Geranium Farm Home     Who's Who on the Farm     The Almost Daily eMo     Subscriptions     Coming Events     Links
Hodgepodge     More or Less Church     Ways of the World     Father Matthew     A Few Good Writers     Bookstore
Light a Prayer Candle     Message Board     Donations     Gifts For Life     Pennies From Heaven     Live Chat

Ways of the World

Carol Stone, business economist & active Episcopalian, brings you "Ways of the World". Exploring business & consumers & stewardship, we'll discuss everyday issues: kids & finances, gas prices, & some larger issues: what if foreigners start dumping our debt? And so on. We can provide answers & seek out sources for others. We'll talk about current events & perhaps get different perspectives from what the media says. Write to Carol. Let her know what's important to you: carol@geraniumfarm.org

Tuesday, July 12, 2016

A Threesome: Some Prayers, a Prime Minister, and a Parable

Prayers for Police and for Peace
In these tense days of troubles among African-Americans and law enforcement officers, we suggest these prayers from A New Zealand Prayer Book*. 

FOR THE JUDICIARY AND POLICE
God of truth and justice;
we ask you to help the men and women
who administer and police our laws;
grant them insight, courage and compassion,
protect them from corruption and arrogance
and grant that we, whom they seek to serve,
may give them the support and affection they need;
so may our people be strengthened more and more in respect and concern for one another.
We make this prayer through Jesus Christ. Amen.

ON THE 25TH SUNDAY AFTER PENTECOST: For Our World
Universal and unchanging God,
we are one, unalterably one,
with all the human race.
Grant that we who share Christ’s blood
may, through your unifying Spirit,
break down the walls that divide us.
This we ask through Christ our Mediator. Amen.

 __________
*http://anglicanprayerbook.nz/index.html  1988.  Pages 139 and 637.

+ + + + + + + + + +

Theresa May To Become U.K. Prime Minister
On July 13, the U.K. will get its second woman Prime Minister when Theresa May, currently Home Secretary, assumes that higher office.  As we wrote last week, David Cameron resigned immediately after the Brexit vote on June 23; he will do that formally July 13 by presenting himself and his letter of resignation to the Queen; he will inform her that Ms. May is available and in his view would be worthy of the appointment.  Later in the day, Ms. May will be presented to the Queen.

We give you this follow-up information for a couple of reasons.  Obviously, it is an important step forward in the U.K.’s new sense of itself.  Ms. May favored remaining in the EU, but she seems always to have understood what people wanted in breaking away and will work carefully on that process.  Comments we saw about her indicate that she is a most conscientious worker in government and concentrates on the substance of matters, rather than the perks and personality points of holding office.  “I don’t tour the TV studios,” she has stated.

This brings us to the second reason we want to give specific mention to this development.  We are struck by the “adult” attitudes of the U.K. leaders at this time.  Boris Johnson, who seemed to be a leading candidate early on, and Andrea Leadsom, the other finalist for election as Conservative Party leader, both pulled out to allow the selection to take place with the least controversy possible.  At this point in time, with much uncertainty, having the election process as brief as practicable helps significantly in both domestic and international affairs, and we are impressed that egos have not gotten in the way and that everyone has seemed to be in line to move forward, despite the shock of the Brexit vote outcome.  Concluding the Prime Minister decision promptly will permit more time on the substance of the conditions for the U.K.’s departure from the EU, and Ms. May seems to be someone who will give ample consideration to all concerns in this important step.

+ + + + + + + + + +

Maybe the 3rd Servant Was Right To Bury his Talent
The Gospel selection assigned for today’s (July 12) Daily Office readings in the U.S. Book of Common Prayer is the parable of the talents, Matthew 25:14-30.  A man of wealth is going off on a long journey and decides to let three slaves manage some of his funds while he is away.  To one slave, he gives 5 “talents”, to a second slave, 2 talents and to a third slave, 1 talent.  The first two make investments or form businesses, and each doubles his money.  When the master returns, he is very pleased with their performances and promises them promotions.  The third slave buries his talent in the ground; he doesn’t lose any money, but he doesn’t gain anything either.  As we know, the master is upset at this action – or non-action – by the third slave; he takes back the talent and throws the slave out on the street, leaving him penniless and homeless.

In some dialogue this morning with Barbara Crafton, she and I both realized that there might be times when the third slave actually did the right thing in burying the talent.  Last week in Japan, for instance, that government issued 10-year bonds with a yield of  -0.243%; that is, there is negative interest on the bonds, so that investors are paying the government a fee to keep their money safe for 10 years and return it to them.  Similarly, in Germany, a recent auction of 30-year government bonds carried a negative yield of -0.76%.  So investors there also are paying the government to keep their money for them and return it at the designated time.

Thus, simply by burying the talent in the ground and returning it to the master at the proper time, the slave might have fulfilled an important function, keeping the master’s money safe and keeping it from eroding in value.

However – you knew there had to be a “however” – the broader economic environment that surrounds these negative bond yields is hardly one that produces many business opportunities that result in doubling someone’s active investment.  So it’s unlikely that the other two slaves would have been nearly as successful in this scenario. The German stock market is down 13% from a year ago, the Japanese stock market 21%.  The U.S. market is up, but by only 1.3%.  Investors would have done all right with gold, at a gain of almost 15% from a year ago, but a broad index of industrial and agricultural commodities is down 13%.

