Recently, I’ve stumbled onto a few bad science columns and articles in major science publications, Discover and Scientific American.

To start, Lawrence Krauss, a respectable physicist, starts delving into ocean chemistry and climate when he brings forth the notion that increasing CO2 levels in the atmosphere will decrease the pH of the ocean, making it acidic and preventing the formation of calcium carbonate shells in shelled animals and coral reefs.  The problem is, that isn’t good science.  That is taking a simple concept (i.e. dissolving CO2 in water makes carbonic acid) and applying it to the very large and very complex chemical system that is the ocean.  It has been shown that increasing acid species (like CO2) in the ocean cannot drive the pH very far because the CO2 in the water will react with minerals in the sea floor, forming salts – in fact, on page 17 of the same issue of Scientific American is a short article on storing CO2 by reacting it with the basalt underlying the ocean…   Ian Plimer has explained the ocean chemistry issue very clearly previously, showing the Dr. Krauss is misleading the public in his column.  Further, recent studies have shown that increasing CO2 in the oceans actually increases shell development in some species…  A good question for Dr. Krauss would be “How did the oceans stay alkaline during the Jurassic-Cretaceous period when atmospheric CO2 levels were 5 times the current value?”

In Discover, they have interviews with Judith Curry and Michael Mann about the impact and importance of ClimateGate.  Judith Curry makes a very eye-opening statement to a question:

Q. Are you saying that the scientific community, through the IPCC, is asking the world to restructure its entire mode of producing and consuming energy and yet hasn’t done a scientific uncertainty analysis?

A. Yes.

Egads – why the hell should we act if we don’t know whether the uncertainty overwhelms the supposed effect?

Michael Mann tells us:

We’ve reached a point now … where we’ve got climate scientists, who understand the physics of climate and how that translates to uncertainties, working hand in hand with economists who will run the projected impacts through a cost-benefit analysis.  The way it plays out is that the small probability of extremely bad things happening incurs huge potential costs, and you want to hedge against those potential catastrophic costs.  So when you taken uncertainty into account, it actually leads to the decision that we should taken action more quickly.

Of course, Dr. Mann makes us rely on faith that (1) climate scientists really do understand the climate, and (2) that economists are hard scientists who can accurately predict the future.  Considering how well economists and their ilk did over the past 5 years, I would have to question that one…

And I won’t waste my time with Jeffrey Sachs monologue, which sounds like a desperate plea to act while at the same time avoiding any comment on the fact that the science is clearly unsettled.

Last night, 60 Minutes reported on Bloom Energy and their BloomBox technology.  You can read a transcript of the story here.   Bloom appears to have developed a reasonably priced fuel cell technology.

My thought on this was that if they can sell me one for cheap (like less than the $3000 quoted in the story) to power my house using natural gas, it might pay for itself in a reasonable amount of time.  It would be even better if the power company would let me sell electricity back to the grid – because a fuel cell operating in the 90+% efficiency range would allow a BloomBox owner to generate electricity for about half the price of a combined cycle natural gas fired power plant.  I won’t hold my breath for that one though – this being Canada where government regulation never saw a novel idea they couldn’t kill to protect the status quo…

My first thought on seeing this story though was “OMG, it’s a Shipstone!” from the Robert Heinlein novel, Friday (buy here).  Now it’s not quite as magical as a shipstone, but it is interesting how science fiction turns out not to be so fictional after all…

Last week, the Parliamentary Budget Office published a Fiscal Sustainability report, that lays out the reality that anyone with a little knowledge of math has known for a long time.  The problem is that there are many in Ottawa and the media who think that Kevin Page’s preferred solution, higher taxes, is the right one.  And they would be wrong.

(OK, Page did say in the report that government had to either raise taxes or cut spending, but then states that recent tax cuts (corporate, GST) were irresponsible and unsustainable.  Seems clear to me what side of the fiscal tent he sits on…)

Recent events around the world, particularly in Greece, show us that high taxes and high government spending are unsustainable.  The Wall Street Journal said it best:

The central contradiction in modern liberal politics is that Otto von Bismarck’s entitlement state for cradle to grave financial security is no longer affordable. The model has reached the limit of its ability to tax private income and still allow enough economic growth to finance its transfer payments.

Whether it be Greece, the rest of the EU, the United States or Canada, we cannot afford the growing size of government.  Even Keynes, who believed government should grow during recessions, believed that government should never consume more than 25% of the economy.  Today we are well above that, and much of Europe is above 50%.

