China’s Economic Challenges

Previous posts this year, “The China Bubble,” and “National Debt and Rates of Return,” have already emphasized that China’s real estate market is grossly overvalued. Today on the respected economics blog, Mike Shedlock has offered new insights on the coming correction in China which he, too, has seen coming for a long time. In his post “China Hikes Rates, Ponders Capital Controls to Halt Currency Inflows,” Shedlock lists eight reasons China faces a hard landing:

  • Hot money inflows
  • Huge property bubble
  • Massive increases in money supply, much of it property speculation and building of unneeded capacity
  • Currency manipulation charges from the US and potential trade wars
  • Unsterilized trade imbalances fuel inflation
  • Slowing Europe
  • Dearth of Jobs for new graduates
  • Potential social unrest

Shedlock also provides a link to a story posted December 18th, 2010 on the U.K. Daily Mail’s website entitled “The ghost towns of China” that shows amazing satellite images of deserted cities that are meant to be home to millions. And today in the Wall Street Journal, a column by Hugo Restall entitled “China’s Real-Estate Frenzy” has this to say about a property bubble in China, “Housing prices in the U.S. peaked at 6.4 times average annual earnings this decade. In Beijing, the figure is 22 times.”

You don’t have to be an economist to understand that the combination of millions of empty, excess housing and commercial units, combined with prices for these units that have appreciated at a rate 22 times earnings growth in a single decade is a problem. Combined with the other reasons Shedlock so aptly summarizes, including surplus labor and a slowing market for exports, one may reasonably conclude China’s economy is in serious trouble.

There is an interesting story from Reason Magazine, written over a year ago by Anthony Randazzo, Michael Flynn and Adam Summers entitled “Turning Japanese,” that offers one of the best summaries of how the debt bubble caused economic stagnation in Japan and now threatens the United States. As they put it, “A long real estate bubble that had expanded extra rapidly for the previous five years suddenly burst, and asset prices came crashing back down to earth. Banks and financial institutions were left holding piles of worthless paper, and the economy soon headed south.” This article is perhaps even more applicable to China, where the banking system is so opaque it is hard to assess how much they depend on margin lending.

Shedlock makes a very good point in his recent post on China when he states “It is not ‘consumer price inflation’ that is the big problem. Asset inflation, especially property speculation is rampant.” This underscores a serious problem with conventional economic indicators which do not adequately emphasize both aggregate debt in a nation as well as asset inflation.

The United States, which confronts a total debt (all debt, commercial, consumer and government) to GDP ratio of 3.7 to 1.0, is none-the-less in a stronger position than China or the Eurozone. For one thing, we actually know what the debt to GDP ratio is in the U.S. In China the actual numbers are virtually impossible to determine, and in the sixteen nations comprising the Eurozone the numbers, while somewhat more transparent than China’s, are fragmented and also nearly impossible to compile. But these balance sheet considerations – the total debt, total assets, and the volatility of asset values, define a nation’s economic vitality at least as much as the leading indicators so favored by conventional economists. And by those balance sheet measures, China is headed for a day of reckoning.

Equally important in the relative assessment of the U.S., the Eurozone, and China’s economic prospects are factors where the U.S. is clearly advantaged: the U.S. has a diverse economy that is three times larger than China’s, technological and scientific leadership, military supremacy, a robust and reasonably transparent democracy, relative civil calm, and the youngest demographic age distribution of any developed nation. Because of these advantages, the United States, despite alarming levels of debt, may still manage to avoid a deflationary collapse. China has none of these factors working in her favor and is challenged accordingly.

National Debt and Rates of Return

Over the past few weeks it has been clear that another exploration of deflationary risk is in order. Having already published Inflation vs. Deflation (3-15-10) and Avoiding Global Deflation (7-18-10), as well as The China Bubble (6-8-10) there seemed no point in compiling additional alarming, but anecdotal information. Nothing has changed. Debt is too high almost everywhere, certainly in the U.S. and the Eurozone, and even if Chinese debt ratios appear low, the information available could be misleading because China’s banking system is opaque, and much of their collateral may be grossly overvalued.

Because for the past thirty years the global economy has relied on rising debt to fuel rapid economic growth, as debt levels become unsustainable, economic growth slows. When that occurs, asset values drop, meaning that outstanding loans are no longer backed by sufficient collateral. Even in a mildly deflationary environment – which for now, thankfully, is all we are dealing with – real rates of return on large investment funds cannot realistically be projected at levels that cause total interest payments to consume an inordinate percentage of GDP. The more debt exists as a percentage of GDP, the more a burden interest payments become, and the more imperative it becomes to keep interest rates low to maintain solvency – whether that is solvency of government, business, or household entities.

As an aside, when considering levels of debt, what level is deemed sustainable will affect the ability of nations to issue currency without triggering currency devaluation – and paradoxically, the more weakened other currencies are relative to each other, the more difficult it becomes for any nation to resort to currency devaluation to whittle away the real value of their debt on global markets. In short, the accumulation of unsustainable debt both mandates and impels low rates of investment returns.

In this post I’ve attempted to compile information on total national debt in comparison to annual gross domestic product (GDP), and then attempted to correlate this ratio to national assets (based on 10x GDP) to calculate the amount of national credit available based on a borrowing ceiling of 50% of assets. I also attempted to determine total interest payments as a percent of GDP based on various rates. Finding good information is difficult, the topic is vast, and many assumptions are inevitable in the course of producing useful generalizations, but here goes:

This post presents four tables designed, hopefully, to convey information useful to evaluate the strength of currencies and the sustainability of total national debt; they evaluate the Eurozone along with the other six largest nations, the US, China, Japan, Brazil, Russia, and India, who collectively represent about 70% of the estimated global GDP. The first table estimates government debt as a percent of GDP. The second table, just for the U.S., displays reported total debt (government, commercial, consumer) as a % of GDP for the years 1890 through 2010. The third table estimates total debt as a percent of GDP, and then calculates available credit based on a collateral value of 10x GDP, with a borrowing limit of 50% of collateral value. The fourth table estimates total interest payments as a percent of GDP based on interest rates of 2%, 4%, and 8%.

These tables are compiled with data from a multitude of sources; CIA, GPO, UN, World Bank, IMF, US Census Bureau, and much more. Of extraordinary value in these compilations is Wikipedia, where tables referencing multiple authoritative sources can be found listing GDP, Population, and other basic data. The debt of nations can be split into three very distinct areas: government – local, state, and federal – businesses, and consumers. These national debts, along with the GDP of nations, are denominated in trillions. The GDP of all nations combined, for example, is valued at around 58 trillion in 2010 U.S. dollars.

All of these reported debts represent claims by creditors for things that have already happened; were already built or consumed. These various debts don’t include any unfunded future liabilities, there are no future services that can be withheld in order to reduce these debts. These total debt balances are for money that is already spent, home mortgages, commercial mortgages, corporate and financial debt, and the debt of governments. In researching information on the internet, while GDP estimates are readily available, and the federal government debt of nations is reasonably available, the rest of the data is fairly elusive.