The lesson for investors in these differential results is that we need to assess the whole environment and be aware of the risks.  As Barbara wrote in her own comments on this parable, the underlying issue is not money but risk.  For the three slaves and for us, probably the best answer is a mix of assets with varying risks.  We see that sometimes, burying the talent in the ground can be the best thing.  And perhaps all of the time, at least some of the funds should be in something with a guaranteed outcome.  Otherwise, nothing is totally sure.

Labels: , , ,

Thursday, July 07, 2016

What the _______ Just Happened Between the U.K. and the EU?

The people of the U.K. voted in a referendum on June 23 that tells their own government they want to disaffiliate from the EU.  This outcome was clearly a major surprise.  Even though, as we pointed out a couple of weeks ago, results of opinion polls had gone back and forth in the months running up to the vote, no one really expected the Leaves to come out ahead.  But they did, 51.9% to 48.1%.

First, why did this happen?  Second, what happens next?  Third, do we know what it all means? What follows is hardly complete, but we’ll try to make some response to these questions.

First, why did people want to leave the EU?
There seem to be two main proximate causes: discomfort with immigration and impatience with EU bureaucracy.  In our commentary on June 20, we noted that many people in the U.K. are concerned about immigration, and we drew a parallel to the interest in Donald Trump in the U.S. elections.  We’re hardly the only observers making this comparison.  Citizens of an EU member country can live anywhere in the EU they want at any given time, and these days, among other implications, this causes nervousness about terror threats.  Notably, however, the U.K. does not have the most liberal border policy it might have; it is not an adherent to the EU’s so-called “Schengen Agreement,” which allows totally free travel, basically passport-less, among almost all the other EU countries.  But EU citizens can move into the U.K. without undergoing any approval process.

In addition, a country’s membership in the EU means that it participates in the EU’s joint regulatory system, which amounts to a huge bureaucracy.  The EU administration consists of seven different bodies, most of which are headquartered in Brussels.  These include the European Council, which is the summit of the heads of each member nation; the EU Parliament & Council of Ministers, which together constitute the legislative body; the European Commission, which is the executive branch; the Court of Justice; the European Court of Auditors; and the European Central Bank.  Since the U.K. has its own currency, it does not participate in the Central Bank.  

The functions of each of these institutions are classified by “competences”, some of which are “exclusive” to the EU, some “shared” with member nations’ governments and some “supportive” of member governments.  A few examples might give some sense of the reach of the EU into each member’s internal affairs.  Clearly, since the EU is a free-trade zone, customs regulations are “exclusive” to the joint organization, and many international agreements are also reserved for the joint system.  Much commercial policy, including antitrust laws, is managed by the European Commission, which has just brought new charges against Google, for instance.

Much of the “shared competence” work also involves businesses, such as consumer protection, energy and the environment and agriculture.  Social policies and public health matters are also managed by the Commission.  Among the “supportive” competences, the Commission helps members with disaster response, tourism and education, among other functions.

Thus, there is a lot of bureaucracy – the Commission itself has 32,900 employees – and many kinds of business decisions are governed or influenced by policies, not made in London, Paris or Madrid, but in Brussels by people who may not be directly associated with the specific country having a particular need.

Again, then, we see the parallel to the Trump model in the U.S.   Many people in the U.K. – more than had been understood – want to “take their country back,” to bring decision-making powers back home.

All this is no small matter.  As you might imagine, trade is very important to the U.K. economy.  Total exports of goods and services were 27% of GDP last year, compared to 13% in the U.S.  Imports of goods and services were 29% of GDP, compared to 16% in the U.S.  Of goods exports, 55% go to the EU, and 47% of imports come from the EU.  If they lose export market share and also have to pay duties on imports that now enter without such fees, that will be costly in several ways.  Of course, one of the goals is to help domestic production by making imports more expensive.  So there are potential offsets.

Further, some private economists estimate that 3 million jobs are presently associated with EU trade, constituting about 10% of total employment.  The stakes are high.

Second, what happens now?
The referendum vote on June 23 was not the enactment of a law, but the expression of a viewpoint.  Now the U.K. Parliament must pass legislation instructing its government to invoke an article of the EU organizing document, Article 50 of the Treaty of Lisbon of 2007.  This will set in motion specific negotiations for the withdrawal of the U.K.; these negotiations could well last for two years and that may be extended.  Even before Parliament acts, however, the U.K. government will need to outline its needs, surely in consultation with a variety of business and other private institutions.  Prime Minister David Cameron has said he will resign to permit new government leadership to execute these very fundamental changes.  Two candidates have emerged in preliminary Conservative Party voting; a final choice will be made in September.

