I have written a few times about the economics of the green revolution, how I believe it could be more successful, and what the potential monetary implications could be for both developed and developing nations. Most notably, in my analysis of IEA goals for carbon emissions going forward, I noted that the potential costs to developed nations in any scenario were likely to be higher than those for the lagging nations. The EU has attempted to put some of these thoughts in concrete terms, though in doing so has also managed to avoid putting its money where its collectivized mouth is.
In this weekend's edition of the Financial Times, it is reported that the EU has concluded that rich nations should give developing nations up to $74 billion per year by 2020. However, it also avoided pledging anything itself, an obvious concession to the former communist states in the bloc who would like some assurances of their own commitment before agreeing to such measures. It could also possibly be seen as a gauntlet thrown down to the US to see if such a pledge is forthcoming from this side of the Atlantic.
However, it could be part of another strategy entirely. In the leadup to climate talks in Copenhagen this December, it just might be a ploy to point to if talks break down at the scheduled meeting. In other words, in planning for failure over a month before the meeting, the EU can point elsewhere (most likely at the US) and not lose face with proponents of progress as it has already put forward a concrete plan for change.
Assuming arguendo that such payments will be necessary for the attainment of any sort of global climate plan, which announcements such as the one at hand seem to do, the EU missed an opportunity to take the lead in an issue it clearly holds as critical. Those at the forefront of climate issues will always have a fight on their hands when dealing with the Chinas and Indias of the world, not to mention Africa, South America, and indeed parts of eastern Europe. Missing opportunities to act as the stimulus of a plan rather than as the focal point for ridicule over pusillanimity is not the path to progress.
10.31.2009
10.30.2009
Despite Signs of Life, Stimulus not Stimulating the Jobs Market
On October 21st, I wrote that the stimulus package did not appear to be working based on some jobs statistics cited in that post. I have also written in the past that I believed that the Keynesian notions of government spending that backed up the stimulus plan have long been discredited. On the other side of the spectrum, many people believe that the stimulus plan was too little and/or too late to be effective. I also believe that the difficulty in accurately determining how many jobs are 'created or saved' by any government plan is incredibly difficult, and is more likely to lead to argument than a clear picture of economic health.
Of course, there are concrete examples where x amount of dollars of aid money save x amount of teaching jobs in a certain community, or where a certain influx of grant money sparks a company to hire a certain amount of workers for a project. These are certainly beneficial results, and have been rightly noted by proponents of the plan. However, even in these concrete numbers, there are real concerns. For example, how many of those jobs are permanent, and how many are actually the result of government action as opposed to other factors?
Despite such concerns, the White House has recently released and touted some statistics that paint a rosier picture than some of the numbers we have seen in the past. For example, this Yahoo article discusses today's White House claim that around 650,000 jobs have been 'saved or created' since the package was passed in February. The administration claims that this puts the economy on track to add around 2.8 million jobs over the next year to meet the 3.4 million job goal for the end of 2010 which was set in conjunction with passing the plan. If on point, these would presumably be good signs for the overall health of the economy and should be seen as positive.
Of course, there are concrete examples where x amount of dollars of aid money save x amount of teaching jobs in a certain community, or where a certain influx of grant money sparks a company to hire a certain amount of workers for a project. These are certainly beneficial results, and have been rightly noted by proponents of the plan. However, even in these concrete numbers, there are real concerns. For example, how many of those jobs are permanent, and how many are actually the result of government action as opposed to other factors?
Despite such concerns, the White House has recently released and touted some statistics that paint a rosier picture than some of the numbers we have seen in the past. For example, this Yahoo article discusses today's White House claim that around 650,000 jobs have been 'saved or created' since the package was passed in February. The administration claims that this puts the economy on track to add around 2.8 million jobs over the next year to meet the 3.4 million job goal for the end of 2010 which was set in conjunction with passing the plan. If on point, these would presumably be good signs for the overall health of the economy and should be seen as positive.
An Initial Look at the House Healthcare Bill
This link will take you to a brief synopsis of the nearly 2,000 page House Healthcare Bill released yesterday. As I have stated previously, I don't really have a great sense of exactly how voting on the bill will result or what the final impact of all of its provisions will be. Granted, in the Politico story I linked to above, it doesn't appear that all of our elected Representatives (albeit mostly Republicans) understand it fully either. Or maybe they just don't think they can trudge through 400,000 words the next few days. Apparently they are all too far removed from law school to remember the days of reading hundreds of pages of statutes for fun.
However, a few things, particularly in the story picked up on the Nasdaq page, really jumped off the page. One is the number $1.055, as in trillion, or the cost of the bill. The other is $572, as in billion, or the estimated amount that the government will require in additional tax revenues over the next ten or so years to fund the program, even after offsets from program cuts. Two other items which stuck out were exchanges where those without employer-provided insurance could gain coverage, and inclusion of the always controversial public option. Estimates are that the former will insure 30 million Americans who are not insured now, while the latter would cover an additional 6 million. There would also be a large increase in those covered by Medicaid.
There has been, and will continue to be, intelligent and not so intelligent analysis and argument about the bill, what it means for who, and how it will impact the overall health of the people and the economy. It also seems heartless to suggest that some members of our society should not have access to medical attention when necessary.
However, a few things, particularly in the story picked up on the Nasdaq page, really jumped off the page. One is the number $1.055, as in trillion, or the cost of the bill. The other is $572, as in billion, or the estimated amount that the government will require in additional tax revenues over the next ten or so years to fund the program, even after offsets from program cuts. Two other items which stuck out were exchanges where those without employer-provided insurance could gain coverage, and inclusion of the always controversial public option. Estimates are that the former will insure 30 million Americans who are not insured now, while the latter would cover an additional 6 million. There would also be a large increase in those covered by Medicaid.
There has been, and will continue to be, intelligent and not so intelligent analysis and argument about the bill, what it means for who, and how it will impact the overall health of the people and the economy. It also seems heartless to suggest that some members of our society should not have access to medical attention when necessary.
10.27.2009
GAO Report on Law School Costs
What is more law and economics than the economics of law school? In my limited experience, not much. This ABA Journal Posting does a good job breaking down the recent report of the Government Accountability Office describing some of the reasons for rising tuitions. It also has a link to the report itself.
More China Info/Statistics
For those with an interest in China, including its trade relations with the US and its developments in green technology, below is a US government-run site with some great info and statistics on the growing power.
Visit the site here
Visit the site here
Becker and Posner on Executive Compensation
Messrs. Becker and Posner both took time recently to comment on the hot topic of executive compensation and possible impacts of the Pay Czar's decisions. These postings are a worthwhile read for anyone interested in the topic itself as well as a little bit of Wall St. and corporate history.
Keep Regulator's Hands off the Internet
Based on the current state of the financial industry, one's political party leanings and idealogy and a multitude of other factors, a group of x individuals could be placed in a room and have x very different and equally well supported ideas regarding regulation of different industries in the US.
However, despite the current groundswell of support for regulation in many areas, including the aforementioned financial industry, one area of the economy that I feel should escape the scrutiny of regulators save in very extreme circumstances is the internet.
I have had the privilege since starting this blog a very short time ago to be found by Google search engines, have my page linked to by prominent blog search sites, be cited by a number of blogs and Twitter pages around the world, and consequently be seen as a resource by both friends and complete strangers. This is an incredible phenomenon and outlet for creativity which would not have been viable a relatively short 15 years ago. Yet, this is still not possible under the regulatory regimes of many of the world's nations which stifle creativity and dissent and therefore innovation and progress. Moving even an inch in this direction would, in my opinion, be an incredible, and incredibly difficult to remedy, mistake.
There are of course some areas where I believe that the internet should be regulated for content. For example, child pornography is a serious crime which warrants as much attention from law enforcement in web-based formats as it used to in the VHS format. Additionally, libel can be just as injurious, if not much more so, on a chat page with its availability to millions as a newspaper article or slanderous remark.
However, there are incredible societal and economic benefits that stem from the free-flow of well considered ideas that should not be stifled. I understand that this view may be seen as self serving as my thoughts reach you courtesy of the blogosphere. However, I do not believe that impeaches their validity or absolute truth.
Although it is not apparent that the current administration seeks to change the current state of the internet in any specific ways, its recent battling with cable news stations and braggadocio claims that it controls news flow make the free exchange of ideas all the more important. However, I would like to make it clear that this is not a politicized issued from my perspective. Those who were not particularly happy with the previous eight years would agree that the internet was a beneficial forum for idea sharing when the Bush/Cheney team was in charge of news flow from Pennsylvania Ave.
However, despite the current groundswell of support for regulation in many areas, including the aforementioned financial industry, one area of the economy that I feel should escape the scrutiny of regulators save in very extreme circumstances is the internet.