In the above table, government debt is compared between the seven largest economic entities, including the Eurozone as one entity. The information on debt comes from the 2009 CIA table Gov’t Debt as a % of GDP. The GDP and population figures, including those compiled for the 16 member nations of the Eurozone, come from compilations on Wikipedia; List of Countries by GDP, and List of Countries by Population, which in-turn sources its data from the CIA, the IMF, and the World Bank.

This table, which doesn’t include state and local government debt, shows the U.S. with a reported government debt equivalent to 54% of GDP, which is better than the Eurozone, with a debt/GDP ratio of 79%. In reality the government debt as a percent of GDP when you compare the U.S. and the Eurozone are probably about the same. Among the major nations, India (57%) and Brazil (60%) also have high levels of government debt, and Japan has a staggering 193% debt/GDP ratio. Only Russia (8%) and China (17%) have apparently avoided crushing levels of government debt.

Government debt, however, is only one leg of the stool; the other legs are commercial debt and household debt. In the next table data is presented for the U.S., looking not just at government debt, but all debt. The data for this second table is gathered from three sources, which all corroborate an astonishing statistic – that the total debt in the U.S. is currently higher than it was during the great depression in the 1930s. Currently the reported total debt / GDP ratio in the United States is 370% and rising. At the height of the great depression, total debt / GDP was barely 300%.

Instead of presenting this data graphically – three corroborating versions of which can be seen in the reports from MarketOracle, Morgan Stanley (ala Paul Kedrosky), and Daily Markets – the above table breaks the last 120 years of American history into four 30 year financial eras. In all four 30 year periods, the total U.S. debt fluctuated between 140% and 160% of GDP. Two of the 30 year periods, the those beginning in 1890 and 1950, respectively, saw debt as a percent of GDP display very little variation. For example, between 1890 and 1920 the maximum debt/GDP ratio was 165%, and the minimum debt/GDP ratio was 125%. For the period beginning in 1950 the variation was even more unremarkable, with the 1950 beginning level of 140% comprising the lowest ratio, and the 1980 ending level of 160% comprising the highest ratio. This parallel between the two relatively stable periods makes any parallel one may infer between the two relatively unstable periods quite ominous. Because the 300% debt/GDP extreme achieved in 1930 took 20 years and a grueling economic depression to unwind. As of 2010, America’s total debt is around 370% of GDP and rising.

The next table, below, attempts to determine what resources the United States and other nations may have available to maintain their debt load or even increase it. In order to come up with some comparisons, two major assumptions are made – that national assets are equivalent to ten times GDP, and that total debt is equivalent to triple the reported government debt (with the exception of the U.S., where there is a more accurate estimate of $51 trillion in total debt). As can be seen, based on these assumptions, the debt/asset ratios for these nations (col. 3, below) display predictable parallels to the debt/GDP ratios, except in the case of the U.S.

Parallels break down, however, with the next step, which determines how much additional credit these nations can muster (col. 4, below). For the purposes of comparison, available credit is calculated by assuming a nation’s collective borrowing remains viable up to an amount equivalent to 50% of their collective assets. As can be seen, the absolute value of each nation’s GDP has a decisive effect on the calculation, since countries with much larger GDPs such as the U.S. have as much remaining borrowing capacity – 19.8 trillion – as the much smaller Chinese economy – 22.4 trillion – despite the fact that China has a debt/equity ratio of 5% vs. America’s 36%.

There are a lot of caveats to any sort of compilation of national borrowing capacity. Altering the assumptions yield vast repercussions. What if the debt held by households and businesses don’t mirror the levels of government debt? What if some nations have asset bubbles that are significantly more over-valued than the assets in other nations? But it’s important not to let these concerns completely overshadow the point, which is that global debt as a percentage of global GDP and global assets is getting dangerously elevated. This is obviously the case in the U.S., Japan, and the Eurozone, but what about China? Because China has a nearly impenetrable banking system, getting aggregated information is impossible, but the Chinese probably have significant debt that is not observable, and they may have asset bubbles – which collateralize their debt – that are about to pop.  Consider these quotes from the article “China’s record debt has economists worried,” published last November by Bill Powell in CNN Money:

“The U.S. fueled its housing and consumption bubbles by providing easy credit. China seems headed in the same direction, although the victims would be different this time. In the first nine months of the year, Beijing has shoveled $1.27 trillion in new loans into the economy, up 136% from the same period last year. That money has gone to three main areas: infrastructure, manufacturing, and real estate. According to a recent analysis by Monaco-based hedge fund Pivot Capital Management, China’s total lending reached 140% of GDP at midyear. That kind of lending makes China an ‘outlier’ compared with other BRIC (Brazil, Russia, India, and China) countries — and is already well beyond the levels that ‘have led to sharp and brief credit crises in the past,’ the Pivot Capital report contends. Moreover, an increasing number of Chinese loans are being funneled into projects unlikely to generate an attractive economic return. From 2000 to 2008 it took just $1.50 in new credit to generate $1 of GDP growth. Now that ratio is 7 to 1. (In the U.S., just before the financial crisis hit, the ratio was only 4 to 1.)”

For more on China, consider the report “China’s rising bank debt could leave nation exposed” published earlier this month by Ambrose Evans-Pritchard in The Telegraph:

“Chinese banks are expanding their balance sheets rapidly through higher leverage – a policy that relies entirely on the continuance of torrid growth. Concerns are mounting about the opaque operations of China’s banks. The regulator ordered them to carry out a stress test this month based on a 60% fall in property prices.”

Before moving on, it’s important to connect the vulnerability of national economies who have relied on excessive debt to deflationary pressures. The U.S. housing market, for example, has now collateralized the accumulation of debt by U.S. households that easily exceeds $10 trillion. What happens when these homes are all suddenly worth 50% as much? This same scenario may also occur with the commercial real estate market in the U.S., putting another nearly $5 trillion in debt at risk. Government debt, while not explicitly collateralized to hard assets, is none-the-less backed by the vitality of the economy of the nation. Business debt is collateralized by the assets of the business, which lose their value in a downturn. The point is this: If the value of the collective assets in the U.S. go from 10x GDP to 5x GDP, i.e., if they lose $70 trillion in value, there is no fiscal or monetary policy imaginable that could prevent a collapse of liquidity and a deflationary spiral.

The next table examines the sustainability of debt levels in the major nations by estimating debt service as a percent of GDP based on various interest rates. While these debt levels are speculative in the case of nations other than the United States, because they are based on a total debt estimate of 3x government debt, in the case of the United States all of the variables are fairly well documented. As can be seen, debt service at an interest rate of 2% consumes 7.2% of U.S. output, at rate of 4% consumes 14.4% of U.S. output, and at a rate of 8% consumes 28.8% of U.S. total output.

What this all means is hard to distill, but salient points abound. Debt payments necessarily are paid from an active producer to a passive consumer. Incentives to produce are dashed in a debt-rich economy. Existing debt and current deficits are only part of the picture – cash-flows are also being decimated now by payments for future liabilities. While pay-as-you go plans such as Social Security are unfairly identified as a source of massive unfunded liability (ref. Funding Social Security), the Wall Street pension plans are in dire straits because they been projecting investment returns that are elevated because they depended on accumulating debt. Here the relationship between national debt and rates of return is a painfully relevant indicator of impending deflation – we have reached the point there is too much debt out there to pay high rates of interest without going bankrupt, and consequently our retirement pension funds will require far greater infusions of cash from the workers, further lowering productivity.