It disappoints me that commentaries like this get written, decrying the lack of policy vision in Canada, then demanding more government to solve the problems.   I agree there has been a dearth of good policy (or new policy) coming from Ottawa – but I would ask that our leaders look towards a country that had the most success avoiding the recent economic downturn and has seen both sustained economic growth for 20 years, while not just balancing the books but paying off debt:   Australia.

Australia is the least regulated economy in the OECD, has the lowest government debt, and has the most open and free trade.  While the current Rudd government makes noises about reversing many of the good policies of the Howard era, we should ignore that and move in the direction of less government, less regulation, lower taxes and freer trade.  And that means we need to cut government spending at all levels and let the free market do more.   It is for this reason that I vehemently oppose any proposals to expand government (such as Iggy’s recent call for government run daycare and preschool).  We don’t need it.  We never will.  And we can’t afford it.

I do commend the Globe editors – this editorial is very good.  It calls out the government to make hard choices.  But it lets them off the hook until “current agreements expire in 2014″.  The longer we wait the worse this gets…

The federal Finance Minister, Jim Flaherty, today released revised rules for mortgages to try to avert a housing bubble.  His mechanism is to make it more difficult for people to buy houses without taking more equity and to make it so that borrowers need to meet a higher bar of being able to pay back the house (5 year fixed rate vs. a shorter term or variable rate).

Here is the problem – this is a band-aid solution to the housing problem that doesn’t address the fundamental problems:

• We have too much debt
• Debt is too easy to acquire
• Interest rates are too low, making debt appear less risky (it is only truly less risky if it is very short-term debt)

A simpler solution is for the Bank of Canada, and central banks everywhere, to consider changing the measures that are used to guide the setting of interest rates.  Today, there are three criteria that the BoC is using to set interest rates:

1. Inflation (CPI)
2. Economic Growth
3. The value of the Loonie

The problem with these is that the Inflation rate has been compromised by politics.  They removed “volatile” prices like food and energy, which means that the remaining prices are more greatly affected by things that are deflationary, such as electronics.   Economic growth is likewise a dangerous measure, especially if that growth is being built with a large current account deficit or increase in debt levels.  And the third is simple ridiculous.  Maintaining a low Canadian dollar protected Canadian business from having to spend money on improving efficiency and productivity – but we should have known we could not rely on that forever.  Also, the value of currencies is likely to shift significantly over the next few years as Europe, Japan and America deal with their giant fiscal problems and China grows into the largest economy on Earth.

A better method for setting interest rates would be for the central banks to use the same kinds of measures that the free market would (i.e. if we didn’t have central banks) – RISK.  If there is a rising level of debt, there is a rising level of default risk.  Lenders (i.e. bondholders) would demand a higher interest rate to counter the risk profile.  Central banks should do the same.  If the level of private and public debt is rising to quickly, interest rates should be increased to slow or cease said growth.  The painful part may be that we are so far gone that economic contraction may be necessary to unwind the debt.  Imagine for a moment that we didn’t have CMHC (or Fannie Mae or Freddie Mac in the US) insurance for mortgages – would banks be rushing to offer mortgages with zero down and low interest rates?  I don’t think so.  The risk profile for banks would be very different and the housing market would likewise be very different.

Therefore, the Bank of Canada and the Minister of Finance should sit down and decide what a reasonable debt level is for Canada – preferably by asking the banks what they would be comfortable with if they had to lend with no insurance policies from government.   Then raise interest rates until debt levels fall.

There have been a few stories in the news lately concerning the Alberta Oil Sands and the various moves toward or away from this resource.  A couple of interesting stories:

Canada looks to China to exploit oil sands rejected by US

BP risks investor outrage at ‘dirty’ oil deal

Chinese, Korean and Japanese firms have been interested in the oil sands for a while now, and some other firms from outside Europe / USA have slowly been investing as well, such as TAQA of Abu Dhabi.  In the BP story, apparently RIL of India may be willing to pay even more than BP for the assets of Value Creation.

Shell seems to be “slowing down” investment, and shareholder resistance to StatOil and BP investment are well documented.  The question for Canadians is – are we ok with all these foreign firms investing in the oilsands?

