Ambassador's Corner
WEEKLY MESSAGE FROM AMBASSADOR JOHN BRUTON
January 29, 2008
“The ultimate political test of our generation”
Last week, the European Commission President,
José Manuel Barroso, described
climate change as “the ultimate political test of our generation” when he
unveiled detailed proposals to deal with it.
These include an updated
Emissions Trading Scheme, which introduces for the
power sector in Europe full auctioning of the permits to emit from 2013 onwards,
and increased auctioning for all other sectors
covered by the trading scheme.
Each EU Member State will also have to produce a detailed plan for emissions
reductions in sectors not covered by the Emissions Trading Scheme, in the
context of legally enforceable targets for each State. Twenty percent of Europe’s
energy
will have to be generated from renewable sources by 2020.
The EU’s emissions trading system also includes Norway, Iceland and
Liechtenstein (not EU Members). The effect of the system will be to put a market
price on carbon emissions. The higher the carbon price, the greater will be the
incentive to adopt technologies that cut carbon emissions. This is putting
market forces to work in favor of the
environment.
The price of electricity in Europe is expected, the Commission says, to rise by
10%-15% by 2020, compared to business as usual, as a result of these measures.
This involves real economic and real social costs. The Commission estimates that
these ambitious measures will cost each EU citizen approximately €3 per week.
The Commission has also proposed a
Directive for the geological storage of
carbon dioxide, which will provide a way of mitigating these costs.
The justifications for those measures lie in the fact that developed parts of
the world, like Europe, have contributed, and continue to contribute,
disproportionately to climate change and it is therefore up to them to take the
lead.
10.9 metric tons of CO2 are emitted into the atmosphere for each EU citizen,
20.4 metric tons for each American, but only 1.2 metric tons for each Indian
and only 0.25 metric tons for each Banlagedeshi. Even the most hardened
climate change skeptic must find it hard to deny that all those tons of
material are bound to be changing something up there! Common prudence suggests
that we should mitigate those emissions quickly and encourage others to do
likewise.
“The Moral Economy”
In a way, it was striking that there has been such unanimity among politicians
and economists in applauding the coming together of the US Congress and the
Administration to craft a stimulus package for the US economy, in response to
the slowing economy and the fallout resulting from difficulties with some loans
taken on by financial institutions and the resultant ensuing problems in
financial and credit market.
The US consumer has been consuming more than he/she has been earning for a
number of years, partly because much of the rest of the world has preferred to
consume less than it was earning, and then to lend its surplus on to Americans.
So if the US cuts consumption because of a loss of confidence, the rest of the
world will either have to accept that it will earn less, or decide that it will
spend more. If it does the former, the world economy could go into a recession.
Nobody wants that to happen, so a stimulus package is attractive to many. As a
short-term measure, it should mitigate a shock to the global economic system,
and that is desirable.
But where is all this heading?
The great thing about America is that you will always hear a contrary view. No
consensus remains unchallenged for too long.
I was struck by two interesting commentaries in Washington newspapers over the
past weekend.
Victor Davis Hanson in the Washington Times questioned the wisdom of the
Federal Government borrowing more to stimulate consumption by households,
arguing that nowadays:
“There is plenty of excess in modern American life that can be shed without real
hardship.”
There is excessive
consumption in Europe too, although there are many people on
both sides of the Atlantic for whom this is not the case.
Professor Andrew Samwick in the
Washington Post said:
“This 'stimulus bill' is really $150 billion worth of some future generations'
resources, appropriated to finance our own consumption.”
Professor Samwick acknowledges that the purpose of the stimulus package is to
maintain the present level of economic activity, rather than to increase it, but
then asks the question:
“If we acknowledge that bad loans fuelled the (present level of) activity,
why is it now a widely shared policy objective to maintain that level of
activity?”
These are serious questions, not just for Americans, but for policymakers
everywhere.
Is the western model of society based on levels of consumption that are
sustainable in the longer term, financially and environmentally?
