Protectionism in the age of solar cells, Part 2

When the Trump administration announced last week that it was imposing tariffs on solar cell panels mostly coming from South Korea and China, it appears that the progressive blogosphere was almost unanimous in condemning the action as an attack on solar energy.

I was dismayed that the neoliberal lies about free trade had apparently been accepted by so many. As Jon Larson wrote on Real Economics, “In certain corners of the economic world, this is a major story—mostly because it flies in the face of neoliberalism's first commandment—Thou shall not condone protectionism!”

The tariffs should be attacked, but not because they are tariffs, not because they are protectionist, not because they may lead to less imports of panels and therefore the loss of jobs of people installing them.

The tariffs should be attacked because they are not accompanied by a robust industrial policy that will help USA manufacturers replace panels no longer being imported, by panels of domestic manufacture.

Protectionism is an issue on which the Democratic Party and the left in general are very vulnerable. Basically, they have forgotten the actual history of industrial development: every single country that successfully industrialized did so behind trade barriers. Many readers may not believe me, but it is historical fact. For a relatively short but full explication of the fact that protectionism works, I point you to James Fallows’ December 1993 article in The Atlantic, “How the World Works.” For an entire book on this topic, the best is probably South Korean economist Ha-Joon Chang's 2007 book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, available as a large pdf file here. An excellent review of Chang’s book, by Chalmers Johnson, is here.

For a brief discussion of how this history was purposefully and deliberately eradicated from American universities and economics courses a century ago, read “Prophet of Prosperity” in a recent issue of The Pennsylvania Gazette of the University of Pennsylvania. The motive? “...landlords and other rentiers were reclassified as capitalists, just ones who invested in land and raw assets rather than machinery, and thereby earned “the increments of value attaching to land,” thus removing the social opprobrium of being exploiters, parasites and usurers. And, more importantly, to allow “money to make money.”

We like to taunt our conservative and libertarian opponents that you are entitled to your own opinions, but you are not entitled to your own facts. Well, the same applies on this issue, and to the neoliberals amongst us: you are entitled to your own opinions, but you are not entitled to your own facts. The facts are clear that historically, countries that successfully industrialized did so behind trade barriers that protected their infant industries, and protected the earning power of their working people. The facts are equally clear that since the imposition of economic neoliberalism and free trade on developing countries, and their enforcement by the World Bank, the International Monetary Fund, and other international NGOs, not to mention the USA government and others, the growth rate of the national economies of developing countries has been LESS than it was before neoliberalism and free trade. Those are the facts, and all the crap you were taught in college economics courses will not change them.

But protectionism alone does not work. There must be a national industrial policy to promote and encourage the development and growth of new industries. As originally developed by George Washington and his Treasury Secretary, Alexander Hamilton, and later in the 19th century by Henry Clay, Henry Carey, Abraham Lincoln (on Lincoln, see one of the best overlooked books on historical political economy, Lincoln and the Economics of the American Dream, by Gabor S. Borit, Memphis State University Press, 1978)., and others, protectionism was one pillar of a three-part program for national economic development. The other two were a national banking system, and internal improvements (what we today call infrastructure).

Protectionism in the age of solar cells

The Trump administration has annouced its intention to slap some tariffs on products mostly coming from S. Korea and China. In certain corners of the economic world, this is a major story—mostly because it flies in the face of neoliberalism's first commandment—Thou shall not condone protectionism!

As two guys who are serious students of industrialization in general and USA industrialization in particular, Tony and I are pretty supportive of some sort of economic protectionism. Tony's approach is very straight-forward—he looks at the historical record and sees that every nation that successfully industrialized did it behind tariff walls.

My take is that because the financial markets are hopelessly corrupt, shortsighted, and technologically illiterate, they are unable to properly value the infrastructure of industrialization. When financialization first started, there were a few protests at the ability of real scoundrels to seize and then cash in on assets they rarely understood, who in the process of their plunder, squandered a system of wealth creation that had taken decades to create. They pissed away USA's industrial crown jewels for a tiny fraction of what they were worth with their get-rich-quick schemes. These protests probably crested with Oliver Stone's movie Wall Street—an effort so excellent, I suspect Stone didn't even know how good it was.

