The Great Escape
Why failure is all but inevitable in Afghanistan:
1. The Taliban have a safe haven in Pakistan
2. Our Afghan allies are less motivated than our Afghan enemies, the Taliban having been the victors in the Afghan civil war of the 90s
3. The Taliban are indigenous forces with sources of fighters and funds that are not strained by the insurgency, whereas our military faces brutal logistical costs, worn out equipment, and too many combat tours per unit—as in Vietnam, they can readily outlast us
4. The Afghan government is corrupt and incompetent, supported only by those who directly benefit from its largesse (the parasites) or its neglect (the corrupt bullies)
5. After 8 years of occupation, the Afghan army has only 90,000 members, of whom only 50,000 are deemed by Western military leaders to be capable of operating autonomously (and even this capability is contingent upon Western logistical support)

Secondary reasons for failure:
6. Pakistan believes it has a strategic interest vis-à-vis India to maintain a reserve of committed Islamists in its frontier provinces and Afghanistan
7. The Taliban represent the Pashtun ethnicity against the Tajik-controlled government, making the conflict partly a civil war
8. The Taliban are funded through drug dealing and Islamic charities, two sources we cannot interdict, though we are squandering resources pursuing them
9. The primary form of schooling in most of Pashtunstan is the madrassa, a religious education that funnels an endless stream of fighters into the Taliban
10. There is no Afghan economy, making the Afghan government entirely dependent upon Western aid and prone to a dependency psychology of free-riding our efforts
11. The Taliban are using our presence to recruit, raise morale, secure funding—and have grown stronger year by year since their defeat in the 2001 invasion
12. Afghanistan’s GDP is $12 billion now, having more than doubled since the invasion, supported mainly be the three pillars of subsistence work, drug trafficking, and Western spending of various kinds: by contrast, the West spends $60 billion a year on its occupation (12 times the pre-invasion GDP, 5 times current GDP, 15 times average yearly aid to Afghanistan since the invasion, one third of Pakistan’s GDP, and 8 times Pakistan’s military spending—all of which ratios are disproportionate to the task, the goal, and the reward)
13. Afghanistan is far too primitive economically, educationally, culturally to function autonomously as a democracy—it can only be united in submission to a tyranny, a natural development that we have forbidden, inviting the continuing chaos of competing tribes and warlords
14. There has been very little attempt at nation-building in Afghanistan, little sense of long-term commitment or of a tangible stake in the nation’s future, the balance between resources devoted to military priorities completely disproportionate to those devoted to civilizing the populace by means of education and development
15. Afghanistan has a huge opium trade which, according to the UN, is worth $3.4 billion at export, 28% of GDP, resulting in government corruption, Taliban funding, and local resistance to eradication efforts since they would reduce local incomes


Why the war in Afghanistan is not in our strategic interest:
1. The West has no vital positive interests in Afghanistan, only the extremely weak negative one of preventing the land from being used as a safe haven for terrorists—but the case for this negative interest is supported by inconsistent reasoning since we do not have the will to control all such safe havens (eg, Yemen, Somalia, Pakistan, Gaza, Iran, Saudi Arabia), and any of these places would provide adequate opportunity to rehearse another 9/11
2. Even the establishment of a self-sustaining government in Afghanistan would be insufficient to ensure that it will not become a terrorist safe-haven (see the list of countries above, which, except Somalia, have such governance in place): nation-building does not prevent terrorist incubation—Afghanistan itself was essentially a united nation when bin Laden hatched the 9/11 plot there
3. The Western presence in Afghanistan exacerbates instability in a much more important country: Pakistan

In sum, we probably cannot win in Afghanistan and, even if we could, there would be little point to it.

