The Second Cold War

I recently saw a piece quoting Chinese officials as saying global warming concerns were an American plot created to make economic war on China.  Except to a few anti-science politicians here in the States (unfortunately at the national level), it seems like a pretty farfetched, even paranoid, idea.

But what if they are right?  What if, as one Presidential candidate suggested in the economic policy debate this week, America is making economic war on China?

After all, the past twenty years have seen otherwise reasonable people buy into the fairy tale that a non-existent system that was a gigantic waste of money from the 1980’s is how we “won” the first cold war.

I’m talking, of course, about the Anti-Ballistic Missile (Star Wars) system that politically connected defense contractors used to suck billions and billions of dollars from our defense budget, money that came indirectly from the Social Security system after the taxes to support that insurance program were raised to nearly four times the ongoing cost.

By the way, if you want to call Social Security a fraud, then at least try to prosecute the people who took the $2.6 billion in taxes collected for the purpose without spending that money on retirees or the disabled.  Once that’s done, and the money returned, then we can talk about how to stabilize that insurance system and adjust for longer life expectancies beyond 2037.

But back to how we “defeated” the great evil empire.

I like to believe that our cop show Kojak did more to bring down the Soviets than our wasted defense spending.  I thought that as soon I heard the factoid that Kojak reruns were the number one primetime show on Soviet TV in the late 80’s.  Even though Kojak’s New York of the Hollywood 70’s had lots of scattered newspaper, and even my pet peeve barrels with burning planks of wood, it also showed poor people in Harlem with nicer cars, clothes, TVs and lives than the average Soviet family.

I think we can all agree that once middle class people in Russia knew that even poor people in the US had it better, they wanted a change.  And maybe spending money, even 50 cents against the US military spending dollar, was the direct cause of the soft revolution that toppled the Central Committee.

I don’t recall ever hearing about a Soviet Anti-Ballistic Missile technofantasy boondoggle, however, and I’ve had the occasion to work with a number of formerly top Soviet government scientists and engineers over my years on the Street.

Still, that’s all so 1980’s, and today our cold war is purely economic, and directed (according to some) at China.

So how are we doing?

If it was the incremental billions we spent on that flight of non-working software fantasy called “Star Wars” and the Soviet spending of 50 cents or a bit more for each dollar we spent, then we should start looking at things like our $500 million dollar loss on the Solyndra loan as being far more efficient economic warfare than we waged in our first cold war.

According to reliable reports, the Chinese government responded to our smallish subsidy for solar energy by spending over ten billion dollars to subsidize industrial efficiencies in their solar panel manufacturing.

That’s a whopping 20-1 return on our cold war dollars!

It’s even paying off for ordinary Americans.  The price of installed solar panels has dropped hugely over the past decade, making it economically competitive with coal-fired grid-delivered electricity.

One huge reason we’ve seen a 43% decline in the cost of (installed) solar energy to American consumers is that Chinese taxpayers are subsidizing production of polysilicon.  That huge component of photoelectric panels has dropped a whopping 80% in price since 1980, mostly because the Chinese spent the billions needed to turn what was a small scale production capacity into truly cost-efficient industrial scale.

There’s no doubt Solyndra and Evergreen Solar are both victims of that rapid drop in the cost for polysilicon since they had staked out a business strategy of producing panels that used less polysilicon.  That happens in developing industries.  There were literally hundreds of car manufacturers in the first two decades of the automobile, and some of them failed in spite of “better” technology.

Looked at as whole, the jury is still out on the US energy independence loan program, since any venture capitalist will tell you that they expect lots of failures among their investments.

I will say that the “fat tail” of costs we perennially underestimate from this is currently being borne by the Chinese.  I’m talking about the cleanup costs for pollution and tons of byproducts left over from what is, after all, a large scale manufacturing process that hasn’t yet been perfected, and has only been around for less than a decade.  Time will tell whether there are unforeseen problems.  Maybe there won’t be the equivalent of Love Canal or other “brownfields” we got from our 20th century industrial success.  And I suppose it’s a good thing that China doesn’t have the equivalent of our legal specialists chasing asbestos settlement dollars.  Who can tell what the eventual costs are going to be from the air those solar panel factory workers are breathing?

That said, we’ve probably played this round of the second cold war poorly, in terms of strategy.

I say that because we are still subsidizing purchase and installation of solar panels on American housetops, but now our subsidy is buying Chinese solar panels.  We probably did the right thing by trying to build a portfolio of manufacturing, but where we are right now in our economy, it probably doesn’t make sense to subsidize consuming foreign produced goods.

So, even though I eschew the label “cold war” for our competition with China, I do think we need to keep encouraging innovation and manufacturing of new products here in the US.  The alternative, so aptly described when the UK lost much of its manufacturing base, is to become a nation of shopkeepers.  Unfortunately, we’ve gone one step farther, becoming a nation of baristas and fast food drive-up window attendants.



One Response to The Second Cold War

  1. Stanley King aka 'oldgringo' says:

    I do remember NASA investing money into R&D solar cells back in the 50’s & 60’s but after awhile they called in their chips.

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