Refugee Camps for the Middle Class

A 100 kilometer traffic jam that's persisted for nine solid days on a highway west of Beijing this week is just another spectacle of the sort we've come to expect out of the growing nation - an epic traffic jam to complement its equally epic public works, skyscrapers, and factories.

Xinhua, a state-run news agency, reports that truck drivers are camped out on the jammed highway, playing cars amongst themselves and forced to buy supplies from opportunistic vendors at inflated prices. Reports printed in this morning's newspapers claimed that some drivers had managed only to move a mile over the course of an entire day on the road's worst stretches, and that the jam could last another month, until a road construction project ends.

But even as those reports hit newsstands, newer dispatches were already reporting that the jam had mysteriously dispersed.

All of these mythic reports come closely on the heels of news that China's economy has surpassed Japan's to become the world's second largest. The surreal traffic jam was an emblem of the nation's surreal growth and ambition.

But instead of delivering the promised capitalist paradise, an overdose of machinery and trade creates a sort of homeless gypsy encampment on the road to Beijing.

The news story reminded me of this scene in Week End, when bourgeois French families exercise their "freedom" to leave the city and enjoy the countryside, only to get imprisoned in an interminable traffic jam:

This scene itself was said to be inspired by Julio Cortazar's surrealist short story, "L'Autoroute du Sud," in which a Sunday afternoon traffic jam south of Paris dissolves into a days-long purgatory of survivalism and black market trade. Characters throughout the story are named only by the cars they occupy:

"Surprise would have been the last thing expressed by anyone at the way in which the water and supplies were being obtained. The only thing Taunus could do was manage the pot of money and try to barter as best he could. Ford Mercury and Porsche came every night to peddle their provisions; Taunus and the engineer took charge of distributing them, taking into consideration each person’s health. Incredibly, the old woman in the ID was still alive, lost in a stupor the women were trying to dissipate. The lady in the Beaulieu, who just a few days before had been vomiting and suffering from nausea, had recovered in the cold weather and and was one of those who helped the nun most with her companion, weak still and a little disoriented. The soldier’s wife and the woman from the 203 were minding the children; the travelling salesman, perhaps to distract himself from the fact that the girl in the Dauphine had preferred the engineer, spent hours telling them stories. At night the lives of the group took on a stealthy, more private character; the car doors would open silently to let in or out some shivering silhouette; no-one looked at anyone else, their eyes as blind as their very shadow. Beneath dirty anoraks, with overgrown fingernails, smelling of being confined in stale, old clothes, there was still a degree of happiness here and there."

- translation by Danny Fitzgerald

France's situation in the 1960s was similar to China's today: record-breaking economic growth after the war, greater mobility, and increasing status among the world's great nations. In both 1960s France and contemporary China, the traffic jam is a symbol of modern opportunity and success, but it's also a nervous reminder of the brutal, survivalist lifestyle that both nations had recently left behind. They're refugee camps for the new middle class.

The Great Plastic Migration

This nature documentary about the trans-oceanic migrations of plastic bags is making the rounds today. The Californian nonprofit Heal the Bay is promoting the video as a means to rally support Assembly Bill 1998, which proposes to ban single-use plastic bags at California shops.

Note the appearance of the Los Angeles River around 2:20.

Though tongue-in-cheek, I would love to see more nature documentaries like this one. How about an episode about the larval stages of plastic bags, from the oil refinery to the grocery store?

Anyway, it's one thing to zoomorphize plastic bags. Why not anthropomorphize them as well - let them carry a human personality as they drift through the wind, freed from their more material cargo? This personality would necessarily need to have mixed feelings about its immortality - simultaneously self-important and lonely. And it would also have to feel a deep bitterness about its lack of agency, and resentment for the external natural forces that dictate its fate.

If you're saying to yourself, "Hey, that sounds a bit like Werner Herzog," you're in luck! He's precisely the man who narrates the thoughts of a lonely plastic bag in this video by director Ramin Bahrani:

After a tedious journey, Herzog the bag ends up in the Pacific Ocean as well, not particularly fulfilled by its migration, and somewhat bitter at its own failure to die.