Incestuous Finance

I wonder how far it is possible to limit systemic risks insofar as financial entities continue to be black boxes vis-a-vis other financial entities and continue to be closely intertwined with each other. Reducing systemic risk might necessarily entail a regulated reduction of such intertwinings. Financial businesses are not like other businesses; it is too difficult to determine whether they are truly solvent and, via leverage, they can create disproportionate losses for those financial entities who do business with them. It is not part of their core contribution to the economy that they should so promiscuously trade with and invest in each other. They are required to efficiently distribute investment throughout the economy in non-financial businesses. This is their purpose. So long as regulation does not interfere with their ability to do this in a competitive fashion, it is unlikely to harm the economy at large. Though the proliferation of new financial instruments and the increased face value of these derivatives provides certain efficiencies on a day to day basis, it appears that the long run cost they impose outweighs the benefits. They decrease transparency and increase leverage: both effects increase risk, and the rewards previously reaped have not been close to commensurate--though it would require a huge econometric study to prove this claim I am making.

Reforms in Money Management and Corporate Governance

Over the last few weeks Carl Icahn, the billionaire financier, and John Bogle, who founded the hugely successful Vanguard group of investment funds, have offered some related ideas to improve the financial system.

Icahn wants a national law that takes power from the management of public companies and gives it to owners. The means to this end would be a federal law that permits shareholders to change the state in which the company is incorporated. Corporate law is mainly determined at the state level, with each state having a more or less different legal regime in place. Currently, Delaware law gives exorbitant power to managers of publicly traded companies at the expense of shareholders. Therefore, most of these companies have been registered (by management) in Delaware. And under current state law the approval of the incumbent board of directors is necessary to change the jurisdiction of incorporation. Given the incestuous relations between managements and boards, the boards choose to remain in Delaware. But, there are states with much more shareholder-friendly corporate laws. Icahn insists (rightly, in my opinion) that shareholders, being the owners of the company, ought to have an unimpeded choice in this matter of jurisdiction. The economic assumption underlying Icahn's shareholder rights campaign is that shareholders, rather than managers, have such incentives as will lead them to maximize corporate profits and optimize the risk/reward ratio in corporate decisionmaking. After all, shareholders benefit from success and suffer from failure. Managers benefit disproportionately from success, but do not necessarily suffer losses from failure since (with the connivance of corrupt boards) their compensation is so often contracted at a high rate in the event of failure and at an obscenely high rate in the event of success. Delaware law, largely through the "business judgment" rule, leaves managers largely unaccountable. Corruption and incompetence result.

Bogle wants a national fiduciary law imposed on money managers that requires them to put investors' interests first. It would entail active engagement by institutional investors in those companies in which they hold stakes; and these investors control 70% of the shares in large public companies, making them a potentially significant force in holding managers and boards to account. It would also mean an end to publicly traded money management firms because they have irresolvable conflicts of interest--the fiduciary responsibilities they owe to their shareholders conflict with those owed to their investors. Over the last few years, these funds paid no heed to the risks of their investments in financial companies--over which, collectively, they had effective control as majority shareholders. They seemed unaware that their clients, the investors in their funds, faced normal investment incentives (the possibility of profit or loss), whereas the management of these financial companies had quite different incentives. If they made profits they won big; but, if they lost money, well, it was only other people's money. Result: financial companies followed the trace of their incentives and took risks that benefited management, but were sub0ptimal for shareholders. Also, the money managers themselves had incentive structures that did not align with their investors'; once again this created suboptimal investment strategies. This idea of emphasizing the fiduciary duty of money managers to increase their activism in overseeing their investments is obviously similar to Icahn's focus. But, Icahn just wants to open the door to activism and facilitate would-be activist shareholders; Bogle seems to think he can pressure reluctant money managers into this sort of activity (one which many of them are probably incompetent to execute and which most are inexperienced in pursuing). Icahn's approach looks more likely to have an impact, but Bogle's certainly would not hurt and might even have a gradual effect through altering investors' expectations of money managers and focusing their attention upon a new way to compare the achievements of different money managers.
Bogle also notes that most investment funds overcharge their investors. This is true, but it is also a function of the free market in action. After all, a presuppostion of the existence of the fund industry is that different funds achieve different performance. Is it not reasonable that high-performing funds should charge more for superior service? In reality, there is limited correlation between the level of charges and the level of performance. But, people who fail to realize this are stupid and natural selection will take care of them (that is, the amounts invested by the stupid will on average earn smaller returns than those of the intelligent, relegating to the stupid, over time, an ever declining share of total investments). The only necessary or desirable regulation of fee structure is that which ensures clarity and transparency.

