Eco-pigheadedness and costly paranoia - DDT

National Post editors will never be accused of being shrinking-violets. The fiftieth anniversary of Rachel Carson's Silent Spring is upon us and the Post pulled no punches marking the occasion in an editorial this week. Wikipedia calls it the book that helped launch the environmental movement.

The Post points out that Carson was correct in that the indiscriminate use of synthetic chemical pesticides is not wise: "spraying large quantities of pesticides can have serious, and sometimes fatal, consequences. Ms. Carson helped sow a degree of caution about synthetic chemicals by showing the ill effects they can have on plant life, animals (Silent Spring focuses on the effects of DDT on birds — the Spring season will be “silent” once they have all been killed off) and, potentially, humans."

But, and it's a big BUT, the editorial continues: "DDT is not nearly as harmful to humans (or birds), in moderate doses, as Ms. Carson suggested. But it is harmful to the mosquitos that transmit deadly malaria and typhus that kill millions every year across the developing world." That's the issue of course, the uses of pesticides and other methods to increase crop yield or protect humans are rarely black or white situations, there are levels of appropriate use.

Its thought that the total ban or at least diminished use of DDT, particularly in areas where serious diseases (malaria) are carried by insects has led to untold millions of human deaths. How many deaths can be shown to be caused by DDT spraying? Certainly not anywhere near the deaths attributed to malaria. What I'm suggesting is that there is a level of DDT use that allows it to be used effectively without undue risk to human health, and therefore it should be used in that context.  

The ban and abandonment of DDT is for me a perfect example of the "lets be safe attitude" that many environmentalists have with regard to global warming and similar situations. You know the attitude, where they come out and say lets curtail energy output, lets cut back on industrial production, lets stop using fossil fuels to drive our economy, just in case it may cause catastrophic global warming, melting of the ice caps, raising sea levels - in fact the whole Al Gore "inconvenient truth" scenario that only the most fanatical still believe. That attitude has the effect of destroying or diminishing our economy on the chance that global warming or whatever will lead to catastrophe.

The Post's editorial mentions the use of chemical spraying in Dallas Texas to curtail the spread of West Nile virus. The irony there is that West Nile's North American invasion is likely an effect of global warming, but the spraying went ahead without much fuss.

My point being, that environmental issues are best examined where they actually affect people, and that is in local situations where those involved can make use of all the tools that are available to them and make rational and objective choices.

The elephant in the room: Rollover risk

chart from PFS Group....

Interest rates are at historic lows, still. Most people take for granted that government Central Banks dictate interest rates, and most of the time they seem to. And yet there are stories from the financial crisis in Europe that you may be aware of, where local country rates in Greece or Spain have spiked far higher than anywhere in the Western world. What's going on? If rates are in fact controlled, why are they seemingly out of control in some countries?

The answer is related to the confidence of the lenders, markets and money supply.

As an investor or lender you may not want to consume some of your money over a defined period of time. You could choose to put the money in the stock market, but the risk is high and the return is unknown. You may want to make certain you will be repaid for your investment and also paid interest for the time the money has been lent out of your control. The rate of return, interest, is a function of the time the lender is willing to forgo consumption and control of the money invested. However, you expect to be repaid.

High rates of return (high cost of money) should indicate that investment money is scarce, this might entice investors to take advantage of good returns, and it also tells business people that it might not be the best time to expand their particular business. As money is saved in banks and becomes more plentiful, rates of interest would fall indicating more money is available to be borrowed.

On the other hand, with low rates of interest (when borrowing is cheaper), it should be a signal to the business community that there is more money available now for borrowing and that means it's a good time to expand business.
   

According to the Austrian business cycle theory (ABCT), originated by Fredrick Hayek and part of the reason he received a Nobel Prize in 1974, interest rates serve the purpose of signalling to the competitive business community whether they should be expanding or contracting their business. Interest rates have an important function that way in regulating the movement of capital, and allowing the market to operate most efficiently.

