Category Archives: Environment

Food and Politics

I was listening to Micahel Pollan on the radio last night (yes, on NPR; I was drinking chardonnay and eating sushi too) do his usual spiel on food, although this time it involved him promoting his new film “Food, Inc.” And although I know his viewpoint already — the American diet is unhealthy and politicians don’t care because they accept money from food corporations — this time I got  angry.

Maybe it was because this time Pollan told a story I hadn’t heard before: about how in 1977 Senator George McGovern led a committee that called for Americans to eat less red meat, until the meat industry threw a hissy fit and forced the committee to water its position down to “eat less saturated fat.” I just hate the fact that a single industry gets to throw money at politicians and thereby screw the American public.

Or possibly it’s because Pollan was speaking in the middle of the debate over health care reform. Politicians are feuding over the cost of health care and insurance, but they continue to throw subsidy money at the corn farmers and beef ranchers whose products are what make our diet so unhealthy. Hell, even the Wall Street Journal ran a column yesterday in which a doctor said that preventing obesity would save enough money to cover everything and everyone else.

So politicians, I ask you, again, please try to do what is right for the American people, and stop doing what some lobbyist pays you $2,000 to do.

Saving the Environment – We All Need to Give

President Obama’s inaugural address has gotten me thinking about responsibility and sacrifice. The President said what we have all known for a long time: that Americans are too profligate – spending money we don’t have, burning energy we can’t afford – and that a day of reckoning would come. In fact, the President made clear that the day of reckoning is here: “our time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed.” As a result, I am planning a series of entries on this topic, on the theme of sacrifice. Today’s item: the environment.

A recent article in the Wall Street Journal (regular readers know I love my WSJ) discussed Cape Wind, which aims to put 130 windmills off the coast of Cape Cod, reducing greenhouse gas emissions an amount equivalent to taking 175,000 cars off the road. A no brainer project, right? Wrong, because the wealthy folks who have their weekend houses on that part of the Cape don’t want their views marred by windmills out on the horizon. They have been protesting the project and putting up legal barriers, enlisting the help of their most powerful neighbor, Teddy Kennedy, whose family has a fabled compound in Hyannisport.

Massachusetts is famously liberal, and based on my two years in Boston, the people who weekend on the Cape would consider themselves environmentalists. They recycle, they install solar power, they drive their Prius to Whole Foods to buy local produce. But when it comes to windmills in their expensive view, suddenly they aren’t so green. This is where they need to listen to our new president and stop protecting their narrow interests. They need to sacrifice a little for the good of the environment.

Broadening the scope of this discussion, if we are going to defeat global warming, everyone is going to have to chip in. The NIMBY (not in my back yard) protests that stall projects like new power lines, or wind farms, are going to have to stop. Of course, nobody wants a giant tower in their back yard, or a windmill right off their front porch. But nobody wants temperatures to go up several degrees either, or ocean levels to rise to a point where Cape Cod weekend houses are under water. Global warming is a major problem that affects everybody, and we are all going to have to sacrifice a little – give up our SUV, or allow windmills near our weekend house – if we are going to solve it. As theologian Sallie McFague put in her new book regarding climate change, “either we will all make it together or none of us will.”

Auto Company Bailout: Make it Hurt

Politicians in Washington are debating whether the government should bail out the Big 3 American automakers: Chrysler, Ford and GM. In addition to the $25 billion in low cost loans the government has already committed to Detroit, the Democrats, including President-elect Obama, are pushing for more aid. I have long been fascinated by the utter incompetence of American car companies, and came out against the $25 billion in loans, so of course I have some thoughts on this push for additional help.

I’m going to ignore ideology (eg. in a free market we should let companies fail) and focus on practical issues. But practically speaking, giving money to the car companies would be rewarding failure. For 30 years the Big 3 have been getting spanked by Japanese, German and now Korean car companies. They have relied on trucks and SUVs to generate profit and have proven themselves completely unable to produce an appealing small car. They have also demonstrated a fantastic inability to retool their processes to compete with the imports.

