Today's news registers in a major and a minor key and a still more minor key, maybe a minor 7th.  The major key concerns the Geithner bank rescue plan. That's the one that has garnered all the big headlines and attracted the star journalists.  The minor key concerns the EPA "finding", so to speak, that it has the authority to use the Clean Air Act to enforce "global warming" policy. Hardly anyone will even read this news. The minor 7th concerns the President's remarks on energy. 

I am no financial expert, so I am not in a position to judge what Geithner has rolled out.  A lot of experts say it won't work, despite Wall Street's enthusiastic response to its details. That just makes me think, however, that in fact it won't work. We have an essay coming up in the magazine, one of our toolboxes, arguing for Limited Purpose Banking. When I first read it and sort of understood it, it struck me as a very radical, but still quite logical and sensible a proposal. None of the criticisms to the Geithner approach, so far anyway, for all the alternative approaches they propose, come close to Limited Purpose Banking. But the reason I'm prepared to give the benefit of the doubt to the LPB approach is that, unlike almost all the alternatives I've heard of, it proposes changing the incentive structure of banks and bankers. Right now, banks gamble with other people's money, but bankers do well from commissions and bonuses whether their gambles pay off or not. Their gambles, moreover, are all more or less variations on a single theme: arrange things so you borrow short and safe but lend long and risky.  That way you'll make enough from high-yield loans to more than cover your obligations, even if a fair number of your loans come a cropper. But when too many loans come a cropper, the whole edifice fails, and the losers are other people, not oneself. That being the case, there's not much incentive against irrational behavior, particularly when other bankers are mainly doing the same thing. This just means that individually rational behaviors don't necessarily add up to collectively rational behavior. But every social science PhD already knows that.

Anyway, LPB would change what banks do.  It would prevent them from gambling with other people's money. It would limit them to intermediating between depositors and borrowers, between those who offer investments and those who purchase them. It would earn a fee for its service, and its own money the bank could invest.  But not other people's money. That changes the incentive structure. It has always seemed to me -- but what do I know? -- that if we keep giving banks money, from TARP reservoirs or from some public-private scheme like Geithner's, but we don't change what bankers can do and how they think, then eventually we'll end up with another crisis.  It's true, sure, that we haven't had a whole lot of banking crises since the FDIC was created, and the S&L crisis was not exactly the same thing. But the system we have ensures that when we do have a crisis it's a real doozy. 

Maybe the practical thing is to reliquify the system as it is, and stabilize it--and then change it radically so this can't happen again. But that'll never happen, because it takes a crisis to get real change in this country -- always has. Solve the crisis, or the sense of it, and the motivating force for real reform will evaporate overnight.

I am tempted, while I am on this subject, to refer back to a Senate Banking Committee hearing last week in which Senator Chris Dodd mused that, well, maybe we should not get ourselves into a "too big to fail" situation in the first place. Dodd is no philosopher. But better he and his colleagues wake up later than not at all. Gigantism in American society is the problem, and at many levels. It's nothing new, however; go back to W.J. Byran, TR, Woodrow Wilson, and all the Populists, Progressives, Bull Moosers, Mugwumps and the rest, and you see it all fresh and clean a century ago. Go back and read William Allen White.  Kirkpatrick Sale and his 1970 book Human Scale had nothing on WAW. The problem here, from the Sherman Anti-Trust Act of 1888 forward, is that if you let corporate scale get very large, you will have to also let countervailing forces in society--unions but especially government--get very large to balance against potential abuses. This is what J.K. Galbraith understood in the 1950s -- that grand scale qualitatively changes the dynamics of "invisible hand" competition in a market economy.  This is what C. Wright Mills understood (though he got a lot wrong, too) when he wrote about The Power Elite. This is what Murray Bookchin and dozens of other intellectual anarchists (as opposed to the old-fashioned bomb-throwing type) have been trying to tell us for 50 years. If you depersonalize economic relations--all kinds, production, owner-worker interactions, marketing, banking, you name it--you hollow out the stickiness of ethical considerations in keeping everyone honest.  To return to the point, most bankers will not gamble with just any other people's money, just other people they don't know. So if we let banks and investment houses and insurance companies get as big as Lehman Brothers and Citibank and Bank of America and AIG, then we enable a too-big-to-fail problem to form,  we have only ourselves to blame for it. It would be one thing if there were real and widely shared economies of scale from such gigantism, but there are not. Instead there are usually diseconomies related to large transaction costs, as can be seen clearly in the whole medical insurance racket. 

Now for the minor key news, which could end up being a lot more important than the major. If EPA uses the Clean Air Act to regulate hydrocarbon emissions, the U.S. economy may never recover. Carol Browner and the rest of the new crowd at EPA are true-believing pantheists, as best I can tell. They approach "global warming" as though it were a surrogate religion, and as such their catechism has become impervious to actual facts. They don't care about the economic and political costs of "saving the world", as they see it. Because they are, after all, "saving the world."

OK, so let me say it, flat out--say what has almost become unspeakable in many polite quarters these days: I don't believe that global warming is mostly anthropogenic, and I don't think it's a crisis. I also don't believe that acute weather events are driven by warming trends, though I am open-minded about what the science has to say here, once we have enough of it to reach a reasonable conclusion. 

Speaking of facts, most of the global warming pantheists who claim facts are on their side wouldn't know how to evaluate genuine scientific evidence if their lives depended on it. It is true that global temperature rise and energy use increases track upward together generally from around 1850 to the present, but they do not track exactly. For example, according to data no one disputes, from 1850 to 1880 energy consumption increased little but temperatures increased a lot. Between 1880 and 1910 the data show that energy use doubled, but temperatures actually declined!  Again, if you measure from 1935 to 1965, fossil fuel consumption doubled, but global temperatures remained essentially flat. 

