Nuclear City: how to help China choose to build new nuclear instead of coal power

Carbon emissions increase 3% per year

Fig. 4. (a) Energy intensity, defined as energy consumption (Gt of oil equivalent) divided by real gross domestic product (trillions of 2005 U.S. $), and (b) carbon intensity, defined as fossil fuel carbon emissions (GtC) divided by energy consumption (Gt of oil equivalent). Energy intensity of China is normalized to 1.56 that of the United States in 2005. — James Hansen 2014

How are we doing on transitioning off fossil fuels? Renewables activists would have us think we are making more progress every year. In truth, we are making less, not more, progress towards zero-carbon emissions. The global production from non-hydro renewables is about equal to one years growth in energy consumption. At the end I’ll offer further evidence on just how serious our situation is.

As a thought experiment, imagine that less developed regions (LDRs) such as Brazil, China, India, Indonesia were building 100% new nuclear plants instead of coal plants. In this imaginary future, we would be close to stabilizing the GHG concentration of our atmosphere. I say “close to”, because if the LDRs are willing to choose nuclear over coal, there is no-problem-whatever with USA, UK, EU accomplishing the same.

Can you imagine China and other fast-growing LDRs giving up coal? I absolutely can imagine it.

Rich country politicians and media spend most of their time talking about what rich countries should do. Not about what China will decide to do based on self-interest. For now, let’s stop talking about rich countries. Instead, let’s talk about what we can do that makes China decide to grow their energy supply using only low-carbon options.

To keep it simple, let’s just talk about China – as a proxy for all the less developed nations (LDRs). China has already demonstrated that:

  • The leadership wants to decarbonize their economy.
  • They will not sacrifice significant economic growth to build zero-carbon power.
  • China will do whatever it takes to avoid a shortfall of energy supply relative to demand.

If we could deliver to Beijing the whole technology package for low-cost, fast-build nuclear the leaders would be very interested. I do not think that political motivation to decarbonize is the main problem in China.

Alternatively, we can keep doing what we are doing. In the absence of any serious political leadership, dedicated scientists and engineers in the national labs, universities and a few startups are working hard to innovate. They are developing new nuclear designs that are walk-away safe, fast to mass-manufacture, mass/volume efficient and fast to deploy. None have enough funding to innovate at any reasonable speed.

Worse is that to actually bring their new design to the market is effectively impossible – both in cost and elapsed time. The innovators must pay the entire cost of teaching the NRC staff about their new technology, then pay to the NRC the entire cost of certification, then pay the cost of building first of a kind commercial scale plant, while creating a complex supply chain that suits the new technology. And so forth. Such institutional barriers also mean that nuclear innovation does not suit venture capital funding, where most funds would expire long before the product began to earn a return.

To make this innovation remotely feasible requires a complete reform of the regulatory framework, and a top level commitment by the national leadership to actually decarbonize. What do you think is the chance that this is going to happen in America? At least before such time as Norwegian beachfront becomes a hot vacation property market.

OK, so it isn’t going to happen in America. Not in Germany. Not even in France. Keep in mind that among the western nations there are powerful, entrenched political and economic interests who are quite happy with the status quo. And extremely unhappy with the prospect that the old hydrocarbon economy would be uncompetitive against carbon free nuclear energy.

These institutional impediments are similar to that faced by low-performance political systems. You can easily name many such nations just in South America and Africa. China had a similar problem coming out from under the curse of Mao. Deng Xiaoping knew he had to liberate the Chinese economy, including attracting foreign direct investment from the “running dog capitalists.” If Deng had tried to reform the entire Chinese nation at once, well he would have had his legs cut off in a heartbeat. The Army and the wealthy who controlled the SOEs would make sure that the status quo was not destabilized.

