Fracking And The Milkshake Dilemma

Last week, the continuing legal battle between the energy industry and the environmental movement in the United States took a dramatic turn in favor of industry. A court in the state of Colorado ruled that cities and towns could not, under state law, ban fracking within their territorial boundaries.

Fracking (or hydraulic fracturing), of course, is the controversial practice of injecting water and chemical additives into the earth in order to extract energy products. The activity has been blamed for earthquakes, pollution of water tables, and other environmental maladies.

Although last week’s court decision applied solely to the town of Fort Collins, other Colorado municipalities had banned fracking as well. Voters in Lafayette and Longmont, for instance, had approved moratoria on such development activities.

Ironically, though, the court system may have paid the environmental movement a favor by overturning local bans on fracking operations. After all, such bans often fail to address the environmental effects of fracking when applied in a geographically piecemeal manner.

This dilemma was vividly illustrated in the film There Will Be Blood. The actor Daniel Day-Lewis played an oil prospector named Daniel Plainview, an entrepreneur who purchased several plots of land that were scattered across a region. By placing rigs on those individual plots, he accessed a massive oil field beneath the earth.

Eventually, a rival entrepreneur offered to sell Plainview his plot. Plainview replied that he no longer needed more land because he had already drained the entire oil field (including the oil that existed under his rival’s property) from his existing rigs. Plainview colorfully explained:

Drainage! Drainage, Eli, you boy. Drained dry. I’m so sorry. Here, if you have a milkshake, and I have a milkshake, and I have a straw. There it is, that’s a straw, you see? Watch it. Now, my straw reaches acroooooooss the room and starts to drink your milkshake. I… drink… your… milkshake! [sucking sound] I drink it up!

Plainview’s point was a simple one: geological formations and water tables extend across vast distances that lie underneath numerous cities and towns. Although a fracking ban in Fort Collins may hinder the extraction of some energy resources, the residents of the town would nevertheless suffer the effects of any regional environmental damage from fracking operations in neighboring towns.

In other words, if individuals are truly concerned about protecting the natural environment, they can far more effectively address their concerns through regional, statewide, or national legislation. So what can we expect from a municipality-by-municipality approach to banning energy operations? It simply will not suffice.

America and China: Two Peas Or One Chimerica?

It’s a nation with a mammoth economy, one that dwarfs its neighbors. Nevertheless, it’s also a nation that has been struggling with rates of economic growth that persistently under-perform expectations.

In addition, it’s a nation that must balance the dual priorities of economic vitality and environmental stewardship. Although its citizens demand jobs and prosperity, they also expect clean air, land, and water.

Finally, it’s a nation that has plunged head first into the online world of cyberspace, and yet it must balance the conflicting priorities of information accessibility and data security. Cyber attacks, in fact, have become as threatening to its well-being as traditional military assaults.

So which nation are we describing? America? Or China?

It’s America!

It’s America, isn’t it? After all, the United States still maintains the largest economy in the world. And yet its persistent federal budget deficits, global trade imbalances, and sluggish post-recession growth have led many to question the nation’s future economic prospects.

Yet American citizens demand high environmental standards, often choosing to sacrifice economic growth to protect their natural habitats. Energy fracking activities, for instance, have been banned in many areas because of concerns about toxic chemicals leaching into the water supply. And President Obama, under pressure from environmentalists, initially refused to approve a pipeline that would carry Canadian oil to the Gulf Coast refineries.

Furthermore, many believe that American firms like Amazon, Apple, Facebook, and Google represent the entrepreneurial strengths of the American capitalist system. And yet companies throughout the United States, as well as governmental entities, are now threatened by hackers and other cyber security threats.

So the nation (described above) must be America. Or must it?

No, It’s China!

Let’s consider, instead, the nation of China. It maintains the second largest economy in the world, and it is expected to overtake the United States in several years. But its economic growth has recently slowed into the single digits in percentage terms.

Furthermore, the Chinese people have recently begun to advocate strenuously in favor of environmental protection policies. The air quality in Beijing, for instance, has become so poor that Chinese and foreign citizens have begun to avoid the city entirely. And a recent case involving thousands of dead pigs, dumped in a river that produces drinking water for human consumption, has highlighted concerns regarding water pollution.

Meanwhile, China’s internet industry has been buzzing with excitement over the potential Initial Public Offering (IPO) of Alibaba Group, a firm that competes with both Amazon and E-Bay. Its IPO is anticipated to produce proceeds of $100 billion for Alibaba’s current owners, which would represent a global record for such transactions.

Finally, a high profile general in the Chinese Army recently joined his American colleagues by declaring that cyber security is a critical concern for both nations. Many noted the similarity between China’s and America’s positions regarding this issue.

Two Peas? Or One Chimerica?

So what is going on here? Why are the world’s greatest capitalist nation and its strongest communist nation increasingly finding such similarities in their economies and in their societies?