I have had the privilege since starting this blog a very short time ago to be found by Google search engines, have my page linked to by prominent blog search sites, be cited by a number of blogs and Twitter pages around the world, and consequently be seen as a resource by both friends and complete strangers. This is an incredible phenomenon and outlet for creativity which would not have been viable a relatively short 15 years ago. Yet, this is still not possible under the regulatory regimes of many of the world's nations which stifle creativity and dissent and therefore innovation and progress. Moving even an inch in this direction would, in my opinion, be an incredible, and incredibly difficult to remedy, mistake.
There are of course some areas where I believe that the internet should be regulated for content. For example, child pornography is a serious crime which warrants as much attention from law enforcement in web-based formats as it used to in the VHS format. Additionally, libel can be just as injurious, if not much more so, on a chat page with its availability to millions as a newspaper article or slanderous remark.
However, there are incredible societal and economic benefits that stem from the free-flow of well considered ideas that should not be stifled. I understand that this view may be seen as self serving as my thoughts reach you courtesy of the blogosphere. However, I do not believe that impeaches their validity or absolute truth.
Although it is not apparent that the current administration seeks to change the current state of the internet in any specific ways, its recent battling with cable news stations and braggadocio claims that it controls news flow make the free exchange of ideas all the more important. However, I would like to make it clear that this is not a politicized issued from my perspective. Those who were not particularly happy with the previous eight years would agree that the internet was a beneficial forum for idea sharing when the Bush/Cheney team was in charge of news flow from Pennsylvania Ave.
Soul Food for Thought...
This link will take you to a recent Above the Law posting that I found to be darkly humorous in the context of the current job environment. I will put a language disclaimer on it, but also note that we have probably all uttered, or at least muttered, something similar (though maybe not in the context of our souls) at some point in the midst of a job search.
The subject of the posting gets an 'A' for creativity in my mind, and I wish him Godspeed...
The subject of the posting gets an 'A' for creativity in my mind, and I wish him Godspeed...
10.23.2009
Cool Legal Apps for iPhone and Mac Users
Although I am not among the enlightened who have jumped on the Apple train, a quick look around any lecture hall tells me that I may be a little behind the curve. With my hipper colleagues in mind, I am posting a link to a great site dedicated to utilizing the capabilities of Macs and iPhones in the legal profession. I will be including this site in the 'Who I am Following' section as well.
The Mac Lawyer
The Mac Lawyer
10.22.2009
Reposting of 'Glory, Glory Fans United, Part 2'
Following is a repost of 'Glory, Glory Fans United' Part 2, my critique of Professor Margalit's analysis of the business of modern football. Special thanks to Christine Wecker for her thoughts and notes on Ebbsfleet United. As always, feedback is appreciated. Part 1 can be found here.
Though as a fan of many sports, not least among them football, I appreciate Margalit’s analysis and conclusions, as a pragmatist and an amateur economist, I cannot ultimately agree with them. I put forward four main reasons for this; three based on examples, and the final based upon economic theory. The first is simply that one of his case studies actually provides an example of a wildly successful club whose fandom is likely very happy with its results over the past few years, rendering Margalit’s initial assumptions invalid. Secondly, there are practical examples of clubs who have attempted to integrate fans into ownership and management that have failed extraordinarily. Third, there are examples where fans have shown that their voice can be heard by ownership short of an ownership stake, invalidating the conclusion that voice is not possible short of a property interest where loyalty is prevalent. Finally, the economics of modern football are such that highly capitalized owners are almost necessary in order to have success on the pitch, and the type of personality that often accompanies such deep pockets does not often suffer the type of influence Margalit advocates for. However, and probably uniquely for a critique, I debunk these arguments myself. Unfortunately, I still conclude that Margalit’s excellent ideas are unfeasible. This is because the structure of the modern game itself makes universal adoption of them essentially impossible.
Allow me to begin with Margalit’s main example of the problems inherent in modern football; Manchester United F.C. As ‘ManU’ is a globally recognizable club, The Red Devils were a savvy choice to represent some of the problems in modern football. After all, there was uproar from the diehard fans and shareholders of the team when American Malcolm Glazer purchased the team in 2005. However, the facts show that since that time, the club has won 3 Premier League Titles, 2 League Cups and the Champions League among several other lesser trophies. This on the pitch success may be masking issues though, as one of the truer maxims I have come across is that ‘winning cures everything,’ leading to its normally vocal fans giving the ownership some slack (hopefully not to hang themselves with) while the trophies continue to pile up in the Theatre of Dreams. Notably, despite its recent on the pitch success, the club is saddled with a tremendous amount of debt (as is Liverpool, another club with American owners, and whose anthem provides the titular namesake of the article), was forced to sell one of the most popular, widely recognizable and marketable players in the world over the summer (Cristiano Ronaldo, incidentally to one of Margalit’s examples of good ownership structure in Real Madrid), and is perhaps available as a contrary example purely because of its extraordinary pedigree and recent success. Therefore, let’s put aside ManU as an example of why Margalit’s suggestions might not be necessary, at least because the club’s debt may yet prove to be an issue going forward. Additionally, it is almost certain that a future lack of success would cause fans to become more vocal, as they have at Liverpool, a club with as glittering a pedigree as Manchester, but similar debt problems which are unfortunately unaccompanied by recent English or European success.
Though as a fan of many sports, not least among them football, I appreciate Margalit’s analysis and conclusions, as a pragmatist and an amateur economist, I cannot ultimately agree with them. I put forward four main reasons for this; three based on examples, and the final based upon economic theory. The first is simply that one of his case studies actually provides an example of a wildly successful club whose fandom is likely very happy with its results over the past few years, rendering Margalit’s initial assumptions invalid. Secondly, there are practical examples of clubs who have attempted to integrate fans into ownership and management that have failed extraordinarily. Third, there are examples where fans have shown that their voice can be heard by ownership short of an ownership stake, invalidating the conclusion that voice is not possible short of a property interest where loyalty is prevalent. Finally, the economics of modern football are such that highly capitalized owners are almost necessary in order to have success on the pitch, and the type of personality that often accompanies such deep pockets does not often suffer the type of influence Margalit advocates for. However, and probably uniquely for a critique, I debunk these arguments myself. Unfortunately, I still conclude that Margalit’s excellent ideas are unfeasible. This is because the structure of the modern game itself makes universal adoption of them essentially impossible.
Allow me to begin with Margalit’s main example of the problems inherent in modern football; Manchester United F.C. As ‘ManU’ is a globally recognizable club, The Red Devils were a savvy choice to represent some of the problems in modern football. After all, there was uproar from the diehard fans and shareholders of the team when American Malcolm Glazer purchased the team in 2005. However, the facts show that since that time, the club has won 3 Premier League Titles, 2 League Cups and the Champions League among several other lesser trophies. This on the pitch success may be masking issues though, as one of the truer maxims I have come across is that ‘winning cures everything,’ leading to its normally vocal fans giving the ownership some slack (hopefully not to hang themselves with) while the trophies continue to pile up in the Theatre of Dreams. Notably, despite its recent on the pitch success, the club is saddled with a tremendous amount of debt (as is Liverpool, another club with American owners, and whose anthem provides the titular namesake of the article), was forced to sell one of the most popular, widely recognizable and marketable players in the world over the summer (Cristiano Ronaldo, incidentally to one of Margalit’s examples of good ownership structure in Real Madrid), and is perhaps available as a contrary example purely because of its extraordinary pedigree and recent success. Therefore, let’s put aside ManU as an example of why Margalit’s suggestions might not be necessary, at least because the club’s debt may yet prove to be an issue going forward. Additionally, it is almost certain that a future lack of success would cause fans to become more vocal, as they have at Liverpool, a club with as glittering a pedigree as Manchester, but similar debt problems which are unfortunately unaccompanied by recent English or European success.
Did the Mets Make Money off Madoff?
Did the Mets actually make money off Bernie Madoff? Apparently it will depend on when they removed the funds in question. If nothing else, this is a reminder that Madoff's influence was wide-ranging and the impact of his actions will be felt for a long time.
Visit Sports Biz
Visit Sports Biz
The Intersection of Law, Economics, and Breweries
The Financial Times link below will take you to a very interesting antitrust story dealing with tying in the UK. There, it was decided by the Office of Fair Trading that agreements tying pubs owned by big breweries to their suppliers are not anti-competitive. I have spent less time than I would like in Merry Ol' England, and the intricacies of any antitrust case are myriad. However, based on what I have seen, there are enough pubs on any given busy street to ensure that consumers have choices in their consumption there, and it is likely that this decision came out sensibly.
View the Article
See the full report
View the Article
See the full report
10.21.2009
Dollar Drama as Declines Continue
Frequent readers of BlawgConomics may have noted the recent increase in posts that seem to represent the 'conomics' portion of the portmanteau more than the law portion. However, most laws, regulations and rules have some manner of economic impact or consequence, while most economic activity is impacted by laws, rules or policy considerations. Essentially, the areas of law and economics, whether ones uses one to analyze the other or vice versa, are inextricably linked. No other topic in the news recently illustrates this proposition better than the decline of the dollar. True, one could make an argument for topics such as health care or green technology, but it is the dollar which has made the biggest splash in the financial press over the past few news cycles.