Thus, nothing structural will happen right away.  Surely there has been an immediate and dramatic reaction in financial markets as a result of the shock of the unexpected vote result.  However, where market valuations move from here depends on many factors currently unknown.  Some of the dust has settled, and the best-known stock index, the FTSE 100, is now running slightly higher than prior to the announcement of the vote result.  In contrast, the foreign exchange value of the pound fell immediately, and it has not recovered; it presently down 13%, to about $1.29 from $1.50 on June 23.  These differing market reactions highlight the overall uncertainty.  This exchange rate movement already means the U.K. exports have become cheaper.  The Motley Fool website points out that a trip there for U.S. tourists and business travelers is now already cheaper.  However, it just got much more expensive for U.K. residents to go anywhere else.

Third, do we know what this all means?
Not really.  There is no explicit timeframe for concrete actions, although we note with great interest that the Conservative Party is moving promptly with its election process.  And while the Article 50 authorization for the U.K. to leave the EU supposedly has a two-year time limit, associated negotiations on accompanying trade policies could drag out far longer than that.

Such basic questions mean economic growth, already sluggish, of course, is well likely to be restrained further.  Forecasts range widely, from a roughly 1% hit to growth in the near-term to 3 or 4%.

The effects on specific businesses are also uncertain.  Some analysts believe that international banks might leave London to better concentrate their work in Europe itself.  But other analysts point out that Parliament might take advantage of newfound flexibility to effect tax reductions, making the U.K. more attractive to businesses than locations on the Continent.

These notions apply broadly – even to the Arts.  We were startled to find a commentary in the weekly email from New York’s classical radio station, WQXR, titled “How ‘Brexit’ Affects Opera and the Arts.”  The drop in the U.K. exchange rate has already had a major impact on the value of European singers’ salaries when they perform at the Royal Opera at Covent Garden, for instance.  British conservatories also have two scales for their tuition fees, EU and non-EU, the latter as much as twice the former.  What will happen to those fees when the actual “Leave” takes place and will European students still come to study there?

People from other EU countries who currently live and work in the U.K. face uncertainty.  They will no longer have automatic authorization to live there.  Some of them have already applied to the U.K. Home Office for permanent residency or outright citizenship.  Some may have to leave.

Another issue is that Scotland voted heavily to Remain in the EU, and its government is already trying to figure out if there is a way to handle that.  The “United Kingdom” might then be less “united” if Scotland remains while Great Britain leaves.

Prayer for Healing
The distress over the vote and the nasty campaign ahead of it, marked by the tragic murder of MP Jo Cox, has brought a response from Church leaders.  As we in the U.S. struggle with our own political divisions, we might take note of the following selection from a Church of England litany for these days:

Guide our nation in the days and months ahead
to walk the paths of peace and reconciliation.
Hear us, Lord of life.

Lord, graciously hear us.

Give to our leaders wisdom and sensitivity
to work for unity and the common good.
Hear us, Lord of life.

Lord, graciously hear us.

Mend broken relationships
and restore to wholeness whatever has been damaged by heated debate.
Hear us, Lord of life.

Lord, graciously hear us.

Sustain and support the anxious and fearful
and lift up all who are dejected.
Hear us, Lord of life.

Lord, graciously hear us.

+ + + + +


Sources:
Various issues of The Wall Street Journal and associated website www.wsj.com

U.K. economic data from the Office of National Statistics.  Sourced from Haver Analytics, Inc., databases.

Wikipedia entry: European Union Politics.  https://en.wikipedia.org/wiki/European_Union#Politics

Dominic Webb and Matthew Keep. In brief: UK-EU economic relations.  U.K. Parliament:  House of Commons Library.  Briefing Paper number 06091, 13 June 2016.  www.parliament.uk/commons-library.

Sean Williams.  “8 Ways Brexit could directly affect you and your money.”  June 27, 2016.  http://www.fool.com/investing/2016/06/27/8-ways-brexit-could-directly-affect-you-and-your-m.aspx.  Some of Williams other ideas besides cheap trips to the U.K. also include the fact that anticipated sluggish economic performance will keep interest rates low, making mortgages cheap and keeping credit card rates from rising.  However, the sluggish economies could also keep house prices under pressure.


Fred Plotkin.  “Operavore: How ‘Brexit’ Affects Opera and the Arts.” www.wqxr.org/#!/ July 1, 2016.


Labels: , ,

Saturday, June 25, 2016

Legends & Lies: The Patriots

We’re working on some commentary about the dramatic vote results in the UK “Brexit” vote about membership in the EU.

Meantime, especially as July 4 approaches, we want to call your attention to a very interesting TV show on Sunday nights.  Legends & Lies: The Patriots is showing on Fox News at 8:00PM.  While this is a Bill O’Reilly production, it has absolutely nothing to do with contemporary politics.  It is indeed about the American Revolution.  The first two episodes dealt with the Boston Massacre, the Boston Tea Party and Paul Revere’s ride.  This week we’ll have stories about Ben Franklin and the battle of Bunker Hill.  The material includes some dramatized scenes interspersed with commentary by O’Reilly and by university history professors who are experts in the period.


Our regular readers know that we are fascinated by the Revolution and that we talk about it every year at this time.  So this TV program obviously fits in to Ways of the World themes.  The series will run all summer on Sundays at 8:00PM.  Again, it’s on the Fox News cable network.  Check it out; we think you’ll enjoy it.