Turning to salient questions, why would economists deny an economic cycle is in recession, if growth is only through growing assets atop a speculative bubble? Didn’t any experts think total national debt mattered? Why for that matter, isn’t information readily available on aggregate debt by nation and currency zone? Is consumer debt or commercial debt that hard to estimate? Can no informed assumptions be made? Are discussions of aggregate debt still irrelevant? If not, where are the figures?

The GDP numbers used here, along with the debt numbers in all sectors for the USA, come from what appear to be reliable and redundant sources. Therefore the estimate that just a 3% real rate of return on total debt in the USA will require interest payments of 10.8% of GDP is well founded. Of equal importance is the impact the reduction to a 3% earnings projection has on the long-term balances for investment funds that are obligated to disburse defined benefit obligations to current and future retirees. If return projections are lowered to 3%, they will necessarily require gigantic leaps in their annual collections in order to fulfill these future promises.

National debt of all kinds, government, business, household, is facilitated by low interest rates. Once these low rates induce a sufficient percentage of national assets to be encumbered, either contractually or intrinsically as part of the economic ecosystem that determines and defends the vitality of a nation’s currency, it becomes crucial to maintain low rates to avoid bankruptcies. In the early stages, and then with increasing desperation, as these low borrowing rates stimulate economic growth catalyzed by excessive speculation, assets acquire value that would not accrue in an environment of sustainable, higher rates of interest. These overvalued assets are the collateral, they secure additional borrowing, they are engines of liquidity. The higher debt levels get, the more new debt it takes to generate the same unit of economic growth. Eventually buying must slow down, and asset values come down to earth, which means loans are secured by property that is worth less than the loan. When this becomes pandemic, you have a deflationary decline.

National debt and rates of return is an endlessly compounding topic that defies concise explanation, hence a conclusion to this post that may as well be throwaway haiku. One final aside: Related to passive investor claims on ongoing productivity, which in the U.S. at 3% interest is 10.8% of all output, is the demographic reality that defines nations as much as their levels of debt. Japan, the Eurozone, and China all confront rapidly aging populations, although the Chinese are a generation behind Europe and Japan. The U.S. has a perfectly even age continuum, with about 20 million people in each five year age group through about age 60. Brazil still has a pyramidal age structure, although the slope has steepened in the last 10-20 years. In general, the 30% of global output not summarized here are emerging nations, with young populations and relatively low levels of debt. Will they be the locomotives that pull the developed world out of their debt funk, by playing an integral part in a new wave of sustainable growth? Or will the canny and heedless West simply mortgage the emerging world like it mortgaged itself, making them just another bubble? Or are we advancing so fast, our efflorescence of technology and freedom so rapid, that real economic growth will erase our debt?

Debt elimination without a deflationary crash requires GDP growth while simultaneously reducing debt. But without bubbles the world would no longer dream, or reap the lasting benefits from the valid advances every bubble leaves behind. In the future, what’s wrong with a space tourism bubble, where we vacation at a constellation of resorts orbiting in the vicinity of L5? Or a geriatric bubble, with products such as exoskeletons that would enable safe downhill skiing at age 110? Or highly advanced virtual reality devices, bubble enclosures in reality, where young and old enter cyberspace and become indistinguishable? Aren’t bubbles innovative engines? But debt is debt, and walls are walls, and interest rises, and interest falls.

Voter Fraud in America

In a previous post “Widespread Voter Fraud” the point is made that voter fraud is something that has plagued democracies throughout history; it is certainly something that has challenged American democracy over the past 200+ years; it is not something that is practiced exclusively by either party. So it should come as no surprise that voter fraud was alive and well in the 2010 election cycle.

In addition to the compilation from, “How Unions or Their Allies Could be Stealing November’s Election Right Now,” referenced in the previous post, what follows are links to additional useful summaries of some of the problems we apparently are having with voter fraud. What is disturbing is that these reports are found on a handful of lightly trafficked websites that focus on this topic – and within those reports are links to mainstream media articles on the topic. But the mainstream media covers newsworthy anecdotes regarding possible election fraud, then moves on. This is too bad, because if you read these reports from the blogosphere, they seem credible.

On the Robomonkey blog, their “Archive for the ‘Voter Fraud’ Category” includes a thirteen part series of posts entitled “Grand Theft Democracy.” These are well worth reading. On the HillBuzz blog, their “Voter Fraud / Election Tampering Thread” adds several additional valuable reports and links on this topic – be sure to read the many comments which have dozens of useful links.

Closer to home, in California, a race that stands out as worthy of further investigation is the Costa vs. Vidak race for California’s 20th Congressional District. This race, which the Democrat incumbant Vidak won, had Costa ahead by 10% in the last polls before the election (ref. Real Clear Politics Vidak vs. Costa). The DC Barroco blog, in a post entitled “Cali-fraud-ia?“, reported on November 3rd that 150,000 uncounted drop-off votes have been “found” in Fresno and Bakersfield, urban areas that will lean heavily Democrat.” At least 20% of these ballots affected the 20th Congressional District. While this isn’t a lot to go on, this upset occurred in California’s San Joaquin Valley – an area whose economy has been decimated by the Democrat-inspired cut-off of fresh water deliveries necessary for their farm economy – it is not clear how Vidak could have gone from a 10% advantage in late October to a 2% defeat on November 3rd.

While the 2010 edition of voter fraud appears to be, nationwide, something that is mostly associated with Democrats, eliminating voter fraud is a nonpartisan issue. A very informative set of videos where commentator Alex Jones interviews voting fraud expert Bev Harris, entitled “Whoever is Controlling The Voting Machines is Ultimately in Power” (part one), and (part two), offers important information to anyone who wants to better understand how voting fraud occurs and how to reform the process.

Bev Harris discusses four points in the election process where opportunities for fraud exist, or as she puts it “four essential processes that have to be available to the public for authentication without need for special expertise.”

(1) Who can vote – the voter list.

(2) Who did vote – the participating voter list.

(3) Whether or not the ballot that gets counted is the same one that got cast – the chain of custody.

(4) The counting of the vote – meaning a public counting of the vote.

In each of these areas there are several problems with our current laws, as well as several logical and feasible solutions which Harris outlines during her interview. Some of these reforms are so obvious it is almost inconceivable that they are not already federal law – such as requiring people present their ID in order to vote. Other reforms are not going to be easy, but may be necessary both to prevent fraud and also to preserve the secret ballot and to protect voters from intimidation – eliminating voting (barring genuine need, such as overseas military personnel) by absentee ballot or voting by mail is one of the most important of these reforms. Other solutions include preserving a paper trail, and – why not, they have already done this in Germany – getting rid of the electronic voting machines.

American democracy is not fully realized if well organized gangs of ideological fanatics and their criminal bedfellows can put the end in front of the means, and fraudulently manipulate our elections. American exceptionalism is severely diminished by the blight of voting fraud, and as long as it exists, it is yet another challenge to America’s destiny as a free nation and an example for the world.