Deng wondered whether the Hong Kong model could be replicated in new locations that would not threaten the entrenched interests? Maybe in a place like Shenzhen (one of the first four Special Economic Zones). If that worked, then politically it would be much easier to progressively extend the new successful rules to the rest of China. That is roughly the path that Deng Xiaoping set for China.

Oversimplifying, Deng’s SEZ initiative is similar to the concept that prof. Paul Romer has been evolving around the term “Charter Cities“. These are new development zones “chartered” with proven-successful rules. These charters allow families to opt-in to live and work there; allow investors to opt-in to build infrastructure and factories. Therefore creating a competition of cities: competing for residents, investors and markets.

Why can’t we adapt the Charter City concept to create a Nuclear City SEZ? A place where:

  • Taxes and rule-of-law are attractive to investors.
  • Efficient, suitable regulations can be developed.
  • Ample sites are available for constructing new reactors, from demonstration to commercial scale.
  • The new nuclear supply chain can be grown.
  • Factories and skilled labor can be developed to produce as many designs as can compete.

Where would be the ideal place to locate your Nuclear City? China is the obvious place because they have:

  • An almost insatiable need for enormous amounts of carbon-free energy.
  • The political commitment to economic decarbonization.
  • Ample low-cost capital to invest in new plants whose costs are front-loaded.

To progress from imagining to reality we need two things:

  1. Nuclear life-cycle cost to be comparable to coal.
  2. Nuclear deployment rate at least as fast as coal.

How can we accomplish this? Particularly in a climate where America is having to shut down paid-for, nearly zero-carbon nuclear plants? Where Germany is closing ALL of their paid-for, nearly zero-carbon nuclear plants? And Japan? The MDRs (more developed regions) are setting a shockingly awful decarbonization example for the LDRs.

I believe that nuclear fission can be built out at the cost, scale, and rate required to substitute nuclear for coal. This is a decision for China, not a decision for Western politicians. That means developing and deploying low-carbon energy that is dispatchable, scalable, and “cheaper than coal” in terms of System LCOE (including intermittency costs, not just LCOE).

Serious people talk about the expense of new nuclear. In fact the challenge is even bigger than achieving cost parity – a necessary but not sufficient condition. Aside from low cost, we need to make rapid progress on many human fronts. We can thoroughly simulate new reactors on our super-computers, yet this kind of fast-paced effort depends on real people:

  • Growing the nuclear people skills.
  • Growing the safety culture.
  • Growing a sensible regulatory capability.
  • Creating a new high volume supply chain.

Now, imagine that China has committed to creating such a Nuclear City. How can the old nuclear powers marshal their resources to dramatically accelerate the day when nuclear deployment is so attractive to China that they substitute nuclear for coal. Here’s a sketch:

  • The nuclear-technology nations (US, UK, France, et al) offer a nuclear cooperation and technology sharing agreement with China. The idea is to put your best ideas, your best people and your capital into this project — for the long term (decades).
  • Reform the legal framework that prohibits exporting peaceful nuclear power technology.
  • Lose the popular political idea that “We are competing with China”. Substitute the idea that “We are working together to save the planet while we get rich together”.
  • Lose the idea that dirty energy must be expensive. Substitute the idea that clean energy must be cheaper.
  • Invest national R&D funding into the Nuclear City cooperation.

So, why would the various players be motivated to cooperate? Let’s summarize some perspectives:

Update — James Hansen proposes nuclear cooperation  2/24/14 I’m reading Jim’s latest letter this morning Renewable Energy, Nuclear Power and Galileo: Do Scientists Have a Duty to Expose Popular Misconceptions? I just came to the part of his letter where he addresses the topic of this post. Here’s a fragment:

Second, the United States and China should agree to cooperate in rapid deployment to scale in China of advanced, safe nuclear power for peaceful purposes, specifically to provide clean electricity replacing aging and planned coal-fired power plants, as well as averting the need for extensive planned coal gasification in China, the most carbon-intensive source of electricity. China has an urgent need to reduce air pollution and recognizes that renewable energies cannot rapidly provide needed base-load electricity at large scale. The sheer size of China’s electricity needs demands massive mobilization to construct modern, safe nuclear power plants, educate more nuclear scientists and engineers, and train operators of the power plants.

