The week of October 31, 2022: Climate backsliding, healthcare, fiscal policy, energy and much, much more.
The week of October 31, 2022: Climate backsliding, healthcare, fiscal policy, energy and much, much more.
COP 27, the United Nations climate jamboree to be held at Sharm El Sheikh in Egypt, will be starting on November 6, and dragging on until November 18. Buckle up: We will be hearing a lot about the doom to come.
The lamentations will doubtless be even louder because of the failure of many of the political leaders who attended the previous jamboree, Glasgow’s COP26, to live up to pledges such as this.
The Wire (emphasis added):
Nearly 200 countries agreed at last year’s COP26 summit to improve their emissions-cutting pledges, called Nationally Determined Contributions or NDCs, in time for COP27, but only two dozen countries have so far done so.
Well, it was those countries’ leaders who made those pledges. Perhaps the people back home were not quite so enthusiastic.
Meanwhile, the Glasgow Financial Alliance for Net Zero (GFANZ), which was set up amid much fanfare ahead of COP 26 on the initiative of, above all, Mark Carney, a former central banker, whose roles now include acting as the UN’s Special Envoy on Climate Action and Finance (and being a general public nuisance) has continued to attract new recruits. More than 450 financial institutions controlling or managing some $130 trillion in assets are members. However, this noble band has recently run into some difficulties.
As its name would suggest, GFANZ is linked to the UN’s Race to Zero, which sets the standards for corporate net zero efforts. Race to Zero favors phasing out coal, oil, and gas financing. Not all GFANZ’s members agree with that, however. In the past, members that did not fall into line with the Race to Net Zero’s criteria would eventually have faced being drummed out of GFANZ, but that’s no longer the case. GFANZ members are still encouraged to live up to the Race to Zero’s standards, but this is no longer mandatory.
And the financial institutions that signed up for GFANZ have other concerns too. If the SEC’s proposed new climate change disclosure rules come into force, listed companies will be required to provide details about how they plan to meet any climate change commitments they have given. Anyone who is not a central planner (spoiler: the SEC’s Chairman, Gary Gensler is a central planner, a bureaucrat convinced that he knows best) would realize that this is a disincentive to enter into such commitments. It would take a heart of stone not to laugh.
Oh yes, GFANZ’s banking members have also noticed that their sub-grouping within the alliance included no Chinese or Indian banks, and only one from Russia. That’s not the sort of discrepancy that typically bothers the West’s climate policymakers too much, but maybe at least some bankers are made of sterner stuff.
Meanwhile, the Financial Times (FT) reports:
Gfanz has come under heavy public pressure — severe enough to make some wonder if it could fall apart entirely. Big US banks have threatened to quit, having been accused by Republican politicians of neglecting fiduciary duty for the sake of a “woke” agenda.
The FT, a newspaper dedicated to genteel climate fundamentalism, has become irritated and alarmed by the fact that ESG, and other profoundly political agendas, have started to attract attention from, well, politicians. If that attention is beginning to make banks and other financial institutions think again about what they are doing, all the better. And don’t be too distracted by the word “woke,” however useful it may be both to the FT and critics of initiatives such as GFANZ. For the FT, it is a way of dismissing the arguments made by critics as little more than crude populism at work. And for those critics, there is a certain political logic to focusing on the woke aspects of corporate behavior, rather than on more complex (and important) questions such as fiduciary duty (whether to shareholders or clients) — something which, to be fair, the FT does allude to here — as well as the threat that initiatives such as GFANZ pose to democracy.
In a number of earlier pieces, I have discussed how ESG and stakeholder capitalism can be seen as a corporatist attempt to bypass democracy. This is no less true of GFANZ, which is linked to both. It’s instructive to turn yet again to this review in the Financial Post by Peter Foster of Mark Carney’s book, Value(s): Building a Better World for All, and, in particular, this passage:
[Carney] claims that western society is morally rotten, and that it has been corrupted by capitalism, which has brought about a “climate emergency” that threatens life on earth. This, he claims, requires rigid controls on personal freedom, industry and corporate funding . . .
Carney draws inspiration from, among others, Marx, Engels and Lenin, but the agenda he promotes differs from Marxism in two key respects. First, the private sector is not to be expropriated but made a “partner” in reshaping the economy and society…
In short, Carney is calling for harnessed capitalism, a key feature of some of the less benign variants of corporatism.
In other news, Reuters reported on August 11 that:
Canadian investor Brookfield said former Bank of England Governor Mark Carney will become chair of its asset management division when it separately lists on the Toronto and New York exchange in November.
But, if financial institutions seem to have lost some of the enthusiasm they had in the heyday of COP26, how are other companies doing in the race to net zero?
The Financial Times:
Almost all of the companies that have made net zero promises will fail to achieve their goals unless they double the rate of cuts, according to a report published today by consultancy Accenture.