Calculating Public Employee Benefit Overhead

A post published last October, “Public Employee Compensation” estimated the average state and local employee in California makes about $100K per year. This post attracted a great deal of comments and discussion, including identifying some minor errors in the calculations. These errors were offsetting, however, and the findings generated in that report are now distilled in this post. Not only the data compiled, but the methodology, may hopefully be of value to interested citizens who wish to independently assess how much their local public servants are actually costing the taxpayers in total compensation when the true value of their benefits are included.

Determining a credible estimate for the average base pay of California’s state and local employees is fairly straightforward.  Here is the basis of those calculations – using only full-time workers this time: As of March 2008 there were 1,245,734 full-time workers employed by local government agencies, mostly cities and counties, in California, and their payroll for the month of March 2008 was 7,070,297,612 (ref. ). This equates to 5,652 per month, or 67,818 per year. During the same period there were 338,725 full-time workers employed by the state of California, and their payroll for the month of March 2008 was 2,002,723,495 (ref. ). This equates to 5,913 per month, or 70,950 per year. Using the state of California’s own payroll data, data that is 2.5 years old and therefore assumes zero increases to compensation, in aggregate, the state and local government workers have an average base salary of $68,488 per year. Assuming the COLAs over the last 2.5 years added at least a paltry $12 to this average, we can round the average base salary of a state or local government worker in California up to $68,500 per year.

Calculating the costs of benefits overhead is not nearly as straightforward as estimating base pay, but it is possible to look at the various benefits granted on average, make conservative assumptions, and develop a number that is probably fairly accurate. With that in mind, here are the overhead assumptions for a total overhead benefits estimate for state/local public employees in California of 56% over base pay:

33% for the retirement pension: This is based a total retirement pension contribution of, on average, 38%. How that number is arrived at is discussed in the post “Sustainable Pension Fund Returns,” and elsewhere, with the assumption made that the average public employee contribution through payroll withholding is 5% (that is changing fast, by the way, but probably still holds true for 2010). Please note that a 38% average pension fund contribution is not what is typically being contributed today, on average, but is what needs to be contributed for California’s state and local employee pension funds to remain solvent according to their current benefit formulas, and is probably a very conservative assumption.

4% for future retirement health benefits: This is a very conservative assumption. In many agencies I think this figure currently (again based on what needs to be contributed under current benefit formulas, not what is being contributed) averages more than twice that.

12% for all current benefits such as health insurance, dental and vision plans, long-term care, long-term disability, tuition reimbursements, car allowances, interest-free loans, and much more: Allocating 12% for this, which would only be $7,200 per year (or $600 per month) for the average full-time state/local worker is almost certainly lower than reality.

7% for extra vacation compared to a private sector worker: In an apples-to-apples comparison of public vs. private sector total compensation, you have to normalize for the greater number of days off enjoyed by public sector workers. If everyone worked five days per week, every week of the year, they would work 2,080 hours per year. If you assume the private sector worker – on average – gets 20 paid days off (including paid holidays) per year, and I think the average is lower than that, and if you assume the public sector worker gets 35 paid days (including paid holidays, personal time, “comp” time, etc.) off per year, and I think the average is higher than that, you will compare 1,920 hours of work per year for the private sector worker, which exceeds the 1,800 hours of work per year for the public sector worker by 6.7%. This is an entirely valid calculation of overhead in an apples-to-apples comparison of public vs. private sector because within the gigantic agencies of the state and local governments in California, when one person is getting paid time off, another person is required to fill that position – or a work project is extended proportionately. That is to say, this is a real and tangible additional cost.

These add up to 56%. Additional corroboration for this number is found in a study produced by the union supported organization CERA entitled “The Truth about Public Employees in California: They are Neither Overpaid nor Overcompensated” where they calculate an average overhead cost for California’s state and local workers of 36% total compensation. That is, they claim 36% of total compensation is benefits overhead, and 64% is actual pay. 36% of total compensation equates to a 56% overhead rate, i.e., [ 1 / (1 – .36) ] = .56. The Berkeley researchers, who did not do a back-of-the-envelope analysis, which is what this is, but rather did a very comprehensive study, had no motivation to overstate the benefits overhead paid to public employees. I believe the actual overhead is probably much higher than 56%, because I doubt the Berkeley researchers used a number nearly as high as 33% for the necessary pension fund contribution, because the conventional wisdom still adheres to higher rates of investment fund returns than I believe are actually out there over the next 20-30 years. Therefore they are valuing these other variables at even higher percentages than I do, since they get the same overall number.

When you apply a 56% overhead rate to an average base salary of $68,500, you arrive at a total compensation estimate for the average state or local government worker in California of $106,860 per year. As also explored in the earlier post, “Public Employee Compensation,” the average private sector worker’s total compensation in California is estimated at $57,000 per year – probably well under that, since the data sets used did not include self-employed individuals. Readers are invited to challenge these calculations, the underlying assumptions, or the source data.

It is important to emphasize that the disparity between public sector and private sector total rates of compensation in California may point to an overall problem – that many public employees receive compensation that greatly exceeds market rates – but this realization should not detract from the fact that many public employees are either underpaid, or receive rates of pay that are certainly not excessive. There are solutions that would go a long way towards solving these problems, such as implementing pay and benefit cuts that target the most highly compensated, most overpaid strata of the public workforce, or streamlining top-heavy bureaucracies and cutting costs from the top down instead of from the bottom up, or, gasp, making pay-cuts more palatable to public employees by reinventing the regulatory environment to actually lower the cost of living in California.

* * *

* * *

Teacher Pension Solvency

A fairly typical pension plan for a public school teacher in California is as follows – if they retire at age 55, they receive 1.4% of the average of what they were paid during their three consecutive years of highest pay. If they retire at are 60, the multiplier increases to 2.0%, and if they retire at age 63, it will be 2.4%. Also fairly typical are the following rates of contribution into the pension fund – the employee contributes 8.0% in the form of payroll withholding, and the employer contributes an additional 8.25%. This post is to examine what rate of return on the pension fund is necessary in order to maintain solvency under these terms.

If you check the Actuarial Life Table courtesy of the U.S. Social Security Administration, you will see that the average 63 year old American male has a life expectancy of another 18 years, and the average American female at age 63 has a life expectancy of 21 years. To be conservative, assume the pension fund will need to retain a positive balance for 18 years after retirement – taking the average would require a higher rate of return, but in the interests of always using conservative assumptions, we’ll go with 18 years.

Following this text are three tables that show the results of a baseline case and two what-ifs. In the baseline case, the teacher commences work at age 26, works for 38 years, then enjoys 18 years of retirement. During their career, their real income (after inflation; all figures used are after inflation) doubles between when they are hired and when they retire, increasing at an even rate over the 38 years. In combination with their employer, each year a sum equivalent to 16.25% of their earnings are contributed into their retirement pension fund, where it is invested. The fund earns a real rate of return (after adjusting downwards for inflation) of 4.75%. This is the official real rate of return currently used by California’s major public employee pension funds in their projections.

As table #1 indicates, using these assumptions, the pension fund will remain solvent for 18 years, earning 4.75% on a declining balance, which doesn’t dip into negative territory until the 19th year after retirement. But what happens if the long-term rate of return dips below 4.75%?

