I usually wake up around 3:30 to catch the market action in Asia and Europe on Bloomberg and CNBC. It’s nice to get a non-U.S. perspective on all the craziness. Last night I was blown away by this exchange on Bloomberg between the anchor and a smart consultant who is an expert on consumer demand in China. This is a faithful representation but not an exact transcript. (This is not a parody; emphasis mine.)
Bloomberg Anchor: “So, what would you say is the current state of consumer demand in China?”
Consultant: “On the whole, it is the weakest I have seen in years. The luxury market is weakening because of the anti-corruption campaign. Prada, Louis Vuitton, brands like that will have a much harder time. But tourism and foreign travel to places like Italy are holding up well, which is positive for luxury.”
Bloomberg Anchor: “What about auto demand?”
Consultant: “Oh, demand for autos is very strong. The pollution is so bad in major cities that people don’t want to walk.”
Bloomberg Anchor: “Oh my goodness.”
Consultant: “Also, there is a rush to buy autos before the government limits the number of car licenses granted, as part of its anti-pollution drive.”
So this is what it has come to in Beijing, Shanghai and Quanzhou. People drive rather than walk to avoid pollution, but perhaps not for long because auto licenses may be limited by the government. I have not seen enough smart Wall Street research on how to play the anti-pollution drive in China. Clearly, companies involved in producing cars with lower emissions stand to benefit.
From Photosynthesis to Fossil Fuels
I have been reading essays by the great British economic historian E.A. Wrigley. He makes the important point that the growth of traditional “undeveloped” economies was limited by the availability of land, because such acreage as was not devoted to producing food for man and beast was used to grow timber for construction and fuel. He calls this an “organic” economy limited by the power of photosynthesis to produce crops and trees.
This “organic” constraint, Wrigley argues, was finally broken by using fossil fuels. The Netherlands, the first European economy to grow rapidly, used peat (as well as windmills). And then England began to use the enormous reserves of coal in the Northeastern counties, which was shipped down to London by coastal vessels. Coal was dirty but effective in modernizing and industrializing England; it was used both for heating and for myriad industrial activities. Making bricks and glass, for example. After the Great London Fire of 1666 the metropolis was rebuilt in brick, yet the price of bricks remained quite stable during the building boom because brick makers using coal were able to vastly expand output. Thanks to cheap coal, most English farm houses had glass windows, which was not the case in France. Throughout the 19th century coal produced in a fairly small part of Britain was used to turn the country into “the First Industrial Nation,” boasting a higher living standard than continental Europe.
The pattern was different in the U.S., where early economic development was supported by abundant water power (which drove New England’s famous textile mills) and timber (which, converted into charcoal, sustained the iron industry until the 1840s). Steam engines were mainly used in steamships and railroads, not factories, in the first third of the 19th century.
Will Alternative Energy Take Us Back to 1600?
Why should we care? Because today’s “renewable energy” mania is once again making the availability of land a major constraint on energy production, as in the early 17th century. If you don’t get energy from coal mines, oil wells and gas wells, you need to cover the landscape with windmills and solar panels. Ugh. Let me cite one example, which I highlighted in a November 2012 post titled “Suburban Sunstroke.” Princeton University is proud to produce 5.8% of its electricity on 27 acres of bleak industrial wasteland (which I have surreptitiously visited) bearing the hilariously euphemistic label of a “solar farm.” It is fenced off from wildlife; nothing grows there except forlorn weeds shaded by solar panels. Near the entrance are two or three sheds built with sheet metal and, in one corner, a giant heap of black asphalt. We saw a large white tail deer bound up a hill to the chain link fence surrounding the “farm;” it was forced to make a detour of several hundred yards. Very green!!!
Anyhow, let’s do some arithmetic. If the University uses 27 acres to produce 5.8% of its electricity, it would need a “solar farm” covering 466 acres to produce all of its electricity. If we assume, very conservatively, that the Town of Princeton uses as much electricity as the University, the two together would need to use – or should I say destroy? – 932 acres just to produce electricity for one tiny piece of New Jersey. That’s 11% more than the 843 acres in New York City’s Central Park. Oh, and by the way, the University gets subsidies from New Jersey tax payers to make its solar “farm” financially feasible—which means higher electricity bills for poor and middle class consumers to subsidize the green dreams of a university with an $18 billion endowment. No wonder inequality is rising in Barack Obama’s America.
Copyright Thomas Doerflinger 2014. All Rights Reserved.