So how does a dollar post reach beyond economics and financial analysis and into the area of law and policy? The link below provides a strong example of exactly how the two broad topics become so entangled. A few simple lines discussing the White House stance that the dollar remains strong conflict strongly with the theory of many that the government is actually looking for a slightly weaker dollar. It is not difficult to rectify the two, conflicting though they may seem. On the one hand, and despite recent rumors of broad dissatisfaction with the dollar as the global currency of choice, it remains just that. It is utilized in trade, it is the currency commodities are priced in, and is the currency backing almost inconceivable amounts of US debt held by nations around the world. It is important for the American government to publicly support the dollar and reassure foreign holders of the greenback that it remains a solid investment.
So how does a dollar post reach beyond economics and financial analysis and into the area of law and policy? The link below provides a strong example of exactly how the two broad topics become so entangled. A few simple lines discussing the White House stance that the dollar remains strong conflict strongly with the theory of many that the government is actually looking for a slightly weaker dollar. It is not difficult to rectify the two, conflicting though they may seem. On the one hand, and despite recent rumors of broad dissatisfaction with the dollar as the global currency of choice, it remains just that. It is utilized in trade, it is the currency commodities are priced in, and is the currency backing almost inconceivable amounts of US debt held by nations around the world. It is important for the American government to publicly support the dollar and reassure foreign holders of the greenback that it remains a solid investment.
Stimulus Does Not Appear to be Working
Although simply adding the link below as a comment to the earlier post regarding the American Recovery and Reinvestment Act of 2009 would make sense, I believe that these dramatic numbers merit their own special attention.
Here are the high - (low?) lights. The Obama administration predicted that over 3.4 million jobs would be created by 12.31.09 due to the stimulus package. According to the numbers below, the economy has actually shed over 2.7 million jobs since the bill was signed. Additionally, this decrease is wide ranging, as 49 of 50 states have experienced job losses.
Although in my initial assessment of the stimulus package I ceded the point that any benefit from the Act itself would likely take longer to be felt than consumers hoped and proponents indicated, I also doubted the likelihood that a positive impact would occur at all. The numbers we are seeing thus far are hopefully proof of the former point and not validation of the latter. However, as of today, it looks like the Keynesian comeback will be short-lived.
Check out the Statistics
Here are the high - (low?) lights. The Obama administration predicted that over 3.4 million jobs would be created by 12.31.09 due to the stimulus package. According to the numbers below, the economy has actually shed over 2.7 million jobs since the bill was signed. Additionally, this decrease is wide ranging, as 49 of 50 states have experienced job losses.
Although in my initial assessment of the stimulus package I ceded the point that any benefit from the Act itself would likely take longer to be felt than consumers hoped and proponents indicated, I also doubted the likelihood that a positive impact would occur at all. The numbers we are seeing thus far are hopefully proof of the former point and not validation of the latter. However, as of today, it looks like the Keynesian comeback will be short-lived.
Check out the Statistics
See-Sawing Oil Price Reflects Conflicting Economic Factors
The price of a barrel of crude topped $80 for the first time in 2009 yesterday as a generally positive US earnings season lead investors to believe that corporate, and eventually consumer, demand for the commodity would be on the rise. Today, some of the gains have been given back based on higher than expected supply, indicating that businesses and consumers and not using as much oil as economists expected.
So, which is it? Is the US economy demanding oil, or is it still mired in confusion regarding what the future holds? In my opinion, oil prices are likely impacted by both of those factors, as well as myriad others. Though it is not always viewed this way by economists, for our purposes we can view crude as a both a leading and lagging indicator whose volatility may be a good sign for the economy.
It is well known that businesses are usually able to determine a business cycle trough before consumers. (Whether they anticipate the preceeding downturn is another question entirely of course). Therefore increased corporate demand for oil and other commodities is a good sign. However, consumer demand has not yet picked up, at least based on the recent numbers. This makes sense; the jobless rate is still high, oil consuming activities such as vacationing are down, and there is still a great degree of job-related uncertainty for everyone from landscapers to Wall St. traders. Therefore, oil demand is not likely to really pick up until average people, in addition to the C-suite, believe that the worst of the current downturn is over.
So, which is it? Is the US economy demanding oil, or is it still mired in confusion regarding what the future holds? In my opinion, oil prices are likely impacted by both of those factors, as well as myriad others. Though it is not always viewed this way by economists, for our purposes we can view crude as a both a leading and lagging indicator whose volatility may be a good sign for the economy.
It is well known that businesses are usually able to determine a business cycle trough before consumers. (Whether they anticipate the preceeding downturn is another question entirely of course). Therefore increased corporate demand for oil and other commodities is a good sign. However, consumer demand has not yet picked up, at least based on the recent numbers. This makes sense; the jobless rate is still high, oil consuming activities such as vacationing are down, and there is still a great degree of job-related uncertainty for everyone from landscapers to Wall St. traders. Therefore, oil demand is not likely to really pick up until average people, in addition to the C-suite, believe that the worst of the current downturn is over.
10.20.2009
Family Pride v. Breach of Contract
Following is a post on Darren Rovell's sports blog about Michael Jordan's son, who is currently enrolled at The University of Central Florida and is a member of the basketball team. Jordan wants to wear his father's branded shoes. Jordan brand is of course part of Nike, while UCF is contractually sponsored by Adidas. Unless the two sides can come to an agreement, a simple breach case could turn into a very high profile affair for all involved. Some say that all press is good press, but I doubt that Adidas would appreciate the emphasis that would be put on a competitor if this story gains steam.
Visit the Article
Visit the Article
Interesting Thoughts on the Future of Employment
Here are some fairly pessimistic thoughts on the long-term future of unemployment in the US. Any unemployment numbers are subject to discussion based on factors such as frustrated workers. However, the thoughts here about specific industries are interesting and merit discussion.
Visit Yahoo Finance
Visit Yahoo Finance
10.18.2009
China Taking the Lead on Green Tech
The article found at the link below fits very nicely with today's earlier post 'Can the IEA Save the World.' China is a great example of a nation focusing on the economic advantages of green technology as opposed to the pure environmental benefits. Although they have some way to go when it comes to carbon emissions, China has taken the lead on the manufacturing of green technology. As China currently owns a large percentage of many of the resources needed to develop this technology further, it will take extra effort by the US if it hopes to play catch up in this sector.
Visit the article
Visit the article
Loonie Near Parity with the Buck
Here is another in a line of recent posts and articles regarding the dollar and its relationship to commodity prices. Here, we see that the Canadian Dollar is almost on par with the US Dollar as commodities rise and Canadian unemployment dips. Officials up north have signalled worries over the impact a rising loonie will have on exports to their largest trading partner, namely the US. However, there are no signs that they have taken action to manipulate the situation in any way.
View the article
View the article
Can the IEA Save the World?
In what is essentially a teaser to its full report due early to mid-November, but is in and of itself a useful document, the International Energy Agency (IEA) recently released an excerpt from its World Energy Outlook for 2009. 1 The IEA is an autonomous body developed within the framework of the Organisation for Economic Co-operation and Development (OECD) and is the main forum for energy discussion and cooperation between many of the OECD nations. As a point of reference, the US, UK, and many EU nations in addition to Japan and Australia inter alia are included in the group. Therefore, it represents most of the large, developed nations in the world and any agreements reached by the group have an impact on a majority of the world’s GDP. With that backdrop in mind, a few other items should be noted. First and foremost, the IEA meetings are not the forum for climate change skeptics. Many of the assumptions in the report, and indeed the report itself, presuppose the idea that if some of its proposed changes do not occur, the result to the global environment would be disastrous. Although this viewpoint was not shared by previous US administrations, the current White House has, at least in rhetoric, shared this idea, which has, of course, been a foregone assumption throughout Europe for much longer.
Any holdout climate change skeptics, perhaps emboldened by a historically chilly 2009 and the specter of October snowfalls in the Midwest and Northeast can still find value in this report however, as it focuses on the economic impact of green development in addtion to the downside environmental factors of the current state of the world. For example, though the report is very realistic about the dollar costs projections of some of its ideas, it also points out the long-term cost savings that would occur if some of its measures were adopted. For example, as it has been noted on these pages previously, it may cost consumers an initial outlay to purchase an automobile with hybrid or electric technology. However, cost savings on gasoline over the long term tend to even these costs out. Additionally, long-sighted supporters of green technology would be able to point to the future potential of electric cars functioning as storage units for excess capacity and the potential for consumers to become suppliers of energy, whether on a net or supplemental basis, releasing their extra energy back into the grid for a cost. With the report’s view toward reducing automobile emissions among all nations, even those developing ones it grants overall Co2 increases to, this type of technology could be pushed to the forefront. So too could more domestic technologies, such as roof top photovoltaic cells, which could afford consumers the same potential to profit on production rather than purely spend on consumption.