The best funds are those in which the management of the fund has essentially the same incentives as the investors--because the management is substantially invested in the fund and expects most of its return to come in the form of return on its investment, rather than in the form of fees or performance bonuses. This description fits Berkshire Hathaway and probably the majority of the most successful hedge funds. A recent paper in the Journal of Finance, "Role of Managerial Incentives and Discretion in Hedge Fund Performance", found that the three key characteristics of hedge funds that are positively associated with high returns are managerial ownership, a well-designed structure of pay for performance provisions that is hard to cheat (like high-water mark provisions), and, when the other two factors are present, managerial discretion. Index funds are a reasonable alternative to one of these managed funds since they avoid the conflicts of interest and offer low fees. On the other hand, if the rule of the day is an ill-regulated financial system with misplaced incentives, the index funds will still suffer from the resulting underperformance of the market and the economy.

The Financial Crisis and the Need for Regulatory Control of Systemic Risk

The financial crisis has at least this epic characteristic: wheresoever we start from, we start in medias res. A definitive analysis of the causes remains elusive and is difficult to perspectivize as we witness the intensity of responsive action. But, I think the source of the conceptual challenge presented may be defined as one of dynamic interrelations among a multitude of variables, some of which variables are not well understood. On this conceptual level it reminds me of climate science: there are so many interactions in progress at once that the only guide to prediction is probabilistic analysis.
One of the many analyses I've encountered is titled much after my own taste: "Our Epistemological Depression", in The American magazine (http://american.com/archive/2009/our-epistemological-depression). The quality of the analysis strikes me as decidedly mixed; the author hands out too many half-truths in the guise of full explanations. I will discuss the useful ideas. The best part for my purposes is a paragraph that briefly and effectively summarizes most of the causes thus far identified:

Some of the causes of our contemporary crisis are well known by now. There were governmental errors: monetary policy that was too loose; government monitoring agencies that were too lax; and government policies specifically intended to encourage home ownership among African-Americans and Hispanics that had the unintended but quite anticipatable effect of extending mortgages to those who lacked the ability to repay them. There were perverse alignments of market incentives, incentives that put personal interests at odds with corporate interests, and corporate interests at odds with the public interest. There were principal-agent problem within firms, where traders were remunerated with bonuses for selling collateralized debt obligations without regard to the long-run viability of the underlying assets. Rating agencies were corrupted because they were paid by the sellers of the goods they rated, offering unreliable evaluations that redounded against the purchasers of mortgage-backed securities. Large profits were made by companies that packaged and sold mortgages and mortgage-backed securities without needing to be concerned with their ultimate viability. It turns out that intermediation of risk reduces the incentives for adequate risk management: so long as risk is intermediated, from a mortgage loan broker to a commercial bank to an investment bank to an investor, there is really no incentive, at each stage of the game, to have adequate risk-managing policies in place.

That last point seems questionable: I think there is an incentive for anyone exposed to the risk--which would certainly include investors. The problem is that most investors hire others to manage their investments, and these people have more to gain from aggressive, risky investment strategies than they have to lose from such strategies. That is, the managers' incentives are not well aligned with the investors'. I will add that no one in a position of substantial political or financial power seems to have considered the magnitude of the housing and financial bubble. In valuation terms, this bubble was much larger than the tech bubble of the 1990s--and could be expected to produce a commensurately larger impact on the economy when it inevitably collapsed. I think this aspect, at least, is a matter of common sense, that it's even stupidly obvious.

Many other factors were better concealed during the run up: the corruption, the governmental manipulations of the market, the misplaced incentives, the pervasiveness of stupidity even among those few with clear incentives not to be stupid, the unpredictable way in which derivatives permitted risk to be reallocated among market players, and, finally, the extra topping of the varieties of moronic experience.