"Environmentalism" fiddles while the planet burns

In case you missed it, the United States Senate has given up on trying to pass a law that would slow down the nation's greenhouse gas emissions. Even after the nation's worst oil spill in history and scorching heat waves worldwide, Democrats failed to gain any Republican support for their proposals.

So we'll just have to let the planet stew in its own juices and wait until the next time progressive lawmakers with a 60-vote majority in Washington might be compelled by a massive environmental emergency to do something. But who wants to bet that can happen before our modern society and political institutions melt away in the heat?

In the last few days, there's been a lot of hand-wringing and finger-pointing from pundits and politicians. But I think that one of the best responses came from David Roberts at Grist, in a post headlined 'Environmentalism' Can Never Address Climate Change.

Roberts writes:

Environmentalism has a well-defined socioeconomic niche in American life. There are distinct cultural markers; familiar tropes and debates; particular groups designated to lobby for change and economic interests accustomed to fighting it; conventional methods of litigation, regulation, and legislation. Environmental issues take a very specific shape.

The thing is, that shape doesn't fit climate change. Climate change -- or rather, the larger problem of which climate change is a symptom -- isn't like the issues that American environmentalism evolved to address.

He goes on to make the point that the environmental establishment had its genesis in, and grew from, its battles against industry. Early environmental activists shut down factories that were dumping sludge into rivers and lakes and rammed their boats against whaling ships. Later environmental activists took industry to court over more abstract environmental problems like mercury emissions and underground groundwater contamination.

Those big problems have been largely addressed: by most measures (if you leave out greenhouse gas pollution), our American physical environment has less pollution to deal with now than we've had since the industrial revolution took hold.

So: can the same environmental establishment that gave us the Clean Air and Clean Water Acts save us from global warming? The recent failure in Washington does not inspire confidence, and Roberts makes a compelling case for why that is:

The entry of the problem [climate change] into American politics via environmentalism has set it on a certain cultural and political trajectory that is both inadequate and extremely difficult to escape.

Addressing the climate challenge will crucially involve restraining industry emissions (the vaunted "cap"). But that is only one of myriad strategies and changes that will be necessary. The environmental advocacy community has tried, of late, to reshape itself to the contours of the problem before it. It has tried to act with a more singular focus, in a more unified way, and to bring other interest groups (military, religious, etc.) into the fold. It has tried to reorient around a more forward-thinking, positive agenda ("clean energy"). Contrary to a lot of the sniping you hear these days, the efforts of those involved have been heroic.

But it's an impossible task. There is no siloed progressive interest group that can engineer the wholesale reindustrialization of the United States. Period. No amount of clever framing or thoughtful policy proposals can overcome the basic limitations of interest group politics.

Many green leaders are now saying that what's missing is a climate movement. That's obviously true in some sense; this will be the work of generations. But the question is whether "the environmental movement" can catalyze a big enough movement to be effective on this problem.

What needs to happen is for concern over earth's biophysical limitations to transcend the environmental movement -- and movement politics, as handed down from the '60s, generally. It needs to take its place alongside the economy and national security as a priority concern of American elites across ideological and organizational lines. It needs to become a shared concern of every American citizen regardless of ideological orientation or level of political engagement. That is the only way we can ever hope to bring about the urgent necessary changes.

To put it another way: this can not be a traditional environmentalist battle against industry, because nearly everyone agrees that industry - and the entire economy - is what needs to be reinvented in order to stop burning fossil fuels and start finding more innovative, efficient forms of energy.

I have worked for years inside and in league with a number of old-line environmental groups, and from that perspective, I unfortunately have to agree with Roberts's diagnosis. "Environmentalism" carries too much baggage from the baby-boom generation whose suburban-back-to-the-land, materialist lifestyle has done so much climate damage.

For many people my age, it's extremely frustrating to see dominant "environmental" organizations behave as though the most productive thing we can do is to buy up lots of land for conservation reserves. Or worse, when we pour thousands of dollars' worth of nonprofit resources to file injunctions against the "scenic impacts" of clean energy projects.

Sure, these things satisfy the comfortable baby-boomers who want to have a nice view outside the picture windows of their ski condos.

But these kinds of actions, and their funders, are calcifying the environmental establishment into something that's demographically old and elite, and politically out-of-touch and ineffective.