Enough table setting however. What is this report all about? Well, the IEA is planning a round of meetings in Copenhagen and the organizer’s stated goal is to gain end up with the participants’ signatures affixed to a comprehensive energy policy agreement. Although ambitious, and perhaps overly optimistic in the face of past failures, there may be enough support politically among developed nation leadership to make the document a reality. Additionally, the natural reduction in consumption over the past year due to the downside of the business cycle has pushed global energy demand a bit lower, and has potentially set the stage for a more realistic discussion based on a lower set of base numbers.
Any holdout climate change skeptics, perhaps emboldened by a historically chilly 2009 and the specter of October snowfalls in the Midwest and Northeast can still find value in this report however, as it focuses on the economic impact of green development in addtion to the downside environmental factors of the current state of the world. For example, though the report is very realistic about the dollar costs projections of some of its ideas, it also points out the long-term cost savings that would occur if some of its measures were adopted. For example, as it has been noted on these pages previously, it may cost consumers an initial outlay to purchase an automobile with hybrid or electric technology. However, cost savings on gasoline over the long term tend to even these costs out. Additionally, long-sighted supporters of green technology would be able to point to the future potential of electric cars functioning as storage units for excess capacity and the potential for consumers to become suppliers of energy, whether on a net or supplemental basis, releasing their extra energy back into the grid for a cost. With the report’s view toward reducing automobile emissions among all nations, even those developing ones it grants overall Co2 increases to, this type of technology could be pushed to the forefront. So too could more domestic technologies, such as roof top photovoltaic cells, which could afford consumers the same potential to profit on production rather than purely spend on consumption.
Enough table setting however. What is this report all about? Well, the IEA is planning a round of meetings in Copenhagen and the organizer’s stated goal is to gain end up with the participants’ signatures affixed to a comprehensive energy policy agreement. Although ambitious, and perhaps overly optimistic in the face of past failures, there may be enough support politically among developed nation leadership to make the document a reality. Additionally, the natural reduction in consumption over the past year due to the downside of the business cycle has pushed global energy demand a bit lower, and has potentially set the stage for a more realistic discussion based on a lower set of base numbers.
10.15.2009
The American Recovery and Reinvestment Act of 2009, An Analysis
As the closing bell rang on 2008 and America looked forward at 2009, one thing was clear. Though America had just voted for political change, it was apparent that the country was even hungrier for economic change. By then, even the layperson was familiar with the chain of events leading to the current economic downturn. Cheap credit earlier in the decade led to the overextension of homebuyers, who were allowed their chance at the American Dream with very little inquiry into whether they could handle the resulting mortgage payments. This, in turn, led to the increasing development and trade of complex mortgage-based financial instruments that were supposed to alleviate risk, but instead served to compound issues when homebuyers were unable to make mortgage payments. The end result was the downfall of some of Wall Street’s most storied names, the government engineered take-outs of others, and the near collapse of the financial system. These events were followed by government bail-outs of auto manufacturers and others resulting in one of the heaviest periods of governmental intervention in business in recent memory. This predictably led to accusations of a socialized economy by some and a belief that the government had not gone far enough by others.
However, pundits on both sides of the political spectrum agreed that action was needed, and ideology was quickly put aside in favor of calls for quick action by many as President Obama spent his first few weeks in the White House. One of the results was the federal stimulus package of February, known properly as the ‘‘American Recovery and Reinvestment Act of 2009.’’ There are some rather strong protectionist measures within the legislation that do not favor foreign business or trade. These include Section 1605, or the infamous ‘Buy American’ clause. This makes it a priority to utilize U.S. produced iron, steel and manufactured goods in projects funded by the act. There are also provisions such as Section 1611 limiting corporations which are receiving federal funding to hiring American workers. Additionally, there are clauses dealing with subsidies from everything from farmers to fishermen. There are also many provisions that will not prove very impactful upon business, such as education spending, which, despite its long-term benefits, will do little to help business in the near term. It is also difficult to see anyone but niche businesses benefitting from items such as $165 million for wildlife refuge and fish hatcheries management.
However, despite many such clauses which always seem to occur in documents born out of compromise, there are some particular areas of interest for businesses both domestically and abroad. For example, provisions embracing the White House agenda for utilization of green technology are prevalent throughout the bill, which should be a welcome theme for alternative energy businesses. For example, there are tax breaks for companies involved in green technology research. Additionally, nearly $5 billion is being allocated for the conversion of government buildings to green facilities and $2 billion is slotted in for grants for manufacturers of advanced batteries. All in all, the bill provides over $16 billion in allocation money specifically for ‘energy efficiency and renewable energy.’
In addition to energy, healthcare is another area of focus in the legislation, with the ‘‘Health Information Technology for Economic and Clinical Health Act,’’ or HITECH, section of the bill focused on providing subsidies to companies engaged in developing technology that will assist the healthcare profession with updating critical functions such as record keeping and data management systems. This is perhaps a nod to the increasing age of America and the demographic shift the country is undergoing due to the baby boom. Another area of opportunity is the defense sector, where nearly $1.5 billion is being allocated for the U.S. Army, over $1 billion was written in for the Air Force, and nearly $800 million will be available to the marines and navy, respectively. Another $1 billion is being made available to all branches for research and energy efficient investment in facilities.
However, the largest area of investment in the bill is in infrastructure, providing tremendous opportunities for construction supply companies and raw materials producers. Showing a preference for quick start activities, or those which can be embarked upon quickly to provide the most economic benefit, the bill has some very notable figures in this section. In addition to $100 million being invested in qualified shipyards, there is a $2.5 billion commitment to improving broadband access in the country. Further, the law has $4.5 in allocations to energy grid modernization, $8 billion available to develop an intercity high speed rail system, and a truly eye-popping $27.5 billion available for repair and construction of rail and port infrastructure.
Despite opportunities existing in the bill in specific areas, such as healthcare technology, energy, defense, broadband and construction, more hope exists for business in the stimulating impact the legislation could have on the overall economy. Indeed, this is the great hope of the administration; that, with increased government spending, jobs will be created, consumers will begin to spend once again, production will increase, and finally that this will combine to produce positive growth numbers for the country. Supporting the case for job creation, there are tax breaks for small business owners, incentives for hiring unemployed veterans, and numerous allocations for worker assistance programs. Among these include $1.25 billion to states for dislocated worker training programs, and an additional nearly $4 billion for other training programs. There are also provisions for farmers, communities, and individuals adversely impacted by trade. [1]
There is little doubt that job creation and the resulting spending, production and overall growth are important individual goals within the economy. Certainly the statistics paint a bleak picture; the Bureau of Economic Analysis recently released its GDP estimate for the first quarter, and output decreased by an annual rate of 5.5%.[2] Additionally, the Bureau of Labor Statistics announced that the unemployment rate was at 9.5% in June, by far the highest number that has been posted in a decade where the jobless rate managed to stay below 6.0% even in the aftermath of 9/11.[3] And, after record imports and exports in 2008, The Bureau of Economic Analysis reported that May 2009 total exports were down over 20% YOY, while total imports decreased by an even more dramatic 31% YOY.[4]
However, despite the clear need for change to occur in the economy, there was, and still is, considerable debate about the impact that the stimulus plan will have. Much of its presumed benefit will come in the form of aforementioned job creation, which will hypothetically spur consumption, and thus, the overall economy. This line of reasoning is best described as Keynesian, after the 20th century economist John Maynard Keynes. Keynes was the greatest proponent of the idea that governmental spending could even out the peaks and valleys of an economy, and his ideas had great support among many, including Roosevelt, during the Great Depression.
However, many economists believe that these ideas are outdated and have been proven wrong. Going even further, many believe that the results will ultimately prove to be no more than a drop in the bucket compared to the increasing national debt, currency, and interest rate problems that governmental spending both implies and results in. Even proponents question the timeliness of the bill, its size, and its short term impact. For example, many provisions are open until 2013, resulting in a questionable impact this year or next. And, many construction projects take considerable time to get underway. For example, Bruce Bartlett, a former Treasury Department economist, recently wrote in The Financial Times that only 11% of discretionary spending on highways, mass transit and energy efficiency will be spent by the end of September.[5] And, according to www.recovery.gov, only $56 billion of nearly $158 billion allocated to various government agencies had been paid out as of June 26.
Despite concerns, the goal of the stimulus package to protect and create jobs, if accomplished, is currently the brightest hope for business both domestically and abroad in what is otherwise a very difficult global economic environment. The American consumer is one of the main drivers of global growth, and if the stimulus package succeeds, more American consumers will be spending money on products from both the U.S. and its trade partners. However, despite the truly astronomical numbers being discussed by pundits, the government and the press, any success will likely take time to occur. In the meantime, businesses will need to focus to seek out opportunities in the specific areas the government is targeting, and may need to be patient while waiting for consumers to return to their normal spending habits.