Financial institutions ended up heavily exposed to risks, often in the form of derivatives, which the executives did not understand. There was a pervasive lack of due diligence throughout the system. If you cannot classify and quantify and continuously monitor your risks, you should not undertake them in the first place--and, if you happen to be in a position to pose systemic risk to the financial system, the regulators ought to prevent you from undertaking them. Otherwise, knowing that they will be saved from themselves in a crisis, such operators would rationally seek higher risks (and the possibility of proportionately higher rewards). This predicament--in which an entity is positioned to reap all rewards, but does not face all risks--is called moral hazard. On a macroeconomic level it results in misaligned incentives and correspondingly misallocated resources; it reduces economic growth and efficiency. Example: huge investment in superfluous housing stock, instead of more productive pursuits like funding start-ups and technological innovation. It also invites corruption and breeds anti-capitalist sentiment. Activites that induce the threat of systemic risk must be regulated to mitigate the risk of moral hazard.

I see two challenges to this imperative. First, to be effectual the rules ought to be fairly uniform internationally. This limits the threat of unfair competitive advantage between nations. Also, it minimizes the chance that entities in lightly regulated markets could accumulate massive systemic risk the way that AIG, for example, recently did with its CDS business in London. Otherwise, risk-mitigating efforts would be like squeezing a balloon: squeezing the risk out of one area would merely result in it migrating to another, with no overall reduction in the systemic risk.  

Second, we face the problems of distinguishing what constitutes systemic risk and what suffices to reduce moral hazard. In other words, we will have to draw arbitrary lines in devising and enforcing this new regulatory system. Since complexity should not be an end in itself, and seems to make risk management more difficult, regulators should call a halt to any activity they do not understand. This understanding may, of course, come from consultants hired to decipher a particular entity's activities--whose consultancy fees the regulators should have power to pass on to the entity that created the excessive complexity. Also, to reduce moral hazard, the executives (and possibly the directors as well) managing the entities in question must have a significant (which means unhedged) personal financial exposure to them if they fail and should not be eligible to participate in any bailout. Systemic risk arises from either the sheer size of the entity (like Citigroup) or the high degree of leverage that the entity operates under (like Long Term Capital Management or AIG's Financial Products unit) or a combination of the two factors (like Lehman Brothers). Once an entity crosses the threshold (however arbitrarily defined) beyond which it is deemed a systemic threat, a more stringent and intrusive set of regulatory controls and requirements would be applied. Naturally, this would give some entities an incentive to stay relatively small to avoid the regulatory costs and exposures. I do not see a problem with this.

The experience of this crisis will re-educate financiers, businessmen, investors, regulators, elected officials, maybe even some of the public. They may now see and action Buffet's dictum that one should only invest in businesses one can understand. Perhaps politicians will refrain from inciting bubbles through corrupt quasi-governmental institutions such as Fannie Mae and Freddie Mac. Investors may recognize, now that reality is back upon them, what a poor value proposition most money managers and mutual funds and hedge funds actually offer, what a scam most of those guys are running as though it were an ordinary state of affairs (which, laughably, it is). Maybe regulators will stand up for themselves and impose their rules upon even the rich and powerful. And, just possibly, as the federal government's fiscal options contract severely, an effective cost-cutting program will be formulated for our bloated entitlement programs--before that ever-growing brood of fat vampires suck the last drops of blood out of us. But I wouldn't hold my breath.

