The right attitude

I just started Gregory Clark's A Farewell to Alms, which I was already excited about, largely because Tyler Cowen reviewed and liked it and wrote a series of "Book Forum" posts, which I intend to follow in parallel.

I'm further encouraged by this nicely-worded sentiment from the preface.

Doubtless some of the arguments developed here will prove over-simplified, or merely false. They are certainly controversial, even among my colleagues in economic history. But far better such error than the usual dreary academic sins, which now seem to define so much writing in the humanities, of willful obfuscation and jargon-laden vacuity. As Darwin himself noted, "false views, if supported by some evidence, do little harm, for every one takes a salutary pleasure in proving their falseness, and when this is done, one path towards error is closed and the road to truth is often at the same time opened." Thus my hope is that, even if the book is wrong in parts, it will be clearly and productively wrong, leading us toward the light.

This is a great attitude - for a scholar, for a book, and definitely for a blog.

BP blues

Despite a reportedly successful meeting with President Obama, BP can’t be too happy. It still has to find the money to fund its $20bn commitment, that by the way is in no way a cap on its liability (Obama called it “a good start” and “not a cap.”). Credit markets are currently pricing in a 36% chance of default within the next five years(!).

Afghanistan's great hope?

Apparently Afghans are quite excited about the recent $1 trillion estimate of the value of the country's mineral reserves.

In a news conference primarily with Afghan reporters, President Hamid Karzai’s spokesman, Waheed Omar, called the report “the best news we have had over many years in Afghanistan.”

“This will improve drastically the lives of the Afghan people, the economic status of the Afghan people and to see that positively, that will unite the Afghan people,” he said.

It sounds like an awful stretch to me. Leave aside for a moment that the investment preconditions like physical security, governance infrastructure are far from the level required to attract significant private capital, as FP Passport points out. The more fundamental question is how often (other than notable exceptions) has mineral wealth really translated to stability, political unity and sustainable economic growth in developing countries?

Short-term disaster, long-term hope

The ugly stories and pictures of the Deepwater Horizon spill's impact on the Gulf Coast ecosystem and economy are rolling in. But while the short-term prospects look grim, reason for longer-term hope can be found in an analysis of Mexico's devastating Ixtoc oil spill (an anagram for "toxic," I noticed) of 1979.

Soto, who followed the fish and shrimp population off Mexico closely, found to his surprise that for most species the numbers had returned to normal within two years.

"In 1979, the islands around Veracruz looked like black doughnuts, there was so much oil clustered around them,'' he remembers. "It was 12 to 15 inches thick in some places. But as I came back over the years, it got harder and hard to find. After five to seven years, it was hard to see the outline, and by 2002, an unsuspecting person would have thought it was a rock ledge ... it was covered with algae and shells and just looked like a normal part of the environment."

Even under water, where the sun can't help the oil break down, nature subverts it, says Mexican marine biodiversity analyst Jorge Brenner. "If you visit the coral reefs in the Gulf of Campeche, the tar has been covered with sea grass, algae and sediment,'' he says. "You actually have to dig a little bit to find it, although it's definitely there."

The spill might also be, ironically, good news for environmentalists, although perhaps not across the board, as finite public attention and energy for environmental and sustainability issues is diverted from less acute (but still enormous) challenges like climate change.

The undiversified economy

... is vulnerable, even if historically successful:

Botswana’s economy contracted by 6.7 percent last year as revenue from diamonds plummeted, Central Bank Governor Linah Moholo said.

“Mining was hard-hit, with its share of gross domestic product dropping from 41.2 percent to 24 percent,” she said.

This succinctly summarizes the problem for Botswana. Although its growth record for decades has been impressive, it remains too undiversified. Diamonds and cattle remain large sectors of the economy. When diamond revenues plummet, the economic consequences are severe. Add in the HIV/AIDS situation with a contracting economy can quickly turn an African success story into another African Growth Tragedy.