The United States nuclear industry and universities have much to offer, and in turn they have much to gain by cooperating in development of modern safe nuclear power in China. Opposition to nuclear power in the U.S. has slowed but not stopped progress in nuclear technology. However, the realistic size of the market in the U.S. for improved nuclear designs, as well as for evolving still more advanced designs, is limited, at least in the near-term. Furthermore, for reasons that do not need to be debated here, construction time for a nuclear power plant in the U.S. is of the order of a decade, while it is as short as 3-4 years in China. Thus deep nuclear cooperation between the China and the U.S. over the next 1-2 decades could produce both (1) base-load electricity in China that allows China’s carbon emissions to peak within a decade and then decline, as is essential if climate is to be stabilized, (2) an opportunity for both countries to achieve progress in nuclear technology and thus a basis for comparing the merits of the most advanced renewable and nuclear technologies.

Jim has a lot more to say, a whole page on this general topic — I highly recommend that you read his new letter.

What is in it for “China”?

  • Manufacturing, deployment and operations capabilities will be developed locally (as with AP1000 deal).
  • Chinese human resources can be developed faster when working alongside western scientists, and when taught by the western experts (many of whom are retiring, their deep knowledge soon to be lost to society).
  • Chinese leaders do have to live in their high-pollution cities, a daily reminder of the priority to transition away from coal.
  • Fundamentally this is a very large scale engineering and project-management undertaking — China’s politicians are comfortable with that kind of approach.

What is in it for the existing IP stakeholders?

  • Long term profits. Instead of going out of the nuclear business (like Siemens), they have a chance to be part of the biggest revolution since the beginning of the industrial age.
  • A chance to be shareholders in the new energy infrastructure – to be part-owners in the new utilities and infrastructure.
  • The IP to be contributed is now owned by governments and shareholder companies. A necessary condition is that the existing IP owners must be satisfied that this cooperation will allow them to protect their share of the return on existing IP, as well as the return on the future IP. That’s a negotiation – Silicon Valley law firms can help with options.
  • In this planet-scale effort, it is better to be cooperating than competing.
  • Scientists at the national labs, at experienced suppliers like B&W, these people know that China et al can contribute many very capable engineers and scientists. The scale of the Chinese contribution is being demonstrated already by such as the well-funded MSR development program at the Shanghai Institute of Applied Physics (CAS/SINAP). In 2012 the project had a $350 million budget and a staff off 334 that was supposed to grow to 750 by 2015.

What is in it for the investors?

  • The scale of this planet-wide market opportunity is easily big enough to attract private investors if the political risk is covered.
  • Building the first large scale deployments in China, by itself, eliminates much of the political risk.
  • The nation-partners will have to put up enough risk insurance to lubricate a public-private partnership. I think that means largely insurance against political risk. Against the risks of the familiar Greenpeace lawyering and demonstrating, but also the Rule of Law risk in the non-western jurisdictions. It’s an interesting question: how far will Greenpeace get demonstrating in front of new Chinese nuclear plants?
  • China has demonstrated the political capability to generate MUCH larger amounts of capital than needed to get this going. So DFI (Direct Foreign Investment) may be a case of the outsiders knocking on the door, asking to be let in.

What is in it for Western politicians?

  • I don’t know, because there isn’t much reward here within their motivational framework of about two years. Suggestions?

This challenge is not really technical — it is almost entirely political. The Western institutional structure makes it effectively impossible to achieve rapid progress. France could not rapidly convert from zero to 80% zero-carbon nuclear today. Politically France-could-not-do-it-today. It’s difficult to put into words how large this challenge is. Two charts help me to visualize what is happening on the ground, first Robert Wilson’s recent essay Renewables Growth: Ignoring The Whole Equation shows how insignificant are the 2011 contributions from all hydrocarbon sources + nuclear. In other woods, renewables are detectable but insignificant . Jeff Terry summarized Robert’s essay as “…fossil fuels dominate for decades”.