Labels:

Monday, June 20, 2016

Jo Cox and the EU

Most of what you’ve been hearing about since June 12 pertains to the mass shooting in Orlando.  Clearly we are upset about that horrible tragedy.  But we want also to give attention to a not-totally-unrelated event in northern England on June 16.

This Thursday, June 23, people in the U.K. will vote on whether to remain in the EU or leave.  The EU is an association of 28 European nations enjoying free trade among each other and whose citizens can move freely among the countries, living anywhere they choose at any time.  Nineteen of these countries, obviously not including the U.K., also use a common currency, the euro.

There is dissatisfaction among some U.K. citizens over belonging to the EU, such that when he ran for re-election to Parliament in 2013, the current Prime Minister David Cameron promised that Parliament would authorize a public election over whether to stay in it.

This hardly sounds like an issue that should spawn violence.  But as the voting date has approached, two vociferous camps have emerged and campaigning has been raucous and nasty.

Still, the nation – and many others – was shocked last Thursday, when Jo Cox, a Member of Parliament supporting the Remain camp, was shot and stabbed in front of the public library in her town of Birstall.

Violence.  What is it about these days that political disagreements seem to be spurring such deadly violence?  The gentleman who murdered Jo Cox on Thursday was known to have mental problems, but still, outright killing is extreme.  Tommie Mair even used a sawed-off shotgun to do this in a country where almost all guns are outlawed, and most police don’t even carry them.

We have to talk first about Jo Cox herself.

An extraordinary person.  She is from Birstall in Northern England, just north of Leicester and south of Nottingham.  The region is a factory community; it includes a large Muslim population, apparently mainly from India, as workers were needed for factories.  Jo Cox’s father worked in a factory.  She apparently always presumed she would do the same.  But she had the opportunity to attend Cambridge and she was the first member of her family to attend university.  She spent 10 years as an aid worker, affiliated with Oxfam, the Gates Foundation and the Freedom Fund, this last an organization that fights modern slavery.  The Wall Street Journal explains that in Parliament “she pushed for international action to help Syrians who had been caught up in fighting there .” She was also a vocal proponent of the UK staying in the EU.

She lived simply, with her husband and two children on a houseboat, and, according to The Economist magazine, she commuted to Parliament on a bicycle.  Ms. Cox was on her way to conduct constituent appointments at the local library in Birstall when she was attacked.  A witness reported that the attacker shouted “Britain first” as he struck her.  In Mr. Mair’s court appearance, the prosecutor stated that he had said, “Britain first, keep Britain independent, Britain always comes first.”  Perhaps coincidentally, “Britain First” is actually an organization committed to banning Islam in the U.K.  The group denied responsibility, however, although they are concerned that immigration is the root of many of the U.K.’s current problems.  When asked to state his name during his court appearance Saturday, June 18, he replied, “Death to traitors, freedom for Britain.”

Thus, we seem to face three forces here.  First, the awful killing of a highly regarded public servant, popular in her community and respected in Parliament.  A bright, relatively young woman, age 41, who obviously had much to say and do toward the benefit of the people she represents.  Second, a raucous, divisive campaign about whether the U.K. should Remain in the EU or Leave it; indeed the groups in support of each side are “Remain” and “Vote Leave”.  Polls show sentiment is almost evenly divided and oscillates from one preference to the other, so it is not at all clear which will come out ahead in the vote.  Campaigning was suspended altogether from Thursday after Jo Cox’s death through Saturday.  Third, there is the immigration issue.  Being part of the EU means that immigration into the U.K. from Europe is relatively easy.

This last issue, immigration, even strikes us as bearing some resemblance to at least one of the factors in the Donald Trump campaign in the U.S.  Trump’s supporters tend to blame immigrants for some of our problems, similar to the U.K. citizens who blame immigrants for whatever distress they are feeling.

While we have no answers to any of this, we can offer you a prayer concerning the U.K. vote, published by the Church of England back in April.  It is obviously directed at this specific issue, but its themes can apply to many topics of public debate:

God of truth, give us grace to debate the issues in this referendum with honesty and openness. Give generosity to those who seek to form opinion and discernment to those who vote, that our nation may prosper and that with all the peoples of Europe we may work for peace and the common good; for the sake of Jesus Christ our Lord.  Amen.

And among the myriad tributes to Jo Cox, here is one offered at a prayer service at a church in Birstall last Thursday and published on the website of the Diocese of West Yorkshire and the Dales:


Labels: ,

Friday, June 03, 2016

Why Workers Might Favor a Businessman for U.S. President

Back at the beginning of the Presidential primary elections, a friend sidled up to me and growled, “Can you explain Donald Trump to me?”  The gentleman thought that I, as a political conservative, might have some insight into this unusual candidate for high public office.

I think I might have some modest insight about this, but it’s my penchant for economic data, not my political views that might help us out.  Indeed, there's nothing politically motivated in what follows.

Many voters are frustrated in the lack of economic progress in recent years.  We hear all the time that incomes have stagnated and inequality has worsened.  Our latest wanderings around the website of the Bureau of Labor Statistics (BLS) yield some interesting information on how pervasive these conditions are.  We can thus understand better Trump’s appeal to working-class people who think this outspoken businessman might have some ideas for helping these conditions, for “making America great again.” 