Now, a 7% downturn amidst the greatest economic crisis in generations is not the end of the world, especially if you managed to average 9% annual GDP growth for over three decades. On the other hand, even the staunchest efficient market skeptics and industrial policy promoters would have to concede that "happen to have and focus your economy on a small basket of commodities that will outperform over the coming decades" is not a viable (or at least generalizable) economic development strategy to start with.

From the Stationary Bandit, via the Roving Bandit.

Small (deepwater drilling) world

The now-infamous Deepwater Horizon was the same drilling rig that shattered the record for deepest well and discovered the massive Tiber field for BP back in September.

Connection made with the help of this post by John Whitehead of Environmental Economics.

Dan Rather on fracking gas

I just got around to watching a Dan Rather Reports piece on fracking, which aired a few months ago (now available on iTunes). It doesn't have any revolutionary new information, but is an interesting and serious journalistic piece on both the energy potential of shale gas and recent claims of groundwater pollution from fracking across the U.S. Features extended interviews with Chesapeake CEO Aubrey McClendon and a Wyoming farmer whose wife began suffering neurological problems after a gas well was drilled into the Bakken shale below their property. Recommended.

This also brought me back to Geoff Styles' post on shale gas and water safety, which has since generated a somewhat contentious body of comments. Geoff originally concludes that there isn't anything to worry about since fracking generally occurs at great depth and is isolated from surface water by thick layers of impermeable rock. Commenter Bartman then narrows down to two plausible pathways for surface water contamination - poor well casing/cementing and disposal of resurfaced frac water.

What doesn't look good to me is the industry's apparent attempts to obstruct further scientific testing of claimed contamination. Bartman's selection of plausible pathways sounds right to me, but I'm hard-pressed to think of a reasonable argument for not testing groundwater to see if fracking chemicals are in fact surfacing there. If they are, there is clearly a problem that requires further investigation. And if there is really nothing to hide, I wonder whether fighting against scientific inquiry and transparency is really the best PR strategy for shale gas interests in the long run.

The other oil spill

The Deepwater Horizon spill has continued to worsen - the latest estimates of leak volume have doubled (again), BP's reputation is plummeting (as is its market value), the Obama administration appears largely powerless and increasingly blamed, and U.S. consumers and taxpayers appear to be the major losers in the long term. But as the Guardian pointed out, Nigeria's agony dwarfs the Gulf oil spill - and it has been going on for decades.

One report, compiled by WWF UK, the World Conservation Union and representatives from the Nigerian federal government and the Nigerian Conservation Foundation, calculated in 2006 that up to 1.5m tons of oil – 50 times the pollution unleashed in the Exxon Valdez tanker disaster in Alaska – has been spilled in the delta over the past half century. Last year Amnesty calculated that the equivalent of at least 9m barrels of oil was spilled and accused the oil companies of a human rights outrage.

That is a wide range of estimates - at 7 barrels per ton, Amnesty's estimate for last year is almost equivalent to the other estimate for the past century. But even if we take the former estimate, it would take the Deepwater Horizon well almost a year flowing at the new estimated 30,000 bbl/day rate to equal the amount of oil leaked into the Niger Delta over time - and look at the horrific environmental and economic consequences after only a month.

The problem with Nigeria, of course, is the security challenges atop the technical ones.

Last month Shell admitted to spilling 14,000 tonnes of oil in 2009. The majority, said the company, was lost through two incidents – one in which the company claims that thieves damaged a wellhead at its Odidi field and another where militants bombed the Trans Escravos pipeline.

I don't have any answers - it is such a complicated situation that it is hard to know the best way to intervene, even if the political will could be summoned. But maybe one tiny silver lining of the Gulf disaster is that Americans will now appreciate more vividly the consequences that Nigeria has faced for so long - I know I do.

Amusing sentences

Biodiesel and soybean industry leaders are urging the U.S. Senate to pass the American Jobs and Closing Tax Loopholes Act, which retroactively extends the biodiesel tax incentive through Dec. 31, 2010.

From Biofuels Business.