Weekend reading links

1. Is this the tipping point in the growth versus sustainability debate with regard to energy? From the Times

Last year, Germany, the world’s fourth-largest economy, reached a milestone by reducing its overall energy consumption while still recording modest economic growth of 1.5 percent, breaking a traditional pattern in which nations see their energy use fall only during recessions. The share of renewable energy use has continued to rise as the use of fossil fuels has fallen — all while tempering the concerns of industry about rising costs and maintaining global competitiveness...

Germany has already realized its goal of increasing the share of power generated by solar, wind and other renewable sources, without hurting industry or plunging the nation into darkness. Last year, those energy sources accounted for 27.8 percent of all power consumed, for the first time edging out lignite, or brown coal, the country’s favorite fossil fuel. The national goal for renewables is 35 percent by 2020.

But the immense political and social consensus required for this may not be possible in many countries,

Since 2000, across party lines, German governments have passed laws and set regulations encouraging the production of solar, wind and bioenergy, in a program known as the Energiewende, or Energy Transition. At the same time, businesses, enticed by subsidies and prodded by Berlin, have worked with researchers on new ways to improve efficiency. The foundation for the entire effort has been the support of German citizens, who have been willing to shoulder the burden of increased costs in the short-term, in the long-term hope of leaving their children with a cleaner, more sustainable system... German consumers are being asked to bear much of the price of the energy transition, which the government projects will be at least 550 billion euros, or about $597 billion, by 2050, in order to shield energy-hungry heavy industry from higher costs. This has left households with far higher electricity rates than their counterparts in most other countries... electricity prices for a three-person household have risen 68 percent since 1998...Yet public support remains strong. A survey by TNS Infratest pollsters this year showed a strong majority of Germans continue to back the energy transformation effort, with 67 percent saying they favored the government’s policies.

In most countries, including all developing ones, since consumers are loath of pay the associated higher costs and businesses fear losing their competitiveness, governments prefer to stay away from such policies.

2 Amidst the stories surrounding El Chapo's dramatic recapture, the Times has a fascinating expose of the rising trend of violence against Mayors by Mexico's drug lords,

Hired killers, known as sicarios, have killed almost 100 mayors in Mexico in the last decade... The cartel makes telling demands of the mayors — for example, contracts for valuable building projects or the right to name the town police chiefs. And they are forcing mayors to give them 10 percent of their annual budgets. As Mexico’s government provides much of the financing, this means the cartels are feeding from the federal pot.. a year in drug-war aid. Corruption in Mexico is as old as the country itself, and traffickers have been bribing politicians during the century that they have been smuggling drugs to Americans. Mayors, governors and federal officials have turned a blind eye to opium fields and meth superlabs... 

But now gangsters are flipping this century-old deal. Instead of handing out bribes, they are making the mayors pay them. Politics is not just a way to help their criminal businesses; it is a business in itself. And as they take control of these politicians, the cartels transform themselves into an ominous shadow power, using the tools of the state to affect anyone who lives or works in its jurisdiction. With more than 2,000 mayors in Mexico, most of whom have little protection, the cartels have a big market to tap. The combined booty is potentially worth billions of dollars a year... Sometimes cartels cut out the middleman and put one of their own directly in the town hall. This was allegedly the case in the Guerrero city of Iguala, whose mayor, José Luis Abarca, is now in prison on organized crime charges, accused of being a member of Guerreros Unidos. Dozens of his police officers are also in jail, accused of being sicarios in uniform.

3. The graphics below captures the scale of China's explosive surge the debt to GDP ratio among non-financial corporates,

... and financial sector corporates.

The charts also show that local government debt has been driving up Chinese debt ratio; worsening balance sheets of local government state-owned enterprises; and raising the debt burdgen of commodities-related firms so much so that they rose from very few firms with interest payments higher than earnings in 2007 to more than half the firms having interest payments twice their earnings. 

4. Edward Glaeser reviews Robert Gordon and asks,

Will the best brains of the future build anything resembling our past innovations, or will they dedicate their time to tasks like making Twitter more user-friendly?

He also captures Gordon's central finding, 

He splits American lifestyles into core categories—food, shelter, clothing, health, transportation—and shows the revolution in the lives of ordinary Americans. Concentrating on the core needs of human existence rather than on coarse GDP statistics, he... helps us to understand the magnitude of the shift between 1870 and 1940... The world of 1940 is much closer to the world of 2010 than it is to the world of 1870. While almost every aspect of life changed between 1870 and 1940, the alterations from 1940 to 2010 came in particular areas.

5. Fascinating profile of Richard Posner which captures his concept of 'legal pragmatism' (as against 'legal formalism') as a 'judicial balancing of costs and benefits' through an 'economic analysis of law',

Posner describes legal pragmatism as a “practical and instrumental” application of that attitude. It is: “forward-looking, valuing continuity with the past only so far as such continuity can help us cope with the problems of the present and of the future;” “empirical,” focused on facts; “skeptical,” doubtful that any decision, legal or otherwise, represents “the final truth about anything” because frames of reference change over time; and “antidogmatic,” committed to “freedom of inquiry” and “a diversity of inquirers”—in other words, to the “experimental”—because progress comes through changes in frames of reference over time, “the replacement of one perspective or world view with another.”

6. Praveen Chakravarthy and Rajeev Gowda strike a note of caution on Startup India arguing that start-up scene in India is already flourishing without any government role,

Over the last 10 years, in India, $60 billion has been invested in more than 3,000 new start-ups. Indian start-ups received nearly 50 times more venture capital in 2015 compared to 2000. In 2015, venture-capital investments in India were higher than net foreign investments in stock markets for the first time in history, leaving out the global financial crisis years. Venture-capital financing for Indian start-ups has grown at a compounded rate of 30 per cent over the last 15 years. India already has the third largest start-up ecosystem in the world, boasting of more than 12,000 active start-ups. That there is a thriving and growing private venture-capital industry for providing risk capital to start-ups in India is quite evident. It is then inexplicable that the government should seek to squander away scarce tax rupees in the garb of providing a funding impetus to the start-up ecosystem — when, clearly, there are worthier claimants such as issues of rural distress, bad loans in the banking sector, and distraught power sector finances.

7. Times reports on the perils of rapid expansion with the example of Chinese ship-builders,

Up and down the Chinese coastline, in harbors and along coastal rivers, companies bought big plots of land, purchased cranes, and hired large numbers of welders. China expanded from one-fifth of global shipbuilding capacity in 2008 to two-fifths by last year. Quality control was a problem from the start. “In China, building what are supposed to be two identical ships in two adjacent slips, you get two different vessels,” said Basil Karatzas, a Manhattan ship broker. “In Japan, they can build 10 ships and they are all the same.”

With many Chinese shipyards dogged by complaints, competition was fierce. Japanese and South Korean shipyards demanded 20 percent down payments for orders, plus a guarantee from an international bank to pay the rest of the cost if the buyer defaulted. Although Chinese shipyards demanded the same deposits, they did not require the guarantees, and accepted orders from what were effectively shell companies with weak finances. That put Chinese shipyards at risk... F

or the 58,000-ton bulk freighters that Chinese shipyards were churning out, prices have plunged from nearly $30 million in 2013 to just $16 million now. Buyers who bought at the high end chose to forfeit their deposits instead of paying for finished vessels worth less. Chinese shipyards are now littered with half-finished shells, like immense steel earthworms cut in two. Many shipyards lack the money to complete vessels and sell them at a discount that might allow them to recover some costs.