Could U.S.-Brazil relations watershed survive commodity crash?

A very high percentage of "Event X was a true watershed" articles turn out to be crap, but this one on U.S.-Brazil relations (via MR) is pretty good. (Maybe because that narrative device is totally extraneous - this change has been coming for years and Obama's visit didn't actually change that much). Worth reading in full, but the punch line is:

... the major strategic interests of the US and Brazil are so closely aligned that cooperation between the two countries will be one of the building blocks of the new century... [Brazil’s] its instinct for “order and progress” (the slogan appears on its flag) dovetails very closely with what the United States wants to see in the world.

I agree except for a nagging doubt - with Brazil's economic ascendancy so dependent on commodities, how much of this unravels if resource scarcity isn't all it's cracked up to be and prices crash? After all, we've heard the same arguments before (ahem Paul Ehrlich).

Let me back up a bit to build up the logic. Brazil has historically been commodity-dependent...

In the 19th century Brazil was part of Britain’s ‘informal empire’; Britain was the dominant foreign investor in the country and Britain controlled the markets for the primary commodities (sugar, rubber, cotton, coffee) whose falling and rising prices set the tempo for Brazil’s growth. But the system seemed rigged in Britain’s favor; Brazil could never escape its role as a commodity producer — a hewer of wood and a drawer of water in the international community. Brazil did the backbreaking labor; Britain grew rich.

... but isn't it still? I don't have the stats on hand about how much soy, iron ore, etc. etc. Brazil exports, but it's a lot; it's not clear to me that the economy has fundamentally transformed, rather than simply ridden the latest commodity wave on the way up.

The premise continues that Brazil has demonstrated a successful new model...

Lula’s Brazil stuck up for Venezuela at international gatherings and danced with it at parties. But all the while, Lula’s Brazil was destroying the political logic of the Bolivareans by demonstrating that a pluralistic democracy integrated into the global market can do more for the poor than incompetent populist blowhards. Chavez talked; Lula delivered

(again, on the back of a commodity boom...)

What that means is that Brazilians, even those on the left like former president Lula, are now less inclined to think that Brazil needs to overturn the global economic system.

I have lived in Brazil and I agree with this sentiment, and that "Brazilians have an immense capacity for hard and focused work." But in a world with lower commodity prices (and, again, I don't think this is the most likely scenario, but remember it's been less than 30 months since crude oil was in the low $30s), how will the Brazilian economy hold up, and if it falters, won't that popular support as well?

This is very much a preliminary perspective and I would welcome debate and pushback on it.

A few BP links

Just got back from two weeks of vacation, including some time in South Africa for the World Cup (which was fantastic, by the way, except for the elimination of a promising U.S. side by Ghana, and the subsequent elimination of Ghana - the last African team - by the hand of God Luis Suarez).

Anyway, back to the real world... I've spent the morning reading through my RSS feeds and here are a few BP-related links that I don't feel the mental energy to write full posts on.

1. "And if we aren’t careful, we will encourage companies that have enough money for collection to leave the drilling to those that don’t." (Richard Thaler, via Tyler Cowen)


2. Don't forget, BP also gave the world Ayatollah Khomeini (via Chris Blattman)


3. Container cap no longer on?


4. BP now more evil than Goldman Sachs


5. BP spills coffee

Addendum: Here's the Economist (subscription required) on the Obama deepwater drilling ban:

The people it presumably intends to protect—the residents of south Louisiana, whose fisheries and shorelines are being fouled by BP’s still-gushing Macondo well, and the oilfield workers who could be at risk from another disaster—are probably its loudest critics. Nearly two out of three Americans support the ban, according to one recent poll, but gulf coast residents are split down the middle.

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(!).

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.

China to buy Kansas

And the award for best April Fool’s I’ve seen goes to... Chris Clayton of DTN:

In a move to help alleviate U.S. debt obligations, China announced a formal offer has been made to the Obama administration to buy Kansas for $2 trillion.