On Iraq and Iran

The Iraq Study Group report:
The two principal recommendations entail diplomatic efforts within Iraq and in the region, then a pullback of American soldiers to minimal force protection mode over the next 18 months. The Group is correct in assuming that a renewed attempt to end violent political discord within Iraq should be a high priority; without success on this front the civil war will continue and probably intensify. However, it does not appear that either side of the civil war is yet exhausted, and our presence in itself may be preventing an actual stand-up civil war between the two primary adversaries, Sunnis and Shias. These two parties are fighting a sort of war by proxy, one in which neither takes responsibility for the violence committed by associated groups, networks, and individuals. It's not even clear at this point whether leaders on either side can effectually call their loose network of associates and sympathizers to stand down. In short, on this front both the weak political will of the Iraqi leaders and the limits of their effective power may prevent success. The way to start, though, is to recognize the difficult and ambiguous realities on the ground and go from there.
The current campaigns of ethnic cleansing in Iraq may be the prelude to a much more intense civil war. Once the Sunnis and Shias are well separated from each other each side will have a strong incentive to form decisive centralized authority to ensure that they are not crushed in the event total war erupts. The main advantage of the centralization of authority is that it will permit real negotiations to take place--but this will only happen at some unknowable future point once the parties realize, experientially, the pointlessness of continued warfare (unless one side wins, of course, an outcome which stands well within the realm of plausibility).
The study’s call for regional diplomacy is doomed to failure. Though Syria may capitulate given sufficient pressure, Iran will not. Moreover, Iran has considerable leverage to influence internal Iraqi developments and undermine our strategy. They also have clear incentives to do so—the report is flat wrong in assuming that Iraq’s neighbors have an interest in its stabilization. What harm would come to Iran if Iraq were to descend into anarchy? The price of oil might rise slightly; the Shias might achieve majority control over Iraqi oil infrastructure; some Shias will go sooner rather than later to Allah. These “interests in stabilization” will not suffice to interest the Iranians in helping us to solve our problems. As we increase our demands relative to their nuclear program and move against their interests through the UN, we can expect them to resist us in the ways most likely to impose a heavy cost on us. This means assistance to anti-American elements in Iraq, to Hizbollah in Lebanon, to Hamas in Palestine, possibly even to Taliban/al-Qaeda in Pakistan and Afghanistan.
With Iran war will necessarily come, for there is no other way to deprive them of nuclear weapons. The largest remaining question is the timing, which matters on two points particularly. First, will this thing be done while Bush still reigns? If so, that means preemptive war. Otherwise, with Presidents to come we risk a retaliatory war—one that may occur only after a second holocaust. On its death, Israel would end Iran and largely wipe out the Shiite religion. Second, and less important, is what will be the situation in Iraq at the time war commences? If the Shiites attack our soldiers en masse, we will suffer significant casualties. If the Iranians have any foresight, they are presently training and arming units in Iraq for just such a contingency. In brief, the Iranian problem is a factor that largely created and will persistently nourish Shia intransigence in Iraq, limiting the prospects for a settlement within Iraq prior to our war with Iran.
It is notable that Iraq has not had a government, in any meaningful sense of the term, since Hussein was turned out. The Iraqi “government” is utterly corrupt, wholly incompetent, disunited, riven with spies and traitors, considered illegitimate both on the count of being an American puppet and because it cannot accomplish anything, being unable even to secure its people or provide them with basic services. Consider the security situation. The police are essentially useless against the terrorists and militias and death squads—even where the police have not been bought off or co-opted by these elements. As to the army, it suffers from low morale, high absenteeism and desertion rates, inadequate equipment and training, divided loyalties, moderate corruption (by Iraqi standards), extreme incompetence in its bureaucratic functions (resulting in poor logistics, irregular pay, etc.), and insufficient numbers. With 160,000 Iraqi soldiers and 160,000 coalition soldiers the situation deteriorates. Assuming current political conditions, how many more Iraqi soldiers would be necessary to replace the coalition soldiers and prevent the situation from worsening? Given that only 100,000 or so Iraqi soldiers actually punch the clock on an average day and that they are grossly inferior in quality to coalition soldiers on almost every point (except cultural understanding)—surely another 400,000 at the minimum. Training and equipping this massive new wave of recruits will take years, not to speak of retraining and re-equiping current forces. A U.S. pullout over 18 months, as proposed by the Study Group, would form the prelude to a brutish civil war, one which would be the more intense as it would probably also evolve into a proxy war between Iran and the Sunni powers.