Along with the plunder came the justifications for why this did not matter. Around here, these loony economic expressions for how the world should work, but doesn't, are lumped under the garbage pile we call neoliberalism. And in the world of the neoliberals, there is no greater sin than "protectionism." Yet here we are with a president who believes that tariffs and such are probably a good thing. He's about 30 years too late, but he seems to think USA industry should be protected. One other thing, the Asians have been about as brazen in their theft of intellectual property as anyone—including USA from GB. The Chinese were caught red-handed dumping solar panels. The party injured by this was actually Germany but a couple of USA manufacturers won some settlement with the Chinese. Ironically, both USA victims are foreign-owned—one German, one Chinese.

I have included four essays on this subject after the break:

1. The Asians seem to think this is a major shift in USA trade policy. My guess is that they will figure out ways to adjust to new market realities.
2. Lindorff seems to think these tough new trade rules are a manifestation of an unhappy empire that wants to slap around China and Korea for the crime of wanting a different foreign policy than the folks from Foggy Bottom.
3. Reuters, which always believes protectionism is a bad thing, argues that tariffs on solar panels will most hurt the solar panel installers.
4. The folks at Rolling Stone just assume this is Trump's way of throwing some roadblocks in the way of new green technologies.

All of these folks have a point. And we will probably hear a lot more on this subject. This is a protectionist proposal in a neoliberal world—a world with thousand of economists well-trained and motivated towards shooting this thing down. As someone who participated in the debate over NAFTA, I am very interested to see how this debate will differ.

Bids to build renewable energy in Colorado point to a bright future

In Colorado, an electric utility's request for proposals to build new generating capacity resulted in stunning evidence that renewables are now cheaper than fossil fuels--even with storage capacity included for when solar and wind are "down."

This merely confirms that there is a boom in renewable energy underway, but judged from the perspective of the task at hand--putting the entire global economy on a renewable energy basis and eliminating the burning of fossil fuels altogether--this boom is merely a blip. Bloomberg New Energy Finance, which has been tracking global investments in the sector for the past ten years, reported that renewable energy investment in 2017 totaled $333.5 billion worldwide, up three percent from 2016. The 2017 numbers were the second highest yet recorded, and brought cumulative investment in renewables since 2010 to $2.5 trillion.

This may sound like a lot of money--and it is--but it should also be viewed in the context of fossil fuels being subsidized $1.9 trillion a year. And that number is from five years ago. According to a report from the International Monetary Fund in March 2013, governments around the world give $480 billion a year in direct subsidies. This is a worldwide amount, and it is not structured as you might expect: most of these direct fossil fuel subsidies are by governments in the developing world and are designed to make petro-products affordable for poor people. The remaining $1.4 trillion, according to the IMF, is the “externalities” cost of  “the effects of energy consumption on global warming; on public health through the adverse effects on local pollution; on traffic congestion and accidents; and on road damage.” A writer summarizing the IMF report noted that by "failing to make fossil fuel companies pay" for these externalities, "governments are implicitly subsidizing those companies. IMF calls this under-taxing of fossil fuels “mispricing,” but it’s easier to think of them as indirect subsidies."
But the amount actually needed to shift the entire world to renewables is $100 trillion. We could achieve that in 15 years with a slightly less than ten percent increase in annual world economic output--which would create the largest and most sustained economic boom in human history. That is an investment of just under $7 trillion a year. So, the $333.5 billion worldwide in 2017 needs to be increased twenty-fold.

This shows that a reliance on the conservative/libertarian/neoliberal ideology of free markets and private enterprise is woefully inadequate to what needs to be done. We need the activist role of national governments promoting and supporting economic activity that promotes the General Welfare, and discourages economic activity that is useless and often predatory, such as speculative trading in stock, bond, futures, currency and derivative markets. Contrary to the myths of conservatives and libertarians, this issue of the government actively steering the national economy in a positive direction was the central focus of the U.S. Constitutional Convention of 1787. The U.S. Constitution, its mandate to promote the General Welfare, and the entire history of How America Was Built, clearly shows that government of, by, and for the people, must supervise the building of an economy  of, by, and for the people.