[1] See generally the ‘‘American Recovery and Reinvestment Act of 2009’’ H.R. 1, 2009
[2] accessed 24 July 2009
[3] accessed 24 July 2009
[4] accessed 24 July 2009
[5] Bruce Bartlett, ‘We do not need a second stimulus plan’ <http://www.ft.com/cms/s/0/e0569d42-6995-11de-bc9f-00144feabdc0.html> accessed 24 July 2009
Development of Advanced Batteries and Integration into Smart Grid
With both the current administration and the eyes of the world focused on more earth friendly and efficient technologies, batteries have come to the forefront of the sustainability conversation. Although many people are aware that electric and hybrid cars use batteries, not all are familiar with battery technology’s wider-ranging impact on the innovative smart grid initiative. As part of this initiative, batteries have implications for energy storage and facilitation of a two-way, consumer driven energy market.
Though there are many technological aspects to a smart grid at every stage of transmission, it essentially utilizes smart meters at the end user’s location to determine, via digital feedback, factors such as peak usage hours, lapses in service and security breaches in real time. It also potentially allows consumers to monitor usage by analyzing what hardware, such as appliances, which activities, or what times of the day are most costly to them. Some of this technology is in place and being utilized today after becoming a major priority with the government, [i] and tax incentives have been in place since 2008. [ii]
However, much of this technology is geared towards analysis of usage and using that knowledge to impact consumer behavior. Other potential aspects of a smart grid are geared toward actual facilitation of energy storage and transfer which would give further incentives to people to maximize efficient behavior. The best example of this is the potential interoperability of smart grid with electric vehicles, namely through electric batteries. Proponents envision a scenario where electric and hybrid car owners could charge their vehicles during non-peak usage hours, such as overnight. The electricity in their batteries could then be used during driving, which in itself is more efficient than using gasoline. Alternatively, if the owner were not using their vehicle that day, they could sell the energy back into the grid, possibly at variable rates, to subsidize their own energy costs and smooth out fluctuations in energy demand. This type of interconnected, or mesh, system would provide greater support in the case of shortages or failures, and would see electric cars in their capacity as alternative storage facilities serve as the fulcrum for market-based solutions to energy efficiency.
Smart grid generally, and battery technology specifically, has been encouraged in the U.S. since before the current administration took office. [iii] Prior to that, battery technology became a very hot topic in the U.S. auto industry, as the Japanese took the lead, then dominated, the market for advanced battery technology. [iv] Competition should heat up further as some estimates expect the market for this technology to grow to between $30 and $40 billion a year by the year 2020. [v] This has lead to calls for standardization in the industry as different manufacturers attempt to develop technology that will have wide-ranging use.
As with any topic that brings the hot buttons of sustainability, energy, defense and economic factors together, there have been questions asked regarding the best way to facilitate the development and spread the use of smart grid technology. With this in mind, the standards community has been given a mandate, and has subsequently taken the lead in defining more broadly what smart technology can and should mean. The National Institute of Standards and Technology (NIST) was given authority by Congress to develop the framework of smart grid protocol and standards in the Energy Independence and Security Act of 2007 with instructions to ‘coordinate the development of a framework that includes protocols and model standards for information management to achieve interoperability of smart grid devices and systems.’ NIST was also instructed to include industry bodies such as the Institute of Electrical and Electronics Engineers. This has lead to ambitious projects such as IEEE P2030 which is attempting to develop a draft guide for interoperability of energy technology with the electric power system. [vi] This project has combined the efforts of many stakeholders in identifying broadly what a smart grid system could end up being. [vii]
Many stakeholders have been involved in these broader initiatives which have showcased the success that public/private partnerships can have when given the correct guidance and room to succeed. There are examples of this success in regards specifically to battery technology as well. To wit, SAE International (formerly the Society of Automotive Engineers), has taken the lead in standards development in electronic batteries. Similar to many standards on smart grid technology, standards for battery technologies are in their infancy. Indeed, SAE’s J2847/3 ‘Communication between Plug-in Vehicles and the Utility Grid for Reverse Power Flow’ was only initiated in December of 2008, and has not progressed past its very initial phase. This standard, when completed, will give manufacturers a common language in developing interactive systems between the grid and automobiles, and will likely be one of the final steps in developing a fully integrated, two way system. [viii]
However, some instrumental progress has already been made. The best example of this is as another SAE standard, J1772, which may be rolled out very soon. [ix] This initiative sets the standard for actual size and power load of connectors for electric battery charging, and is reportedly being supported by GM as well as Chrysler, Ford, Toyota, Honda, Nissan and Tesla in a great example of private industry involvement in a key step toward a government identified goal. [x] Proponents of the standard point to its adoption as the only hope for electric technology to really take off, and that, of course, would be a prerequisite for integrating automobiles into the smart grid system. When combined with J2487, the framework will be in place for a truly integrated system where communication between automobiles as both users of, and providers to, the nation’s energy grid.
The standards system, which has encouraged private industry input, has provided outstandingly positive results in the area of battery development in hybrid technology. This public/private partnership has been successful, but continued success depends on the ongoing involvement of the auto industry in the development of standards pertaining to smart grid technology. Much like the common size of the opening of today’s fuel tank allows consumers to go to any gas station to fill-up, the continued innovation of automobile technology depends on uniformity in the solutions of tomorrow. The setting of standards with the involvement of industry is a far better solution to this key problem than government mandated solutions as has already been seen in the case of international standards being developed for electric car plugs. Continued work in areas such as system to auto communication under the guidance of NIST is the best avenue to reaching a goal of less dependence on fossil fuels, better security in the future electric grid, and further progress toward a truly interactive and smart national grid.
[i] See Section 1301-1309 Energy Independence and Security Act of 2007 http://leahy.senate.gov/issues/FuelPrices/EnergyIndependenceAct.pdf
[ii] See The Energy Improvement and Extension Act of 2008, page 6 http://finance.senate.gov/sitepages/leg/LEG%202008/091708%20Staff%20Summary%20of%20the%20Energy%20Improvement%20and%20Extension%20Act.pdf
[iii] See The Energy Improvement and Extension Act of 2008, page 3 http://finance.senate.gov/sitepages/leg/LEG%202008/091708%20Staff%20Summary%20of%20the%20Energy%20Improvement%20and%20Extension%20Act.pdf
[iv] http://online.wsj.com/article/SB122142930024933801.html
[v] http://online.wsj.com/article/SB122142930024933801.html
[vi] Long form, ‘IEEE P2030 Draft Guide for Smart Grid Interoperability of Energy Technology and Information Technology Operation with the Electric Power System (EPS), and End-Use Applications and Loads’ See http://grouper.ieee.org/groups/scc21/2030/2030_index.html
[vii] See Working Group Meeting Minutes, June 3-5, 2009 http://grouper.ieee.org/groups/scc21/2030/docs/P2030%20Meeting%20Minutes%2007_2009.pdf
[viii] http://www.sae.org/servlets/works/documentHome.do?comtID=TEVHYB&docID=J2847/3&inputPage=wIpSdOcDeTaIlS
[ix] http://green.autoblog.com/2009/04/21/sae-2009-sae-j1772-plug-standard-could-be-finalized-by-this-fal/
[x] http://en.wikipedia.org/wiki/SAE_J1772 see also http://www.goodcleantech.com/2009/04/gm_proposes_electric_car_plug.php
see http://blawgconomics.blogspot.com/2009/09/reviewing-us-auto-makers-target-battery.html for other thoughts on advanced battery technology
and http://blawgconomics.blogspot.com/2009/10/china-taking-lead-on-green-tech.html for China's market leading role in this area of technology
IEA Weekly Oil Report (9 October)
As I noted last month, I am going to make an effort to stay current on the latest and greatest estimates from IEA on the oil front. This is not the full October report, but a snapshot with the most interesting info and estimates. I will post the full report when it becomes publicly available.
http://omrpublic.iea.org/currentissues/high.pdf
10.14.2009
This Year's Historic Nobel Prize in Economics
The earlier Financial Times link I was using closed to non-subscribers. Here is a valid link.
http://www.foxnews.com/story/0,2933,564182,00.html
10.13.2009
Gold, Black Gold and Healthcare
Here is a trio of articles covering the most interesting legal/economics news of the day. While I have posted links and thoughts regarding oil and gold in the past, I have not taken a look at healthcare yet. Now that a version of a healthcare bill has passed through the moderate finance committee, giving proponents of reform hope, it is something I may take a look at in the future. However, I will reserve opinion until I take a look at the legislation as a whole and therefore not comment on the first article.