NYU business professor David Yermack calculates that GM and Ford alone have invested $465 billion in capital since 1998 and have seen their combined market capitalizations drop from $117 billion to $6 billion today. These are not companies that spend money well, so why should the taxpayers give them any more? And let’s not forget that GM CEO Rick Wagoner made $3.3 million last year while Ford CFO Lewis Boothe made $3.1 million (I’m letting Ford’s CEO off the hook for his $9 million because he’s new and they had to pay up to recruit him from Boeing). Why should our money go to support multi-million dollar salaries for guys who are screwing up?

Conservative commentators (hello Wall Street Journal) blame much of Detroit’s problems on expensive union contracts and hefty benefits paid to retirees. The usual estimate is that retiree legacy payments add $1,500 to the cost of each vehicle. But even if you could take $1,500 off the price of American cars, they would still lose market share because the cars suck. A comparable Toyota is worth $1,500 more because it is better made and will last forever. Also, I should note that it was the executives of the car companies who signed those rich union contracts. That being said, the UAW is way out of line with the overall labor market. Gold-plated health benefits, ridiculous work rules and no-layoff clauses are no way to help your company beat the competition.

So the main argument against bailing out the Big 3 is that it would be throwing good money (OUR money) after bad. What are the reasons to support a bailout? It turns out that there are 3 million of them; that’s the number of jobs that analysts have tied to the auto industry. And the theory is that if we let the Big 3 fail, all those jobs will go away. The car companies are saying that nobody will buy cars from a bankrupt company. I don’t totally believe that – I think that Americans have flown enough airlines that were in bankruptcy to understand that a bankrupt GM doesn’t really go away – but nor do I agree with Yermack that Toyota and Honda can just take up the slack. Realistically, it will take years for the foreign car companies to ramp up production to take over for a failed Detroit company. There is also the argument that the auto industry drives America’s sophisticated manufacturing industry, which is essential for both national security and future economic growth. I don’t know enough about that to comment intelligently, but it makes some sense on its face. Finally, there are all those retirees with health insurance and pensions. If the Big 3 fail, the obligations to support all those people will fall on taxpayers anyway.

So maybe, on balance, some sort of bailout is a good idea. If even 500,000 jobs were lost and the Big 3 pensions put onto the taxpayers, that would not be good for the economy. But good idea or bad idea, the bailout is still going to happen; the Democratic leaders (Nancy Pelosi and Harry Reid) are pushing for it, and Barack Obama owes the unions big time for getting out the vote. And if it’s going to happen anyway, let’s at least push for it to be done the right way.

Any federal bailout of the Detroit automakers needs to A) be onerous to shareholders and executives, and B) force restructuring on the industry to make it competitive. Paul Ingrassia, who won a Pulitzer Prize for his Wall Street Journal coverage of the auto industry, argued for removing current management, wiping out shareholders and restructuring contracts. He is absolutely right. And wiping out shareholders has to include the Ford family, who continue to dominate Ford Motor Company. Michael Levine, a lecturer at NYU School of Law, adds that the dealer networks have to be restructured. It has long been known that the Big 3 have far too many brands and dealers relative to the cars they sell (GM has 7,000 dealers while Toyota has 1,500) but state laws protect dealers from being closed. These state laws exist because dealers are big players in local economies; unfortunately, they are not big players at the national scale, and these state laws need to be trumped by national concerns.

All of these objectives can be realized through a packaged bankruptcy, which was suggested by Edward Altman, a business professor at NYU (lots of NYU references in this post). Packaged Chapter 11 bankruptcies, in which the financing that takes you out of bankruptcy is pre-negotiated, are pretty common. The government would provide the financing, and that would address the concern that consumers won’t buy cars from a bankrupt manufacturer. In fact, a packaged bankruptcy is the only route I can see that achieves all important goals:

  • Management removed and compensation limits implemented
  • Current shareholders wiped out
  • Union contracts renegotiated
  • Dealer contracts renegotiated and state laws changed.