Only 8 per cent of companies are on track to achieve their net zero targets for scope 1 and 2 emissions by 2050, the report shows. Even if companies double their rate of progress towards emissions targets, 59 per cent will fail to meet a 2050 deadline.
Unsurprisingly, Europe leads the way among companies with net zero targets. Half of all European companies have established targets, with Norway and UK companies leading the pack. Only a third of companies worldwide have made pledges, and in North America the figure looks even more bleak at just 28 per cent.
Bleak?
Their shareholders may not agree.
And how is China, the world’s leading emitter of greenhouse gases, doing in the battle against climate change?
The New York Times:
China is poised to take advantage of the global urgency to tackle climate change. It is the world’s dominant manufacturer and user of solar panels and wind turbines. It leads the world in producing energy from hydroelectric dams and is building more nuclear power plants than any other country.
This, it should be understood, has little to do with worries about climate change, and a great to deal to do with Beijing’s sighting of an export opportunity. On top of that, there’s the importance that the Chinese regime attaches to self-sufficiency, something typical of the midcentury fascist or fascist-adjacent economic theory that it now appears to be taking as some sort of guide.
The New York Times:
China also burns more coal than the rest of the world combined and has accelerated mining and the construction of coal-fired power plants, driving up the country’s emissions of energy-related greenhouse gases nearly 6 percent last year, the fastest pace in a decade. And China’s addiction to coal is likely to endure for years, even decades.
Note the use of the word “addiction.” The language of climate fundamentalism provides, at its best, a master class in how the choice of the right word is an essential part of the propagandist’s toolkit. “Global warming” becomes “climate change” becomes the “climate emergency,” while skeptics are “deniers” (with all the baggage that that latter word carries) and so on. And so it is with “addiction.” More and more a country’s use or reliance on a disapproved form of energy such as coal is now labeled an “addiction,” a word never used when it comes to use of wind turbines.
The New York Times:
Mainly because of its use of coal, China emits almost a third of all man-made greenhouse gases — more than the United States, Europe and Japan combined.
“There is no solution to climate change without reducing China’s coal combustion,” said David Sandalow, a senior energy official in the Obama and Clinton administrations.
Oh.
The New York Times:
China’s push to build more coal-fired power plants, at a cost of up to $1 billion apiece, has alarmed Western officials. John Kerry, the Biden administration’s climate envoy, warned last year that “adding some 200-plus gigawatts of coal over the last five years, and now another 200 or so coming online in the planning stage, if it went to fruition would actually undo the ability of the rest of the world to achieve a limit of 1.5 degrees” Celsius in global temperature increases.
No doubt our climate Metternich, who will be in Egypt, will be able to make the Chinese see the error of their ways.
The Capital Record
We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and NRI trustee David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.
In the 91st episode David is joined by Nick Timiraos, the chief economic correspondent of the Wall Street Journal and a renowned Fed-watcher. Timiraos is also the author of a best-selling book, Trillion Dollar Triage, which examines the Fed’s economic decision-making during the early stages of Covid. The two of them carefully examine the current interest-rate policy, what to expect going forward, and what may happen to other Fed policy tools. Some may call it “geeking out” over monetary policy, but others may see it as a careful conversation about the prominent economic topic of our times.
The Capital Matters week that was . . .
Healthcare
It’s especially tough to square some conservatives’ past support for market-oriented reforms with their defense of market-distorting incentives in the recent Inflation Reduction Act. The law doesn’t merely discourage research and development across the board — it gives federal bureaucrats the power to pick winners and losers in a way that conservatives abhor in just about any other context.
For example, the IRA allows the government to impose price controls on small-molecule drugs — which include most oral pills — once they’ve been on the market for nine years. By contrast, the law doesn’t target biologic drugs — which are manufactured from living organisms and usually administered intravenously — for price controls until they’ve been on the market for 13 years. Such disparate treatment all but guarantees that drug companies will steer capital towards new biologics while scaling back research into small-molecule drugs, for no obvious medical reason…
Fiscal Policy
Years of low interest rates have given policy-makers the green light to spend trillions of dollars in borrowed money, but with this year’s rate hikes, economic theories that have long depended on low rates are being turned upside down…
Jonathan Williams and Nick Stark:
Today marks the 30th anniversary of Colorado’s Taxpayer’s Bill of Rights (TABOR), one of the best-known state tax and expenditure limits (TELs) in America. While it has returned billions of dollars to, and provided important protection for, hardworking Colorado taxpayers over the past three decades, TABOR continues to be subject to unrelenting political attacks from its tax-and-spend opponents, as well as appalling judicial activism from Colorado courts…
Russia/Ukraine
In some respects, the Russo–Ukrainian war is beginning to resemble a conflict in which both sides are besieging each other, something likely to intensify as the war drags on. Russia is now attacking Ukrainian power stations, a move that, with winter fast approaching, promises very difficult times ahead. Meanwhile, Ukraine’s supporters in the West continue to maintain a (partial) economic blockade on Russia, to which Russia has responded in kind. One aspect of that has been Russia’s use of the food weapon…
Energy
President Biden spoke from the White House today and called for Congress to consider a windfall-profits tax on oil companies. The reason: “The oil industry has not met its commitment to invest in America and support the American people.”
