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2020-06-02T08:00:07.000000Z
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Central bankers are keen to be green. They should not go too far.
①Most governments are criticised for failing to do enough about climate change. Much rarer is the public body that is doing too much. Yet central banks, the institutions whose job it is to control inflation, tame the economic cycle and police the financial system, are in danger of falling into this lonely category. Since the global financial crisis, their power in pursuit of those limited economic goals has grown substantially. Now they face pressure to wield it in order to save the planet.
②Many are keen to rise to the challenge (see Finance section). A global network of central bankers, led by those in Britain, France and the Netherlands, is working on standardised methods for incorporating climate risks into the stress-tests that banks must pass. Some insurers have already been put through their paces. China's central bank has zealously promoted a new market in green-or at least greenish-bonds. Christine Lagarde, the new president of the European Central Bank (ECB), has declared that climate change should be a "mission-critical" priority for the institution. She wants to study whether the bank should tilt its bond-buying programme away from polluters' debt-a policy dubbed "green quantitative easing" (or "Green QE"). Europe's regulators are also considering whether to give an easy ride to loans made to green projects.
③Some of what central banks have done so far is welcome. But too much greenery risks politicising them and compromising their core missions, which work best when politics is at arm's length. Their leaders should ensure that they stick to tasks for which they were built-and for which they have a democratic mandate.
④Start with what is necessary and good. Climate change does not pose a critical threat to the financial system today. But extreme weather and changes in sea-levels could eventually leave insurers with vast bills and banks with dud loans (such as those secured against properties which end up under water). An imminent risk is a sudden change in climate policy. Were governments to impose a swingeing tax on carbon, many fossil-fuel firms would get into financial trouble, as would firms that depend on dirty inputs. There could be knock-on effects for banks exposed to them. It is within regulators' remit to study such possibilities. Working out a coherent set of global standards for accounting for climate risk is a starting-point for such a task.
⑤Unfortunately this agenda could spread into something less desirable, particularly in Europe, which has just set out new climate targets (see Europe section). It is easy to see the temptation of such policies as green qe. Pushing up the cost of capital that dirty firms pay could have a similar effect to a carbon tax, the holy grail of environmental policies. Firms that can cut emissions easily would do so to avoid the penalty. It might be attractive to outsource a politically risky policy to technocrats.
⑥Yet Green QE and schemes like it are misguided, for three reasons. First, central banks lack a democratic mandate to deter emissions. True, climate policy could affect the economy-but so do all kinds of things, such as unemployment benefits, with which central banks would never dream of interfering. This is also true for other catastrophic risks: a pandemic that killed lots of workers would have huge economic implications, but nobody thinks central banks should incentivise medical research. And policies to avert global warming also redistribute wealth. That is why proposals for a carbon tax are typically paired with some sort of compensation for the losers-something that is far beyond central banks’ remit today.
⑦Second, green qe would be inferior to a carbon tax. The size of the cost-of-capital advantage it gave green firms would vary with the quantity of bonds the central bank was buying. Because qe is a tool designed to stimulate the economy, that volume depends on unemployment and inflation. Why should the incentive to be green vary with the economic cycle?
⑧Third, even if it carried democratic legitimacy, the expansion of central banks' goals beyond their core remit would be unwise. Power is delegated to technocrats precisely because they are supposed to be neutral and can be easily held accountable against narrowly defined targets. But if it becomes normal for them to tilt capital allocation in a desirable direction, why stop at climate change? The left would leap at the chance to penalise companies that are deemed too ruthless or which have pay structures that offend. Populists might want central banks to favour firms that invest at home and buy local. The more politicised central banks became, the less they would be perceived as independent authorities on economic policy.
⑨If governments want to penalise polluters they can do so directly with taxes, or by empowering new environmental bodies. There is no need to muddy the waters over the responsibilities of central banks. And the banks themselves should resist the perennial temptation to expand their territories.