For reasons explored in great depth in other posts, it is important to consider the possibility that the real rate of return on a gigantic pension fund, managing hundreds of billions in assets, may not be able to sustain a real rate of return of greater than 3.0%. The point of this post isn’t to explore that question – although that question is THE question that urgently needs to be explored – but to illustrate how dramatically the contributions to this pension fund will need to be increased, if the long-term rate of return to the fund is decreased.

In table #2, the same assumptions are considered with one exception: Instead of earning 4.75% after inflation, the rate of return is 3.0%. And by making this change, the fund becomes insolvent in 9 years instead of 18. Reducing the real rate of return by 1.75%, in this model, cuts the period of positive fund balance in retirement by half.

In table #3, the same assumptions used in table #2 are repeated, that is, the real rate of return is lowered to 3.0%, but the annual contribution is increased to an amount sufficient to render the fund solvent for 18 years. In order to accomplish this, instead of contributing 16.25% per year, the teacher and employer will need to contribute 26.5% per year, an increase of 63%. Put another way, if California’s approximately 770,000 teachers, on average, made $60,000 per year (which is the mid-career average used in our example), and they all were under the pension plan shown here, then the pension fund contribution for all of California’s teachers would increase from $7.5 billion per year to $12.4 billion per year.

Worth mentioning is the fact that return on investment is only one major element in the debate. Less discussed, but equally relevant is why public employee pension funds are investing in the private market at all? Why aren’t they purchasing low-risk treasury bills and staying out of the markets? Why are we seeing America’s public employee pension funds invest $250 billion (or more) per year into Wall Street investments, at the same time as their marketing departments and political consultants bombard naive voters with entreaties to “spare public employees the volatility of 401K funds and greedy Wall Street brokers”? Is there no irony here? No hypocrisy? Why are public employee pension funds pouring money into Wall Street investments in a desperate attempt to get high enough rates of return to preserve solvency, when doing so completely distorts our markets and destroys sustainable investment opportunities for everyone? And if we’re going to ruin our markets with too many passive funds chasing too few active investment opportunities – why isn’t the social security fund also investing into the market? Would that make it too obvious what’s going on? Why are public sector pension funds – our government workers – allowed to buy up and control huge portfolios of private assets? (ref. The Axis of Wall Street and Unions, or Pensions: Giant 401K Plans).

Getting back to our typical California schoolteacher, it is fair to wonder: Why is someone entitled to retire after 38 years and collect, for life, with cost-of-living adjustments, a pension equivalent to 91.2% of the highest salary they ever made, and more to the point, how can anyone possibly think such generosity is financially sustainable? In the real world, a private sector taxpayer who contributes – a 50/50 split with their employer – a combined 12.4% into the social security fund, who makes $85K when they retire at age 63, will receive $17,000 per year from social security for the rest of their life (ref. Social Security Calculator). A public school teacher who makes about this – our example used $80K per year – when they retire at age 63, will get $72,960 for the rest of their life. The public servant, contributing marginally more into their retirement fund, 8.0% vs. 6.2%, or combined with their employer – since that is true compensation, 16.25% vs. 12.5% – collects 4.3x more in retirement benefits. Market returns cannot and will not sustain this differential.

Facts like this make the antics, the agenda, and the ideology of public employee unions very hard to contemplate with equanimity.

Why California is Bankrupt

Over the past year several attempts have been made here to evaluate just how much public sector employees make in total compensation. The most comprehensive of these was “Public Employee Compensation,” published on Oct. 24th, 2010. In that post, which as of this writing has attracted 44 comments from very informed readers, it appears fairly well-settled that the average total compensation for a state or local worker in California is about $100K per year, and the average total compensation for a private sector worker in California is slightly under $60K per year.

This data comes with a lot of caveats, two of which are worth highlighting, (1) total compensation is based on putting a value on current funding requirements for future retirement benefits, including pensions and health insurance, using a conservative inflation-adjusted 3.0% return to retirement benefit funds; currently, for example, CalPERS uses an after-inflation return projection of 4.75%, and (2) a true apples-to-apples comparison of public sector compensation to private sector compensation should normalize for the average skill sets that characterize the workforce in each sector. Advocates for retaining the higher rates of average compensation to the public sector argue, for example, that on average, public sector workers have higher average educational attainments. There is clearly a degree of truth to this argument. Another argument frequently heard is that public safety employment entails personal risk that doesn’t accrue to jobs in the private sector, and this too has validity. The real question is how much premium is appropriate for jobs that require higher levels of education and personal risk.

Something that has become quite clear during all this analysis and discussion is this: The rates of pay that state employees enjoy, on average, is lower than the rates paid to local employees. This is particularly true with respect to local public safety jobs in law enforcement and firefighting. In the post “The Price of Public Safety,” which looked at compensation data for employees of the city of Costa Mesa, a total compensation analysis indicated their firefighters collected an average total annual compensation of $202K, and their police officers collected an average total annual compensation of $197K. In the post “California Firefighter Compensation,” which looked at compensation for firefighters working for the city of Sacramento, a total compensation analysis indicated the average total annual compensation for these firefighters was $180K per year.

There is an interesting website called “Public Safety Project,” edited by a citizen activist in El Segundo, California, that has an impressively comprehensive compilation of data resources on the topic of public employee compensation in that city. El Segundo is close to my heart, insofar as I lived and worked there for three years immediately after graduating from college. I worked for Hughes Aircraft Company, in their high-rise on the corner of the Imperial Highway and El Segundo Boulevard, and I rented a one bedroom apartment just off Main Street in the heart of this charming small town. El Segundo, which is surrounded by a power plant, a sewage treatment plant, then the Pacific Ocean, to the west, Los Angeles International Airport to the north, a massive Chevron oil refinery to the south, and compound after compound of aerospace companies to the east, is essentially cut off from the rest of Los Angeles. It is a tranquil suburb with rolling hills and a downtown center that could have been lifted out of the Iowa cornbelt. So I felt more than just an interest in the data when I stumbled across this website. And I was saddened to learn that El Segundo, like most cities and counties in California, has been hijacked by public sector unions, and they are flirting with bankruptcy because they can’t afford their payroll.

While Public Safety Project focuses on rates of compensation for public safety personnel in El Segundo, they offer links to compensation data for all the city employees, as well as links to the labor agreements governing these pay rates, as well as links to other databases around the state on this topic, as well as links to the enabling legislation that has brought us to this point. As Editor Mike Robbins puts it, “Public employee labor unions, especially firefighters, police, school teachers, and nurses, provide campaign support to help elect the politicians who will be their bosses and determine the terms of their labor contracts, including salaries, benefits, and pensions.”

According to information obtained by Robbins, the average compensation for El Segundo’s 57 full-time firefighters is $161K per year (ref. Sworn Firefighters), and the average compensation for El Segundo’s 64 sworn police officers is $139K per year (ref. Sworn Police Officers). Overall, the average compensation for all 273 city employees in El Segundo (including the police and firefighters) is $109K per year. If you crunch the numbers, this means the average non-safety employee in El Segundo is earning $77K per year. But there’s much more to this, because Robbins data (ref. City of El Segundo, Full-Time 2009 Employee Earnings) does not include benefits.