Joe Biden has decided that gasoline prices and oil-company profits should be lower than they currently are. He doesn’t say how much lower…
With limited exceptions, oil production is not something that can be increased at the flick of a switch. Rather, increased production is typically the result of decisions by oil companies to put sometimes large amounts of capital to work in the expectation of making an attractive return. For the most part, that return will not be generated overnight but will depend on both oil prices and the political environment (something that includes tax policy) being favorable for a certain amount of time. How the oil price will move is, of course, a matter of debate. One forecaster will say this, one forecaster will say that. But, as Biden’s comments remind us, there can be little debate that under the current administration, the political and regulatory environment is unfriendly to oil companies, and, in all probability, will deteriorate further.
Sweeping new federal environment and energy regulations from the Environmental Protection Agency (EPA), the Department of Energy (DoE), and the Department of the Interior (DoI) have added much to oil-, gas-, and coal-exploration costs. These include new taxes (subtly called “royalties” and “charges”) on various aspects of fossil-fuel production. Some new regulations, for example, serve as barriers to leasing and permitting energy projects on federal lands. Dozens of other anti-fossil-fuel regulations from EPA, DoE, and DoI are cited here…
Corporate Purpose
To reiterate: U.S. corporations didn’t just start becoming concerned with profits sometime around 1980, either because they were running out of asymmetrical post-war advantages or because they had been brainwashed by neoliberal ideologues. It’s genuinely strange to have to say this, but the reason people give their money to corporations in the first place is that they want and hope to get more money back than they put in. That’s the purpose of a corporation, and it always has been. The Washington Post’s Pearlstein seems to think he’s played a trump card when he mentions a legal scholar who reportedly couldn’t find a single corporate charter that specifically mentioned maximizing profits for shareholders. That’s likely true, but only in the same way that most restaurants don’t offer lessons on how to chew: The goal is obvious. This is true for big-time financiers, small-time retail investors, and hired hands such as pension-fund managers…
Industrial Policy
The problems inherent to centralized planning are the same now as they were in 1945, when Friedrich Hayek first wrote about the knowledge problem. Suppose that bureaucrats have an end goal they are trying to reach, a certain product or service of which they want to increase the supply. The moving parts in any economy are too complex for any single centralized mind to organize. Even apparently simple products have so many diverse inputs coming from all types of individual producers. Each of these individual producers has the knowledge to produce only one part of the final good, but no one person has knowledge of all the various parts at every stage of production. Now multiply that calculus by the millions of different goods in any economy. The wild diversity of goods prevents a rational mind from planning their production…
Regulation
Jessica Melugin & Mario Loyola:
The Constitution vests its executive power in the president of the United States. But in the 1935 case of Humphrey’s Executor v. U.S., the Supreme Court ruled that Congress could shield the heads of executive agencies imbued with “quasi-legislative and quasi-judicial” powers from removal-at-will by the chief executive.
Thus was born one of the most anti-democratic principles in American constitutional law: An agency that exercises executive powers must be controlled by the president, but an agency that exercises all three powers of government must be controlled by nobody…
China
I’ve argued for a while now that the Chinese economy has moved from the relative freedom of the post-Deng era to something that, under Xi, looks a lot like the harnessed capitalism found in fascist economic theory and, frequently, practice.
Sometimes the harness comes very clearly into view…
Inflation
Currently, these large central-bank balance sheets are serving no policy purpose. In fact, they counter the effort of raising interest rates to fight inflation: The Fed and ECB are trying to raise interest rates, while the swollen balance sheets suppress them. The best path out of this awkward position is, as I proposed in National Review at the beginning of this year, for central banks and treasuries to cooperate to exchange new Treasury debt for current reserves at central banks, while canceling the treasury issues in central-bank portfolios. This avoids going through the financial markets (and all the dislocation that would entail), and rapidly brings down central-bank balance sheets while leaving government and private-sector financial positions unchanged…
Contrary to a good number of analysts, I don’t think the Fed’s current response to inflation is anywhere near excessive. Four 75 basis-point increases in the Fed funds rate so far have not made any noticeable dent in what is the nation’s worst inflation in 40 years. I get the idea of a lag, but I suspect that a lot of people who are now worrying about a “hawkish” Fed have distorted views of what “normal” looks like. Such a distortion is perhaps understandable after years of the Fed’s policy of near zero-percent interest rates. It seems to me, though, that at the current level, we are barely getting back into the sanity zone even though market players who got high on the ultra-low rates so long dispensed by the Fed aren’t enjoying today’s withdrawal, however mild it might currently be.
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