Nero fiddled while Rome burned; the environmental establishment fiddles while the entire planet burns.

How the Last Big Oil Spill Helped Create the Credit Crisis

My last post casually mentioned credit default swaps, a fancy financial trick that helped create the credit crisis of 2008 (Planet Money did an amazing reporting series on credit default swaps for NPR back while the crisis was happening).

What I didn't know when I started writing that post was that the Exxon Valdez oil spill actually inspired the invention of credit default swaps. In a way, the loan for restoring Prince William Sound was the first-ever subprime mortgage- the ultimate fixer-upper.

Here's how it happened. In the first court judgment against Exxon Mobil for the 1989 Exxon Valdez oil spill, an Anchorage jury awarded the defendants $5 billion in punitive damages. This was in 1994.

Fool's Gold: The Inside Story of J.P. Morgan and How Wall Street Greed Corrupted Its Bold Dream and Created a Financial Catastrophe
by Gillian Tett

Author Gillian Tett, a financial writer who possesses a valuable background in social anthropology, describes what happened next in her book "Fool's Gold," a detailed history of the financial innovations and machinations that led up to the credit crisis. John Lanchester provides a succinct summary in his June 2009 New Yorker review:

Exxon needed to open a line of credit to cover potential damages of five billion dollars... J. P. Morgan was reluctant to turn down Exxon, which was an old client, but the deal would tie up a lot of reserve cash to provide for the risk of the loans going bad. The so-called Basel rules, named for the town in Switzerland where they were formulated, required that the banks hold eight per cent of their capital in reserve against the risk of outstanding loans. That limited the amount of lending bankers could do, the amount of risk they could take on, and therefore the amount of profit they could make. But, if the risk of the loans could be sold, it logically followed that the loans were now risk-free; and, if that were the case, what would have been the reserve cash could now be freely loaned out. No need to suck up useful capital.

In late 1994, Blythe Masters, a member of the J. P. Morgan swaps team, pitched the idea of selling the credit risk to the European Bank of Reconstruction and Development. So, if Exxon defaulted, the E.B.R.D. would be on the hook for it—and, in return for taking on the risk, would receive a fee from J. P. Morgan. Exxon would get its credit line, and J. P. Morgan would get to honor its client relationship but also to keep its credit lines intact for sexier activities. The deal was so new that it didn’t even have a name: eventually, the one settled on was “credit-default swap.”

So the new "credit default swap" allowed Exxon borrow on more attractive terms than it otherwise would have gotten, while J.P. Morgan got to export the risk of the loan to Europe, and free up more of its own money to lend to other borrowers.

To draw a more familiar analogy, Exxon was like the shady homebuyer who might lose his job at any moment, and J.P. Morgan was the mortgage broker who nevertheless assured him that he was still completely qualified to borrow. And the oil-soaked Prince William Sound was the fixer-upper whose cleanup costs were on the bottom line. Thanks to the credit default swap, the actual responsibility for that mess - like the actual responsibility for millions of underwater mortgages today - wouldn't really be owned by anyone.

The irony is that this first-ever credit default swap actually worked out well for its players: Exxon merged with Mobil and the new company, ExxonMobil, now makes around $40 billion in profits in a typical year. The $5 billion punishment was also recently rejected by the Supreme Court. So needless to say, the risky loan never defaulted, and the European Bank of Reconstruction and Development kept its money.

J.P. Morgan, meanwhile, was able to offer more and more credit default swaps, and merged with Chase bank in 2000. By 2008, when it became evident that many of those credit default swaps were tangled up in a worthless house of cards, the company was one of the nation's four largest banks deemed "too big to fail," and received a $25 billion bailout from the federal government.

Most people would agree that ExxonMobil still hasn't served justice for the Exxon Valdez spill, but look at it this way: the company made $45 billion in profits in 2008, but a year later, it pulled in less than half that amount, thanks in large part to the global financial crisis. By seeking a cheap loan to cover its ass and pass the buck back in 1994, the corporation helped invent the financial device that inadvertently brought the world's economy (and the world's thirst for oil) to its knees. ExxonMobil still cleared almost $20 billion last year, though, so the schadenfreude is admittedly dim.