2011 Everything Else swamps Renewables

Second, this chart is completely self explanatory. Nevertheless I highly recommend that you read the source: Roger Pielke Jr.’s Clean Energy Stagnation.

China’s leaders don’t want to suppress criticism of the government. In fact, they probably like it

Andrew McAfee is coauthor with Eric Brynjolfsson of Race Against the Machine. If you have not read the book, please do. Then (or first) read Tyler Cowen’s Average is Over. Then please report back here your take on the future, and how we can best navigate where we will be in 20 or 50 years.

Meanwhile, for a quick read I recommend the fascinating McAfee piece Big Data Reveal Three Surprising Facts About Chinese Censorship. The future ramifications of Big Data are impossible to foresee — but this is an excellent example of surprising results today. Excerpt:

Crimson hexagon, which King cofounded, constantly collects a huge amount of social media from around the world. By seeing which of this content later disappeared from within China the team gained an unprecedented view into a dark and fascinating topic: which aspects of its people’s speech a modern totalitarian regime wants to suppress. This view also allows us to make better-educated guesses about why and how this censorship happens. What we learn from it would have surprised even Orwell.

(…snip…) As the old saying goes, “the mountains are high, and the emperor is far away.” Not any more, since the advent of social media. Citizens use these tools to complain loud and long about corrupt local officials. This provides a great way for Beijing to know who’s stealing above their station, and hence who to crack down on when the kleptomania and/or public pressure to do something about it mount too high. It’s a perverse result, but free online speech turns out to be the top despot’s great friend, because it allows him to keep his underlings in line.

China fact of the day

Tyler Cowen:

…the pace of actual trade settlement in renminbi has failed to keep up [with its role in finance]. It still accounts for just 0.8 per cent of the global total, a lower share than the Thai baht or the Swedish krona.

That is from the FT, via Amni Rusli. The recently reported fact that the renminbi is now the #2 trade financing currency seems to be simply measuring the carry trade, not the true ascendancy of the Chinese currency as a global reserve currency.

 

A Deadly Triangle: Afghanistan, Pakistan and India

The hostility between India and Pakistan lies at the heart of the current war in Afghanistan. Most observers in the West view the Afghanistan conflict as a battle between the U.S. and the NATO-led International Security Assistance Force (ISAF) on one hand, and al-Qaida and the Taliban on the other. In reality this has long since ceased to be the case. Instead our troops are now caught up in a complex war shaped by two pre-existing and overlapping conflicts: one local and internal, the other regional.

Within Afghanistan, the war is viewed primarily as a Pashtun rebellion against President Hamid Karzai’s regime, which has empowered three other ethnic groups—the Tajiks, Uzbeks and Hazaras of the north—to a degree that the Pashtuns resent. For example, the Tajiks, who constitute only 27% of the Afghan population, still make up 70% of the officers in the Afghan army.

(…snip…)

The Pashtuns had held sway in Afghan politics ever since the state assumed its current boundaries in the 1860s. By aligning with the Tajiks of the northern provinces against the Pashtuns of the south, the U.S. saw itself making common cause with the forces of secularism against militant Islam; but it was unwittingly taking sides in a complex civil war that has been going on since the 1970s—and that had roots going back much further than that. To this day, because the Pashtuns feel dominated by their ancestral enemies, many support or at least feel some residual sympathies for the Taliban.

There is also an age-old Pashtun-on-Pashtun element to the conflict. It pits Taliban from the Ishaqzai tribe, parts of the Nurzais, Achakzais, and most of the Ghilzais, especially the Hotak and Tokhi Ghilzais, against the more “establishment” Durrani Pashtun tribes: the Barakzais, Popalzais and Alikozais.