The politics and history behind the third ever impeachment of an American president
①On july th the day after President Dorainenald Trump called the president of Ukraine, to ask him for a favour, America's ambassador to the eu, Gordon Sondland, went out to lunch in Kyiv. The ambassador, whosecured his position after donating m to the Trump Presidential Inaugural Committee, placed a call to the White House while on the terrace outside a restaurant. He held the phone far enough away from his ear that David Holmes, a counsellor for political affairs at the embassy in Kyiv lunching with him, could overhear what was said.
②"I heard Ambassador Sondland greet the president and explain he was calling from Kyiv," Mr Holmes testified to the House intelligence committee on November th. "I heard President Trump then clarify that Ambassador Sondland was in Ukraine. Ambassador Sondland replied yes, he was in Ukraine and went on to state that President [Volodymyr] Zelensky, quote, unquote, loves your ass. I then heard President Trump ask, quote, so he's going to do the investigation? Ambassador Sondland replied that he's going to do it, adding that President Zelensky will, quote, do anything you ask him to."
③What Mr Trump had asked Mr Zelensky to do is not in dispute. On September th the White House released a memorandum of the conversation between the two presidents that had taken place the day before that lunchtime call. Mr Trump wanted Mr Zelensky to investigate the far-fetched idea that some faction in Ukraine might have worked to implicate Russia in meddling with America's presidential election. He also wanted him to announce an investigation into corruption at Burisma, an act which might be expected to harm the reputation of Hunter Biden, an American lawyer who sat on the gas company's board, and his father, Joe Biden, who is quite likely to be Mr Trump's opponent in the presidential election. There is no evidence that Mr Trump had any interest in other investigations into corruption in Ukraine, of which there are plenty.
④The first of the two draft articles of impeachment against Mr Trump which Jerry Nadler (pictured above), the chair of the House Judiciary Committee, published on December th treats the request the president made of Mr Zelensky as an abuse of power made "for corrupt purposes in pursuit of personal political benefit." Mr Zelensky, the House says, did not simply feel the level of pressure to be expected when a recently invaded supplicant is asked for a favour by the president of the largest military power in the world. The article charges Mr Trump with using both government channels and other means to tell Mr Zelensky's team that two things which they wanted - a meeting at the White House and the release of military aid - were conditional on their granting Mr Trump the favour he had asked for.
⑤Mr Sondland testified that the announcement of investigations was indeed treated as "a quid pro quo for arranging a White House visit for President Zelensky", and that this was on "the president's orders". American officials worked with Mr Zelensky to draft an acceptable announcement of the investigation. According to testimony from Kurt Volker, who was at the time America's special representative to
BEIJING
As China puts on weight, type-2 diabetes is soaring
①More than years ago, doctors in the northern city of Daqing began a pioneering long-term study into the prevention of type- diabetes, a disease which was then thought to affect about of Chinese. When doctors, academics and officials convened there this autumn to discuss the conclusions and promote prevention work, they faced a very different reality. About of Chinese adults now have the condition, nearly the proportion in America and twice the level in Britain. Type- diabetes is becoming more common globally, but in recent years its prevalence has been growing fastest in China.
②Diabetes is a dysfunction in the body's regulation of blood-sugar levels. Type is rare and usually shows up early in life, triggered by factors that are not yet well understood. It can kill swiftly unless managed with daily injections of insulin. Type is far more common, accounting for more than of cases worldwide. It tends to develop in adults, especially if they are overweight or do not exercise much. It can usually be controlled with pills and lifestyle changes, and can sometimes be reversed. Both types, if not well-treated, can cause complications such as organ damage, blindness, strokes and heart attacks.
③China has an estimated m diabetics, by far the highest number of any country. Twenty years ago it had fewer than m. The dramatic increase, almost entirely involving type s, worries the government. The study in Daqing showed how lifestyle changes can prevent type among people with impaired glucose tolerance, which is sometimes a prelude to the condition. But the country's health-care system is illequipped to ensure symptoms are detected, let alone help people with them.