The decline and fall of neoliberalism in the Democratic Party

If you are snow-bound in USA today, and want something to read, I highly recommend Ryan Cooper's excellent short summary of USA political and economic history since the New Deal, posted last week, The decline and fall of neoliberalism in the Democratic Party

Nations took various roads out of the Great Depression. Every one involved ditching liberal orthodoxy — deficit spending and the abandonment of the gold standard being the key two policies in most instances, which had to overcome resistance from business. In Germany, fascism removed "capitalist objections to full employment," wrote economist Michal Kalecki, by routing all deficit spending into rearmament and by keeping labor quiescent with political repression and permanent dictatorship. 

In the United States, the replacement ideology was the New Deal. After some initial failed experimentation with planning, New Dealers settled on a framework of stimulus, regulation, unionization, progressive taxation, and anti-trust, heavily influenced by Louis Brandeis (to be covered in the next article in this series). To get people back to work and prime the economic pump, vast new public works were built, and millions were directly employed by the state. Business — especially finance — was regulated, above all to prevent concentration. Unions were protected under a new legal regime created by the National Labor Relations Act. Taxes on the rich were sharply increased, both to raise revenue and to deliberately prevent the accumulation of vast fortunes. Finally, world trade was managed under the Bretton-Woods system.

These two paragraphs are an excellent summary of what the New Deal was -- and what was dismantled in a joint project of conservatives, libertarians, and neoliberals. This dismantling is why neoliberals are as much to blame for the rise of neofascism around the world. While conservatives, libertarians and the Republican Party, the past half century, constantly stoked bigotry by "feeding meat to their base," neoliberals joined them in destroying the "welfare state" policies that were enacted after World War Two to ensure that never again would fascism be incubated in a cauldron of economic misery and inequality. 

Cooper includes all the most important points of this history, with the exception of the race to the bottom initiated by NAFTA and free trade. Also, Cooper does not fully grasp that the prosperity of the tech boom under Clinton was mostly the result of the phase shift in the national economy resulting from the 1950s through 1980s build-out of the new technology of computers, which -- like all phase shifts in the economy -- began with government support and promotion of new technologies (in this case, computers are developed in military research programs during World War for ballistics calculations, fire control, aircraft simulation, radar, code breaking, and physics calculation for the Manhattan Project, as covered in my chronology HAWB 1940s-1950s Timeline of computer development shows crucial role of government.)

Cooper's article is the first of a four-part series examining the four major factions in the Democratic Party and American left today. This first part considers the neoliberals, which of course is the faction which currently dominates the Democratic Party leadership, though it is in a dwindling minority. It dominates because it has money, but not votes. 

The second part is The Return of the Trust Busters, the faction around Elizabeth Warren, which Cooper brilliantly traces back to Louis Brandeis. 

The third article is Bernie Sanders and the Rise of American Social Democracy.

The fourth and final installment is The Dawn of American Socialism, which focused on the faction led by the Democratic Socialists of America.

There is no consideration of the historically crucial role of the American School of political economy, which helps explain why Cooper does not include the disastrous "race to the bottom" initiated by NAFTA and free trade.

I also highly recommend Cooper's How to Crush Trump from December 27, 2017, especially this paragraph:

Then in 2020, Trump must be crushed at the ballot box. His corrupt administration must be thoroughly investigated, and any criminal acts punished. More importantly, the economic base of Republican plutocracy — Wall Street, monopolist corporations, and idle rich heirs and heiresses — must also be crushed. Monopolies must be broken up, taxes on the rich and corporations dramatically increased, and the size, profitability, and power of Wall Street sharply reduced with cricket bat regulations.

None of Obama's "don't look back, only forward," pursuit of bipartisan unicorns. Criminal activity must be ruthlessly targeted and vigorously prosecuted, ESPECIALLY by our political enemies.