Beyond this indigenous conflict looms the much more dangerous hostility between the two regional powers—both armed with nuclear weapons: India and Pakistan. Their rivalry is particularly flammable as they vie for influence over Afghanistan. Compared to that prolonged and deadly contest, the U.S. and ISAF are playing little more than a bit part—and they, unlike the Indians and Pakistanis, are heading for the exit.

(…snip…)

In the eyes of the world, never has the contrast between the two countries appeared so stark as it is now: one is widely perceived as the next great superpower, famous for its software geniuses, its Bollywood babes, its fast-growing economy and super-rich magnates; the other written off as a failed state, a world center of Islamic radicalism, the hiding place of Osama bin Laden, and the only ally of the U.S. whose airspace Washington has been ready to violate and whose villages it regularly bombs. However unfair this stereotyping may be, it’s not surprising that many Pakistanis see their massive neighbor as threatening the very existence of their state.

(…snip…)

For the Pakistani military, the existential threat posed by India has taken precedence over all other geopolitical and economic goals. The fear of being squeezed in an Indian nutcracker is so great that it has led the ISI to take steps that put Pakistan’s own internal security at risk, as well as Pakistan’s relationship with its main strategic ally, the U.S. For much of the last decade the ISI has sought to restore the Taliban to power so that it can oust Karzai and his Indian friends.

To achieve this goal, the Pakistani military has relied on “asymmetric warfare”— using jihadi fighters for its own ends. This strategy goes back over 30 years. Since the early 1980s, the ISI has consciously and consistently funded and incubated a variety of Islamic extremist groups. Pakistani journalist Ahmed Rashid calculates that there are currently more than 40 such extremist groups operating in Pakistan, most of whom have strong links with the ISI as well as the local Islamic political parties.

(…snip…) 

Pakistan-watchers are unanimous that, while Kayani is mindful of the Taliban threat in his own country, his burning obsession is still India’s presence in Afghanistan. As I was told by a senior British diplomat in Islamabad, “At the moment, Afghanistan is all [Kayani] thinks about and all he wants to talk about. It’s all he gets briefed about and it’s his primary focus of attention. There is an Indo-Pak proxy war, and it’s going on right now.” 

Excerpts from the The Brookings Essay by historian William Dalrymple – highly recommended, but definitely not for bedtime reading.

Why the U.S. helps defend South Korea and what can go wrong

This is another case where the diplomatic logic is not obvious until Tyler Cowen explains it

It is not because we need to subsidize their defense per se, to cite one argument which some non-interventionist critics have attacked.  It is so, when North Korea behaves in a ridiculous manner, the South can respond (not respond) with great restraint.  What we are subsidizing is a) a feeling of security, and b) not building nuclear weapons in response.  We do something broadly similar for Japan.

The potential problem is when the same U.S. acts which produce a feeling of security in South Koreans produce a feeling of insecurity in North Korean leaders.  And the broader game we are playing, with numerous allies, means we might end up pushing some individual confrontations  beyond an optimal point (e.g., how would Israel respond with Iran if we wavered on South Korea?)  Might we have to overinvest in the South Korean feeling of security — from a strictly Korean peninsula point of view — to keep Japan, Israel, Taiwan, the Saudis, and others ‘in line’?

It would be good if the North Korean leadership would read this blog post, as they would then realize that what to their eyes appears to be American ‘overstepping’ is done for the sake of other audiences.  It is problematic for the American government to itself communicate this point.  Imagine announcing ‘we don’t stand by South Korea as much as it appears, we are just doing this because Israel faces a signal extraction problem and we can somewhat sway their inference toward relaxing about their own security situation.’

It would be bad if the Saudi leadership would read this blog post (or understand this to begin with).  The American government would then have to produce a feeling of security for South Korea all the more.

Question: where in the media have you seen any discussion of this nuance?