The best explanation of what benefits overhead costs on top of base wages is offered in the post referenced earlier, Public Employee Compensation,” and the rate developed there, 36% of total compensation (which translates into an overhead factor of 56% of compensation before benefits) is almost certainly a conservative rate. That is because this figure is exactly the same figure the pro-union, UC Berkeley affiliate, Center on Wage and Employment Dynamics came up with in a policy brief in October 2010 entitled “The Truth about Public Employees in California: They are Neither Overpaid nor Overcompensated.” In this comprehensive study, the Berkeley researchers came up with a 56% benefits overhead calculation for the average state/local employee in California, without adjusting for a higher pension fund contribution. In the study performed here, a 3.0% inflation-adjusted rate of return was used instead of the 4.75% official CalPERS rate, but very conservative assumptions were made regarding the value of the other benefits, such as health insurance and vacation, etc., causing the amounts to offset. In reality, the Berkeley researchers were probably correct regarding the value of these other benefits, since they did a much more comprehensive analysis and had no motivation to over-state those numbers. Also, statewide, public safety workers represent 15% of the state/local workforce. In El Segundo they represent 44% of the city’s workforce, and since public safety employees receive far more costly overall benefits than non-safety employees, using a 56% benefits overhead factor to calculate their actual total compensation is decidedly conservative – but here are the calculations:

El Segundo’s average total annual compensation for their firefighters, including benefits, is $251K per year, for their police officers, the average total compensation is $216K per year, and for all other employees, the average total compensation is $120K per year. These are staggering numbers. This is the reason California’s cities and counties are going bankrupt. Is the premium for education and risk worth this much? Read the labor agreement negotiated by El Segundo’s city council with their firefighters – it is not atypical. When you factor in vacation, a journeyman firefighter works two 24 hour shifts every 7 days. Is this worth paying, on average, $251K per year? It is disingenuous to suggest there shouldn’t be a premium paid to anyone involved in public safety. El Segundo’s proximity to some of the most concentrated infrastructure in the state – LAX, a refinery, and a power plant – guarantee that at any moment their public safety employees may have to help manage a maelstrom unimaginable in small-town Iowa. But how much risk premium is affordable, and how much can taxpayers afford? And how much might risks be mitigated if compensation were lowered to market rates, so more public safety workers could be hired while still saving money?

Most policymakers, much less voters, are still familiarizing themselves with the concept of total compensation. But this is the only fair way to compare public sector and private sector compensation. Because in the private sector, the employer puts aside 6.2% for Social Security (in addition to what is withheld from the employee’s paycheck), and they put aside 1.45% for Medicare. This, along with possibly a contribution to the employee’s current health insurance premium, and maybe a matching contribution to their 401K plan, is all they get. And that amount in employer benefits, over and above what appears on their W-2, is what they actually earn. That is their total compensation. In California, the average total compensation for private sector workers is $60K – probably much less than that, since the data used only included full-time, non-self-employed workers.

As always, readers are encouraged to comment and offer contradictory data. Anyone who believes these figures are incorrect is invited to explain how and why.

* * *

* * *

Investigating Climate Alarmism

Prior to launching CIV FI, I edited EcoWorld, a website dedicated to “reporting on clean technology and the status of species and ecosystems.” My belief in the urgency of many environmental challenges; declining fisheries, deforestation, 3rd world development, depleting aquifers, endangered species, etc., is undiminished. But from 1995 until the spring of 2009, while writing or editing nearly 1,000 reports on these vast topics, I slowly changed from a person who believed in the urgency of reducing anthropogenic CO2 emissions, to someone who is a confirmed skeptic.

One reason I began to question the conventional wisdom on climate change was because whenever researching a particularly horrendous claim, I would inevitably discover the reality was far less significant than the headline. The alleged melting of the ice caps is a good example of this, because all you need is basic competence in high school algebra in order to realize the supposedly ominous quantities of ice-melt being parroted by alarmist journalists are utterly trivial. Here are some posts from several years ago where I ran the numbers and realized the amount of melting being reported in Antarctica and Greenland was actually so minute it was below the level of detectability:

The Real Facts on Increasing Antarctic Ice, 30 April 2009
Pessimistic Reporting, Optimistic Data
, 26 December 2008
Antarctica’s Ice Mass, 17 April 2008
Greenland’s Ice Melting Slowly
, 20 October 2006
Greenland’s Ice Cap
, 04 September 2006
Antarctic Ice, 01 September 2006

In related posts, I realized mainstream journalists are completely ignoring the well-documented fact that the Pacific Decadal Oscillation, a pattern of cold and warm current oscillations that affect ocean temperatures throughout the northern hemisphere and especially in the northern polar regions, will not return to a cooling trend until 2018. Attempting to document this, I posted these entries:

Arctic Cooling on Schedule, 18 October 2007
Hottest Year? 1934, 10 October 2007

At the same time as I was noticing inconsistencies and exaggerations of data, I realized many of the steps being taken in the name of mitigating climate change, were actually causing new environmental problems whose consequences truly were beyond dispute. In particular, the European Community’s carbon offset trading had subsidized massive deforestation in the tropics to grow Palm Oil and Cane Ethanol. I published several warnings about this, including:

Land for Biofuel, 28 December 2007
Reforesting vs. Biofuel
, 17 August 2007
Deforestation for Biofuels Causes Global Warming, 11 April 2007
Biofueled Deforestation, 01 April 2007
Biofuel is NOT “Carbon-Neutral”, 12 February 2007
Biofueled Global Warming, 23 January 2007
Biofuel Monocultures
, 24 October 2006

At this point as well I realized it would make sense to begin reading the material of the so-called “deniers,” especially coming from the climate scientists who were qualified to criticize the overall theory that catastrophic climate change is caused by anthropogenic CO2 emissions. I focused on two individuals, Dr. Richard Lindzen of MIT, and Dr. Roger Pielke Sr., of the University of Colorado. Dr. Lindzen was not only one of the most qualified atmospheric scientists in the world, but had attracted a great deal of personal attacks on his character and motives – because not only did he question global warming theories, but fought back, exposing the conflicts of interest that have corrupted the mainstream academic community. I published several of his papers, and had the privilege of talking with him on several occasions. Here are some of them by Dr. Richard Lindzen:

Global Warming & Greentech, 20 April 2009
Climate Science, 30 October 2008
A Case Against Climate Alarmism, 07 February 2008
Global Warming Facts, Data & Statistics, 07 October 2006
Is there a Basis for Global Warming Alarm?, 05 September 2006

Dr. Roger Pielke Sr. has not incurred quite the same level of wrath from the alarmist community, because his approach to climate change issues is somewhat less confrontational than Dr. Lindzen’s. Both of them agree climate change is a reality – the notion that there isn’t any climate change is, after all, absurd. And both of them believe the role of anthropogenic CO2 in driving climate change is grossly overstated according to the alleged consensus. While both of them agree that changes in land-use by humans are indeed causing regional changes in climate, Dr. Pielke Sr. emphasizes this more than Lindzen. Here is material published that references Pielke’s work, including an interview with him:

Is the Earth Warming or Not?, 08 September 2008
Climate Trends: Debate vs. Demonization, 05 September 2008
Roger Pielke Sr. on Climate Change, 18 July 2008
Interview with Roger Pielke, Sr., 03 December 2007

In recent months on CIV FI I’ve continued to explore the science behind climate change theories. The more I dig into it, really studying the latest arguments as opposed to simply believing the tsunami of alarmist propaganda, the further convinced I become we are embracing a fraud. One new source of skeptical information I’ve recently uncovered is the website of Dr. Roy Spencer, a man who you would think is a demon if you read anything about him in the mainstream press. Spencer’s own reasoning, however, I find to be measured and compelling. His commentary, updated weekly, is online at the Science & Environment Policy Project.  Dr. Pielke Sr.’s commentary is on his blog Climate Science. Another good source of new information can be found at the website for a new book about to be released entitled “Slaying the Sky Dragon.” One may also review the material published on CIV FI in the Climate category, including Credible Climate Skeptics, The Hijacked Public Interest in California, Public Sector Deficits & Global Warming “Mitigation”, California’s Proposition 23, Who Are The Carbon Criminals?, Implementing California’s Global Warming Act, The Climate Money Trail, and The Climate Alarm Industry.

