Tuesday, August 25, 2009

Energy Tribune - Scientifically Illiterate and Innumerate: Why Americans Are So Easily Bamboozled About Energy

Energy Tribune - Scientifically Illiterate and Innumerate: Why Americans Are So Easily Bamboozled About Energy
Posted on Aug. 21, 2009

By Robert Bryce

Scientifically Illiterate and Innumerate: Why Americans Are So Easily Bamboozled About Energy

Two years ago, I interviewed Vaclav Smil, the prolific author and energy thinker. I asked Smil, a distinguished professor at the University of Manitoba, why Americans are so easily swayed by politicians and others when it comes to energy matters. His response: scientific illiteracy and innumeracy. “Without any physical, chemical, and biological fundamentals, and with equally poor understanding of basic economic forces, it is no wonder that people will believe anything,” he told me.

Finding evidence to support Smil’s claim is all too easy. A 2007 study by Michigan State University determined that just 28 percent of American adults could be considered scientifically literate. In February, the California Academy of Sciences released the findings of a survey which found that most Americans couldn’t pass a basic scientific literacy test. The findings:

* Just 53% of adults knew how long it takes for the Earth to revolve around the Sun.

* Just 59% knew that the earliest humans did not live at the same time as dinosaurs.

* Only 47% of adults could provide a rough estimate of the percent of the Earth's surface that is covered with water. (The Academy decided that the correct answer range for this question was anything between 65% and 75%.)

* A mere 21% were able to answer those three questions correctly.

In July, the Pew Research Center for the People & the Press released the results of a survey of 2,001 adult Americans regarding science issues. Among the findings: just 46% knew that electrons are smaller than atoms.

Those findings shouldn’t be surprising. Ignorance of the sciences and the natural world has plagued the world for centuries. This centuries-long suspicion of science, which continues today with regular attacks on Charles Darwin and his theory of evolution, was recognized by British scientist and novelist C.P. Snow in the 1950s when he delivered a famous lecture called “The Two Cultures.” Snow argued that there was a growing disconnect between the culture of the sciences and the culture of the humanities, and that bridging that gap in understanding was critical to understanding and addressing the world’s problems. Snow placed “Literary intellectuals at one pole – at the other scientists…Between the two a gulf of mutual incomprehension.” Snow then laid out a critical point about the general public’s lack of understanding of energy and thermodynamics. As Snow put it:

A good many times I have been present at gatherings of people who, by the standards of the traditional culture, are thought highly educated and who have with considerable gusto been expressing their incredulity at the illiteracy of scientists. Once or twice I have been provoked and have asked the company how many of them could describe the Second Law of Thermodynamics. The response was cold: it was also negative. Yet I was asking something which is the scientific equivalent of: Have you read a work of Shakespeare’s?

Indeed, while most moderately cultured people will be familiar with the Bard’s A Comedy of Errors or The Merchant of Venice, the laws of thermodynamics -- the rules that ruthlessly police the world of energy -- are considered by most people to be the domain of nerds and wonks. Thus, the first law of thermodynamics: energy is neither created nor destroyed; and the second law: energy tends to become more random and less available -- are relegated to the realm of too much information. For most people, basic physics is seen as nerdy, beyond their ken, too troublesome to learn.

This apathy – or perhaps it’s antipathy -- towards science makes it laughably easy for the public to be deceived. Alas, this apathy toward science in America is matched – or perhaps even exceeded – by the lack of interest in mathematics. Over the past few years, the US has been inundated with depressing data about the state of our country’s mathematical skills. A 2008 study published by the American Mathematical Society put it bluntly: “it is deemed uncool within the social context of USA middle and high schools to do mathematics.” It went on to explain that “Very few USA high schools teach the advanced mathematical skills, such as writing rigorous essay-style proofs, needed to excel.” Another report issued in 2008, this one from the Department of Education’s National Mathematics Advisory Panel declared that math education in the U.S. “is broken and must be fixed.” The report found “that 27% of eighth-graders could not correctly shade 1/3 of a rectangle and 45% could not solve a word problem that required dividing fractions.” The report also found poor math skills among adults:

* 78% of adults could not explain how to compute the interest paid on a loan.

* 71% couldn’t calculate miles per gallon on a trip.

* 58% were unable to calculate a 10% tip for a lunch bill.

Given these disheartening numbers, there’s little reason to be surprised that so many Americans are ready to embrace fallacious claims by the many energy charlatans who insist that the US could quit using hydrocarbons if only there were more political will to do so. Those claims ignore the vast scale of US energy consumption. On an average day, the US consumes about 41 million barrels of oil equivalent in the form of oil, natural gas, and coal. That’s nearly five times as much energy as is produced by Saudi Arabia in the form of oil on an average day. (Since 1973 the Saudis have pumped an average of about 8.3 million barrels per day).

It has taken the US more than a century to build a $14 trillion economy – an economy that is based almost entirely on abundant supplies of oil, coal, and natural gas. No matter what energy technologies come along in the near future – electric cars, solar panels, wind turbines, etc. -- moving the US and world economies away from hydrocarbons will take most of the 21st century.

That’s the reality – and it doesn’t take a calculator to confirm it.

