The Skeptical Environmentalist

"Nature would stand by unmoved at the destruction of the entire human race."

The Marquis de Sade in Marat/Sade

"I’ve got to admit, it’s getting better. It’s getting better all the time."

The Beatles

Lester Brown is a humbug and a fool.

Over the years, Mr. Brown has sounded the alarm over and over again, warning that the world is going to hell. Fire, flood, famine, thirst…Mr. Brown’s hallucination leaves nothing out:

"Forests are shrinking, water tables are falling, soils are eroding, wetlands are disappearing, fisheries are collapsing, range-lands are deteriorating, rivers are running dry, temperatures are rising, coral reefs are dying, and plant and animal species are disappearing," fantasizes Brown’s Worldwatch Institute.

Brown preaches environmental calamity every time he steps up to the pulpit. A typical sermon invokes eternal damnation and all the torments of Beelzebub himself – the fiery furnace of global warming…sea-levels rising fast enough to worry Noah…and two-headed beasts with tails, born as a result of chemical pollutants.

Brown is not alone. Paul Ehrlich and a whole industry of Jeremiahs predict that unless modern civilization repents soon – the earth is finished.

But why worry about it? According to Brown and Paul Ehrlich you’ll be dead of cancer, starvation and thirst long before rising tides float the bloated bodies of Ted Kennedy and Trent Lott out of their opulent offices along the Potomac.

In Paul Ehrlich’s ’74 book, The End of Affluence, he and his wife Anne wrote:

"It seems certain that energy shortages will be with us for the rest of the century, and that before 1985 mankind will enter a genuine age of scarcity in which many things besides energy will be in short supply… Such diverse commodities as food, fresh water, copper, and paper will become increasingly difficult to obtain and thus much more expensive…starvation among people will be accompanied by starvation of industries for the materials they require."

In the 1970s the scare-mongers were already warning of climate change. But, it was global cooling that worried them. A 1975 Newsweek Magazine article entitled "The Cooling World," told readers that "meteorologists disagree about the cause and extent of the trend, as well as over its specific impact on local weather conditions. But they are almost unanimous in the view that the trend will reduce agricultural productivity."

Newsweek, Ehrlich, and Brown, were wrong about everything. Farmers produced more food than ever before. Commodities became so abundant that by the time the century ended many were selling for record low prices. In China, calorie intake per capita doubled in the last 30 years. And in America, rare is the man who starves to death in 2002, while there are enough fat ones to elect a president.

We recall these things, dear reader, not to embarrass the poor humbugs in the environmental industry…nor even to amuse ourselves. Instead, we write today with good news: The world as we know it will be around long after we are gone.

We had a copy of Bjorn Lomborg’s controversial book, The Skeptical Environmentalist, with us on our trip to Aspen; we’ll now give you the essential summary. Lomborg, a professor of Statistics at the University of Aarhus, Denmark, so upset the environmentalist’s end-of- the-world industry that the man received death threats. We figured he must have something interesting to say. He did.

"Everyone knows the planet is in bad shape," began an article in TIME magazine two years ago. Another TIME piece told readers that "for more than 40 years, earth has been sending out distress signals…" yet "the decline of the Earth’s ecosystems has continued unabated."

What "everyone knows" is usually wrong, we’ve noticed. For in order for everyone to know it, an idea has to be reduced to such a low common denominator that the sum sinks below zero. Whatever insight was contained in the original idea is stripped out so that the husk – light and portable – can be carried around like a campaign slogan.

An idea taken up by a mob of people is almost sure to be as empty-headed as a journalist and usually as dishonest as a psychologist. Environmentalism is no different. Flogged by Brown and Ehrlich, sensible people were soon eschewing disposable diapers and sorting their trash so it could be recycled. (Your editor recalls the smell of diaper pails in his bathroom in the hot Baltimore summers).

In nearby Washington, D.C., residents were encouraged to separate their trash even though it was all tossed into the same common landfill on the grounds that sorting – like praying, we imagine – was good for the soul.