Some may speculate that the two nations are independently but concurrently becoming more similar to each other. Proponents of this ”two peas in a pod” theory note that China is evolving from a developing third world nation into a fully developed superpower, and thus is inevitably adopting many of the characteristics of the United States, Japan, and other developed nations.

But Harvard University historian Niall Ferguson expresses a different perspective. According to Ferguson, the two nations aren’t becoming more similar to each other; rather, they are (quite literally) integrating directly with each other. Ferguson has coined the word “Chimerica” to describe a pair of nations that is quickly evolving into a single unified trans-global economic entity.

Furthermore, in certain industries, the United States is gravitating from a free market economy towards a state managed society. The Affordable Care Act, for instance, is arguably placing the entire American health care system under the direct oversight of the federal government. In fact, many conservative Republicans have referred to “Obama Care” as a socialist program.

Into The Future!

Will this trend extend into the future? Will China’s cities, perhaps, form an American style baseball league? Or will Chinese technology firms, perhaps, attract the attention of American consumers?

Unsurprisingly, these events are already in progress! The China Baseball League has been playing ball for over a decade. And Lenovo has surpassed Dell to become the second largest personal computer company; it is now challenging Hewlett Packard for the top spot.

Whether one ascribes to the “two peas” theory or to the “Chimerica” theory, one will likely concur that the economies and the societies of America and China are drawing closer with every passing day. Hopefully, this closeness will spark a penchant for cooperation in addressing our common global challenges.

Banning Soft Drinks: The Big Apple’s Health Gambit

Democrats and Republicans have long agreed that the obesity epidemic deserves the attention of government officials. Republican Governors from Mike Huckabee to Arnold Schwarzenegger, for instance, have exhorted Americans to pay more attention to diet and exercise. And more recently, Democratic First Lady Michelle Obama has written a best selling book about the vegetable garden that she has planted on the grounds of the White House.

Last week, though, New York City’s Independent Mayor Michael Bloomberg raised the stakes by proposing a ban on mega-size cups of soda. He and his Health Commissioner, Thomas Farley, then made the rounds of the television talk shows, defending their actions in the interest of public health.

But their explanations quickly generated an intense backlash from critics. Some argued that business revenue would suffer if the demand for such monster-sized beverages is denied. And others, choosing to occupy the moral high ground, insisted that a ban would represent an infringement by “big government” on the personal liberties of American citizens to choose their own diets.

In many ways, the argument represents a reflection of the far broader debate over the federal government’s role in the nation’s health care system. And regrettably, at the heart of the argument lies a misunderstanding about the scope of Mayor Bloomberg’s proposed regulation itself.

I Blew Out My Flip Flop, Stepped On A Pop Top …

Most major news organizations that are covering the controversy have reported that the Bloomberg Administration is proposing to ban the sale of large quantities of soda. That is not true; in fact, the Administration is banning cups (i.e. containers) that hold soda, and not the soda itself. Furthermore, the Mayor is only proposing to ban certain cups, i.e. those that it claims are damaging to the public interest.

His proposal is certainly not without precedent. Beverage containers have been heavily regulated since Oregon became the first state to pass a beverage container deposit law to support a recycling initiative in 1971. Since then, various beverage containers and their accoutrements have been outlawed across the nation for environmental reasons.

The once-ubiquitous removable pull tabs (or “pop tops”) on soda and beer cans, for example, such as the ones that were memorialized in Jimmy Buffet’s classic song Margaritaville, were banned in many jurisdictions and then replaced by tabs that remain attached to their cans. In other jurisdictions, government officials have adopted numerous measures to wean the public away from traditional non-biodegradable plastic milk bottles that can remain in landfills for decades.

Indeed, American government officials have long restricted the use of various beverage containers in order to protect the health of our ecological environment. But does this imply that our government leaders possess the authority to do likewise in the name of protecting our personal health as well?

The Nanny State

Interestingly, the local New York City antagonists who oppose Mayor Bloomberg’s beverage regulation echo the national critics of President Obama’s national health care legislation by using the same phrase to describe the reason of their disapproval.

And what is that phrase? It’s “the nanny state.”

Oxford Dictionaries defines the phrase as one that describes a government that is “overprotective or … interfering unduly with personal choice.” But neither Oxford, nor other linguistic authorities, offer any interpretive guidance about how to distinguish “appropriately protective” government regulation from “overprotective” regulation, or “appropriate” interference from “undue” interference.

For instance, ever since the Massachusetts Bay Colony mandated the public education of all citizens in 1642, American municipalities have required parents to educate their children in accordance with government approved curricula. Even home schooled children are often required to engage in government sanctioned registration processes.

No one is arguing that mandatory public education is an undesirable component of a “nanny state.” And yet health care services, as opposed to education services, appear to attract that criticism.