So please, politicians, I implore you: don’t give in to corporate and union lobbying and just hand the car companies money. Use this opportunity to force on the car companies the changes that they need.

An interesting side note is that this is another case of the metaphysical phenomenon of current actions sowing the seeds of one’s eventual destruction. For decades the Big 3 have fought against fuel efficiency, spending gajillions of dollars lobbying against the CAFE fuel economy standards instead of just building better cars. And now, because they can’t build a good small car, the Big 3 are begging for help. In the same way, Republicans have for years been resisting any legislative efforts to push fuel economy, and look what just happened to them. Congressman John Dingell of Detroit, although a Democrat, has been the Big 3’s biggest supporter in DC (his wife is an executive at GM), and now Henry Waxman is trying to take away Dingell’s precious chairmanship of the Energy and Commerce Committee. In all these cases, we are seeing people and groups being beaten by that against which they fought the hardest. Very Jungian, don’t you think?

Republican Energy Policy

When writing about any energy policy, there are certain facts which need to be put on the table:

  • the amount of oil in the world is finite
  • most of the currently known reserves are in places unfriendly to the US: the Middle East, Russia and Venezuela
  • demand for oil from emerging markets (India and China) will continue to grow

With those facts as a backdrop, the Republicans have decided on an energy policy that is summarized in their convention chant: “drill, baby, drill.” They have embraced drilling off both the west and east coasts of the US as their solution. But that’s not an energy policy: it’s a band-aid trying to cover a gaping wound.

Not that drilling is bad. But drilling isn’t enough. It’s nowhere near enough. The Department of Energy’s own study states that drilling in the areas the Republicans want to open would generate 200,000 barrels of oil per day (1% of US daily consumption), but not until 2017. Other than in the Gulf of Mexico, where we already drill, there just isn’t that much oil off the US coastline.

Which means that the Republicans can place drilling platforms all over the California coast – it will have virtually zero impact on gas prices. Nor will it reduce our dependence on enemy states for our oil. “This is a troubling trend” understates Bruce Bullock, director of SMU’s energy institute.

After drilling – way after drilling – the Republican policy looks at nuclear and coal power. Nuclear power produces zero greenhouse gases, and the newer reactors are supposed to be much safer, although there is that pesky toxic waste. Coal is a dirty fuel, both in the mining and the burning, and the new clean burning technology is far from ready. But the main problem with nuclear and coal is that you can’t put them in your car.

Right now gas is still at around $4.00 per gallon and that price is at the mercy of oil sheiks, Hugo Chavez and Vladimir Putin. Do we really want to let those guys control our driving habits? I don’t. But nothing in the Republican plan helps free us from our oil dependence. Automobile fuel efficiency, alternative fuels, conservation – none of this is mentioned. Nothing but drilling, which won’t really help. So whose interests does the Republican plan represent?

A New American Sense of Responsibility?

Over the past few months I have seen more and more data indicating that Americans are cutting back their consumption in the face of the deteriorating economic situation. Retailers, restaurants, car companies, airlines – it seems as if everybody is feeling the pain. Just last week the Wall Street Journal called the trend “U.S. Retools Economy, Curbing Its Thirst for Oil.”

I am wondering if maybe this trend will last beyond the current economy and represent a new, or renewed, sense of responsibility in America. The past few decades have been an orgy of consumerism in America (and much of the developed world, but I’ll focus on America simply because I know it best), as people lived beyond their means, purchasing things they didn’t need and couldn’t afford. Possibly the best quote I have heard on this trend came from Art Wong, a worker at the port of Long Beach, who was on NPR’s Marketplace:

You know, we’re being stretched, and I turn to my kids every so often and I ask them, how many more pairs of jeans do they need? How many more handbags can they buy? And how much room do they have in their closets? And they keep going, and they keep buying, and the port keeps seeing more and more cargo coming through here.