What do Firefighters do? They sure don’t fight fires

Alex Tabarrok with a revealing, US-centric post. So what do they actually do? 

(…) The decline of demand has created a problem for firefighters. What Fred McChesney wrote some 10 years ago is even more true today:

Taxpayers are unlikely to support budget increases for fire departments if they see firemen lolling about the firehouse. So cities have created new, highly visible jobs for their firemen. The Wall Street Journal reported recently, “In Los Angeles, Chicago and Miami, for example, 90% of the emergency calls to firehouses are to accompany ambulances to the scene of auto accidents and other medical emergencies. Elsewhere, to keep their employees busy, fire departments have expanded into neighborhood beautification, gang intervention, substitute-teaching and other downtime pursuits.” In the Illinois township where I live, the fire department drives its trucks to accompany all medical emergency vehicles, then directs traffic around the ambulance—a task which, however valuable, seemingly does not require a hook-and-ladder.

Here’s some data. Note that medical calls dwarf fire calls. Twenty five years ago false alarms were half the number of fires, today false alarms significantly exceed the number of fires.

An Economics Masterpiece You Should Be Reading Now: Justin Yifu Lin’s “The Quest for Prosperity”

My reading list is overflowing, but it looks like Clive Clook’s recommendation has to go on the top of the Development Economics list. Are you ready for “new structuralism”?

The most valuable new book I’ve read this year is Justin Yifu Lin’s “The Quest for Prosperity.” George Akerlof, a Nobel laureate in economics and a man not given to reckless overstatement, calls it “a masterpiece.” I’d say that’s right.

(…)

Lin … was an observer and participant in China’s economic miracle. From 2008 until earlier this year, he was the World Bank’s chief economist. Today he’s back in China, at Peking University.

Lin’s book is intellectually ambitious. He sets out to survey the modern history of economic development and distill a practical formula for growing out of poverty. It’s a serious undertaking: Lin isn’t trying to be another pop economics sensation. But “The Quest for Prosperity” is lightly written and accessible. It weaves in pertinent stories and observations, drawing especially from his travels with the World Bank. He leavens the economics skillfully.

Two Schools

Essentially, he proposes a middle way between two contending schools: structuralism, which emphasizes barriers to development that government intervention is needed to overcome, and the neoclassical approach, which stresses market forces and frowns on industrial planning. He calls his hybrid “new structuralism,” suggesting a closer affinity with the first. (That branding is a bit misleading, but I can see that the alternative — new neoclassicism — doesn’t roll off the tongue.)

(…) 

China’s Success

Structural transformation, of course, is exactly what China has achieved. Elsewhere Lin has acknowledged that China needs further policy reforms and that all is not well. Yet the country’s success of the past several decades is indisputable — and this is no Soviet-style industrialization mirage. Russian factories sold their output to captive markets. Nobody with a choice ever bought a Soviet-made car or television. China’s outward-looking producers are world-class. I’m typing this on a best-of-breed Apple Inc. laptop, manufactured in China.

As I argued in my last column, China is a capitalist country. But how did it get that way?

Lin’s answer draws on both development paradigms. He sees a vital role for government in overcoming barriers to development. But interventions, he argues, must respect compelling market realities. Of these, the most important is international comparative advantage. Poor countries have lots of cheap labor. For them, capital-intensive heavy industry isn’t the way to go.

For today’s developing countries, Lin says, the global economy is the indispensable setting, and looking outward is the sine qua non of rapid development. On the input side, that’s because of the opportunity it affords for technologically driven catch-up growth. On the output side, it’s because the world is a market for exports. On this view, “export pessimism,” the idea that poor countries couldn’t prosper through international trade, was one of the biggest mistakes of the import- substitution school. Globalization is the poor’s best friend.

Currently $15.37 on Kindle.

The Palestinian Emirates?