Sources within the administration say negotiations have been going on for weeks with Chinese officials first proposing to buy Iowa. But politically Obama was unwilling to sacrifice the state where he won his first presidential battle in early 2008. Obama was, however, encouraged to part with Kansas even though his mother was from the Sunflower state. A 16-point loss in Kansas in the 2008 general election, coupled with the Kansas Jayhawks and Kansas State Wildcats screwing up the president's NCAA brackets made Kansas a more attractive parcel to sell.

Chinese officials cited Kansas' agricultural output in staples such as wheat and beef, as well as the vast expanse of largely unpopulated and unsettled land.

"This is a (expletive) big deal," Biden said. "Not only can we balance the budget, but we can get Pat Roberts out of the Senate too."

Bravo. The comments are also good.

Quote of the day: Easy problems to solve

Lula no doubt came to this conclusion on his visits to the United States, where racism has been eliminated since the election of Barack Obama.

That's FP Passport on Lula's choice of successor and the supposed death of macho.

American mercantilism, redux

I was sound asleep in Ethiopia for Obama's State of the Union address, and it wasn't pleasant to wake up to this debrief:

Then there was his disappointing discussion of trade, which included a bizarre promise to double U.S. exports in five years. Does this mean he expects the dollar to drop dramatically? He also announced the launching of "a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security" (more on that topic here), and vowed to "seek new markets aggressively, just as our competitors are." Nothing here, other than a cursory, noncommittal mention of the Doha round, indicates that Obama views trade as anything other than a zero-sum game. There's a name for this approach to trade: mercantilism.

Macroeconomics has never been my forte, and I was under impression that mercantilism was essentially a discredited 18th-century pre-economic theory. According to Wikipedia, though, it is not that simple, e.g.:

Paul Samuelson, writing within a Keynesian framework, defended mercantilism, writing: "With employment less than full and Net National Product suboptimal, all the debunked mercantilist arguments turn out to be valid."

I'll have to let others who are more educated in these matters sort this out, but my feeling is not good and my populism radar is blinking.

Obama can't seem to keep anyone happy - he managed to promote the one plank of the liberal/progressive agenda that Paul Krugman doesn't agree with.

Turning Oil Into Salt (3): Intellectual consistency

The authors more than once deride other points of view as lacking intellectual consistency. Sadly, I cannot give them high marks for intellectual consistency themselves. While there is much to like in both their thesis and how they defend it, there are numerous examples where they take both sides of an approach in different parts of the book to suit their persuasive goals.

(I differentiate this from couching arguments in politically/emotionally charged terms, such as referring to Obama bowing to King Abdullah as a “symbolic act of self-denigration.” This is also rampant, and I find it quite irritating for a book aspiring to be a clear-headed policy brief, but I don’t feel dissecting this is worth much further effort.)

One major inconsistency is their selective thinking on fungibility – to them oil is fungible, but corn and other agricultural commodities (and the resources used to grow them) are not.

Second, they dismiss some energy sources up front, only to subtly return to them later. They reject the Pickens Plan to build wind power and run vehicles on displaced natural gas since, despite currently producing 98% of its natural gas consumption, the U.S. only has 3% of world gas reserves and a reserve-to-production ratio of less than 10 years. And yet, in plugging methanol two chapters later, they cite natural gas as one likely feedstock (specifically the 5 tcf of natural gas that is flared each year, especially in Nigeria).

Similarly, they demolish the argument for hydrogen cars based on the energy intensity of producing elemental hydrogen, but later propose a plan to produce methanol from CO2. It sounds win-win, but aside from the energy intensity of splitting CO2 into CO and oxygen, the process then requires… you guessed it… the resulting CO to be reacted with… hydrogen.

Finally, while they generally acknowledge the importance of economics, this emphasis is not consistent through (for example, when extolling the vast photosynthetic potential and CO2-consuming benefits of algae, a more fair-handed author would have felt compelled to at least mention that algae is nowhere near cost-competitive at commercial scale).