④A big reason for the increase is that as people get richer they often consume more processed foods and sugary drinks. One in seven Chinese adults is obese, including a quarter of adults in Beijing, China's fattest city. The urban share of the population has grown from less than to about since . City dwellers tend to be less physically active than people in rural areas.
⑤There may a genetic link, too. Research finds that ethnic-Han Chinese are acquiring type diabetes while younger and thinner than Caucasians. Smoking is another factor. China has one-fifth of the world's population but consumes one-third of its cigarettes. About half the country's men smoke daily. The speed of China's recovery from Mao-era destitution may also be relevant. Chinese experts have found that people underfed as children are more likely to acquire diabetes in later life.
China's health system is not coping well. The most recent national survey, in , found that nearly of China's diabetics were unaware of their condition (in America it is about ). Only about onethird were getting treatment. Among those receiving it, only about half were keeping their blood-sugar levels within a healthy range. Another study showed that the proportion of diabetics who were managing not only to control their blood sugar, but also their blood pressure and cholesterol-measures that also help avoid complications-was lower still. Some of them turn to quack remedies.
Despite the prevalence of type , public understanding of the condition is woeful. There is little appreciation of how modern medicine can control it. Poorly educated people in remote communities sometimes worry that it is infectious, says Yang Lijun, the manager of a website for diabetics.
Escaping state capture
PRETORIA
The wheels of justice are turning in South Africa at last, though too slowly
①So bad was corruption under Jacob Zuma, South Africa's president from to , that people referred to it as "state capture". Cyril Ramaphosa, Mr Zuma's successor, thinks it cost the country trn rand (bn) in looted funds and lost gdp. And that is just the tangible expense. State capture also deepened a pervasive sense that, years after apartheid, South Africans are dangerously short of trust in each other and hope for the future.
②The person charged with restoring some of both is Shamila Batohi, who left the International Criminal Court to take charge of South Africa's National Prosecuting Authority (NPA) in February. Her appointment is central to Mr Ramaphosa's efforts to clean house. "Everyone says there is a lot on my shoulders," says Ms Batohi. "The people of South Africa are impatient, understandably so."
③Few doubt her ability, but her success is far from assured. Christopher Stone, an expert in criminal justice at Oxford University, says she labours under a "triple burden".
④The first is that the NPA, like other anticrime institutions, was eviscerated during Mr Zuma's time in office. The crooks did not simply loot state-owned companies but "systematically dismantled" the organisations meant to fight crime, says Anton du Plessis of the Institute for Security Studies, a think-tank. Heads of the NPA under Mr Zuma face serious questions about their integrity. Mokotedi Mpshe, the acting director when the former president took office, dropped corruption charges against Mr Zuma (which have since been reinstated ahead of a trial due next year). Mr Mpshe's successor, Menzi Simelane, was found unfit for the job by the country's highest court, which said his appointment was "irrational" and "unconstitutional".
⑤⑥⑦⑧Then came Nomgcobo Jiba, whose husband's criminal record had been expunged by Mr Zuma. An official inquiry found in April that Ms Jiba had lied under oath, failed to follow court orders and compromised the independence of the NPA. The verdict cited, for example, how she dropped charges against Richard Mdluli, a
Zuma ally and intelligence official who has
since been convicted of kidnapping and assaulting a former lover’s husband.
Ms Jiba’s successor, Mxolisi Nxasana,
proved less convenient for Mr Zuma, and
left after a golden handshake. In 2018 the
highest court found that President Zuma
“was bent on getting rid of Mr Nxasana by
whatever means he could muster”, and declared the move “constitutionally invalid”.
Such shenanigans led to an exodus of
honest lawyers. From 2015 to 2018 more
than 700 prosecutors left and were not replaced. Ms Batohi estimates that the npa is
functioning at 70% capacity. She has wrangled a bigger budget to recruit good people,
and in February Mr Ramaphosa announced
a dedicated unit to investigate serious
cases of state capture.