Many comments about income inequality refer to total income, which, of course, includes dividends and investment capital gains, flows that favor the high-end.  Or comments about wages just talk about CEOs’ oversized compensation as a huge multiple of average workers’ wages.  There’s little mystery in these as causes of frustration among hard-working laborers.

Wage Stagnation and Inequality Pervade Labor Market
But what we found goes deeper.  First, workers’ compensation has indeed been stagnant overall.  Average wages and benefits were $21.50 an hour in 2014, down from $21.91 in 2007, just before the Great Recession started.[1]  This overall result comes from an annual survey of companies’ pay in some 800 different occupations, summarized in 19 “groups”, from management at the top ($59.93/hour in 2014) to food preparers and servers at the bottom ($8.88/hour).  Some groups near the middle include construction workers at $24.67/hour, production workers at $21.31 and office and administrative at $20.53.  Over the last seven years, averages increased for nine of the 19 groups, but they declined in ten of them.  Among the declines are ones you’d think: office workers, transportation workers and installation and repair people.  But hourly compensation also declined for higher-skilled occupations, including computer scientists, scientists and even a bit for healthcare professionals – really.[2]  So it’s hard to generalize, to make a simple statement about wage stagnation.

Further, and in some ways more irritating, inequality measures increased, even within these narrow pay categories.  While the overall 50% median compensation number went down 41 cents an hour over the seven-year period, the 90% level increased; so the top 10% of workers made $56.73 in 2014, up from $54.31 in 2007.  And seeming to add insult to injury, the degree of inequality went up within individual occupational groups: in eight occupations where the average went down, an inequality measure went up.   Thus, high-end positions in those eight occupations, including computer techs, healthcare professionals, social service workers, installers & repairers and transport workers continued to rise even as middle and low-end salaries struggled.  Workers may not see our data, of course, but they surely have a sense of the awkward pay relationships among their own colleagues. Workers in all kinds of jobs have reason to feel exasperated.

Possible Remedies: Reorient Education, Encourage Business
I don’t know a simple answer to these compensation issues.  The economist in me says, let’s encourage business investment and better skill-training so workers can do their jobs more easily.  As you can see from the variety of occupations we’ve mentioned, “skill training” is probably a better term than “education”.  Kids can learn coding for computer apps or they can become truck mechanics rather than heading for college to get a broader, but possibly less practical cultural background.  In fact, one brand-new book, Reskilling America, by sociologists Katherine Newman and Hella Winston[3], argues for renewed emphasis on vocational education over the recent “college for everyone” approach that often leaves graduates without a well-defined, real-world expertise, but plenty of debt.

Some of you might think greater government regulation is necessary to realign workers’ pay.  But that may well have the opposite effect of diluting business’ incentives to do better, thus worsening productivity, to say nothing of the cost of designing jobs to match government specifications.  It’s a very important economy question of the 2010’s.  In fact, the National Federation of Independent Business, a trade association representing small businesses, says that government regulation already adds to the cost of hiring workers, such that businesses are tending to favor temporary employees now rather than permanent ones.[4] This adds emphasis to our main immediate point about how frustrated workers might indeed want a new kind of leader in Washington who better understands the business world.

Further, the Dean of the Harvard Business School says in a recent Wall Street Journal [5], “solutions to problems like inequality and the lack of employment opportunities or wage growth aren’t going to come from government alone. They’re also going to require imaginative businesses that find new ways to employ people and create real value.”

Other Economic Policy Questions Add to the Quandary
We see that what we have here is a can of worms.  And this is just one issue, frustration over inadequate pay and lack of progress.  We have to mix this with all the other issues of the day.  An important Trump theme is immigration, for instance.  We thought to discuss this here, but it’s really a whole separate article on some recent information about the motivations of immigrants; these facts differ markedly from Mr. Trump’s usual arguments.  But it’s still an issue that middle-class workers of today care about.  Other issues that might give them headaches include national security and the protracted wars in the Middle East.  And while gasoline prices have at least come off their highest levels with the drop in oil prices, workers in North and South Dakota and Texas are being laid off as some oil production becomes unprofitable at the lower prices.  Apparently, we also have figure out how to deal with coal miners; coal is clearly an important climate-change issue, but the economies of West Virginia and other Appalachian regions depend on it.  We can’t just leave all those people out in cold – so to speak.  And on and on.

---------------
1.  Kristen Monaco and Brooks Pearce.  “Compensation Inequality: Evidence from the National Compensation Survey”, Monthly Labor Review.  July 2015.   U.S. Bureau of Labor Statistics.  http://www.bls.gov/opub/mlr/2015/article/compensation-inequality-evidence-from-the-national-compensation-survey.htm .  The numbers quoted are adjusted for inflation, so we’re talking about constant purchasing power.  Also, they are median averages, in the middle; half of workers make more and half make less.

2.  Ibid.  Note that while average pay for healthcare professionals decreased somewhat, the number of those workers, including doctors and nurses, rose markedly.  We still were startled that median pay and benefits in that profession did not go up.