Tyler Cowen has evidently been traveling in the Middle East. E.g., My favorite things Israel. Two days later Tyler posted a provocative piece on the UAE-style multi-city-state solution proposed by Dr. Mordechai Kedar of Bar-Ilan University:

From Barry Shaw:, this is also known as the ‘eight-state solution’:

(…) He visualizes eight emirate-type city states with designated borders that will incorporate the Arabs within them. The rest of the land can be populated by the inhabitants, whether they be Jews or Arabs, living and behaving with respect and deference to the inhabitants of the various city-states. The states shall be granted sovereignty. They shall be granted surrounding land for expansion and development. Road systems in vacant lands shall be developed for transport of people and commerce, both Jewish and Arab.

If Palestinians could ‘vote with their feet’ across these various Emirates, it would be interesting to see what kind of policies would evolve, relative to what is produced by currently existing forms of political participation.

Here is a web site devoted to the concept, with one more detailed account here.  I should add that there are versions of this idea which do not add all of the ‘baggage’ found on this web site.

In presenting this material, I am not seeking to have MR commentators reprise all of the usual debates on the broader topic of Middle East peace or lack thereof.  Nonetheless I had never heard this idea before, and so I am passing it along.

I’m intrigued with the Emirates concept. The multi-part Barry Shaw series is a good place to start

(…)  Clearly, the decades-old search for an impossible two-state solution has eluded us. Seemingly intelligent and influence people still beat on about it being the only game in town. I have advise for them. Start to think out of the box. Open your minds and horizons to other solutions. Give alternatives the opportunity to succeed or fail, even as you stubbornly cling to your impossible dream.Israel has accepted that large parts of Judea and Samaria are occupied by large numbers of Arabs with an antipathy to Israel. Neither does Israel, the democratic Jewish state, desire to integrate millions of antagonistic Arabs into an Israeli society, thereby potentially tipping the demographic scales against a Jewish majority.This was the reasoning behind the two-state notion which, despite decades of the best efforts of the international community, has failed.All that has been achieved is a Palestinian split between two sections of their society, neither of which recognizes the Jewish State of Israel, and a fading minority-backed leader defying logic with a contentious move at the UN that is bound to kill the only apparent solution on the horizon.Why would political and social scientists and other “experts” want to pour money into a situation that their basic instincts tell them is doomed to failure? But they do.Why do politicians and think-tank experts vacuously point the finger at Israel, rather than examine the pathetic and dysfunctional artificially created “Palestinian” society that is torn asunder by internal bickering and back-stabbing (literally). Their violent political divide is teetering on collapse and chaos, propped up by massive financial injections, mainly provided by the West and even Israel, with Arab regimes promising assistance but defaulting on their commitments.So who says the two-state solution need be the only solution that prevents a one-state no starter? More and more people believe the two-state collapse will not be a disaster and that the dark vacuum may enable alternatives to emerge into the light of day for consideration and application.Gradually, opinion-makers are coming to the conclusion that the two-state solution is dead.

And I recommend Dr. Kedar’s PalestinianEmirates.com

The economic incentives to the locals who would be residents of each emirate – those are compelling. The Hamas and Fatah politicians who feed off the conflict will of course try everything to prevent any progress. But eventually the interests of ordinary families might prevail.

What is not yet clear to me is why the Arab regimes (who profit politically from keeping the conflict on the front pages) would want to back the Emirates proposal? It might bring peace and left the hated Israel still standing. Where is the incentive for Egypt or Syria?

Scott Adams: imagine scenarios in which Israeli cities are still habitable in ten years

Scott Adams asks readers for scenarios that allow Israelis to live above ground. If you see a way out of the drone war, please visit Scott's comments section

In my book The Religion War, written ten years ago, I predicted a future in which terrorists could destroy anything above ground whenever they wanted. They simply used inexpensive drones with electronics no more sophisticated than an Android app.