Even the Germans are dropping climate goals

The Germans have been world leaders in pursuing ambitious environmental goals by improving hardware. But their efforts are showing signs of fatigue. The commitment to "clean diesel" has shown pretty conclusively that a vehicle with reasonable fuel economy and performance cannot be built. So everyone started to cheat. Turns out it is easier to raise environmental standards than to comply with them. Especially if the new standards cannot be met because of hard scientific laws.

In addition, the Germans paid for much of the heavy lifting necessary to make solar panels on a commercial scale. And then the Chinese ran off with their markets using the same production technology. This tends to be disheartening. So they are not especially enthusiastic about meeting the climate targets they set in Paris 2015. Throw into the mix that the Germans do not have a government these days and it looks like the targets for 2020 are about to be kicked down the road.

DW takes it from here:

Student Debt Slavery

My little town is home to two liberal arts colleges that cost over $60,000 / year to attend. Both have stellar reputations for what they do. One is more of a music conservatory with solid departments in math and science. The other is a place where high achievers like National Merit Scholars go to see what its like to be in rooms full of high school valedictorians. But $60,000??

In one of the college's student center, I got into an interesting conversation with a 19-year-old who was reading Kerouac and wondering why his professor had assigned the thing. Now I have a bit of sympathy for the professor who probably, like me, read Kerouac on his own initiative back in the day. I read On the Road and was amazed that Kerouac was able to describe anything at all considering the serious drug and booze haze he was in most of the time. Looking back, this book is mostly a tribute to the casual rootlessness that was possible owing to the general prosperity of the times and $0.26 per gallon gasoline. There was so much prosperity that whole subgroups of people like the hippies could survive on the what fell from prosperity's table. There is probably nothing wrong with having the young read Kerouac if only to discover what their grandparents found cool. But $60,000???

Anther encounter with a product of a quarter-million dollar's worth of enlightenment was amazing in another way. This sparkling-sharp young man had gotten his degree in video production who when faced with the task of how to use the sun to light his scene, got completely befuddled because, I am pretty sure, he had never noticed the different times and positions of the setting sun based on the calendar so could not predict where his subjects should be placed if he wanted to shoot them in golden-hour light. Think of that—this guy did not learn something that humans have known about for at least 6000 years, something that was of practical value if he wanted to be a good cinematographer, and he had just spent a $quarter-million on an "elite" education. $250,000! For that sum of money, he could have traveled the world for a couple of years so he wouldn't have that typical "Merikun parochialism, equipped himself with professional-grade cameras and audio gear, and still have plenty left over to fund his video ventures for a couple of years while starting up. $250,000 is a LOT of money.

I have neighbors who have tenure—which these days is an amazing accomplishment. There's probably at least 50 highly qualified PhD s for every tenured position available. And because being a professor is a pretty cushy job, a lot of them don't retire at 65 and open up the job for someone younger. One neighbor finally got tenure at 50. Hard to find fault with them as people. On the other hand, they are part of a system that consigns children into a lifetime of debt peonage / slavery.

Nasty business.

The Shale Oil promise of abundant new petroleum supplies will not be kept

The following from Bloomberg is possibly the least surprising development imaginable. The idea that shale oil was going to supplant oil from traditional wells was just bonkers. For whatever reasons, discovery of oil in traditional formations has been declining—the believers in peak oil have be predicting this for a long time (since about 1970 in my awareness.) Bloomberg does not cite peak oil as the reason for a collapse in oil discoveries—they are true believers that if oil prices would rise, new oil would be found. But then, they are people who worship at the altar of "free" markets—they MUST believe this or they will be drummed out of the economic clerisy for heresy.

The promise of a sustainable energy future was predicated on the hope that humanity would be wise enough to spend some significant fraction of its declining fossil fuel supplies on building the replacement for them. I fervently hope that we have not already screwed up this possibility too.

Graphene—a tribute to Industrial-Class virtue

A big-picture look at the requirements for meaningful action on climate change will always come back to the subject of energy. The human need for energy is what drives the problem. Plus no matter what problem you are trying to solve, from plastics recycling to increased clean-water supplies, the solution WILL require energy.