An Augean task
This has exacerbated the second burden on
Ms Batohi. “Expectations are far greater
than what any prosecution service can reasonably deliver,” notes Mr Stone. There are
potentially hundreds of cases related to
state capture, many of them fiendishly
complex. Ms Batohi is fond of telling allies:
“when you shoot at the king, make sure you
don’t miss.” In other words, she wants to
ensure cases are solid before making arrests. However, she sounds confident that
arrests are coming. “If there are no [state
capture] prosecutions next year then—my
word—I should retire or resign.”
There are signs of progress. On November 21st investigators arrested Bongani
Bongo, a security minister under Mr Zuma.
He was charged with attempting to bribe an
official to obstruct investigations into the
looting of Eskom, a state-owned electricity
provider. Mr Bongo, who remains an mp
(chair of the home-affairs committee, no
less), is the first politician to be arrested in
relation to state capture. A few days later
the npa won another victory when a court
froze the assets of Regiments Capital, a
company accused of orchestrating corrupt
deals linked to the Gupta brothers, businessmen with close links to Mr Zuma.
Yet even as cases are built, Ms Batohi believes that the npa is serving as a deterrent
to graft. Previously there was little chance
that corruption would be investigated, “so
it was a risk worth taking”, she says. “Those
days are gone.”
The third challenge facing the npa,
though, is that reclaiming a captured state
means more than putting crooks in jail. It
will require Mr Ramaphosa to make good
on his promises to reform failing stateowned companies such as Eskom (see next
article). It also requires him to ensure that
prosecutions are not seen as political.
Under Thabo Mbeki (president from
1999 to 2008) and Mr Zuma the npa was
used as a political tool. By contrast, Mr Ramaphosa appointed Ms Batohi after a meritocratic, transparent process. The president "unwaveringly gave me his word that
there will be absolutely no interference" in
the work of the npa, says Ms Batohi. "Since
my appointment, that has been absolutely
the case."
Yet opponents of Mr Ramaphosa-many of whom want him out so they can keep stealing and stay out of jail-will almost certainly cry foul if senior figures in the ruling African National Congress are prosecuted. For now, all the npa head can do is get on with her job. Success will not be clear-cut, but if she can help convict the crooks it will inspire not just South Africans but reformers in other venal regimes, such as Angola, Pakistan and Ukraine. "It is not going to be easy. It is not gonna be quick," she says. But, adds Ms Batohi, "failure is not an option."
South Africa's electricity crisis
Cyril Ramaphosa is cleaning house, but he cannot keep the lights on
①In recent days the only thing darker than South Africans' homes has been their humour. On December th Eskom, the state-owned power utility, announced its biggest-ever blackouts, turning off the lights across Africa's most industrialised country. Some wags used the remaining battery on their phones to vent on social media. "The 'E' in South Africa stands for electricity," read one post. Another suggested that "Eskom's been bad all year … in the hope they'll get coal for Christmas."
②Many South Africans have stopped seeing the funny side. The failure of Eskom's coal-fired power stations meant the loss of almost a third of its mw capacity (mw, roughly the potential output of Denmark). The blackouts may tip the country into recession for the second time in two years.
③Eskom was quick to blame inclement weather. It has indeed been very rainy. But the root causes are gross mismanagement and rampant corruption. Two huge new power stations-Medupi and Kusile-are years behind schedule and billions of dollars over budget. Under Jacob Zuma, South Africa's former president, Eskom was systematically looted. Today it is broke, with debts of bn rand (bn) that are crippling the public finances (see Buttonwood).