3.  Katherine S. Newman and Hella Winston.  Reskilling America: Learning to Labor in the Twenty-First Century.  New York:  Metropolitan Books (Henry Holt and Company).  2016.

4.  Juanita Kuggan, quoted in NFIB Small Business Jobs Report, May 2016.  Ms. Kuggan is President and CEO of the National Federation of Independent Business.  http://www.nfib.com/foundations/research-foundation/monthly-reports/jobs-report .

5.  Nitin Nohria.  “Imagine an Economy Without Wall Street.”  The Wall Street Journal. June 2, 2016, page A12.  Also online:  http://www.wsj.com/articles/imagine-an-economy-without-wall-street-1464821303

Labels: , ,

Tuesday, May 03, 2016

Signs of Progress in Reducing Carbon Emissions

On Earth Day, the anti-climate change agreement that had been hammered out in Paris back in December was officially signed by representatives of 175 countries.

There’s no doubt about the importance of the Paris Agreement priorities.  We keep hearing about climate change and its dramatic consequences.  On the face of it, this seems to be an overwhelming situation and is full of challenges and bad press.  For instance, we hear that car companies in Germany – no less – have cheated in their reports of gas mileage.  We hear horror stories about the poor people in China who go around the streets of Beijing wearing face masks to filter out the extreme air pollution.  We hear that the Arctic ice cap is melting rapidly.

Thus, on the face of it, it seems that nothing good is happening.  Clearly there is lots to do to rectify these conditions.  But indicators we consulted from the International Energy Agency show that some trends are headed in the right direction.  Yes, there’s a long way to go in counteracting climate change, but there is progress. [1]

Lower Emissions in Several Parts of the World
Carbon dioxide emissions are already drifting lower in industrialized regions.  For the 34 major industrialized countries belonging to the Organization for Economic Cooperation and Development (OECD), total emissions peaked in 2005 and by 2013, the latest available, they had fallen 6.1%, overall.  In the U.S., emissions are down 10.2% in that timeframe, and in Europe, 11.7%.  Granted, there is more to do toward achieving the Paris Climate Change agreement goals.  But this is certainly a start.  We’ll come back with a couple of examples shortly.

Emissions are, though, still rising in many of the world’s regions.  China and India are two obvious examples, with CO2 output up 67.5% in China from 2005 to 2013, and 72% in India.  Emissions in Africa are up 25.3%.

Even in these places, there are some signs of improvement.  In both China and India, the increase in emissions is evidently tied to economic growth, which has been quite rapid.  But notably, emissions have increased by less than GDP.  In China, GDP was up at a 10% average pace from 2005 to 2013, while emissions increased at “only” a 6.7% rate.  Two positive developments are producing the slower rise in emissions:  energy usage is also expanding less than GDP and the energy that’s being used produces somewhat less emissions over time.  In India, GDP grew at a 7.5% rate, while emissions rose at 7.0% pace.  There, energy use is also growing more slowly than GDP, although the specific kinds of energy used there are still producing increasing amounts of CO2.

By contrast in Europe and the U.S., the decline in emissions is resulting from declines in energy use and declines in the CO2 content of the energy used.  So there’s a shift toward “cleaner” energy.  Here is a little bit about the efforts of two major U.S. companies to reduce their own carbon footprints.

Specific Companies Take Specific Actions
General Electric reduced its energy use by almost 19% from 2004 to 2014.[2]  For carbon emissions, companies’ carbon footprints are often characterized as emissions per dollar of revenue, and over that ten-year period, GE cut down that measure from 59 metric tons per million dollars of revenue to 33.9 metric tons.  Among other projects, it has redesigned the engines it makes for Boeing aircraft, and it has restructured operations at a power plant in Greenville, South Carolina, by simply installing real-time sensors and instituting a measuring system.  Its plans going forward are directly tied to the 2-degree-Celsius formula emphasized in the Paris agreement

American Airlines has found several interesting ways of reducing fuel consumption, obviously the main source of any airline’s carbon emissions.[3]  They’ve learned they can taxi around airports using just one engine.  They’ve learned they can reduce the weight of a flight meaningfully by switching from paper flight plans to using iPads and also having flight attendants use small Samsung tablets instead of a 5-pound paper instruction manual on the planes.  Finally, they attached “winglets” to the tips of the wings of 240 of American’s planes, improving the planes’ “lift”; this change alone saves 700,000 metric tons of carbon emissions a year.

Low-Carbon Investment Strategies
In addition, from a different perspective, we note with considerable interest that companies with low carbon emissions or small carbon footprints constitute a growing theme for investors.  Standard & Poor’s has even devised indexes of stocks for low-carbon-emissions companies and fossil-fuel-free companies.[4]  The “S&P 500 Carbon Efficient Index” has been marginally stronger than the full S&P 500 index over most time periods in the last several years.  Since the beginning of 2012, an index of fossil-fuel-free companies has outrun the overall market by 5%.  While that’s not a huge difference, it does suggest that investors view lower-energy or clean-energy companies in a favorable light.