Will the economic stimulus involve a net addition to long-term Government debt,
and will that fact tend to depress, rather than increase, consumer confidence,
especially if longer-term structural problems like the healthcare entitlements
of an ageing population remain unaddressed?
What will the climate change impact be of a further stimulus to consumption? Will
it add to upward pressure on raw materials prices?
Not all consumer stimulus is of equal value. We need to know if superfluous
consumption is squeezing out essential consumption.
We need to help those at genuine risk of hardship.
We need to concentrate on essential goods rather than status goods. In other
words, we need to concentrate a stimulus to consumption on the things people
need to live a decent life, rather than on the things they buy just to be ahead
of their neighbors. We need to promote consumption levels that can endure in
the long-term, and not simply to deepen a misallocation of resources.
Compartmentalized thinking should not prevent policymakers from looking at all
these issues together.
We need bankers who will raise those sorts of questions before advancing money.
We need, to use the terminology of Victor Davis Hanson’s article, a “Moral
Economy.” That is the sort of economy that will endure, and that we can
confidently pass on to future generations.
Visit to Utah
Last week I visited Utah, as the guest of
Brigham Young University
(below), to take part
in their Ambassador lecture series. I also visited Utah State University.
I was invited to address the
Utah State Senate
(left) by its President, John Valentine (below).
John was first elected to the State Senate in 2000, and attended high school in
California before coming to Utah.
I had a meeting with the Governor of Utah, Jon Huntsman. The Governor is justly
proud of Utah’s fast economic growth. The Governor worked in the White House
during the Reagan Administration and is deeply knowledgeable about international
affairs, having served as Deputy US Trade Representative and US Ambassador to
Singapore. He spent two years in Taiwan and is a fluent speaker of Mandarin
Chinese.
Governor Huntsman typifies the internationally-minded character of his state.
Many Utah natives have worked in other countries and cultures, notably as
missionaries of the Mormon faith. Utah’s population is the youngest in the US,
with 48% under 35, and it has the highest birth rate in the US.
I emphasized to Governor Huntsman the importance of his state’s
economic links
with Europe. Eighty-seven percent of all foreign direct investment in Utah comes from the EU, and
Utah exports 13 times as much to the EU as to China. I also made these points at
a lunch given by the Salt Lake Chamber of Commerce.
I met senior figures in the Mormon Church during my visit including Boyd K.
Packer (center right), Acting President of the Quorum of the Twelve Apostles; Dallian H. Oaks
(far right),
Member of the Quorum of the Twelve Apostles; and Dieter Uchtdorf (far left), Member of the
Quorum of the Twelve Apostles. I visited their Humanitarian Centers (below) from which
they quickly dispatch vital emergency supplies to victims of natural disasters
all over the world, regardless of the religious faiths of those victims.
I also visited their Family History Library, the largest of its kind in the
world, where I was provided with information about my own antecedents back in
Ireland!
I visited the Conference Center (right) in Temple Square in Salt Lake City, which is the
biggest auditorium of its kind anywhere in the world, bigger even than the Great
Hall of the People in Beijing.
President Gordon B. Hinckley, who led The Church of Jesus Christ of Latter-Day
Saints through explosive growth during his more than twelve years as president, died
on Sunday January 27. I extend sympathy to his family and to his church on his
death.
He travelled the world during his tenure. His ministry was characterized by a
strong desire to be out among the people. He travelled nearly a million miles
and spoke to hundreds of thousands of members in at least 160 nations, employing
his mastery of electronic media to bring unprecedented press attention to his
church.
Maryland State of the State Address
Governor Martin O’Malley invited me to attend his
State of the State Address in Annapolis last week. Governor O’Malley has had notable success in working with
the legislature to put the State’s finances back on a sound footing, which is a
very important achievement after only a year in office.
Please send me your
comments about this or any of my weekly messages or other EU matters. I
look forward to hearing from you!
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