Explore all the nuclear fuel alternatives

Environmental Capital on the statement emerging from Obama's recent visit to Japan:

But one bit in particular seems interesting: “Strengthened partnership on nuclear energy including on advanced fuel cycle technologies…”

That pretty much boils down to figuring out the best—and most affordable way—to reprocess spent nuclear fuel. That’s something Japan and some European countries do; the U.S. nixed such plans during the Carter administration, though it’s perennially on the Energy Department’s back burner.

Given the many challenges posed by reprocessing nuclear fuel, one would hope that "advanced fuel cycle technologies" has a more broad and far-sighted connotation, including alternative reactor designs (e.g. here, here) and perhaps a more substantive R&D effort around the promising but under-developed thorium fuel cycle.

Obama’s speech conspicuously omits "cap-and-trade"

Obama has been fairly silent on climate change, much to the chagrin of those who decry his rhetoric gap. He gave a big speech at MIT today which excited Joe Romm, but as Environmental Capital points out, the focus on renewable energy to the complete exclusion of cap-and-trade or broader climate legislation is very concerning to those of us who believe that a comprehensive market-based system to limit emissions is an important – nay, indispensable – step toward stemming global warming. As I commented on Climate Progress:

Isn’t it a bit concerning that Obama’s speech seems to focus completely on renewable energy, to the exclusion of broader climate legislation and market-based mitigation strategies? Cap and trade wasn’t mentioned at all, and the word “climate” only appears once (whereas “energy” is all over the place). If he is indeed trying to stump for the cap-and-trade system which is the centerpiece of Congress’s current climate legislation, he’s doing it in an extremely roundabout way...

"A new kind of President"

Via The Onion, "Obama to Enter Diplomatic Talks with Raging Wildfire."

Protectionism in Kerry-Boxer

Like in Waxman-Markey, the new Kerry-Boxer bill features concerning provisions which hint at carbon tariffs.

The Boxer-Kerry bill devotes a single sentence to what has become an increasingly thorny question: Should the U.S. slap carbon tariffs on imports from countries that don’t curb their own greenhouse gases, as the House climate bill did? To wit:

"SEC. 765. INTERNATIONAL TRADE. ‘‘It is the sense of the Senate that this Act will contain a trade title that will include a border measure that is consistent with our international obligations and designed to work in conjunction with provisions that allocate allowances to energy-intensive and trade-exposed industries.’’

“Border measure” seems to mean “border adjustment,” which is how the House version of the bill labels tariffs on imports from environmentally-unfriendly countries. The House bill says those tariffs have to be “consistent with international agreements;” the Senate speaks of “international obligations.” Both appear to refer to the questionable legality of carbon tariffs under World Trade Organization rules.

This is triply concerning because the House has already passed a bill with similar provisions, and Obama hasn't exactly distinguished himself as the stalwart defender of free trade.

Ugly protectionism

Yikes - Obama has slapped tariffs on Chinese tires and China is already retaliating. Greg Mankiw is justifiably disappointed. I hope Obama isn't trying to drum up support for healthcare through protectionism. Healthcare reform is not worth the negative impact a trade war would have on living standards worldwide.

Update: Condemnation in the econoblogosphere is rapid and unanimous, cutting across ideological lines. E.g. Brad DeLong: "Barack Obama Does Something Really Stupid". The WSJ's Real Time Economics rounds up others, including this gem from Ferris Bueller's Day Off:

“In 1930, the Republican controlled House of Rep, in an effort to alleviate the effects of the… Anyone? Anyone?… the Great Depression, passed the…Anyone? Anyone? The tariff bill? The Hawley-Smoot Tariff Act which, anyone? anyone? Raised or lowered?… Raised tariffs, in an effort to collect more revenue for the federal gov’t. Did it work? Anyone? Anyone know the effects? It did not work, and the US sank deeper into the Great Depression.”