This consumption frenzy brought with it a number of problems. There were environmental considerations, both from the production of consumer goods and from the gasoline sucked down by the SUVs that were a major outlet of purchasemania. There were price dislocations from people purchasing items (homes, Tiffany bracelets, fancy meals) that they couldn’t afford. There were macroeconomic impacts as we financed our purchases with overseas capital. Finally, I think there were moral and psychological consequences (not surprising to regular readers of this blog) from an entire population giving up on any sort of self-restraint or thought for the future.

With gas prices above $4 per gallon and economic growth stagnating, our reduced consumption is not surprising. But maybe, just maybe, this decline in purchasing represents a broader change, a sense that untrammeled consumerism is simply unsustainable. Perhaps people were jolted awake by the impact on the environment, or the national security ramifications of our addiction to oil, or the deflation of the housing bubble. Are Americans now looking beyond their own material wants?

Maybe, and maybe not. Perhaps there is no broader sense of responsibility, but rather the inexorable force of economics. Maybe people still don’t care about the environment or national security, and all they really want is a bigger Jet Ski, but they simply no longer have the money to satisfy their wants. That is certainly what the economists think. “We’re going back to the good old days of living within our means,” said David Rosenberg, chief North American economist for Merrill Lynch. Adds another:

We’re seeing the birth pangs of a new economic structure,” said Neal Soss, chief economist for Credit Suisse First Boston. “The next year or two or three will be about the transition to a new equilibrium. Consumption by households will grow more slowly than their incomes, which is the exact opposite of the last 25 years when consumption grew faster than incomes.”

Although I would prefer to think that we are getting more responsible, and that issues larger than our checkbook are driving these new spending patterns, I suspect that A) the economists are right; and B) it may not really matter. Even if economics are behind the change, those economic conditions show no signs of changing in the near future, or possibly the medium future. There is even a theory that this shift is permanent, and that America’s days of being an economic powerhouse are over. “The world has become multipolar,” according to UC Berkeley economist Barry Eichengreen. “Our dominance will decline.” Jared Diamond, of Guns, Germs & Steel fame, even says that the developed world only has 30-50 years of first world living before we outstrip our own resources.

Either way, this change in spending, this “retooling of the economy,” looks like it will be with us for a while. This has tremendous implications for companies that sell to consumers. Think about:

  • Utilities dealing with decreased demand for energy
  • Car companies finally forced to produce smaller cars
  • Construction with a focus on energy efficiency and green materials
  • Appliances that are cheaper, smaller and use fewer resources
  • Consumers actually turning down credit card offers because they aren’t buying things
  • Retailers changing their product assortment
  • Discounters (Wal-Mart) gaining market share at the expense of stores that catered to the overreachers (Neiman-Marcus)

Convenience Consumption

Many people are familiar with conspicuous consumption, Thorstein Veblen’s brilliant term from Theory of the Leisure Class for describing how upper classes consume as a way of displaying wealth.

But it seems like now we are seeing a new form of consumption where people are consuming for convenience instead of conspicuousness. Of course, people have always paid for convenience – that’s why last minute plane flights are so much more expensive than advance fares – but the convenience consumption I’m seeing has certain differentiators:

  • there is a cost to society
  • the gain in convenience is marginal
  • the consuming seems driven by appearances as much as convenience.

Bottled water started me on the path to this theory, like a spring feeding a Fiji bottling plant. The growth in bottled water consumption in the U.S. has been dramatic, growing to 9.4 billion gallons and $12.6 billion in 2008 from 4.7 billion gallons and $6.1 billion in 2000. On a per capita basis, this represents growth to 29 gallons per year from 13. That’s a lot of water. Everywhere you go, people are swigging from plastic bottles of water: in the car, on the bus, walking down the street.