This means either that there is no lock-step relationship between energy use and temperature increases; that the measurement techniques have been wrong; and/or that something else is driving temperature patterns. One of those things may be the rotation and wobble of the earth and how it affects ocean currents and weather. We have had global warming before. We had it, for example, in and around the 6th-7th century CE, and again in the 14th-15th century. Scandinavian types were able to grow grapes in Greenland, after all, long before the Industrial Revolution. (We also had great plagues in temperate zones during those warming trends, so the CDC is right to be concerned about tracking diseases and pests.)

Add to that the fact--yes, the fact--that we rarely if ever measure actual particulates in the atmosphere, but only extrapolate what's going on up there from measuring emissions down here, and any reasonable, scientifically literate person would pause before rushing to alarmist conclusions. And as many observers have pointed out, to behave as though a long-term trend is a crisis is to cripple rationality in public policy. For what it would cost to stop and reverse global warming, we could do lots of other praiseworthy things. But the religious attitude typically taken toward the problem makes the idea that propositions ought to be examined on the merits a form of heresy.

I am all for reducing emissions, for a smaller societal carbon footprint, and I am all for cleaner energy. I am for these things because it is, in the end, more efficient and healthy. I am for them too, as in President Obama's energy plan also rolled out in more detail in today's news, because this is indeed a major source of new productive jobs. We have underinvested by orders of magnitude in energy R&D in the past thirty years--the fault of Congress and the K-Street lobby mafia, once again. (It's everywhere rotting out public policy.)  I am not for these things because I fear global warming. And I hate to think that only an irrational, scientifically specious fear is powerful enough to get us to do what we should want to do anyway.  It's enough to drive a person crazy.

Final comment for now, about what the President had to say yesterday about energy policy. He spoke, as so many have, about energy independence, about not being dependent on foreign oil. This isn't completely stupid, but it mainly is. 

We chose, as a nation, to become more dependent on international commerce in oil because it was a whole lot cheaper to import than to use domestic sources. We did it, starting in the Eisenhower Administration, for economic advantage: the cheaper our energy inputs, the more efficient our economy all else equal. We do this in general, as do other countries. It's called comparative advantage; that's why there is international trade, and international trade is in the main good. So why do so many people think oil is an exception?

These days there are really two reasons. The first, which is valid, is that the money we pay to buy foreign oil (which is no longer as cheap on a regular basis as it was before) helps nasty regimes and sometimes trickles down to nasty terrorists. This is true, but if we don't buy Saudi oil, say, someone else will. So we don't eliminate the problem by not being dependent on foreign oil; we only loose ourselves from moral responsibility for it. 

The other is that we can't depend on the supply; it might get embargoed for political reasons or interdicted. This is pretty much nonsense nowadays. The vertically integrated nature of the industry makes embargoes very hard to pull off. The Arab embargo of 1974 failed, in point of fact. As for interdiction, that was a worry we planned for during the Cold War; it is not a serious worry anymore. (I have detailed all this in a Harvard Middle East Paper recently, which can be found, if you look around long enough, at MESH.org.) Middle Eastern and other oil producers have to sell their oil; they want to sell it at least as much as we and others want to buy it, or it becomes worthless to them in fact. We should not rue our "dependence"on foreign oil really any more than we should rue our dependence on imports of kiwi fruit, yak hides or copper ore.  We should not rush to pay a lot more for domestic sources of energy over foreign any more than we should want to pay a lot more for domestic sources over foreign of anything else.

Ah, but here is the rub. As I said, oil isn't so cheap anymore--at least it hasn't been fairly recently and, after economic recovery, could go quite high again and pretty much stay high. So if we can figure out how to produce domestic energy that is lots cheaper than oil, whether foreign or domestic, we'll be in pretty fine shape, which is why all kinds of efforts, public and private, should be devoted to and incentivized toward that end. 

Can we do this?  Yes, I am sure we can, and I am sure we can do it a lot faster than many people think. Some guy in Japan last month unveiled a car that runs on water.  That's right, plain old water. It has a hydrogen-gas producing mechanism that has to run on something else, so I don't know the devices' thermodynamic balance sheet, but whatever it is, it promises to be non-carbon and possibly pretty damned cheap compared to $200/barrel sweet crude. And that's just one thing, out of dozens we can put to use. We can do this.  What's stopping us, or slowing us down?  Just the K-Street-Congressional circus, as usual.  

So, taking all this into consideration, will the President please stop talking nonsense about our dependence on foreign oil? It's just the wrong way to think about these things. We should not be thinking about oil at all. We should be thinking about calories, or about energy packets, if you like. We should be asking how much does it cost us to produce (and clean up after) enough energy to do some arbitrary amount of work, defined scientifically, not casually: How many calories to push a ten-kilo weight two meters, say. We should work to develop and use the cheapest net source (net meaning after clean-up and taking into account all externalities) we can devise. If that turns out still to be imported oil, fine.  Except that it won't.  If that turns out to be food to feed a human or an animal who then pushes that ten-kilo weight two meters, fine. That also used to be the case, a long time ago; but it won't be in the future. 

Science really is useful, folks. It really does help us to see clearly and to solve problems. It can't make critical value judgments, but it is still the best bet on the block for a problem like energy. So can we please stop nattering about climate crises and energy dependencies that are either figments of addled imaginations or entirely besides the point? No, we probably can't.....