I would say YES, and even more that we want to encourage investors who are interested in exporting the products of the oil sands outside the North American market.   One of the dangers facing the oil industry in Canada is the Low Carbon Fuel Standard (LCFS) movement in the US, whereby states and business want to avoid using so-called dirty oil that has a high carbon footprint (I of course find is most interesting is when California went this route they exempted the oil from the Kern River field which has some of the highest CO2 emissions per barrel in the world, simply because it is in California…)  A good way to mitigate this risk to Canada’s economic growth is to develop other markets for our product.  And with investment coming from Asia, this should provide more impetus for Enbridge to build the Northern Gateway Pipeline from Edmonton to Kitimat, BC.  This will protect producers in the oil sands from being solely dependent on the fickle US market and may cause those in Washington to question they have looked a gift horse in the mouth…

Jeffrey Simpson, writing in the Globe and Mail, sometimes surprises me.  He hits the nail on the head that Canadian businesses need to look beyond the US market and find more customers overseas – even if that is hard.

Mr. Simpson wrote a good book review a couple of years ago, on the same subject.  But my question is, does he now accept and understand that the government is a big part of the problem – coddling local industries and throwing wrenches in trying to pick winners – that he tried to pass off as the lesser of the complaints in the book.   While I agree that Ms. Mandel-Campbell’s book pointed out the failings of Canadian business people on the international stage, I can understand if one company is badly run – it really only affects that one company.  But when the government gets involved it screws up everyone.  Be it the wheat board, the dairy marketing system and tariffs, the way EDC is structured or government intervention in international trade in an attempt to protect/help a single “national champion”, the government isn’t helping.  They are part of the problem.

We need to get rid of marketing boards, cultural protections for bookstores and broadcasters, restrictions on foreign investment and foreign competition and put the EDC on the footing to HELP Canadian businesses export – and not by demanding domestic borrowers or foreign buyers be restricted to EDC financing or other Canadian suppliers who may not be competitive.

In recent days, the Liberal Party of Canada has made a couple of statements indicating they think that the Government of Canada should be spending MORE of our tax dollars on new programs. Considering the problems we are having funding the programs we already have, this is hard believe – except that these are Liberals who believe more government has got to be a good thing. Read the rest of this entry »

OK, given that the evidence is now out on climate change, I am very disappointed that the Government of Canada insists on going along with the charade of Copenhagen by committing us, in a non-binding way, to a reduction of 17% in CO2 emissions from 2005 levels by 2020…

Let’s work out how much that is going to cost…  Since we didn’t reduce emissions from 2005 through 2009 (they went up, even with the reductions from economic contraction), we have to cut deeper now.  That means that to meet the goal, reductions must be of 1.75% every year starting in 2010.   The total reduction in emissions will need to be 744 Million tonnes.  From studies I’ve been involved with indicate carbon capture and storage will cost between $40 – 100 per tonne.  So this will cost at a minimum $30 Billion (today, inflation will drive this up).  The government’s own study in 2007 said that the price of CO2 (carbon tax or credit value) needed to change behaviour sufficiently to reduce emissions would be $195/tonne.  That pushes up the cost over the next 10 years to $145 Billion.  That’s $14.5 billion per year that will be REMOVED from the economy.  And that excludes any knock-on effects that reduce economic growth because investors would rather spend their money in countries that don’t waste money on things like this.  Or impose such regulations.   And it excludes the knock-on effects of the blackouts we are going to have because we can’t build enough nuclear plants in 10 years to counter-act the shutdown of all the coal-fired power plants we will have to shutdown to meet the goal.  An wind and solar aren’t going to replace the coal-fired because they aren’t reliable enough (wind) or don’t work well in the darkness that is a Canadian winter (solar).

Do you want to pay $15 Billion a year to make us “look kinda ok” on the world stage?  Or should we say no and stop chasing this non-existent problem?

Quebec is taking it’s own crazy socialist path by imposing restrictions on car makers and dealers with so little warning that it is impossible for them to meet the deadline.  The result will be that car sales in Quebec will necessarily drop off, residents of Quebec will buy cars in Ontario, New Brunswick or the USA and import them too Quebec.

Is Charest going to prohibit the registration of cars purchased outside Quebec in the name of green?  Really?

Yet another Quebec government comes up with an idea that will drive people and business out of the province.

For anyone who believes in socialism, the recent events unfolding in Venezuela are the beginnings of the death-throes of socialism in that country.  The people, and the army, will eventually realize they are broke and long speeches from Hugo can’t fix it.