Here are two examples of that investment strategy.  At that Paris Climate Change conference, the New York State Comptroller, Thomas DiNapoli, announced that the New York State Common Retirement Fund would invest $2 billion in a fund created by Goldman Sachs which emphasizes companies with small carbon footprints.  The Common Retirement Fund is the pension fund for New York State employees and is said to be the country’s third largest pension fund.[5]  Similarly, the non-profit McKnight Foundation, with a total of $2.1 billion in assets, can perhaps be identified as a pioneer here; back in 2014, it invested $100 million in a broad-based carbon-efficient fund managed by Mellon Capital.[6]

The distinction for these two investment initiatives is that they are active in-vestment strategies.  Previously, funds that wanted to emphasize climate and environment concerns generally used a di-vestment strategy, eliminating coal and possibly oil companies from their portfolios.  But selling these shares has had little impact because those companies are so large that having a few shareholders sell out doesn’t mean much.  Instead, enlisting fund managers to devise investment strategies for companies that operate using desirable practices makes a more positive, constructive statement.[7]

Thus, there are tangible efforts at individual investor and company levels that encourage and support the implementation of carbon reduction actions.  Environmental issues have the advantage that they are clearly measurable, so we can see progress.  As we said at the outset, there is a lot to do, but there is progress.

-------------

[1] International Energy Agency.  CO2 Emissions from Fuel Combustion Highlights (2015 Edition).  http://www.iea.org/publications/freepublications/publication/CO2EmissionsFromFuelCombustionHighlights2015.pdf.  All the country data cited comes from Chapter 6, “Summary Tables”.


[3]  American Airlines. https://www.aa.com/i18n/aboutUs/corporateResponsibility/environment.jsp .  Accessed May 2, 2016.

[4]  Standard & Poor’s Indices.  http://us.spindices.com/indices/equity/sp-500-carbon-efficient-index.  An option on this page permits the comparison with the S&P 500; those daily data can all be downloaded for as much as the last 10 years.  Other pages include the Fossil-Fuel Free Index and similar indicators.  Accessed April 29, 2016.

[5]  Tina Rosenberg.  “An Investment Strategy to Save the Planet,” The New York Times. “Fixes” blog.  January 5, 2016.  http://opinionator.blogs.nytimes.com/2016/01/05/an-investment-strategy-to-save-the-planet/ .  Accessed April 30, 2016.

[6] Marc Gunther.  “McKnight Foundation: Investing for climate Impact,” Nonprofit Chronicles, April 24, 2016.  https://nonprofitchronicles.com/2016/04/24/mcknight-foundation-investing-for-climate-impact/.   Accessed April 29, 2016.

[7] Tina Rosenberg.  Op. cit.







Labels: , , ,

Friday, February 26, 2016

The FBI versus Apple: A Catch-22

We knew this would probably happen sometime – a court fight over smartphone security issues.  Sure enough, the FBI is hard at it with Apple.  The terrorists in San Bernardino, California, back in December were using an iPhone.  The FBI wants Apple to hack the phone and Apple is saying no.  That would compromise one of the main features of those phones and set a most unfortunate precedent.  However, law enforcement officials of all kinds are anxious for resolution because all kinds of criminals use smartphones, which at present can be “tapped” only with great legal and technical difficulty.

We do think this issue is worthy of discussion.  It’s obviously controversial for Apple to even have objected at this point in time, since the immediate cause is a domestic terrorist attack in which 14 people were killed.  And it’s easy to say, “but of course Apple should provide the mechanism for opening the phone’s contents.”  But Tim Cook, the CEO of Apple, does have a point that this is precedent-setting and the way to deal with it should be discussed openly.

6 Weeks' Worth of Data Locked in the Phone
This San Bernardino event is a great test-case.  iPhones are secure to the owner/user.  They can be backed up to a storage area on a “cloud”.  Data that are transferred to the cloud can be obtained by investigators, and indeed, the FBI has already obtained those data from terrorist Syed Rizwan Farook’s account.  However, the attack took place on December 2, and Farook had not backed up the phone since October 19.  So plenty of fresh and helpful information was likely recorded on the phone during the last six weeks just before the attack: who Farook’s associates and ISIS connections might be, whether other projects similar to his are being planned, and so on.  The phone itself is owned by San Bernardino County, which employed Farook; those officials, the owners, think it’s fine for the FBI to inspect the phone’s contents.

But Apple Worries about Construction of a "Backdoor"
Apple, through a public statement by its Chairman Tim Cook and also in an official court filing, is objecting to unlocking the phone.  The company argues that the work it would do to enable decryption of the contents of an iPhone could be applied to any iPhone, thereby potentially eroding the extraordinary security provisions on all iPhones.  As it stands, the data on any given iPhone are associated with the owner’s “Unique ID”.  The FBI is wanting Apple to devise a workaround to get to the data without the ID.  This is known in the jargon as a “backdoor”.  Apple is, quite logically, very concerned about creating such a backdoor technology.  Conceivably, then, any iPhone a thief or other criminal got hold of could be hacked.

We were watching a Fox News program late last week in which a retired Army colonel was being interviewed on this issue.  The colonel said something like, “this is a national security issue and of course Apple needs to develop this decryption software!”  The news anchor conducting the interview instantly blurted out, “but that’s why I have an iPhone – precisely because it can’t be decrypted by anyone else.”