The emphasis on the topic of climate change in recent posts here on CIV FI is prompted by the failure of California’s Proposition 23 on November 2nd. That initiative would have delayed the implementation of California’s Global Warming Act, AB32, a 2006 piece of legislation, set to take effect in 2012, that will regulate virtually every aspect of California’s economy. California already has the strictest environmental laws in the U.S., if not the world, and AB32 ratchets them all up several notches, by applying the metric of CO2 emissions (or CO2 emissions equivalents and offsets) to laws affecting land use, transportation, energy, manufacturing, agriculture, timber – literally all economic activity. Ironically, climate change alarmists fail to realize that Prop. 23 was demolished because a handful of incredibly wealthy individuals who stand to make billions off of “clean energy” stepped up and donated over $30 million to fund a massive and thoroughly deceptive campaign against it.

One major problem with AB32, and CO2 mitigation laws in general, is they rest on the assumption that by making energy, water, transportation, and land use – all basic resources – cost more, we will stimulate economic growth. This is a ridiculously flawed premise. AB32 will redirect wealth into inefficient uses, redirecting discretionary wealth away from new innovations that would otherwise accelerate developments to raise our quality of life. It will make basic resources cost more, it will create artificial scarcity – this does not cause faster economic growth.

Climate alarmism based on flawed and distorted science. The alarm is promulgated because the policies being designed to supposedly mitigate climate change will result in a huge expansion of government power, corporate monopolies, and benefit other special interest groups such as big labor, big finance, academia, the legal profession, the accounting profession, the insurance industry, and all those once noble high-tech entrepreneurs who have been corrupted and seduced by the prospect of guaranteed profit, captive consumers, and trillions in subsidies. Any conscientious individual, whether they are liberal or conservative, should examine for themselves the premises that underlie the alleged science of climate change. Once they realize there is no environmental benefit that will accrue to climate change mitigation policies, they may start to see the economic and political trends attendant to climate change mitigation in an entirely different light.

Entrepreneurial vs. Casino Capitalism

This week’s New Yorker editorial “Puppetry” by Hendrik Hertzberg properly takes Fox Commentator Glenn Beck to task for distorting the life-story of financier George Soros. There are plenty of reasons to criticize George Soros, but how he survived the Holocaust as a pre-teen in wartime Hungary is not one of them. What bears mention is the fact that Glenn Beck may have overplayed the “holocaust” card, but Glenn Beck is one man, a frothy, overwrought pundit who offers a lot of useful insights to his viewers, but isn’t always right. Beck may be condoned by his network, but he hardly represents a movement.

It is indeed appropriate for the New Yorker to condemn Glenn Beck for demonizing George Soros, but the New Yorker is being hypocritical. New Yorker writers routinely participate in character assassination when they criticize climate change skeptics, and they too devalue the holocaust, every time they taint anyone who may disagree with the theory that anthropogenic CO2 is going to destroy our planet as a “denier.”

In last week’s New Yorker editorial, for example, entitled “Uncomfortable Climate,” author Elizabeth Kolbert leads off by calling attention to the behavior of Congressman Darryl Issa, who as a teenager was accused of car theft. This, along with the fact that Issa is “one of the richest men in Congress,” precedes Kolbert’s discussion of Issa’s intention to reopen investigations regarding whether or not it is justifiable to regulate CO2 emissions. In her editorial, Kolbert also makes sure to cherry-pick the most easily mocked quotes attributable to Republican members of Congress, ridiculing their Christianity, reminding us how wealthy they all are, deploring that “the recent election represents a new low.”

Kolbert also uses New Yorker as a forum for her to play the holocaust card, as in a March 2009 post entitled “Donating to the Deniers,” a piece where, again, she references a handful of political donations, that altogether amounted to less than $50,000, made by energy companies to politicians who were known global warming skeptics. Is this the best she could do? This scope-insensitivity is typical of alarmist journalists, who apparently either fail to grasp that the money is overwhelmingly pouring into the coffers of the alarmist lobby, or cynically provide these anecdotes to the contrary because they know most readers won’t notice the differences in magnitude.

It is interesting to note that later in the November 29th issue of the New Yorker, after defending financier George Soros in their lead editorial, the New Yorker offers a feature entitled “What Good is Wall Street?“, by John Cassidy. In this lengthy examination of Wall Street, Cassidy makes clear what pretty much everyone in America already knows, which is, as he puts it, “for years, the most profitable industry in America has been one that doesn’t design, build, or sell a single tangible thing.” Does anyone at the New Yorker see the irony – George Soros may as well be the patron saint of Wall Street! Glenn Beck got inappropriately personal regarding George Soros – that isn’t behavior exclusive to Glenn Back, or the right wing – but Beck’s more valid criticisms of big finance, and the larger-than-life individuals who play at big finance, are pretty much in agreement with John Cassidy’s.

As it stands today, Wall Street has sucked the life out of the United States of America, and the worst is likely yet to come. Big finance, along with their puppets in big government and big labor, have dismantled American manufacturing, and suckered us into national bankruptcy. Another of Glenn Beck’s primary insights has been that the notion of right-wing vs. left-wing, Republican vs. Democrats, is nothing but a smokescreen for financial elites to manipulate our government and act contrary to the interests of the American people. The New Yorker would do well to embrace this complexity, because the latest and greatest scam perpetrated by Wall Street on the world is their scheme to CO2 into a trading commodity. This scheme will further enrich big government, big labor, compliant businesses, and, most important to the big finance crowd, it will keep the lights on in lower Manhattan. But it will result in slower overall economic growth, undermine more useful innovation, transfer wealth away from addressing more compelling environmental challenges, depress development of cost-effective energy solutions, stifle the emergence of competitive new companies, empower monopolies, and deny upward mobility to aspiring individuals and emerging nations. It will do NOTHING to change whatever climate destiny nature may have in store for us.