④Cyril Ramaphosa, Mr Zuma's successor, has promised better management and the "unbundling" of Eskom's three main parts:
Yet there has been little urgency. Andre de Ruyter, the incoming chief executive, does not start until January. Worse still, Mr Ramaphosa seems not to grasp the scale of the crisis. On the day the huge blackouts were announced he described Medupi as "a fitting symbol of the importance of our state-owned enterprises".
⑤The tragedy is that the crisis is avoidable. Unbundling could be accelerated and assets could be sold to more efficient operators. The government could allow cities and companies to buy their own power and expand its auction scheme that allows private renewable-energy providers to sell to the grid. Mr Ramaphosa may fear the political consequences of such steps, if his party and its allies[-ally] in the trade unions complain. But the alternative is surely worse. South African voters are already tiring of a well-meaning president who cannot keep the lights on.
Solar power
Transparent solar cells could be used to glaze buildings
①Over the past few decades photovoltaic cells have gone from being exotic and, expensive power-packs for satellites and similar high-end applications to quotidian generating equipment for grid-scale power stations. One area where they have not yet fulfilled their potential, though, is as local sources of electricity to keep office buildings and the like supplied with energy. The main reason is that no one has a good answer to the question: where do you put them? Roof-top cells can power a one- or two-storey house. They will not power an office block. You could array them on the walls. But office blocks tend to have high window-to-wall ratios and to be governed, for fire-safety reasons, by strict rules on wall cladding.
②What is left is to replace the windows themselves with solar cells. Unfortunately, commercially available solar cells are opaque to the point of blackness. But Seo Kwanyong of the Ulsan National Institute of Science and Technology, in South Korea, plans to do something about that. As he and his colleagues report this week in Joule, they have created solar cells that are as transparent as tinted glass.
③Dr Seo's approach is, in retrospect, blindingly obvious. It is to punch-or, rather, etch-holes in the material of which a cell is made, in order to let light through. Getting the size and layout of the holes right, though, proved tricky.
④Commercial solar cells are made from wafers of silicon. Dr Seo and his colleagues worked with sheets of the stuff that were microns thick—the sort of thickness employed commercially. The holes they etched were - microns across, a diameter calculated to be the minimum needed to permit the passage of visible light without creating awkward diffraction effects that would distort what was seen through the wafer.
⑤Despite this precaution, their first efforts still suffered from strange colours and opaque regions caused by diffraction and consequent interference patterns. But these turned out to be a result of the random spacing and arrangement of the holes, rather than their size. Tweaking the etching process so that it produced holes which were regularly rather than randomly arrayed abolished these distortions and resulted in a material that was evenly transparent and which generated no chromatic aberration. And, crucially, when wired up as a photovoltaic cell it did indeed produce electric current.
⑥Clearly, there is a trade-off between the transparency[-transparent] of a wafer and the amount of light that can be harvested[-harvest] for electricity generation. By adjusting the spacing of the holes, the team were able to make wafers with transmittances[-transmit] of between and of incident light. Commercial tinted and coated glass generally has a transmittance of between and .
⑦Wiring[-wire] up a wafer with transmittance created a device with an efficiency of . That compares with for the best commercial cells, but is not negligible. So, though transmittance is a bit on the dark side for office-window glass, what Dr Seo and his colleagues have created is a prototype that is within shouting distance of numbers that might make it commercially viable. Clearly, it would cost more than standard window glass. But, unlike window glass, it would pay back its cost in free electric current.
Behavioural economics
Why are people attracted to 50:50 probabilities?
①Barack told him, obama's variously, intelligence that there officers was a probability of between and that Osama bin Laden was in the Abbottabad compound in Pakistan in April . The president was having none of it. "This is :," he said. "Look guys, this is a flip of the coin." That bin Laden was found and killed does not reveal whose estimate of the odds was best. But new research argues that Mr Obama's instinct - to treat probabilities as evenly split when they are uncertain - is widespread.