The Public’s Dime

It is important to keep in mind that proponents of personal health care legislation tend to offer two very different rationales for their positions. One is that the promotion of personal health represents a moral imperative, one that outweighs any political concerns regarding the value of personal liberty. And another is that the prevention of disease reduces the social and fiscal cost of delivering health care services, and is thus an economic imperative as well.

Although disputes involving perceptions of morality cannot be assessed in a scientific manner, the impact of disease prevention activities on the cost of health care services is indeed a measurable consideration. Obesity, in particular, has been estimated to inflict an annual cost of $190 billion on the United States economy each year.

If a government regulation addressing the size of a soda cup can significantly reduce this immense financial burden, it is difficult to argue against it on economic grounds. Nevertheless, as long as certain critics continue to frame the debate as a matter of personal liberty, they will undoubtedly continue to argue against Mayor Bloomberg’s proposal on political grounds.

Environmental Economics, Walmart Style!

Tired about talk of the Producer Price Index? Depressed about the sad state of the Consumer Confidence Index?

Cheer up! We can now look forward to analyzing a brand new index, currently under development by a group of statisticians at …

Walmart!

Huh? Walmart, purveyors of tube socks and toothpaste, issuing socio-econometric statistics? Yep, and more than just sales data. Earlier this week, Walmart’s President and CEO proudly announced the retailer’s development of a worldwide Sustainable Product Index (SPI). Environmental economists, meet the Walmart Smiley Face!

Walmart and the Economy

Walmart shoppers may be surprised to learn that the store produces economic data that can rock the financial markets. Nevertheless, as the world’s largest retailer, it makes sense that business performance at Walmart would greatly influence the world economy. And with most of its operations based in the United States, it is also reasonable to expect that Walmart’s growth or decline would dramatically impact the health of the American business community as well.

More interesting, though, is the manner in which the evolution of the American economy has led to changing perceptions about the economic relevance of Walmart’s performance data. Years ago, when Walmart was pursuing Sears and Kmart for the title of America’s Largest Retailer, growth at Walmart was perceived as a bellwether indicator of the growth of the New Retail Economy. It’s difficult to recall the world of one dollar gasoline in the United States, but at the time that it flourished, economists actually believed that Americans would become more productive by driving their SUVs to stand alone warehouse stores in the suburbs to purchase massive quantities of household items at cut rate prices.

During the temporary affluence of the Great Bubble Economy, Walmart’s growth was perceived as a contrarian economic indicator, as its stores became destinations for shoppers with limited means while wealthier consumers flocked to upscale shopping malls. Chains like Macy’s and Bloomingdale’s boomed; heck, even Target became a more popular destination for the fashion conscious than the stores of the Walmart chain. But then the Great Recession torpedoed the American economy, and frugality once more became en vogue.

Today, any business activity is considered noteworthy, and Walmart revenue has held up far better than the revenue of its rivals. Walmart has also moved successfully into electronics and other higher end product lines; it is once more perceived as a bellwether of the American economy.

The Sustainability Initiative

Considering Walmart’s central role in American society and the U.S. economy, it should thus come as no surprise that the retailer has responded to spreading social concerns about environmental sustainability. A significant portion of its corporate web site is now dedicated to projects concerning climate protection, energy efficiency, waste elimination, and green product development and sales.

Nevertheless, last week’s announcement of Walmart’s socio-economic SPI did raise a few eyebrows. Why would Walmart feel compelled to develop its own socio-economic index? And why didn’t it simply use one of the existing indices that surely must be in place throughout the corporate world?

The answers to these questions are quite simple.  There aren’t any universally agreed upon indices of environmental sustainability in the corporate world. In fact, there aren’t even any commonly accepted or government regulated definitions about what it means to be environmentally friendly. Thus, Walmart simply stepped forward into this vacuum to announce its own index.

Calculating The SPI

In a refreshing burst of honesty, Walmart acknowledged that it doesn’t possess the econometric expertise to create a statistically valid and reliable SPI. And yet, in its press release, it defined fifteen questions across a quartet of categories addressing: (a) energy and climate, (b) material efficiency, (c) natural resources, and (d) people and community. And it promised to obtain answers from its top tier of American suppliers by October 1st, and to request answers from the remainder of it’s 100,000+ global suppliers shortly thereafter.

What happens after that? How does Walmart intend to move from a data base of survey responses to a published socio-economic index? Well, its implementation plan is admittedly a little murky. Walmart proposes to create a “consortium of universities” with the expertise to maintain a data base and define an index; it also promises to translate product information into a “simple ratings for consumers” about the environmental sustainability of specific products. But there are no timelines or deadlines for these activities, and there are no guarantees that other organizations will partner with Walmart for the long term.

Nevertheless, any business economist would agree that one needs a data base in order to create a statistical indicator, and that (in turn) one needs quantitative research questions in order to gather sufficient answers to populate a data base. And thus, although Walmart may not yet be close to achieving the goal of a meaningful SPI, one cannot help but admire their willingness to step forward and lead an initiative to do so.