The New Yorker remains my favorite magazine despite having become, over the past six years or so, the intellectual big brother of every left-wing alternative weekly newspaper in America. They are capable of far more nuanced editorial positions. The New Yorker editorial writers should ponder this: Capitalism as practiced by manufacturers and innovators who compete to build things that work better, faster, and cheaper, is the finest engine to uplift humanity ever conceived. Capitalism, on the other hand, as practiced by financiers who create fictitious currencies to gamble with other people’s money – currencies as diverse and fraudulent as derivatives or carbon credits – are another beast entirely. If this 2nd, more pernicious version of capitalism is a casino, and it is, then Wall Street is the house.

Credible Climate Skeptics

An article entitled “The Danger of Cosmic Genius” appearing in the December 2010 edition of The Atlantic, authored by Kenneth Brower, refers to the brilliant physicist Freeman Dyson, and his “dangerous” skepticism regarding climate change. As Brower puts it, “Among intelligent nonexperts who have weighed in on climate change, Freeman Dyson has become, now that Michael Crichton is dead, perhaps our most prominent global-warming skeptic.”

In an article that exceeds 6,000 words, Brower repeatedly launches scathing attacks on Dyson’s credibility, stating at one point “how could someone as smart as Freeman Dyson be so dumb,” or “many of Dyson’s facts on global warming are wrong… but more disconcerting is the selective way he gathers his information or the peculiar conceptual framework into which he inserts it,” or “how is it possible to misapprehend so profoundly how the real world works,” or “he is emotionally incapable of seeing the true colors of the rampant ingenuity of our species…”

Not content with merely attributing the dangerously delusional nature of Freeman Dyson’s climate skepticism to the apparent failings of his personal emotional and intellectual architecture, Brower then applies what quite likely is a template used to discredit any climate skeptic – especially since some of them, such as Dyson, are too widely respected to be simply demonized. Brower shares these theories, suggesting Dyson may be a “contrarian,” since “physicists, astronomers, scholars of every stripe, have always been charmed by the counterintuitive – and why not, as it so often turns out to be right.” Brower then ventures another theory, “he doesn’t really mean it,” suggesting “it is not always apparent when he is inhabiting some Dali-esque experimental landscape between his ears and when he has touched down on Earth.” Making sure he doesn’t miss anything, Brower continues with an “educated fool” theory, noting that even the brilliant Albert Einstein couldn’t make change, and explaining that “it seems only right that some leveling principle should deprive the geniuses among us of common sense, street smarts, mother wit. It is tempting to try to explaining Dyson this way.” Brower concludes his theories by considering, than dismissing, the possibility that the 86 year old Dyson is becoming senile.

Kenneth Brower is the son of David Brower, a man who actually cared about the environment, instead of our current generation of environmentalists, who have become tools of corporate monopolies bent on controlling global energy output by encouraging us to believe the earth is about to poison itself with CO2. Some of the original Brower comes through when Kenneth Brower admonishes Dyson for his optimism regarding our species, reminding us, among other things, that “many of the large cities of Africa, South America, and Asia are megalopolises of desperate poverty ringed by garbage. Vast tracts of tropical rainforest… disappear annually, burned or logged or mined. Illegal logging is also ravaging the slow-growing boreal forests of Siberia… African wildlife is in precipitous decline…” If only today’s environmentalists would return their focus to these obvious challenges. Instead Brower observes, correctly, that Dyson has compared alarm over climate change to a religion, and turns that around, claiming it is Dyson who is abandoning reason for faith, a faith whose “tenets go something like this: things are not really so bad on this planet. Man is capable of remaking the biosphere in a coherent and satisfactory way. Technology will save us.” As Brower sums it up, “Environmentalism worships the wisdom of nature. Dysonism worships the indomitable ingenuity of Man.” But Brower contradicts himself.

Throughout Brower’s article he provides – in between the slurs and the theories regarding Dyson’s climate heresy – abundant evidence that Freeman Dyson is one of the most capable scientists alive. It is abundantly clear to anyone reading this article – or independently familiar with Freeman Dyson and his body of work – that he is an intensely rational individual, whose conclusions are governed by logic, whose articles of faith are the product of his reason. Listen to these accolades:

“Freeman Dyson is one of those force-of-nature intellects whose brilliance can be fully grasped by only a tiny subset of humanity, that handful of thinkers capable of following his equations. His principal contribution has been to the theory of quantum electrodynamics, but he has done stellar work, too, in pure mathematics, particle physics, statistical mechanics, and matter in the solid state. He writes with a grace and clarity that is rare, even freakish, in a scientist…”

Another prominent climate skeptic, Richard Lindzen of MIT, has argued that climate science is a multi-disciplinary field where it is very unusual, if not impossible, for any single individual to acquire sufficient technical expertise in the diversity of fields necessary to intuitively apprehend what may be actually driving global climate trends. Lindzen claims that many scientists who feel peer pressure to embrace the theory of anthropogenic CO2 driving potentially catastrophic climate change preserve their integrity by limiting their contrarian observations and theories to their own narrow areas of expertise. The glaciologist will deny that glaciers are shrinking worldwide. The atmospheric scientist will point out that the troposphere is not exhibiting temperature trends that reflect what the computer models indicate they should. The oceanographer reminds us that the Pacific Decadal Oscillation will not drive the Arctic to begin to show significant cooling again until 2018. The paleontologist points out we are still emerging from the mini ice age. But none of them challenge the conventional wisdom. This fact – that most scientists are unwilling to risk being politically incorrect with respect to the big picture – nullifies Brower’s point that “he [Dyson] is such a scientific minority on climate change that his views are easy to dismiss.”

And if global climate theories are indeed best ventured by scientists with diverse qualifications, qualifications so diverse, in fact, that it is impossible for one individual can acquire them all, it is disingenuous to suggest Dyson is unqualified to have an opinion on global warming. Does this sound like someone who is not allowed to have a credible opinion on climate change? “Freeman’s gift…it’s cosmic. He is able to see more interconnections between more things than almost anybody. He sees the interrelationships, whether it’s in some microscopic physical process or in a big complicated machine… He has been, from the time he was in his teens, capable of understanding essentially anything that he’s interested in. He’s the most intelligent person I know.”

Brower is not sparing in his discussions of just how powerful and multi-faceted Dyson’s intellect is, saying “His career demonstrates how a Nobel-caliber mind, in avoiding the typical laureate’s dogged obsession with a single problem, can fertilize many fields, in his case particle physics and astrophysics, the history of science, religion, disarmament theory, literature, and even medicine, as Dyson was a co-inventor of the TRIGA reactor, which produces medical isotopes.” This sounds like just the man to take a good look at the current alleged consensus regarding anthropogenic CO2 and its supposed role in inducing catastrophic climate change. Brower – along with his fellows in the AGW alarmist community – simply didn’t get the answer from Dyson that they wanted to hear.

Michael Crichton, who Brower identified as the internationally recognized “non-expert” climate skeptic who Dyson has now replaced, in one of the last public appearances of his life, had this to say about how politicized and corrupted environmental organizations have become, stating “what more and more groups are doing is putting out lies, pure and simple, falsehoods that they know to be false.” Crichton also understood, like Dyson and Brower, that sometimes faith distorts what properly belongs in the realm of science, and had this warning:

“In the end, science offers us a way out of politics. And if we allow science to become politicized, then we are lost. We will enter the Internet version of the dark ages, an era of shifting fears and wild prejudices, transmitted to people who don’t know any better. That’s not a good future for the human race.”