Coal, Rails, and Ships

…may not be the most glamorous segments of the world economy. But, in a very real sense, they underlie everything else.

Colombia, in partnership with China, is looking at a potential land-bridge railroad which could serve as an alternative to the Panama Canal. Ships arriving at a coastal terminus would offload their cargoes to the railroad, which would carry them 137 miles overland, and the process would be reversed at the other end.

The benefits of this “dry canal” for Atlantic-to-Pacific connection, and vice-versa, seem a bit questionable given the costs and delays of offloading and onloading containers and other freight–unless, of course, the Panama Canal reaches an extreme state of congestion and/or the canal fees are substantially increased. It appears, however, that one major motivating factor behind the project has to do with COAL. Columbia has substantial quantities of high-quality and easily-worked coal near the Caribbean end of the proposed route.

“Progressives” and establishment liberals have praised China’s progress in “green technology,” suggesting that the future energy supply for that country will come from solar, wind, and helpful leprechauns turning cranks while being supervised by wise unicorns. But if China’s leadership is serious about investing in a project like the Colombian land-bridge, then it’s pretty clear that they see a long-term future for coal as an energy source–clean or otherwise.

And I doubt it has escaped their attention that achieving/maintaining low electricity prices establishes a powerful competitive advantage in a whole range of manufacturing industries.

(link via Commonsense & Wonder)

Winds Of Change

The Canadian government spent a great deal of effort and money in touting their alternative energy initiatives, particularly electricity generating through wind turbines. Lots and lots of tax dollars have been spent on various projects. These weren’t depicted as public work projects, but as “investments”.

The day before yesterday, they quietly reversed that policy.

Gee, I wonder why!

Looks like the “investments” didn’t pay off.

—- UPDATE —-

I was just informed that it was the Ontario government, controlled by the Liberals, who are the culprits behind funding for the wind power projects that are being dropped. Not the entire Canadian government!

My bad about that, and a thanks to the reader who took the time to let me know that I was off base!

Mitch Daniels at CPAC

My man Mitch. Do, please, RTWT. It is all good. Some snippets:

We believe that government works for the benefit of private life, and not the other way around. We see government’s mission as fostering and enabling the important realms our businesses, service clubs, Little Leagues, churches to flourish. Our first thought is always for those on life’s first rung, and how we might increase their chances of climbing. …
 
We have broadened the right of parents to select the best place for their children’s education to include every public school, traditional or charter, regardless of geography, tuition-free. And before our current legislature adjourns, we intend to become the first state of full and true choice by saying to every low and middle-income Hoosier family, if you think a non-government school is the right one for your child, you’re as entitled to that option as any wealthy family; here’s a voucher, go sign up. …
 
An affectionate thank you to the major social welfare programs of the last century, but their sunsetting when those currently or soon to be enrolled have passed off the scene. The creation of new Social Security and Medicare compacts with the young people who will pay for their elders and who deserve to have a backstop available to them in their own retirement. …
 
Medicare 2.0 should restore to the next generation the dignity of making their own decisions, by delivering its dollars directly to the individual, based on financial and medical need, entrusting and empowering citizens to choose their own insurance and, inevitably, pay for more of their routine care like the discerning, autonomous consumers we know them to be. …
 
The second worst outcome I can imagine for next year would be to lose to the current president and subject the nation to what might be a fatal last dose of statism. The worst would be to win the election and then prove ourselves incapable of turning the ship of state before it went on the rocks, with us at the helm. …
 

Mitch is my front-runner.

Is it too early to put up a yard sign?

UPDATE: Audio.

Afghanistan, Egypt and Obama

I have previously posted my opinion that Afghanistan is not worth the cost. I stated my reasons why we should leave here and here and here. Nothing has changed there but a lot is happening elsewhere in the Middle East.

Egypt’s escalating tensions amount to the first real foreign crisis for the Obama administration that it did not inherit. The crisis serves as a test of Obama’s revamped White House operation. Daley, a former Commerce secretary in the Clinton administration, is now running a staff that is briefing Obama regularly on Egypt.

They have handled it badly. This is a very dangerous time for us. The Egyptian Army seems to be siding with the protesters. That may or may not last.

The left-wing Israeli newspaper Haaretz says that Egyptian army officers in Cairo’s central square have tossed aside their helmets and joined the crowd. “The Army and the people are one,” they chanted. MSNBC’s photoblog shows protesters jubilantly perched on M1A1 tanks. The real significance of these defections is that the army officers would not have done so had they not sensed which way the winds were blowing — in the Egyptian officer corps.