As for the pieces on oil and gold, Yahoo correctly identifies links to the dollar as the stimulus for rising prices in both commodities recently as price valuations are outstripping economic demand. Why one may ask? Investors are looking to inflation hedges against the dollar and are wary of the impact slipping dollar prices could have on commodity prices in the future. There has been a lot of talk recently about states with large trade surpluses, namely China and Saudi Arabia, considering reducing their dollar holdings. There is additionally discussion from time to time about reducing the role of the dollar in trade markets and as the international currency of choice. I consider the oil and gold situation to be a short term exhibition of the long term issues. Though prices may seem high now, the weakening of the dollar and reduction of reliance upon it internationally could unfortunately spell far larger troubles for the U.S. economy than slightly higher gas and jewelry prices in the years to come.
http://news.yahoo.com/s/ap/20091013/ap_on_go_co/us_health_care_overhaul
http://news.yahoo.com/s/ap/20091013/ap_on_bi_ge/us_oil_prices_7
http://news.yahoo.com/s/afp/20091013/ts_afp/commoditiesgoldmetalsprice_20091013092414
10.12.2009
10.10.2009
'Comparative Economic Analysis of Law Development in Civil Law Jurisdictions' Part 4
As noted above, one fruitful area of the law in which the tools of law and economics provide use is contract law. From an economic perspective, the focus of contract law is to accomplish the goals of the parties in the most efficient fashion. Mercuro, supra at 138. Contract law is a particularly interesting topic because there are different levels where economic analysis is useful. For example, in the contract formation stage, parties must weigh the costs of contract negotiations and the time inherent in including greater and greater numbers of provisions. Contracting is not costless; this leads to parties structuring contracts in a way that approximates the most efficient outcome by incentivizing value-maximizing conduct. Mercuro, supra at 139. This leaves room for court intervention as parties do not take the time to incorporate every possibility or scenario explicitly into contracts. The transaction costs would simply be too high under the Coasean framework, leading to inefficient results.
Another particularly notable area of contract law lending itself to economic analysis, in this case due to its different treatment under civil and common law systems, is breach of contract. Parties to a contract will not typically breach unless it benefits them in some way, or if it is impossible for them to fulfill its terms. The former situation is the heart of the concept of efficient breach. According to Markesinis et al., “A breach may be regarded as efficient in economic terms if it entails an advantage to the guilty party that is greater than pecuniary detriment to the innocent party. In such a case, compensating the innocent party would still leave the guilty party better off than if the contract were to be fulfilled in specie.” Sir Basil Markesinis, Hannes Unberath & Angus Johnston, The German Law of Contract, A Comparative Treatise 399 (2nd ed., Hart Publishing 2nd ed., 2006). As noted above, it a party is defaulting, it is probably because it is in their interest to do so. Put another way, this means that he expects to lose money by going forward with the contract. Incorporating notions of Kaldor-Hicks efficiency, we would allow the party to default so long as a “bribe” can be paid to the wronged party making them whole. On total, this would make the defaulting party better off, while leaving the wronged party no worse off, producing an overall Pareto optimal result. John H. Barton, The Economic Basis of Damages For Breach of Contract, in Economic Foundations of Private Law, 277,304 (Richard A. Posner & Francesco Parisi eds., Edward Elger Publishing, Inc. 2002).
If it is established that parties may default on contracts, and that it may be economically efficient for them to do so, what is the result for the wronged party? There are two main remedies utilized in both common and civil law jurisdictions, but the frequency of use in each system is instructive. For example, court orders forcing performance, an equitable remedy, are more prevalent in Europe, while awards of legal damages focused on making the wronged party whole dominate common law jurisdictions. Therefore, goals guiding the determination of damages in a breach case are expectation protection (or the common law preference for putting the plaintiff in as good a position as if the contract were not breached) and incentive maintenance, (the civil law approach enforcing contract promises). Barton , supra at 304.
Brousseau rightly argues that based on the use of economic reasoning in the US in particular, contracts have a different legal status than they do in civil law nations. Brousseau, supra at 82. In his decision in Co-operative Insurance Society v. Argyll Stores (Holding) Ltd., [1998] AC 1 at 11-12, Lord Hoffman summarized the historical differences nicely:
“Specific performance is traditionally regarded in English law as an exceptional remedy…by the 19th century it was orthodox doctrine that the power to decree specific performance was part of the discretionary jurisdiction of the Court of the Chancery to do justice in cases in which the remedies available at common law were inadequate. This is the basis of the general principle that specific performance will not be ordered when damages are an adequate remedy. By contrast, in countries with legal systems based on civil law, such as France, Germany, and Scotland, the plaintiff is prima facie entitled to specific performance.”
Therefore, common law has a presumption of damages tempered by an equitable resolution if it were called for, while civil law has an assumption of specific performance tempered by some consideration for damages in impossibility scenarios. A simple example may help illustrate what differences might arise from this difference in remedies. Suppose Augsburg Auto had a vehicle on sale for €12,000. Now suppose Thomas saw the vehicle, which he valued at €15,000. Believing he had found a deal, he offered Augsburg Auto the €12,000, leaving a deposit to go to the bank to get funds. After Thomas left, Dieter stopped by the auto dealer and saw the same car. After being told that an offer for €12,000 had already been made, Dieter decided to trump it and offered €13,000. Shortly thereafter, forgetting the concept of exchange rates and thinking he has found a deal, Joshua arrived and offered €18,000.
Much of the analysis that can be made based on this scenario depends on how scrupulous Augsburg Auto is. However, let us assume for a moment that the dealer is more interested in profits than scruples, clearly a simplifying assumption. Under a common law regime, a wronged party is made as well off as he would have been if a contract were fulfilled. Therefore, if Augsburg sells to anyone but Thomas, and he had valued the car at €15,000, he would likely sue and receive damages in this amount. So, using the above facts, if Augsburg sells to Dieter for €13,000 but must turn around and pay damages to Thomas, it is inefficient because it breaches its contract AND loses money. However, if Augsburg breaks its contract to sell to Joshua, it has breached its contract efficiently. This is because after paying Thomas damages, it still earns €3,000 on the transaction. As it has been shown, expectation damages act then not only to encourage efficient breaches, but to discourage inefficient breaches, thus serving two related but separate societal benefits. Mercuro, supra at 142.
In a civil law system, Augsburg would be forced to sell the car to Thomas based on the specific, agreed upon terms. Therefore, Augsburg would need to sell the car to Thomas for €12,000. Thus, specific performance, like expectation damages, can help contractors avoid inefficient breaches. However, since the sale to Joshua cannot occur, the most efficient outcome, which is €15,000 in damages to Thomas and €18,000 in sales to Joshua, is taken off the table. Arguably, Joshua could buy from Thomas at the higher price, making those parties better off, but there is still a lower balance of payments, and transaction costs might make multiple transactions prohibitively expensive. Mercuro, supra at 142. Additionally, while third party enforcement is at times unavoidable, it is not necessarily efficient. Essentially, “The process of enforcement whilst enabling the benefit of an external coercion to oblige the recalcitrant party to honor his commitments, can be inefficient.” Markesinis, supra at 399. So, not only are additional transactions expensive, the process of enforcing specific performance adds additional transaction costs.
Therefore, a system where damages are the standard in breach cases will typically lead to the most efficient results. Altering the numbers could lead to situations where specific performance is economically beneficial, and it does go some way toward avoiding inefficient results. However, based on pure Pareto and Kaldor-Hicks principles, it appears that the payment of expectation damages leads to the most efficient outcome. Additionally,
“Even if the work under the contract is not completed, an expectation upon entering the contract that the contract may have to be completed might lead to non-optimality. Hence, courts should be hesitant to place very substantial weight upon a role of “enforcing” contracts. Indeed, one might conclude that the fact that one party wants to get out of a production contract should be reason enough to excuse further performance (although not to excuse payment of damages).” Barton, supra at 336.
Under the common law, damages are the remedy most often resorted to. This system sees damages as adequate when the item in the contract is easily obtainable from other sources. Markesinis, supra at 393. Therefore, only situations where an item is of peculiar and practically unique value to the plaintiff lend themselves to specific performance under common law. It is also notable that specific performance is in all cases discretionary on the part of the judge in common law. This is due to its equitable origins. Markesinis, supra at 392. Perhaps speaking even more to cultural differences in the particular remedies, Markesinis notes that, ”the use of specific performance has traditionally not been regarded as generally desirable because it places a strain on the machinery of law and interferes with the personal freedom of the contractual debtor (or defendant).” Markesinis, supra at 392. In England, specific performance is confined to exceptional cases where the claimant is not afforded sufficient protection by damages. It is clear from the commentary that damages are the much preferred remedy in common law jurisdictions, but the ability of judges to temper this in exceptional circumstances with the equitable remedy of performance ensures that the greatest injustices will not occur.
Meanwhile, under the civil law, the preferred tool of the courts is specific performance. In fact, in most situations, impossibility is the only defense to a claim of breach which allows the breaching party to pay damages rather than uphold her end of the contract. Markesinis, supra at 402. German law, in particular, finds the idea of performance so important that it requires an additional time period after a breach and before damages can be claimed in order for the parties to perform on the contract. Burgerliches Gesetzbuch [BGB] [Civil Code] § 281, ¶ 1. Additionally the right to specific performance is more properly called the Primaranspruch, or primary right, with the secondary right being damages. Burgerliches Gesetzbuch [BGB] [Civil Code] § 241, 1. Therefore, according to Markesinis, “While German law does not completely preclude the idea of an ‘efficient’ breach in relation to certain types of contract such as contract of services, it is clearly hostile towards allowing the promisor to avoid the promise to perform and pay damages instead. Thus, the question whether breaching the contract is appropriate does not arise in the first place.” Markesinis, supra at 399. French law is also particularly hostile to damages, much preferring specific performance as the remedy of first choice. Brousseau supra at 84.