Fast-forward to today, Iran is sending drones to Hezbollah, and Hezbollah has training camps right next to Syrian chemical weapons stockpiles. Meanwhile, Hamas has its own drone production facility, or did, until Israel found it. One presumes Hamas will build more. How long will it be before Israel is facing suicide drones that only cost its enemies $100 apiece, fit in the trunk of a car, and can guide themselves to within 20 feet of any target? I'd say five years.

So what happens when the drone attacks start happening in volume? Let's game this out. My assumption is that the coming inevitable wave of hobby-sized suicide drones will be unstoppable because they will fly low to their target and be so numerous that no defense will be effective. I predict it will be too dangerous to live above ground in Israel within ten years unless the trend is reversed. But what could stop the trend?

(…)


The economic legacy left by the baby-boomers is leading to a battle between the generations

Voters need to understand that US demographic trends are bad for growth, and very bad for the total future tax burden. But majority rule democracy is not well-designed to find an optimize solution to the growing conflict between aging retirees and the working population that pays for the elderly benefits. 

This Economist analysis seems to conclude that inflation is the only politically feasible outcome:

(…)Sadly, arithmetic leaves but a few ways out of the mess. Faster growth would help. But the debt left by the boomers adds to the drag of slower labour-force growth. Carmen Reinhart and Kenneth Rogoff, two Harvard economists, estimate that public debt above 90% of GDP can reduce average growth rates by more than 1%. Meanwhile, the boomer era has seen falling levels of public investment in America. Annual spending on infrastructure as a share of GDP dropped from more than 3% in the early 1960s to roughly 1% in 2007.

Austerity is another option, but the consolidation needed would be large. The IMF estimates that fixing America’s fiscal imbalance would require a 35% cut in all transfer payments and a 35% rise in all taxes—too big a pill for a creaky political system to swallow. Fiscal imbalances rise with the share of population over 65 and with partisan gridlock, according to other research by Mr Eschker. This is troubling news for America, where the over-65 share of the voting-age population will rise from 17% now to 26% in 2030.

That leaves a third possibility: inflation. Post-war inflation helped shrink America’s debt as a share of GDP by 35 percentage points (see article). More inflation might prove salutary for other reasons as well. Mr Rogoff has suggested that a few years of 5% price rises could have helped households reduce their debts faster. Other economists, including two members of the Federal Reserve’s policymaking committee, now argue that with interest rates near zero, the Fed should tolerate a higher rate of inflation to speed up recovery.

The Economist does not link the IMF study which they referenced. I think it is: The Challenge of Public Pension Reform in Advanced and Emerging Economies, December 2011. Excerpt on reform options:

IMF pension reform chartA. Advanced Economies

32. Most advanced economies face the double challenge of high debt and rising age- related spending, particularly in health care (Figure 12). A number of countries with above-average levels of pension spending also face large projected increases in age-related outlays (Austria, Belgium, Finland, Greece, Portugal, and Slovenia). In some other countries with below-average levels of pension spending today, projected increases in age-related spending are substantial (Luxembourg, Korea, New Zealand, Switzerland, and the United States).

33. Pension reforms that curtail eligibility (e.g., by increasing the retirement age), reduce benefits, or increase contributions can help countries address these fiscal challenges. The trade-offs across these choices are illustrated in Figure 13. Beyond what is already legislated, with no increases in payroll taxes and no cuts in benefits, average statutory ages would have to increase by about another 21⁄2 years to keep spending constant in relation to GDP over the next twenty years.23 Relying only on benefit reductions would require an average 15 percent across-the-board cut in pensions. Relying only on contributions would require an average payroll rate hike of 21⁄2 percentage points. To keep pension spending as a share of GDP from rising after 2030, additional reforms would be needed: for each decade, retirement ages would have to increase by about 1 year, benefits cut by about 6 percent, or contribution rates increased by about 1 percentage point.

Also on future liabilities The Financial Impact of Longevity Risk, April 2012