And even as Mubarak tottered, the Saudi king threw his unequivocal backing behind the aging dictator — not hedging like Obama — but the Iranians continued to back the Egyptian protesters. The Saudi exchange tumbled 6.44% on news of unrest from Cairo. Meanwhile, the Voice of America reports that Israel is “extremely concerned” that events in Egypt could mean the end of the peace treaty between the two countries. If Mubarak isn’t finished already, a lot of regional actors are calculating like he might be.

But Washington will not be hurried. The San Francisco Chronicle reports that President Obama will review his Middle Eastern policy after the unrest in Egypt subsides. The future, in whose spaces the administration believed its glories to lie, plans to review its past failures in the same expansive place. Yet time and oil wait for no one. Crude oil prices surged as the markets took the rapid developments in. U.S. Energy Secretary Steven Chu observed that any disruption to Middle East oil supplies “could actually bring real harm.”

Of course, Mr Chu should not worry as we have wind and solar to take up the slack. Actually, we get our oil from Canada and Mexico but the price of oil shifts with the world’s supply.

The present Obama commitment to Afghanistan is ironic since he promised to bring troops home but he has declared that Iraq was NOT necessary and Afghanistan is. This is slightly crazy. The Iraq invasion was an example of US power being applied in a critical location; right in the middle of the Middle East. Afghanistan is a remote tribal society reachable only through unreliable Pakistan. It has minimal effect on world events. We went there to punish the Taliban for harboring the people who attacked our country. Thousands of them have been killed. We have little of interest there now. We should have left last year.

With a Shi’ite dominated government in Iraq, Hezbollah in Lebanon, and a Muslim Brotherhood that may keep Egypt in neutral or tacitly accept Teheran’s leadership, how could things possibly get worse?

They can if Saudi Arabia starts to go. And what response can the U.S. offer? With U.S. combat power in landlocked Afghanistan and with the last U.S. combat forces having left Iraq in August 2010, the U.S. will have little on the ground but the State Department. “By October 2011, the US State Department will assume responsibility for training the Iraqi police and this task will largely be carried out by private contractors.” The bulk of American hard power will be locked up in secondary Southwest Asian theater, dependent on Pakistan to even reach the sea with their heavy equipment.

This is not where we want to be. The problem is that Obama and Hillary and the rest of this administration have no concept of strategy.

The Obama administration made fundamental strategic mistakes, whose consequences are now unfolding. As I wrote in the Ten Ships, a post which referenced the Japanese Carrier fleet which made up the strategic center of gravity of the enemy during the Pacific War, the center of gravity in the present crisis was always the Middle East. President Obama, by going after the criminals who “attacked America on 9/11” from their staging base was doing the equivalent of bombing the nameless patch of ocean 200 miles North of Oahu from which Nagumo launched his raid. But he was not going after the enemy center of gravity itself.

For all of its defects the campaign in Iraq was at least in the right place: at the locus of oil, ideology and brutal regimes that are the Middle East. Ideally the campaign in Iraq would have a sent a wave of democratization through the area, undermined the attraction of radical Islam, provided a base from which to physically control oil if necessary. That the campaign failed to attain many of its objectives should not obscure the fact that its objectives were valid. It made far more strategic sense than fighting tribesmen in Afghanistan. Ideology, rogue regimes, energy are the three entities which have replaced the “ten ships” of 70 years ago. The means through which these three entities should be engaged ought to be the subject of reasoned debate, whether by military, economic or technological means. But the vital nature of these objectives ought not to be. Neutralize the intellectual appeal of radical Islam, topple the rogue regimes, and ease Western dependence on oil and you win the war. Yet their centrality, and even their existence is what the politicians constantly deny.

Events are unfolding, but they have not yet run their course; things are still continuing to cascade. If the unrest spreads to the point where the Suez and regional oil fall into anti-Western hands, the consequences would be incalculable. The scale of the left’s folly: their insistence on drilling moratoriums, opposition to nuclear power, support of negotiations with dictators at all costs, calls for unilateral disarmament, addiction to debt and their barely disguised virulent anti-Semitism should be too manifest to deny.

Leftism is making common cause with Islamic terrorism. Why ? I don’t really know. Some of it may be the caricature of Jews making money and being good at business. Some may simply be the extension of animosity to Israel extending to all Jews. The people behind Obama are not free of these sentiments. His Justice Department is filled with lawyers who defended terrorists at Guantanamo. Holder seems uninterested in voting rights cases if a black is the offender. He was even unwilling to say that Islamic terrorism was behind 9/11.

Because it will hit them where it hurts, in the lifestyle they somehow thought came from some permanent Western prosperity that was beyond the power of their fecklessness to destroy. It will be interesting to see if anyone can fill up their cars with carbon credits when the oil tankers stop coming or when black gold is marked at $500 a barrel. It is even possible that within a relatively short time the only government left friendly to Washington in the Middle East may be Iraq. There is some irony in that, but it is unlikely to be appreciated.