Running the world on solar supplies alone is probably possible but it will be ridiculously difficult to pull off. Of course, I spent most of my life believing that solar cells would always be so expensive that it would require social subsidies to get countries to make the conversion. And I was mostly right—both wind and solar technologies have been aided by social / political demand and subsidies until now. But now when it comes to solar cells, they have become the low-cost option for electrical generation.

But because they don't work at night, solar cells need a storage system to make them conventionally reliable. Electrical storage has been a primary interest of mine since the 1950s. I had a flywheel phase and a super-capacitor phase along the way. But mostly I ignored the battery stage because of personal experience with their costs and unreliability combined with a series of lavish claims for improved performance that seemed to fizzle on closer inspection.

This time, the key to storage will probably be graphene—a substance first theorized by P.R.Wallace in 1947 while a new hire at Canada's McGill University. This stuff is amazing but ridiculously hard to produce. Not so surprisingly, it's the Koreans who are figuring out how to make commercial quantities—they have set their sights of being world leaders in battery technology and there are a multitude of arguments suggesting they are already there.

The YouTube below will explain the role of graphene in a possible sustainable future. Spend 6:02 of your life to understand this almost miraculous material.



And here is a little 3 minute clip showing graphene research results from academia. These folks think the a threefold increase in energy density from current lithium-ion battery technology is a conservative number. Who knows, maybe, just maybe, someone will really make a breakthrough is this mostly breakthrough resistant product. Get a 5x improvement and we can start talking about battery-powered flight and serious grid-level storage. Just remember, technological improvement is not automatic even though the computer example has taught a whole generation to believe that next year, the new computers will be cheaper and faster. Battery technology has gone for quite awhile without a breakthrough. So in this sphere, the progress almost everyone seems to believe is automatic has been anything but. Of course, it was never automatic in computers either but rather the outcome of very smart people working very hard.

The Political Economy of Seymour Melman

A reader (KF) sent me the following link about Seymour Melman—which is a good thing because I probably would have just blown it off otherwise. Because when I was first exposed to Melman, I wasn't all that impressed. I had a sociology professor that made us buy one of his books which soured me on the man before I had read a word. But those of us who were anti-war activists knew about him because he was one of the very few professors who were public with their anti-war stance. But because he was an academic, he came off as oddly stiff to those of us for whom being against the war was an exercise in fluctuating between being scared to death and being absolutely furious.

So it is with some pleasure I see that Jon Rynn has penned this excellent description of why Melman embodied that sort of thinking we in Minnesota were supposed to learn. And surprisingly enough—did. The Melman he describes and I share a great deal of thinking. And this is NOT because I read his book—I did not. That was the quarter I started my fight with my local draft board, and almost died from a ruptured appendix—spent three weeks in the hospital with an antibiotic drip and 104°F fever. So Melman and I came to similar conclusions on political economy by really different roots (routes).

There is another possibility here. Rynn may be punching up Melman's ideas because he is such an admirer. That's cool by me. I do the same thing to Veblen. Anyway...enjoy. And thanks again to KF

Dr. Strangelove on climate change

Bill McKibben is one of those who are especially furious about the fact that the oil industry knew about CO2 and climate change as far back as the 1970s. Turns out that they knew far longer than that. As told below, Edward Teller, the father of the hydrogen bomb, the guy who figured out how to make nuclear warheads small enough to be loaded into submarines, the model for Stanley Kubrick's Dr. Strangelove, THAT Edward Teller, gave a speech to the American Petroleum Institute outlining the risks posed to the atmosphere by the burning of fossil fuels in November of 1959. McKibben should absolutely love that because the speech was given a little over a year before he was born.

The reason this story is totally believable is that the people associated with nuclear power have been warning us about climate change in apocalyptic terms for a long time. The guy who taught me how to sail was an electrical engineer who spent his career making critical pieces for nuclear power plants. Not long before he died, he told me, "Climate change is the biggest threat facing the human race...ever. If newspapers treated the threat with the importance it deserves, they would have 144 point headlines on the subject above the fold every single day."

So while it would be possible to dismiss the Teller speech as just another sales job by someone representing nuclear power (which is how the API probably treated it) it is remarkably accurate and prescient.