②In a working paper Benjamin Enke and Thomas Graeber, both of Harvard University, argue that the bias towards 50:50 has shown up in many contexts. One is decision-making under (known) risks, such as gambling at a (fair) slot machine. Economists have long realised that people are more sensitive to changes in probabilities, the nearer they are to the boundaries of and . For example, the chance of a big win of, say, rising from to seems much more significant than the chance of the same win rising from to . At the extremes, there is a tendency to compress odds towards evens.
③Mr Obama did not face known odds, but ambiguous ones. Other researchers have found that such uncertainty has a similar compression effect: it can make people act as if they are facing known odds that are closer to : than might seem rational, given the information on offer. Messrs Enke and Graeber argue that this tendency even shows up in surveys of expectations about the performance of the economy and the stockmarket.
④The authors suggest a new theory to explain this behaviour: "cognitive uncertainty". It could be described as a simple lack of confidence. If people know that they may not be doing the sums right, or that their memory may be failing them, or that they are not sure what their own preferences are, then their choices depend less on the information they are presented and more on a "mental default" of equal probabilities.
⑤In a series of online gambling experiments Mr Enke and Mr Graeber show that the more uncertain people are in their judgments, the more likely they are to hedge their bets - even when they have access to information that should, in theory, be useful.
⑥Researchers have in the past suggested that odds of : are really code for "I don't know". That may well have been what was going through Mr Obama’s mind when faced with such a wide range of estimates. Forecasters put odds on events because words like "probable" and "likely" are interpreted very differently by different people. But numbers mean nothing without confidence.
The spying business
Cyber-mercenaries should be stopped from selling virtual weapons to autocrats
①The arms trade is lucrative and controversial. Over obn worth of weapons are exported by Western countries each year. The business is governed by a mesh of rules designed to prevent - or at least limit - proliferation and misuse. This system is imperfect, but does have some bite. In Britain court cases have contested the legality of weapons sales to Saudi Arabia because they may have been used against civilians in Yemen. Germany froze exports to the kingdom in .
②These days, though, physical weapons such as missiles, guns and tanks are only part of the story. A growing, multi-billion-dollar industry exports "intrusion software" designed to snoop on smartphones, desktop computers and servers (see Business section). There is compelling evidence that such software is being used by oppressive regimes to spy on and harass their critics. The same tools could also proliferate and be turned back against the West. Governments need to ensure that this new kind of arms export does not slip through the net.
③Dozens of firms are involved in the cyber-snooping business; the largest has been valued at bn. Many are based in Western countries or their allies, and employ former spooks who learned their craft in intelligence agencies. There is a legitimate business selling cyber-intelligence tools to foreign customers - for example, to help governments track terrorists or investigate organised criminals. Unfortunately, in some cases, these surveillance tools have ended up in the hands of autocratic governments with more sinister aims.
④A recent lawsuit brought by WhatsApp, for instance, alleges that more than users of its messaging app were targeted using software made by nso Group, an Israeli firm. Many of the alleged victims were lawyers, journalists and campaigners. (nso denies the allegations and says its technology is not designed or licensed for use against human-rights activists and journalists.) Other firms' hacking tools were used by the blood-soaked regime of Omar al-Bashir in Sudan. These technologies can be used across borders. Some victims of oppressive governments have been dissidents or lawyers living as exiles in rich countries.
⑤Western governments should tighten the rules for moral, economic and strategic reasons. The moral case is obvious. It makes no sense for rich democracies to complain about China's export of repressive digital technologies if Western tools can be used to the same ends. The economic case is clear, too: unlike conventional arms sales, a reduction in spyware exports would not lead to big manufacturing-job losses at home.
⑥The strategic case revolves around the risk of proliferation. Software can be reverse-engineered, copied indefinitely and - potentially - used to attack anyone in the world. The smartphone apps targeted by such spyware are used by everyone, from ordinary citizens to prime ministers and ceos. There is a risk that oppressive regimes acquire capabilities that can then be used against not just their own citizens, but Western citizens, firms and allies, too. It would be in the West's collective self-interest to limit the spread of such technology.
