would otherwise be the case. Furthermore, deficits and debts incurred by the various regional authorities (such as provincial and state governments, cities) are also not equally included in the GDP or debt figures.
Governments have the benefit of an invention made several centuries ago, namely the Printing Press, developed by J. Gutenberg in 1436. Moreover, they have been able to persuade their citizenries to accept a piece of paper as the medium of exchange for value. Initially, this was based on the guarantee that there was an equivalent amount of "real value" in the government treasuries to back these "pieces of paper." Alas, such guarantees did not last long; they were soon to be replaced with other definitions, new promises, and generally more obfuscation.
In Greek and Roman times, money was in the form of coins made from metals with different intrinsic values. The Greek "Drachma" and the larger denominations were made of iron, copper, silver, or gold and lasted for several centuries. Apart from any numismatic (collector) values of such coins today, a 2,500-year old gold coin could be redeemed in any currency today for that intrinsic value at the current market price of its metal content. Not so with the paper issues by many countries in the intervening time. The purchasing power of, for example, gold over the last 400-plus years shows this vividly, in Figure 1.
As can be seen, except for brief periods above the average, the purchasing power of gold in England has remained quite constant over the last 400-plus years. In contrast, the purchasing power of banknotes has declined severely. The original meaning of "Pound Sterling," namely "one pound (by weight) of silver" does not hold true anymore. Currently, a pound of silver costs approximately 150 British Pounds (Sterling) in banknotes.
The rise in prices of goods and services, which is the loss of purchasing power of a currency, is termed inflation. Inflation is often seen as "beneficial" by governments and people alike. Indeed, several countries have official inflation targets, that means they wish to maintain a certain level of inflation (typically in the neighbourhood of 3% per year).
The financier André Kostolany (1906-1999) described benign inflation as a "warm bath," but rampant inflation as a scolding one. He had experiences first hand the ravages of rampant inflation in Germany in the 1920's, when workers were paid twice daily and had to use wheel barrows full of Million-Mark notes to buy what basis groceries they could before their purchasing power declined.
The main problem with inflation is that it is rarely compensated for in full by interest payments on the funds lent by the saver to the borrower. For example, a person wanting to save money for a later time may wish to invest in the most secure type of asset available, a government treasury obligation, such as a bond or bill. In regular intervals the lender receives an interest payment, until maturity of the certificate, at which time the principal amount is returned.
This all sounds very good and simple, except for the effect of inflation. If the rate of inflation is larger than the rate of interest paid, it results in a net loss of purchasing power for the saver over time. To complicate the picture even further, interest income is widely taxed by governments, causing an additional loss in purchasing power. If the rate of return (rate of interest after tax) on that bond is truly determined by market forces, it will usually be higher than the rate of inflation. This, of course, requires knowledge of the latter and for that reason, governments have invented various methods to measure the rate of inflation.
The following table gives some approximate values of coins and goods over the last 2,500 years in local currencies then and now (early 2010).
If you buy a toothbrush every few months, you probably will not remember the price you had paid for it several months ago, and any increase in cost is not noticed. If you buy a loaf of bread every day, you are more likely to notice a change of its price. In order to track inflation (or its opposite, deflation), governments have created consumer price indices (CPI) and use "shopping baskets" of goods and services commonly consumed. This is where things become more complicated and obfuscated.
These "shopping baskets" are made up of many important items, but omit other vital purchases. They also differ between countries and are often changed within a country. Examples for England and the USA follow in Table 3.
The myth, perpetuated by governments and mostly believed by their citizenries is that inflation is good for the country, and their own well-being.
Excerpted from CONVENIENT MYTHS by KLAUS L.E. KAISER Copyright © 2010 by Klaus L.E. Kaiser. Excerpted by permission.
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Table of Contents
The Great Myth....................17
Laws of Physics....................159
Most Helpful Customer Reviews
"...Anyone trying to get passed all the claims about the environment, energy, climate, carbon dioxide, polar bears, and much more would do themselves a big favor to pick up a copy of this excellent book." ALAN CARUBA, Editor of Bookviews (May 2010 edition) Charter Member, The National Book Critics Circle