FBI Does See the Importance of the Phone's Security
FBI Director James Comey initially sounded impatient with Apple, claiming that Apple’s defense, spontaneously described by the anchor in that newscast, is based on marketing and reputation, not on the technology.  Apple and many of its customers would not agree; the security of the phone is a basic characteristic of the product. Given that there are in fact some 825 million iPhones around the world, their interests would seem a worthy consideration.  And evidently, Mr. Comey himself has come to a deeper understanding of what he was asking of Apple.  Later, on February 25, he testified before the House Intelligence Committee that this encryption issue is “the hardest question I’ve seen in government.”[1]

Addressing the Law Enforcement Need Now
There is legal precedent, of course, for telecommunications companies to provide call data to law enforcement agencies.  In 1994, Congress passed the Communications Assistance for Law Enforcement Act which requires carriers to build surveillance capability into their networks.[2]  So AT&T and Verizon automatically provide whatever such “wiretap” access is called for in court orders; in the last half of 2015, there were more than a quarter million such requests from all kinds of law enforcement agencies in both criminal and civil proceedings.  In the first half of last year, 998 requests came specifically for national security purposes.  Sprint also has had many thousands of such data requests.  Apple in fact does address these requests too.  It reports that it had 971 law enforcement requests for “account data” stored on iCloud or iTunes accounts in the first half of last year, and it responded to 81% of them.  In addition, it had 499 requests based on national security needs.

The difference is evidently that the information the carriers provide is only phone numbers and text message connections.  According to The Wall Street Journal, it “can’t provide access to . . . message content or calls made over mobile apps such as WhatsApp, Skype or the blue iMessages sent between two iPhones.[3]

Formal Legislation Likely Needed
Regardless of the specific outcome of the San Bernardino case itself, it is likely to add to already building momentum for formal legislation on this situation; that is, there should be some general rules so people who own phones can know what to expect, and representatives of the people should make those rules.  Indeed, the Chairman of AT&T Randall Stephenson this week noted, “The rapid pace of technological innovation is challenging laws crafted in a very different era for totally different, and much less complex situations.  Recent developments, in particular, bring home the need for legal clarity.”  And the Chair of the Senate Intelligence Committee is working on a bill that would create criminal penalties for companies that don’t comply with court orders to decipher encrypted communications.  It remains to be seen what the specific language of such a law might require.[4]

So, most immediately, the dilemma remains.  More, in the San Bernardino situation, there is considerable irony.  We noted that the county government owns the phone; Farook was only the user of that phone.  That government is in possession of software called “mobile device management” that would have enabled the county to make provision for the FBI to open the phone.  But Farook’s department did not sign up for it to be installed on their inspectors’ phones.[5]  Another irony is that, even as the federal government is fighting for the right to get Farook’s phone decrypted, the federal government provides grants to tech developers to create more encryption software.[6]

A clear summation of this Catch-22 was given last spring by a former CEO of Sprint at a cybersecurity conference: “Which CEO is more patriotic, the one who provides all the information the government requests to help catch a criminal or prevent a terrorist attack?  Or the CEO whose company creates tools that make it difficult for law enforcement . . .  to acquire a customer’s information, believing that protecting civil liberties is a higher calling?”[7]

+ + + + + +
We don’t cite all the general sources about this story, which are plentiful; most of our material is from various articles in The Wall Street Journal, beginning right after the federal court order to Apple was made public on February 16.  We also sourced The Economist magazine and www.foxnews.com, as well as Apple CEO Chairman Tim Cook's "A Message to Our Customers", a letter dated February 16 and found on Apple's homepage at www.apple.com.

The footnotes cover specific aspects and quotes.

[1] Devlin Barrett.  “FBI Chief Says Finding Right Balance on Encryption Is ‘Hardest Question’.  The Wall Street Journal. February 25, 2016.  http://www.wsj.com/articles/fbi-chief-says-finding-right-balance-on-encryption-is-hardest-question-1456418466.

[2] Ryan Knutson.  “Why Encryption Fight Divides AT&T and Apple”.  The Wall Street Journal.  February 18, 2016.  http://www.wsj.com/articles/at-t-verizon-have-different-obligations-than-apple-1455838171.

[3] Ibid.

[4] Ibid.

[5] Associated Press.  “Common software would have allowed FBI to unlock San Bernardino shooter’s phone.”  Fox News. February 22, 2016.  http://www.foxnews.com/tech/2016/02/22/common-software-would-have-allowed-fbi-to-unlock-san-bernardino-shooters-phone.html.

[6] Damian Paletta.  “How the U.S. Fights Encryption – and Also Helps Develop It”.  The Wall Street Journal.  February 22, 2016.  http://www.wsj.com/articles/how-the-u-s-fights-encryptionand-also-helps-develop-it-1456109096.

[7] Ryan Knutson. Op. cit.

Labels: , ,



Copyright © 2003-Present Geranium Farm - All rights reserved.
Reproduction of any materials on this web site for any purpose
other than personal use without written consent is prohibited.