It's more interesting to think about how BP and the global financial markets will cope with the cleanup bill for the much larger Deepwater Horizon disaster. Suddenly, the multi-trillion dollar business of drilling for oil miles below the surface of the ocean looks a lot riskier. But it's still an extremely lucrative enterprise, which means that the world's bankers will inevitably invent new contortions and pyramid schemes to cover those risks and finance more wells.

So what will become of our economy and society when those schemes, like the underwater wells they're designed to finance, inevitably fail one more time?

Related:

Pelicans Meet the Markets

The ExxonMobil Arena/Disaster Shelter

Pelicans Meet the Markets

The Planet Money podcast - which continues to be excellent, even now that we're (maybe?) out of the economic apocalypse and there's no longer a pressing need to explain what a credit default swap is - takes a crack at tallying the price tag for dead pelicans in the Gulf:

This is a practical problem right now as we figure out how much we should fine BP for its spectacular oil spill. What's a fair price to put on the damage? In some cases, that's pretty easy to figure out: we can multiply the x tourists who won't be visiting oily beaches this summer by the y dollars they might have spent at seaside hotels and beach towns, and then we can add in the loss of p tons of commercial seafood, which would normally sell for q dollars per pound.

But how do you calculate the value of rescuing an oily pelican? Unlike shrimp and hotel rooms, there's no market for most of the Gulf's wildlife.

One strategy is to ask people how much they'd be willing to pay to save one pelican. Animal rescue groups, for instance, are spending about $500 on each bird they save. That tells us that each pelican is worth at least $500 among bird enthusiasts, who may well be willing to pay even more than that. But presumably most people aren't ready to cough up that much money to save one bird.

Broadening this approach gets into the economic method of contingent valuation, which was first employed on a large scale to figure out the damages caused from the Exxon Valdez spill in 1989. In this method, economists deliver surveys to a broad swath of the population - including people who will never see a pelican in the flesh - to ask them if they would be willing to pay $X dollars to save one bird. As with any product, values will differ: some people will say "no" to paying $2, while others will say "yes" to paying $100. But with enough responses, economists can construct a demand curve, and figure out the equilibrium where the marginal cost of saving one more bird is just equal to society's marginal benefit.

So, if there are 20,000 people in the world who say they're willing to pay at least $500 to save one pelican, and it costs $500 to save each pelican, then BP should pony up $10 million to save 20,000 pelicans.

This method, too, is controversial. Its biggest problem is that it's too abstract - it's easy to tell a survey-taker that you'd pay $500 to save a pelican, but if the opportunity actually presented itself, would you really postpone your credit card payments to save one bird?

Even for environmentalists, it's a problematic question. Most would probably argue that we, as a society, should spend $10 million to save birds, right? But what if that means that we, as a society, will no longer be able to afford to spend $10 million on a solar energy project, or to conserve a wilderness area from development? Is the immediate plight of few thousand pelicans in the Gulf more important than shutting down a coal plant, or preserving a wild forest?

When I studied environmental economics in college and administered contingent valuation surveys about Oregonians' values of wild salmon in a seminar with Dr. Noelwah Netusil, there were a number of campus activists in my classes who bristled at any notion of putting an economic value on wildlife. Preserving the environment was a moral imperative, in their view, and it needed to be done without regard to the cost. They also criticized its anthropocentrism: how dare we impose our human values, and the structures of a social science, on a natural system that had been around for billions of years before Adam Smith?

That's a nice sentiment, and it may even be an honest reflection of their personal values - they may well have been willing to sacrifice everything they owned for wild salmon.

But it's not realistic for society as a whole. Economics is about managing scarcity, and dedicating our limited resources to achieving the best outcomes. Homo sapiens isn't the only species that practices economic calculations. A wolf makes hunting decisions based on whether the expected value of a meal is worth the cost of running to catch it; plants allocate energy and resources to roots or leaves depending on the respective values of nourishment from the soil or from the sun.

In the 21st century, environmentalists have no shortage of demands on their time and money, and our time and money are scarce resources. The view that everything in nature is sacred and has infinite value is not productive. It's preventing individuals and organizations from setting priorities and winning victories.

At some point, we'll need to stop worrying about the pelicans and start paying those workers to build solar panels and public transit lines, instead of using toothbrushes to get oil out of feathers.