The cost of all those plastic bottles, however, transcends the $1.50 that the consumer paid. Only two out of ten water bottles consumed in the U.S. are recycled, with the rest going to the dump. That adds up to 38 billion bottles tossed into landfill every year. In addition, it takes 17 million barrels of oil to produce the water bottles consumed in the US every year. Finally, it takes thrice the clean water put in every bottle just to produce that bottle. Combine the garbage generation with the natural resource consumption, and drinking bottled water clearly has a cost to society.

Carrying your drinking water in a bottle is convenient, but not significantly more convenient than getting water at your destination. This is America, where virtually all tap water is safe to drink, and virtually all houses and offices have sinks with taps. It is challenging to imagine a circumstance where an urban or suburban American is more than 30 minutes from a source of clean drinking water.

So why the billions of bottles of water? Proper hydration has clear health benefits but I question that as the root cause. It feels more like people want to show – to themselves and to others – how busy they are. Realistically, nobody is so thirsty on their bus ride to work that they have to drink water from a bottle. We can all wait until we arrive at our office and fill our water glass then. But drinking from a bottle demonstrates to our busmates how busy we are, and how hip to hydration.

If nobody is so thirsty that they have to drink on the bus, much like nobody has such an important phone call that they can’t delay it while waiting in line at Starbucks, why are we doing both? By paying for unnecessary convenience, we can demonstrate to the world how much we NEED that convenience, how important we are. The parallel to Veblen is clear. But in a green world, conspicuous is out, convenience is in. In the modern world, you prove your worth not by owning a mansion in Newport, RI, but by being so busy that you need to drink, talk and eat on the run.

If I’m right about convenience consumption, what are the implications for the future? I predict that food will continue to be conveniencized. There is already Go-Gurt and Lunchables for kids, but I think that package food for adults on the go will continue to expand. Because lord knows, when people are hungry they have to eat…NOW! And if it’s gourmet, that’s all the better, since after all, we live in Veblenland.

Eventually We’ll All Be Environmentalists

Environmentalism is generally represented as some version of dichotomy: conservative v. liberal or business v. environmentalists or republican v. democrat. Probably the most common characterization is that corporate executives don’t want to spend money to clean up while liberals want businesses to be clean and green: in other words, profit v. the environment

This dichotomous presentation has historically made sense, and if you look at environmental battles in the past, this is how the lines have often been drawn. For examples, see loggers v. the spotted owl or coal mines v. health advocates.

Health advocates, however, are the crux of a coming change. As the environment degrades and as science discovers more links between pollution and health, environmentalism will be seen less as an earth and animal issue and more as a human health issue. Many companies are perfectly happy to prioritize profits above trees or animals or scenic views, but they are much less likely to put profits ahead of human lives.

As the science become clearer and activists get better at using that science, the link between corporate actions and human health will become more explicit. This will cause corporate chieftains to look at things differently: they are, for the most part, decent people, and they don’t want to kill or injure other humans. And even those chieftains who might choose profit over the lives of others (they’re the ones who make great movie villains) certainly don’t want to get caught valuing money over human lives – that would be bad for business.

To use a concrete example, coal mining creates pools of toxic sludge. In West Virginia, some of these pools sit near schools. One mine, owned by Massey Energy, has a 2.8 billion gallon sludge pool sitting 400 yards above an elementary school. If science were to demonstrate that the fumes from this pool are damaging to the health of the school kids, I reckon that Massey CEO Don Blankenship would look into doing something about it. Mr. Blankenship probably doesn’t want to kill kids, and he definitely doesn’t want the world to know if he does kill kids.

Moreover, as global warming become more widely accepted as fact, this problem will hit closer and closer to home for corporate chieftains. Because if the climate starts to change, it won’t be random kids being hurt; it will be the chieftains’ kids, or grandkids. And NOBODY wants to hurt their own grandkids.