A gradual process of ethnic cleansing is underway in Iraq. It proceeds by force: force determines its pace and the lines of demarcation between opposed groups. This development is self-reinforcing, breeding in the various Iraqi factions ever-increasing hatred and mistrust toward other groups and encouraging preemptive actions by combatants to stake out territory before the other side claims it. At the current pace (about 1-1.5 million displaced per year), the cleansing will be essentially complete in most areas within two years. The character of the civil war will then alter--it could become more organized and intense or a negotiated settlement between the main parties might become possible. Given the momentum of events, the only way to prevent this conclusion to the civil war would be a massive application of ground forces sufficient to halt the cleansing. Failing that, the best option may well be to facilitate negotiations to divide the country between the Sunnis, the Kurds, and the Shias. If a settlement of this kind could be reached before the logic of the cleansing plays itself out (and the division of oil proceeds would obviously be a key point of contention), several hundred thousand mostly civilian lives might be saved and the level of ill will between the three groups would be mitigated--it might be mitigated to such a degree as to prevent a full-scale civil war from erupting. Either way, whether this cleansing happens spontaneously or through negotiations, how can a national government function in such an environment? The endgame could be similar to the one negotiated at Dayton to pacify and stabilize Bosnia. Unfortunately, there are two major distinctions. Bosnia has no oil. The Iraqi economy is entirely dependent upon oil revenues and the geographical distribution of oil is not equally divided between the three contending groups; the Sunnis have virtually no oil production in the territory they occupy. This means the Sunnis are likely to fight on until they receive at least a proportionate cut of the oil money. Probably the more significant distinction, though, is the relative stability of the neighborhoods in which these two countries find themselves. Bosnia had the advantage of no meddling neighbors outside of ex-Yugoslavian provinces (and these provinces were participants in the Dayton accords). Iraq has been meddled already, especially by the Iranians and the Syrians. As I noted above, the Iranians in particular have a clear interest in promoting instability in Iraq. Other local powers will be inclined to support Sunni elements in Iraq. It certainly wouldn't hurt to have these local states sign any Dayton-like peace accord to end the Iraqi civil war, but, even if all the important actors did sign, in practice they would probably ignore any inconvenient terms.
Everything that happens in Iraq is only a distraction from the largest threat to our national security in that region--Iran. Our strategies and commitments in Iraq must be viewed with this central reality in mind. I fear that Bush has so far staked his reputation on success in Iraq that the administration may allow the tail to wag the dog. Iraq policy should not influence Iran policy, though Iran policy could, under the right circumstances, justifiably influence Iraq policy. Our first order of business in the Middle East is to prevent the nuclearisation of Iran--not to crush al Qaeda, not to stabilize Iraq or Afghanistan, not to protect our oil supplies, though all these are important. Iran is a terrorist state with the capability of developing and deploying nuclear weapons; al Qaeda is amateur hour in turbans--it cannot develop anything more than ignorant suiciders. Iran, once nuclearised, will be capable of holocausting Israel and killing millions of people in America and elsewhere; al Qaeda can only kill thousands. And, though it may be argued that Iran can be deterred because it can be found and destroyed, this is not necessarily so. Its nukes might be delivered by Hizbollah or Hamas (or possibly even al Qaeda) and might not be traceable to Iran (or, what amounts to much the same thing, Iran's leaders might not believe their nukes to be traceable). Whether or not we publicly express this order of priority in our Middle East policy, it should at least be understood internally by our leaders who should formulate our strategy accordingly.