Monday, August 24, 2009

Want To Curb Market Speculation? - Forbes.com

Want To Curb Market Speculation? - Forbes.comPolitical Economy
Want To Curb Market Speculation?
John Tamny, 08.24.09, 12:01 AM ET


Back in 2002 and in the aftermath of the Enron and Worldcom implosions, former Sen. Paul Sarbanes, D-Md., and former Rep. Mike Oxley, R-Ohio, created the Sarbanes-Oxley bill, meant to curb allegedly funny accounting and business practices. As President George W. Bush asserted in signing the bill, "There will not be a different ethical standard for corporate America than the standard that applies to everyone else."


Nice political theater for sure, but then reality set in.


Fast-forward four years, and the joke was on politicians naïve enough to believe that corporations with aspirations of going public would lie prostrate before tough new accounting rules. Most--to the extent that they did go public--just floated their shares overseas.


Indeed, as Sen. Charles Schumer, D-N.Y., and New York Mayor Michael Bloomberg observed in a 2006 op-ed for The Wall Street Journal, "In 2005, only one out of the top 24 IPOs was registered in the U.S., and four were registered in London." In particular, they cited "auditing expenses for companies doing business in the U.S. [that] have grown far beyond anything Congress had anticipated," along with "a worrisome trend of corporate leaders focusing inordinate time on compliance minutiae rather than innovative strategies for growth, for fear of facing personal financial penalties from overzealous regulators."


So while the political class was eager to turn company CEOs into accountants rather than innovators, public-company heads had different ideas. Not excited by the idea of suffering under overdone legislation made in politicized haste, they simply went public on non-U.S. exchanges.


What Washington misunderstood back in 2002 was that finance is very much global, with the dollar the world’s currency. Two-thirds of all dollars are presently overseas, so if restraints are put on stateside investment--and those invested stateside--overseas markets are more than willing to take business that politicians and bureaucrats drive away with excessive rules.


This is important now when we consider the growing desire in Washington to impose curbs on commodity speculation, short-selling, high-frequency trading, derivatives and executive pay. While some of us might see the appeal of greater oversight in certain areas, new regulations will do little to change what we don’t like, while driving a great deal of business overseas.


Commodities have been both rising and volatile much of this decade, thanks to a weak and unstable dollar. With commodities priced in dollars, the greenback’s weakness and undefined nature has made commodity prices expensive and a moving target in terms of price.


Seeking to shift attention away from its unwillingness to follow its constitutional mandate when it comes to issuing a stable dollar, Congress has empowered regulators to enact curbs on commodities "speculators," as though the latter somehow control the prices of gold, oil, copper and natural gas (to name a few). This act will no doubt please some of the voters back home, but it will be toothless when it comes to making commodities cheaper and less volatile.


If U.S. regulations succeed in inhibiting commodity speculation on U.S. exchanges, the trades will simply move elsewhere. As the Wall Street Journal recently reported, the U.S. Natural Gas Fund, a $4.5 billion exchange-traded fund, "is considering moving to offshore energy exchanges or further into unpoliced over-the-counter swaps markets to avoid Commodity Futures Trading Commission rules that would limit the size of its natural-gas positions." In short, foreign and unregulated exchanges will gladly take the trades regulators seek to drive away.


Short-sellers have similarly garnered a lot of criticism in a difficult two years for stocks. Despite the fact that short-sellers put a floor under bear markets for closing short positions when stocks decline, certain politicians, regulators and company CEOs want their activities banned to varying degrees. Even if we ignore how unfortunate the banning of short-sellers would be for the markets that need to be efficiently priced, we shouldn’t worry too much. Once again, foreign exchanges will gladly bring rationality to prices where U.S. exchanges will not.


High-frequency trading has also attracted a lot of attention. The biggest investors are able to complete purchases and sales of shares ahead of the small investor, so critics say. It is, however, rarely mentioned that large institutions frequently invest the funds of the little guy, but whatever the origin of their funds, this is much ado about nothing. Assuming politicians succeed in taxing away a trading technique that makes markets more efficient, the trades, according to former SEC Chairman Arthur Levitt, will simply move "to foreign markets."


Treasury Secretary Tim Geithner has made a lot of noise about restricting derivatives trading, not to mention Wall Street’s compensation structure. But Geithner’s efforts will prove as wanting as others meant to blunt natural market forces. Indeed, Wall Street is no longer a location as much as a worldwide symbol of finance. Attempts to rein in trading or compensation only mean esoteric transactions will move to foreign markets, while workers in the financial space will shift their skills to firms, in the U.S. and elsewhere, not regulated by Treasury.


What all of this means is that a dollar in New York is the same as a dollar in London or Shanghai. So while regulators and politicians may have designs to regulate and legislate away what they don’t like, the fungible nature of finance means their efforts will always amount to nothing. At best, these vain efforts to restrain market forces will backfire, given the certainty that others uninhibited by Washington will gladly do what we’re not allowed to do.


John Tamny is editor of RealClearMarkets, a senior economist with H.C. Wainwright Economics and a senior economic adviser to Toreador Research and Trading. He writes a weekly column for Forbes.