It is clear that in civil law jurisdictions, “cross-fertilization of legal and economic thought does not really exist in respect of contracts.” Brousseau supra at 81. However, interestingly, parties to contracts may be finding efficient solutions on their own as commentators have noted that businessmen, particularly in Germany, prefer to claim damages rather than waste resources trying to get a judgment for specific performance. Markesinis, supra at 399. Therefore, though the judiciary has not been compelled, or allowed, to come to the most efficient results, it is possible they are still being reached when savvy parties are involved. This is also additional proof that damages may be the most efficient manner of dealing with breaches.
Summary of Economic Analysis
What conclusions can be drawn from this analysis? First, the ability of common law judges to use discretion in remedies allows for perhaps a more economically efficient system that does not entirely abandon equitable considerations. Meanwhile, the inability of civil law judges to provide damages except in very specific circumstances may not always be efficient, but it does provide certainty and an arguably more moral solution. Despite this inability, the fact that businessmen do sometimes request their secondary right of damages shows that efficiency can also be fair, and still reached despite the restrictions felt by civil law judges. Some have argued based on this framework that globalization and acceleration of technological change have lead to a need for the writers of civil codes to take under consideration different frameworks for contract law. Brousseau supra at 92. Additionally, “though economic analysis of contract law has occurred under common law premises, the use of economics to evaluate civil codes is promising.” Brousseau supra at 91. Whatever the future of the civil codes may be, however, it is clear that change incorporating efficiency criteria will need to come from legislators rather than the bench as it has occurred in common law jurisdictions.
Conclusion
Though there may be similarities, particularly with the development of constitutional law in many civil law jurisdictions, the overall development of law in the two major legal traditions can be dramatically different. In one particular area, contract breach, long-standing traditions outside the scope of the legal systems themselves lead, at least in part, to how remedies in the legal systems vary. These views, though under assault by globalization, international contracts, etc., are unlikely to shift significantly in the near term to produce what proponents of the predominant Chicago School of Law & Economics would view as an efficient outcome in contract breach cases. If and when they do, it will necessarily be due to a groundswell of legislative support rather than the accumulation of results from the judicial bench.
10.09.2009
The Hidden Downside of China's Draft Telecom Bill
The People’s Government of China has recently circulated a draft telecommunications law which contains 102 Articles broken into 13 Chapters, included a currently omitted Chapter entitled ‘Legal Liabilities.’ [i] The new legislation is meant to replace the September 25 of 2000 Telecommunications Regulations of the People’s Republic of China [ii] which contains 81 articles in 7 parts. Though certain parts of the bill remind one that China is still very much in the transition stage from a planned economy to a Western-style capitalist state, these are not the areas where fault can be found. This is because it is drafted in a way that will encourage investment and growth in the telecom sector, even investment from foreign companies. In fact, it provides very meaningful guidance on foreign investment, lending transparency where many foreigners have complained of confusing red tape. [iii] In my opinion, what is much more troublesome is the way that the bill retains the government’s right to stifle free speech and communication.
The most notable examples of this are Articles 4 and 5 which, when read together, seem to allow the state unfettered abilities to control speech, and the chapter on security. Article 4 begins by stating that the freedom and privacy of communications is protected by law. It then explains that the State may infringe this freedom in the name of security. And, Article 5 states that no one may use telecommunications networks to engage in activities that jeopardize State security, public security, or social and public interests. A textual argument could be made based on these two clauses, that 1. Freedom cannot be infringed unless it is for security purposes, 2. However, social and public interests are the equivalent of security issues, and 3. Therefore, if the State believes that one is engaging in conduct that jeopardizes the public interest, their freedom can be infringed. This would not be very concerning on its face. However, one also needs to consider some of the activities that the Chinese government considers to be against the public interest.
Chapter IX, on security matters, contains additional language that will worry those keeping an eye on human rights. For example, in Article 77, it states that Telecom businesses shall voluntarily keep a record of subscriber usage information. But it then mandates that this information shall be kept for a minimum of 60 days, seemingly eliminating any illusion of voluntariness. This is reminiscent of Google’s recent interactions with China. [iv] Additionally, Article 80 forbids users of communications to harm the dignity of the state, oppose fundamental principles of the Constitution, sabotage state religious policy, disturb social stability and insult people. This seems to give the State a very broad range of activities which it can control to the detriment of free speech and expression. This type of language certainly would not withstand judicial scrutiny in the US based on First Amendment freedoms.
One could argue that the US has laws in place that are equally as restrictive, such as the PATRIOT Act. However, there are still due process procedures in place, and First Amendment activities remain protected. This is not the case with China’s draft bill. China is growing tremendously and seems to be moving ever closer to a strong capitalist system. However, it is crucial that its laws keep pace in the area of human rights if it truly wants to be the global superpower it seems destined to be.
[i] http://china.usc.edu/App_Images//Unofficial_Translation_China_Draft_Telecommunications_Law.pdf
[ii] http://tradeinservices.mofcom.gov.cn/en/b/2000-09-25/18619.shtml
[iii] See Chapter II of the Draft
[iv] http://www.amnestyusa.org/china/google-in-china---background/page.do?id=1351061
The most notable examples of this are Articles 4 and 5 which, when read together, seem to allow the state unfettered abilities to control speech, and the chapter on security. Article 4 begins by stating that the freedom and privacy of communications is protected by law. It then explains that the State may infringe this freedom in the name of security. And, Article 5 states that no one may use telecommunications networks to engage in activities that jeopardize State security, public security, or social and public interests. A textual argument could be made based on these two clauses, that 1. Freedom cannot be infringed unless it is for security purposes, 2. However, social and public interests are the equivalent of security issues, and 3. Therefore, if the State believes that one is engaging in conduct that jeopardizes the public interest, their freedom can be infringed. This would not be very concerning on its face. However, one also needs to consider some of the activities that the Chinese government considers to be against the public interest.
Chapter IX, on security matters, contains additional language that will worry those keeping an eye on human rights. For example, in Article 77, it states that Telecom businesses shall voluntarily keep a record of subscriber usage information. But it then mandates that this information shall be kept for a minimum of 60 days, seemingly eliminating any illusion of voluntariness. This is reminiscent of Google’s recent interactions with China. [iv] Additionally, Article 80 forbids users of communications to harm the dignity of the state, oppose fundamental principles of the Constitution, sabotage state religious policy, disturb social stability and insult people. This seems to give the State a very broad range of activities which it can control to the detriment of free speech and expression. This type of language certainly would not withstand judicial scrutiny in the US based on First Amendment freedoms.
One could argue that the US has laws in place that are equally as restrictive, such as the PATRIOT Act. However, there are still due process procedures in place, and First Amendment activities remain protected. This is not the case with China’s draft bill. China is growing tremendously and seems to be moving ever closer to a strong capitalist system. However, it is crucial that its laws keep pace in the area of human rights if it truly wants to be the global superpower it seems destined to be.
[i] http://china.usc.edu/App_Images//Unofficial_Translation_China_Draft_Telecommunications_Law.pdf
[ii] http://tradeinservices.mofcom.gov.cn/en/b/2000-09-25/18619.shtml
[iii] See Chapter II of the Draft
[iv] http://www.amnestyusa.org/china/google-in-china---background/page.do?id=1351061
An Attack on the Dollar?
Following is a link to a very interesting article about an article:
http://www.politico.com/news/stories/1009/28091.html.
Though 'thinly sourced,' Robert Fisk's piece on the 6th
( http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html )
sure got the attention of the financial world, and was possibly the stimulus for gold's recent run (see 10.7.2009 post).
Although a dramatic sell off of the dollar is possible, it would likely take a significant time period to unwind the massive positions held by states such as China and Saudi Arabia. Therefore, although there could be pain in the long term, it is unlikely that the impact would be as dramatic as Black Wednesday
( http://en.wikipedia.org/wiki/Black_Wednesday ).
That said, if Fisk is correct on his 2018 transition date, the dollar's recent downturn will only get worse. Possibly much worse.
10.07.2009
Not a Bad Way to Make a Living...