Alternative Energy Reality Check

Mr. Smil’s energy world:
http://www.oecd.org/dataoecd/52/25/36760950.pdf#search=%22worldwide%20consumption%20of%20energy%2013%20TW%20smil%22
He takes an aggressive, almost cynical tone in confronting some of the over-enthusiastic claims of alternative energy promoters. Then he proceeds to triturate them with a hammering rain of stone-hard facts. Personally, I think he too quickly dismisses the potential of wind power as a contributor to the energy transition—his dismissive tone conflicts with his own numbers: he admits wind can provide about 40% of the world’s current primary energy requirements. This is certainly a significant part of the solution, especially given that wind is the only alternative energy demonstrably capable of generating affordable power. Also, I believe his estimate on geothermal’s potential (what he calls “generous estimates of technically feasible maxima”) is instead quite conservative at less than 8% of current requirements. New technology may be developed in this area and alter the calculus completely—there is no meaningful limit to potential geothermal energy.
Other than those two areas of disagreement, I was generally pleased by the substance and the tone. He puts nuclear power in its proper place as a coddled and utterly dependent 60 year old child of governments and their continued largesse. Nuclear power does not exist without government subsidies. It never will exist without subsidies. This should understood. Whether it may be needful as an element of the strategy to reduce carbon dioxide emissions is a separate, though related, question. I happen to think it could function as a good hedge in the event that solar and wind are not scaled up as fast as necessary. New plant designs are much safer than past practice—and, remember, the Western world has never experienced a significant nuclear event even with the old designs. To my sense, a terrorist attack on a nuclear plant represents by far the gravest threat to our nuclear plants. The new designs ought to be fortified against such a contingency.
He also delivers himself of a goodly thwacking in countering the advocates of phyto-based energy. We already use too much of the biosphere’s total production, about 40% of it, severely diminishing biodiversity as well as imbalancing ecosystems and the biosphere itself. Most of the supporters of this sort of thing (ethanol, biodiesel and such) do not appear to understand that expanding such sources will not and cannot supply a large percentage of our energy demand. Additionally, it has direct negative environmental consequences. Growing our fuel in this way, even assuming significant efficiency improvements, would require too much of our arable land to be devoted to it at a time when world population and food demand continue to grow. One shocking figure indicates that all of the photosynthesis which occurs each year in the U.S. equals, in terms of energy production, only half the amount of U.S. fossil fuel consumption.
Smil puts forward solar as the only realistic long-term alternative to fossil fuels (barring a nuclear fusion breakthrough). He points out the insane disparity in government R&D expenditures between nuclear, which got 96% of them in the 47-98’ period, and all other sources of power, which received 4% combined. Though I fully understand the focus on nuclear as the energy of the future (especially in the early decades of this period), the government has been far too slow to recognize the necessity of diversifying its energy options, that is, of hedging its bets—any successful financier could have informed the decisionmakers that a diversified portfolio is the safest, smartest option for those without inside information—and nobody has inside information on technological developments several decades out. Despite our idiocratic government, the numbers support Smil’s contentions about the solar future and point up the gross misallocation of the Energy Department’s priorities. It should focus mainly on solar, hedging itself round with nuclear, wind, geothermal and anything else that looks promising. Several questions remain, however. First, what is the most efficient means of arriving at that endgame (ie, which other alternatives will contribute along the way, how much conservation can be achieved)? Second, how cheap will alternative energy actually be at that point and, given conservation advances, how much of it will we actually need? The characteristics of the path (esp, how well GHGs are controlled over the next few decades) will determine the magnitude of global warming and ecological destruction just as much as the length of the path (ie, how long it takes to shift to a mostly alternative energy system).

A Challenge for Renewables

In order for renewable energy to be scaled up with optimal efficiency its daily variability of power output must be compensated for by using some form of energy storage to even out the supply to users. One of the blogs I occasionally look through estimated that this 'energy arbitrage' would deliver a payback over 37 years (bad investment). Still, this is based on current technology, which has the potential to be greatly improved; also, mass production savings have yet to be realized in this area. For the American energy market at least 15 to 20 years remain to find cheaper solutions--but, some European countries may, because of this issue, have to halt expansion of their alternative energy infrastructure quite soon and Denmark, which derives about 20% of its electricity from wind power, may already have done so a couple years back. With current technologies it is difficult to pass the 20% mark on renewables' contribution to the grid without finding oneself in the position of producing much more peak energy than necessary--and then, having nowhere to send it and no economical way to store it, being forced, essentially, to waste it.