People were even urged to alter their family plans by a puerile jingo – "2 for 2" – in order to avoid crowding the steppes of North Dakota or the back alleys of Baltimore with their own children. And now comes Lomborg with the good news:

"We are not running out of energy or natural resources. There will be more and more food per head of the world’s population. Fewer and fewer people are starving. In 1900, we lived for an average of 30 years; today we live for 67. According to the UN we have reduced poverty more in the last 50 years than we did in the preceding 500, and it has been reduced in practically every country."

When will the earth run out of energy? Not for 5,000 years, says Lomborg. When will the globe become so crowded with humans that it can no longer support them all? Probably never, estimates Lomborg, pointing out that if current trends continue, in 100 years, most of the earth will have no more people than it has now. The huge mega-cities will get bigger…but the Alps, the Great Plains and other rural areas will remain about the same.

"The forests have not been eradicated," Lomborg writes. "Since WWII the global forest coverage has been almost constant." And, "water is a plentiful and renewable resource."

All the garbage produced in the U.S. during the entire 21st century could be put in a single little corner of Woodward Country, Oklahoma, he says, taking up less than 26% of the county’s surface area.

And what about global warming? Lomborg thinks the earth really is getting hotter. But it "will not decrease food production," he guesses, "it will probably not increase storminess or the frequency of hurricanes, it will not increase the impact of malaria or indeed cause more deaths." For much of the world, global warming might even be a good thing, he concludes.

All in all, this strange old ball is in pretty good shape.

Bill Bonner,
taking two weeks off to enjoy it.
August 14, 2002

What’s the matter with gold?

The metal just seems to sit there…doing nothing. Even as "the end of the world as we know it" approaches – it goes nowhere.

Both gold and long term bonds seem to be signalling hard times ahead: a dragged-out deflationary recession with lower interest rates…a la Japan.

As Eric reports below, the Fed decided not to lower rates yesterday.

As little as 8 months ago, it was a foregone conclusion that the recovery would be well underway by now and the Fed would raise rates. Now, more and more analysts are coming to agree with the Daily Reckoning view – that rates will go down before they go up.

"A Double-Dip World Recession?" warns Stephen Roach. "Over the five years ending in mid-2000, real domestic demand growth averaged about 5% per annum in the US – more than double the anaemic 2% gains recorded elsewhere in the world. Like it or not, America has become the world’s consumer of first and last resort. And that’s precisely what now spells trouble for the world at large. Barring the immediate emergence of a new source of growth – in economist jargon, a spontaneous revival of non-US domestic demand – a loss of American growth dynamism could prove exceedingly treacherous for the broader global economy."

"For investors," adds FORBES magazine in an article headlined "Double-Dipping Into Deflation," "the loss of stock market wealth translates into lost confidence and less spending. For corporations, less consumer spending means retrenchment, layoffs and diminished capital spending, which further diminishes business activity and puts more of a drain on consumer spending…and the downward cycle feeds on itself."

Nowhere is where gold is supposed to go. The dollar may be doomed. Stocks and the economy may be ready to collapse. Even real estate might have reached a top (Bloomberg reported a record number of mortgage requests for last week). But the yellow metal holds steady…even inching up in price. Who can complain about that?

Eric, the news, please…


Eric Fry, checking in from Manhattan:

– Mama said there’d be days like this. The stock market’s rally skidded to a halt yesterday as the Dow careened 206 points lower to 8,482 and the Nasdaq tumbled nearly 3% to 1,269.

– Maybe investors were a little put off by the Fed’s inactivity. (Greenspan did not dole out any rate-cut goodies to the boys and girls on Wall Street). Or maybe investors were simply put off by the fact that a 3-year bear market still hasn’t made stocks truly cheap, only somewhat less expensive.

– Greenspan & Co. convened in Washington once again yesterday. The Federal Open Market Committee – meeting, ironically, behind closed doors – discussed whether to lower the federal funds rate from 1.75% to some level that might be more economically stimulating. But after huddling for a few hours, the esteemed bankers decided to continue doing exactly what they have been doing…nothing.

– The bankers did, however, issue a few heartfelt comments to all of us out here on Main Street, just to let us know that they’re thinking about us:

– "The softening in the growth of aggregate demand that emerged this spring has been prolonged in large measure by weakness in financial markets and heightened uncertainty related to problems in corporate reporting and governance…[T]he Committee recognizes that, for the foreseeable future…the risks are weighted mainly toward conditions that may generate economic weakness."