Mind the values are all in pounds. For dollar values, multiply everything by roughly 1.6 (as of 10.7.09).
http://fourfourtwo.com/lists/richlist200910thefull100.aspx
10.02.2009
Tough Loss, But Maybe Best in the Long Run
I have seen these interesting numbers from many sources through the years. Here is a good compilation of what seem to be overwhemingly negative long-term effects of hosting Olympic Games, particularly of the warm weather variety.
http://www.findingdulcinea.com/news/sports/2009/feb/Beijing-s-Empty-Venues-Reveal-Heavy-Cost-of-Olympics.html
Background on Developing Nation Claims that Private Health Standards are Barriers to Trade in Disguise
There is currently a growing area of international trade disputes that sees developing nations argue that developed nations are creating barriers to trade in the form of health and safety standards. However, these current forms of standards are not being introduced by member nations of trade organizations themselves, they are being introduced by companies incorporated and operating within their borders. The current legal status of standards developed, not by nations, but by corporations, is unclear. However, the main governing body of international trade, the WTO, has perhaps provided some direction for both sides in this growing area of dispute.
Different safety and health standards for agricultural products and goods have often been identified in the past as non-competitive barriers to trade. [i] However, these standards were most often developed by governments, or were developed by standards bodies and adopted by governments, and therefore clearly fell under WTO dispute resolution mechanisms. More recently, the trend has been toward a decrease in such official global barriers to trade. The result has been an increase in the number of restrictions that non-governmental entities (NGOs) have implemented. As many of these restrictions are impacting the developing nations among world trade partners, it is they who have been most critical of this development. [ii] However, since it is NGOs who are developing these standards, it has been difficult for the developing nations to gain any traction behind claim these health and safety standards should fall under the purview of WTO agreements such as the SPS [iii] or TBT [iv]. Perhaps the best claim developing nations could make regarding private standards is that Article 4 of SPS compels Members to ‘…take such reasonable measures as are available to them to ensure that local and non-governmental standardizing bodies also accept and comply with the Code.’ [v] Before getting past whether or not standards developed by corporations would be viable under SPS or TBT however, it would first be necessary to determine whether corporations are included under the term ‘non-governmental standardizing body.’
The term ‘non-governmental standards’ is used interchangeably with ‘private standards’ and ‘private-sector standards’ in the literature. Although this is a new and rapidly developing area of trade law (underscored by the lack of an entry on Wikipedia.org defining ‘private standard’), there is some guidance regarding what this term might mean. The United Nations Industrial Development Organization (UNIDO) has taken the lead on defining ‘private standards,’ how they should be interpreted and what the implications of them are. [vi] Most notably, it has defined private, industry or buyer standards as:
1. Consortia standards – which are often developed by a sector-specific consortium (ie. EurepGAP)
2. Civil society standards – established as an initiative by an non-profit organization usually as a response to concerns over social and environmental conditions (e.g. Forest Stewardship Council)
3. Company –specific standards – which are developed internally and apply to the whole supply chain of a company (e.g. Tesco’s Nature’s Choice). [vii]
The UNIDO site explains that though private sector firms have often been the driving force behind the development of standards in the past, there is a growing sense that their own internal standards are having an increasing impact on developing country firms’ ability to participate in global supply chains. The ultimate effect of this would be that corporate-developed standards essentially act as another barrier to entry. [viii] UNIDO goes on to identify increasing safety concerns such as dioxins and bioterrorism inter alia as reasons for the increasing trend in retailer standards. It also notes reputation, brand protection and marketplace differentiation as factors. [ix]
In addition to UNIDO, another multinational body addressing the issue has been the Organisation for Economic Co-operation and Development (OECD). In a 2006 report, FINAL REPORT ON PRIVATE STANDARDS AND THE SHAPING OF THE AGRO-FOOD SYSTEM, it addressed many of the current issues surrounding private standards in the supermarket industry and included a survey addressing standards issues from a producer perspective. [x] Another UN organization, FAO (Food and Agriculture Organization of the United Nations) has provided guidance for producers in the form of manuals describing some of the standards applicable to producers in its geographically-based offices. [xi] The EC has also, predictably, weighed in as it has been the catalyst for many anti-competitive claims. [xii] Finally, although it has not perhaps provided a convenient definition for the term private standards, the WTO has also provided some guidance on the issue itself. [xiii] In the 2005 report Food Safety and Agricultural Health Standards: Challenges and Opportunities for Developing Country Exports, the WTO provided guidance on the issue of private standards, and perhaps insight into how it might approach a future claim under SPS or TBT. For example, in a February 2009 News Item, it claims that SPS and TBT agreements are ‘…only binding on governments, not directly on companies or private sector organizations.’ [xiv] In addition, it appears that the WTO is guiding developing countries to see standards as beneficial. For example, it states:
‘An alternative and less pessimistic global perspective might emphasize the opportunities provided by the emerging standards and the possibility that certain developing countries could use those opportunities to their competitive advantage. From this viewpoint, many of the emerging public and private standards represent a potential bridge between increasingly demanding consumer requirements and the participation of distant suppliers. Many of these standards provide a common language within the supply chain and raise the confidence of consumers in food product safety.’ [xv]
The WTO’s established committee addressing SPS has provided additional guidance on private standards issues, having addressed the issue for the first time in 2005 and in several committee meetings and roundtables since. [xvi] [xvii] The WTO committee on TBT, though it has had less opportunity to address specific issues pertaining to private standards, has also addressed the issue. [xviii] [xix] Both of these committees, reflecting the broader statements of the WTO itself, have tried to steer producers in the direction that standards could provide opportunities, as compliant products would have a much larger demand base in developed countries.
One group that has not addressed the issues surrounding private standards at length is the academic community, perhaps simply because it is such a new issue. Far more research has been published on trade issues surrounding environmental standards, of which many are governmental by nature. [xx] However, there is some scholarship regarding the topic. [xxi]
In conclusion, the very new topic of private standards has received the most attention in the context of SPS agreements. Specifically, the most notable area of concern on the part of producers has been large grocery stores who have instituted safety and health standards for agricultural products. However, there are implications under TBT as well. Although the issues have not been addressed by a broad swath of governments, scholars, or commentators yet, the WTO and others have approached the topic from the perspective that it could lead to opportunities for developing country producers to improve their potential pool of buyers rather than opportunities to force lower standards on developed countries under the guise of fair trade practice. This is despite that the fact that the SPS could be read in a way that suggests governments should ensure that corporations do not hinder fair trade. To meet this goal, the WTO, its committees on standards, and organizations such as OECD and FAO, have attempted to provide manuals to developing countries in a move to increase transparency in standards. Ultimately, based on the WTO’s recent statements, developing nations will likely have to make efforts to incorporate standards rather than fight against them in global trade organization forums.
[i] http://publicaa.ansi.org/sites/apdl/Documents/News%20and%20Publications/Links%20Within%20Stories/trade_barriers_report.pdf (May 2004 DOC report identifying that, ‘…issues relating to standards and conformity
assessment to those standards are among the greatest barriers to expanding exports.’
[ii] http://www.cuts-citee.org/pdf/RREPORT02-02.pdf (a paper on the market access implications of SPS and TBT with a case study on frozen shrimp exports from Bangladesh to the EU subsequent to new health regulations)
[iii] http://www.wto.org/english/tratop_e/sps_e/sps_e.htm
[iv] http://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm
[v] Peter Van den Bossche, The Law and Policy of the WTO, Text, Cases and Materials, 458 (2007).
[vi] http://www.unido.org/index.php?id=5815
[vii] http://www.unido.org/index.php?id=5815
[viii] http://www.unido.org/index.php?id=5815
[ix] http://www.unido.org/index.php?id=5815
[x] http://www.olis.oecd.org/olis/2006doc.nsf/43bb6130e5e86e5fc12569fa005d004c/4e3a2945ffec37eec12571bc00590ce3/$FILE/JT03212398.PDF
[xi] http://www.fao.org/docrep/010/ag130e/ag130e00.htm
[xii] http://ec.europa.eu/food/international/organisations/sps/docs/report_2526022009_en.pdf
[xiii] http://siteresources.worldbank.org/INTRANETTRADE/Resources/Topics/Standards/standards_challenges_synthesisreport.pdf
[xiv] http://www.wto.org/english/news_e/news09_e/sps_25feb09_e.htm
[xv] http://siteresources.worldbank.org/INTRANETTRADE/Resources/Topics/Standards/standards_challenges_synthesisreport.pdf
[xvi] http://www.wto.org/english/news_e/news05_e/sps_june05_e.htm
[xvii] http://www.unctad.org/trade_env/test1/meetings/wto1/Summary%20of%20SPS%20Committee%20Discussion%20on%20Private%20Standards.pdf (SPS committee meeting summary)
[xviii] http://www.wto.org/english/news_e/news09_e/tbt_16mar09_e.htm (TBT barriers to trade workshop summary)
[xix] http://www.wto.org/english/tratop_e/tbt_e/wkshop_march09_e/tbt_16mar09_report_e.doc (a full report on the aforementioned TBT barriers to trade workshop)
[xx] See c.f., B.C. Envtl. Aff. L. Rev. 79, (2009) (for a discussion of how private environmental standards impact international trade agreements)
[xxi] See, 24 Wis. Int’l L.J. 961 (2007)
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