When Central Banks took on the role of issuing currencies and regulating market conditions by manipulating interest rates, they created distortions and inefficiencies in the operation of the free market. For example, the ABCP crisis of 2008-09, had its roots in years earlier, when interest rates were set artificially low (ignoring the lack of savings at the time) by the US Federal Reserve Bank which sent a false signal to builders that expansion was a good idea. The housing bubble thus created, popped as soon as variable interest rates "rolled over" and moved slightly higher exposing the extent of overall consumer and business debt. Banks stopped lending because they feared they would not be repaid. Financial transactions froze in the US.

But that crisis was primarily in one country, the US, and of course it had huge ramifications around the world. But what if there were a similar borrowing bubble with the same root causes, only bigger?  

Central banks around the world have set their interest rates very low through a variety of complex manipulations since the US housing bubble. The "interest signal" to the market is, money is cheap to borrow, it must be abundant (according to ABCT). Governments are borrowing, individuals are borrowing, all because rates are low. Cumulative debt is increasing, rollover risk is also increasing. What is rollover risk? The following is from a newsletter I received recently from Agcapita.

"Rollover risk can be defined broadly as the possibility that a borrower cannot refinance maturing debt. If combined with insufficient funds/liquid assets on hand to fund the shortfall, the borrower will experience a liquidity problem and technically may be considered insolvent.

Here is a concrete example of rollover risk that may be unfolding right in front of us: Bloomberg estimates that the developed economies have $7.6 trillion of debt maturing in 2012 led by Japan ($3 trillion) and the U.S. ($2.8 trillion) and more than $8 trillion must be financed when interest payments are included. By 2015 it is estimated that half of the debt of the top 10 global debtors ($15 trillion) will mature and must be rolled.

Debt Maturing in 2012 ($)

Japan - 3,000 billion

US - 2,783 billion

Italy - 428 billion

France - 367 billion

Germany - 285 billion

Canada - 221 billion

Brazil - 169 billion

U.K. - 165 billion

China - 121 billion

India - 57 billion

Russia - 13 billion

Considering that global GDP is estimated at $70 trillion the magnitude of these numbers beg the questions of 1) how this will be financed and perhaps more importantly 2) at what rates?"

So, you see, there is an elephant in the room, the question is how will it be dealt with? The answer could come sooner than we might like. 

Ready for more on Austrian Economics and interest rates? Robert Murphy:

Watch while you can, Robert Higgs on Warfare, Welfare and the State

The other day I was speaking with a colleague about his fear that governments will become less and less comfortable with the freedom of the internet. I'm not talking about China or Iran, I'm talking about Canada, and the United States.

The US tried SOPA and PIPA in recent months and while most people think they are gone, defeated, the fact is, the danger is still present, just delayed.

Those US laws are supposed to stop piracy and protect intellectual property, don't believe it. If they are passed they will be the thin edge that signals the end of internet freedoms. Who knows what will follow, what interests need to be "protected" by government fiat?

One thing that may disappear is the kind of thing displayed in Robert Higgs' speech last month at the Mises Institute. Higgs pulls no punches, and tells it like he sees it. It's almost an hour long, but well worth your time.

When Collectivists clash with the State

The Quebec student strike, that I have already written about here, raises some interesting issues.

The students have formed a "union," wherein every member (like it or not) is subject to the will of the group, just like a labour union. The protest, of course, should make anyone with any sense morality, cringe. The students want full funding for their post secondary education, the right to free schools. Already 90% of their tuition is borne on the backs of taxpayers, but they want it all.

To get it all they have taken to the streets.But a new law passed, called Bill 78, restricts student access to free speech and assembly.

I don't know where to start critiquing this. Does a good citizen support the students right to speak on behalf of their desire to confiscate money from the general population and pay to send them through university? Or should the State be criticized for such a draconian law? Probably both. Watch what ReasonTV makes of this.