– Uh, not to be impolite, but I think we already knew this. We already knew that the economy has been struggling and that the stock market has become a Bermuda Triangle for capital. The problem is, no one seems to know exactly what’s going to make things better. So we just keep on doing what we were already doing…spending money on stuff we don’t really need with money we don’t really have.

– Americans yanked a whopping $55 billion out of mutual funds in July. But that cash scarcely got the chance to catch its breath before being put to work buying things, especially cars. Retail sales jumped a respectable 1.2% in July, according to the Commerce Department, thanks mostly to strong car sales.

– Selling stocks to buy stuff may not be such a bad trade. Doesn’t a Whirlpool oven hold its value better than a share of Worldcom? And isn’t a Kenmore washer a better investment than a share of US Air? Heck, a GE washer might be a better investment than a share of GE. In fact, it’s hard to find fault with the decision to sell overpriced stocks in favour of almost any other purchase. Why not sell a depreciating asset while it still has some value?

– By now, we should all have learned – more or less – what a good buying opportunity in the stock market looks like. At the very least, we should have learned what a good buying opportunity does NOT look like. History provides some very helpful clues. For example, a stock market selling for 25 times ESTIMATED earnings – like the S&P 500, circa Aug. 2002 – is usually NOT a buying opportunity. On the other hand, a stock market selling for less than 10 times earnings – like the Dow in August of 1982 – usually IS a buying opportunity.

– "On Aug. 12, 1982, Ronald Reagan was president, mortgage rates topped 15% and E.T. The Extra- Terrestrial was a box-office hit," writes Adam Shell of USA TODAY. "It was also a historically significant day for Wall Street: It marked the start of the biggest and longest bull market in U.S. history.

"And what a run it was. From the Dow Jones Industrials’ close of 776.92 on Aug. 12, 1982, to the peak of 11,722.98 on Jan. 14, 2000, the blue-chip gauge gained a stunning 10,946 points – more than 1,400%." That unprecedented advance produced annual gains of nearly 19%.

– Counter intuitively, this great bull market sprouted from very rocky economic soil: double-digit inflation, interest rates in the midteens and single- digit price-to-earnings ratios. Conditions today are quite the opposite. Inflation is low, long-term interest rates are less than 5% and stocks are richly valued.

– In other words, despite the fact that stocks have been falling for three years, the S&P 500, at 25 times earnings, looks more like a top than a bottom… historically speaking. Mr. Market will do whatever he pleases, of course. But when he’s sporting a luxurious PE multiple, he’s usually headed for hard times.

– "James Stack of InvesTech Research notes that every bear market between 1960 and 1982 took back 50% of the bull market’s gains," writes USAToday. "If the Dow gave back half of its nearly 11,000-point gain since 1982, it would fall to 6250 – a 29% drop from Friday’s close. ‘That’s pretty scary,’ Stack says."

– In other words, selling your S&P Index fund to buy a new BMW convertible is not necessarily a terrible idea.


Back in the City of Light…

*** You may have noticed even more errors than usual in recent Daily Reckonings. We blame traveling, using different equipment, jet lag and hangovers. And we apologize.

*** Making the world safe for pornography: One of the fascinatingly baroque stories in the press last week was of an American who hacked into the al Qaeda site and re-linked it to a porn page. The Ocean City, Maryland, man runs a page featuring "amateur nude wives." His first model was his own wife. Here’s the last paragraph from the article detailing his heroic act:

"His Porsche and its "WIVES" vanity plates memorializing his success in adult entertainment are, he believes, a testament that he and his family are living the American dream. And, in his own way, Messner said, he is fighting an American war."

*** Dan Ferris sends this message: "Look at Berkshire Hathaway’s 2001 annual report. On page 3, there’s a table that shows you how Buffett has outperformed the S&P 500 by over 190,000% since 1965. He’s averaged 22.6% AFTER TAXES against the S&P 500’s 11% PRETAX return.

It also shows you that 2001 was his first and only down year. Buffett’s first down year. Somehow, I doubt that Buffett changed. When Buffett can’t make money, it must mean something big, truly the end of an era."