Obama's "rhetoric gap" on climate

Climate Progress hosted a guest post by Grist's David Roberts on how Obama is not the magic solution to passing climate legislation

The president, even an extraordinarily popular president, can only do so much. Making one more speech won’t have any effect on Sens. Max Baucus (D-Mont.) or Ben Nelson (D-Neb.). It won’t reduce the money pouring from dirty energy companies into congressional coffers. It won’t change anybody’s mind at a teabagging rally or a dirty energy astroturfing event. This notion that Obama trying harder is the key to progressive success is just a siren song; it delays getting serious.

Obama can’t save progressives. They’ll save their agenda, if at all, with persistence and organizing. As it always was.

Joe Romm noted at the time that he only half agreed, but judging from his more recent writings (e.g. "The rhetoric gap: Can Obama give ‘em Hell (and High Water) before it’s too late?"), he's pretty firmly on the other side of this particular argument.

A Rooseveltian or Trumanesque campaign speech, addressing the concerns of the American majority, invoking the heroic history of American reform and naming the enemy, practically writes itself.

And today, commenting on Senator Maria Cantwell's quote that climate change legislation has a "50/50" chance of passing the Senate this year:

A 50-50 change is what I’ve been saying, but again, Obama — and only Obama — can increase those odds. As for the resolve of this country to make the transition to a low-carbon economy, we will find out in the next few months just how resolved we are.

I agree that the Obama administration's messaging has been quite cautious around climate change, perhaps inordinately so. But if you look at the landscape of the Senate at a very granular level as Nate Silver has done, it becomes very clear that it is a handful of individual senators and their constituencies that will swing this vote, not the national sentiment. Preaching to the choir in California and the Northeast will not make a difference. What the climate bill needs to pass the Senate is not soaring national rhetoric, but rather solid local organizing (as Roberts suggested) combined with pragmatic and savvy leadership and vote-counting by those guiding it through the Senate.

Obama is not Jesus

That's not exactly what he says, but Dave Roberts has a blunt and un-PC message for formerly-starry-eyed, now-disappointed progressives about Obama:

But let me be blunt: Barack Obama is not our magic negro. He’s not Bagger Vance.

He hasn’t come along to teach the ornery white folk the error of their ways. He’s just the president, a centrist Democrat embedded in a power structure replete with roadblocks and constraints. The president, even an extraordinarily popular president, can only do so much. Making one more speech won’t have any effect on Sens. Max Baucus (D-Mont.) or Ben Nelson (D-Neb.). It won’t reduce the money pouring from dirty energy companies into congressional coffers. It won’t change anybody’s mind at a teabagging rally or a dirty energy astroturfing event. This notion that Obama trying harder is the key to progressive success is just a siren song; it delays getting serious.

The whole post is worth a read.

Grading Obama's Ghana speech

Only very distantly resource-related, but I thought I'd link to three of my favorite bloggers (two in the development economics sphere) grading Obama's recent speech on his visit to Ghana:

Bill Easterly (it was his idea)
Chris Blattman
Elizabeth Dickinson of FP Passport

Update: Idea takes off, Blattman links to a bunch more.

How can U.S. best promote nuclear?

Senator James Inhofe (R-OK) has an Ideas piece in Politico today plugging nuclear power; he runs through the standard arguments in favor (I generally agree) and then identifies two catalysts for the nuclear revolution: the NRC issuing "the first new license for a reactor before the end of 2011," and Obama's unambiguous support.

Inhofe was a long-time climate change skeptic who recently made a surprising U-turn; I find nothing objectionable in what he proposes here. Reducing regulatory uncertainty is certainly a necessary condition for such massive investments. And Obama hasn't exactly been leading the environmental charge lately.

What I'd add is that Inhofe's suggestions are necessary, but not sufficient. Jay Yarow points out that nuclear plants are expensive (not to mention the dicey project economics and poor financial state of nuclear manufacturers). And new technologies (whether reprocessing waste or new reactor designs) hold much promise on both the economics and waste issues. I believe it's only with a combined push on all five of these fronts - political leadership, regulation, economics, reactor technology, and waste disposal - that the U.S. can bring the nuclear revolution from rhetoric to reality.

Update: Especially the economics.