I would add a bit to this from one of my favorite essays on the topic. It compares Gorbachev to Obama.

Nor are the two men, themselves, remotely comparable in their backgrounds, or political outlook. Gorbachev, for instance, had come up from tractor driver, not through elite schools including Harvard Law; he lacked the narcissism that constantly seeks self-reflection through microphones and cameras, or the sense that everything is about him.

On the other hand, some interesting comparisons could be made between the thuggish party machine of Chicago, which raised Obama as its golden boy; and the thuggish party machine of Moscow, which presented Gorbachev as its most attractive face.

Both men have been praised for their wonderful temperaments, and their ability to remain unperturbed by approaching catastrophe. But again, the substance is different, for Gorbachev’s temperament was that of a survivor of many previous catastrophes.

Yet they do have one major thing in common, and that is the belief that, regardless of what the ruler does, the polity he rules must necessarily continue. This is perhaps the most essential, if seldom acknowledged, insight of the post-modern “liberal” mind: that if you take the pillars away, the roof will continue to hover in the air.

In another passage:

There is a corollary of this largely unspoken assumption: that no matter what you do to one part of a machine, the rest of the machine will continue to function normally.

A variant of this is the frequently expressed denial of the law of unintended consequences: the belief that, if the effect you intend is good, the actual effect must be similarly happy.

Very small children, the mad, and certain extinct primitive tribes, have shared in this belief system, but only the fully college-educated liberal has the vocabulary to make it sound plausible.

With an incredible rapidity, America’s status as the world’s pre-eminent superpower is now passing away. This is a function both of the nearly systematic abandonment of U.S. interests and allies overseas, with metastasizing debt and bureaucracy on the home front.

The turmoil in Egypt is a test that, I fear, Obama and his Secretary of State, will not pass.

How It Ends

WIND POWER AND SPAIN

Alternative power (wind & solar, primarily) survives because of subsidies that make it competitive with the traditional “base load” power sources of nuclear, coal, natural gas and hydroelectric power. These subsidies have to be passed on, in some form or another, to either the end user that pays the power bill or the taxpayer who funds it on behalf of all citizens.

Spain, in particular, offered incentives that led to a large investment in wind power facilities. Spain was viewed as a “model” country for alternative power by greens as a result of these policies.

Today’s WSJ had an article titled “Spain’s Cuts to Solar Aid Draw Fire” that summarized the situation:

In Spain, solar-PV plants (cost) roughly 10 times the price utilities pay for power produced from conventional sources such as gas and coal.

Since Spain is having financial problems, these subsidies are expected to be significantly reduced, by up to 30%. The developers of these wind farms are crying foul, saying that Spain is reneging on its commitments and offering up a form of the “expropriation” argument that often occurs over power investments of this type.

20 billion Euros had been invested in the solar-PV plants in Spain… the tariff changes could force many solar producers in default on their debts.

It is interesting that debt-holders assumed that citizens would want to pay ten times the rate of coal and gas power for “clean” wind power indefinitely. It doesn’t seem like a bet that is going to pay off for them.

GOVERNMENT PENSIONS

Another infeasible and indefensible scheme is also beginning to show cracks towards its inevitable collapse. This article describes the situation in the city of Prichard, Alabama.

The financially troubled suburb of Mobile turned to bankruptcy court… when it simply ran out of money to meet pension obligations… Prichard proposed capping benefits to current retirees at $200 a month, down from monthly payments as much as $3,000.

The obligations of many, many municipalities are unsustainable. Prior politicians promised benefits that can’t be paid without seriously reducing and impairing existing services. The type of “haircut” that Prichard was proposing seems very onerous but they have to pay for existing salaries and benefits and then the costs of the retired staffing on top of it is apparently impossible.

At some point a new generation of politician will come into office and have to make the choice of either 1) raising taxes to unsustainable levels (and thus being thrown out of office) to pay for past pension promises 2) find a way to get out of the promises by either going bankrupt or somehow “cramming down” smaller payments.

It is a good bet that many of the politicians will balk at raising taxes and seriously look at bankruptcy or some other way to reduce these costs simply because raising taxes during a recession when citizens are hard up is political suicide. The same forces (conflict avoidance, pandering) that allowed unions to amass such favorable terms while the fiction of pensions and 10% returns on investments compounded forever existed works exactly in reverse when the situation becomes dire; why would the politician try to sacrifice everything (including current workers) for past worker pensions and health benefits?

In both these cases the fictions that citizens are willing to bear higher than market costs indefinitely for alternative power or to pay for lifetime pensions for people retiring in their 50’s is going to founder, and these consequences will ripple through the entire financial and governmental sector.

This is how it ends.

Cross posted at LITGM