⑦A starting-point would be to enforce existing export-licensing more tightly. These rules were designed for an earlier age, but the principle remains the same: if firms cannot offer reasonable assurances that their software will be used only against legitimate targets, they should be denied licences to sell it. Rich countries should make it harder for ex-spooks to pursue second careers as digital mercenaries in the service of autocrats. The arms trade used to be about rifles, explosives and jets. Now it is about software and information, too. Time for the regime governing the export of weapons to catch up.
China's economy
SHANGHAI
As America raises its walls, China's exporters find new terrain
①A year ago an economic forecasting unit in the Chinese government published an outlook for the coming year. The big worry, it concluded, was the external environment. Shipments to America, China's biggest customer, would suffer as the trade war dragged on. China had maxed out its exports to other big countries, and others were too small to make a difference.
②So China's boffins are, like many others, surprised by how things have gone. Exports to America are indeed down, by nearly so far this year. But exports to the rest of the world have been much stronger (see chart). China, it turns out, had more to sell to its big customers: exports to Europe are on track to surpass exports to America this year. Meanwhile exports to smaller markets in South-East Asia, such as Vietnam and Malaysia, have boomed.
③According to data from cpb World Trade Monitor, China's share of global exports has reached , slightly higher than in July , when the first American tariffs hit. Sluggish imports - in part because of a domestic slowdown - mean the trade surplus is set to be about a quarter bigger in than in .
④One explanation for China's resilient exports is the yuan's depreciation against the dollar since the trade war began. That has blunted the tariffs' impact. China’s currency has also weakened against other major trading partners.
⑤A second is goods routed through other countries to avoid tariffs. Some sent to South-East Asia have ended up in America. Vietnamese customs officials have stepped up checks of everything from seafood to aluminium to ensure that they are not relabelled Chinese goods. Julian EvansPritchard of Capital Economics, a research firm, estimates that American tariffs have cut Chinese gdp growth by about percentage points, but that trans-shipments through South-East Asia may have lifted it back up by percentage points.
⑥There is also a third, more positive explanation: Chinese companies are highly competitive. Once an assembly centre, China now makes more of the inputs that go into final goods. Its efforts in high-tech sectors such as semiconductors are wellknown. But it is making lower-tech progress more broadly. The Chinese light-industry council, representing toymakers, food firms and the like, estimates that its most technologically advanced members invest of revenues in research and development, high by international standards; it is pressing them to hit .
⑦The road ahead will not be easy for Chinese exporters. The longer American tariffs last, the more likely American buyers are to find alternatives. The fall in Chinese sales to America has accelerated recently.
⑧On December th Chinese exporters of machinery and electronics met for their annual conference. The theme was “flourishing together along One Belt, One Road”, in line with the government's policy of promoting economic ties with Asia, Africa and Europe. In previous years that might have been politically astute positioning. Now it looks like a survival strategy.
Green central banking
Central bankers debate whether tackling climate change is mission-critical or mission creep
①As far as interest rates are concerned, the new boss of the European Central , Bank (ECB), Christine Lagarde, seems largely in agreement with Mario Draghi, her predecessor. Where she seems to differ is in wanting the bank to be greener. On December nd she told European parliamentarians that a planned review of its monetary policy strategy should take in the impact of climate change. Other central bankers, too, are going green. In recent months rate setters from Sydney to San Francisco have opined on the impact of climate change on economic and financial stability. The subject has long preoccupied Mark Carney, the governor of the Bank of England, who is soon to become the UN's climate envoy.
②So far central banks have focused on the impact of climate risk on the financial system. But activists argue that, just as central bankers saved the global economy during the financial crisis, so too must they tackle the next emergency by shifting capital away from polluters and towards greener uses. Europe's technocrats seem willing to consider the idea. Others caution that it should be a job for politicians instead.
③In Mr Carney set out the channels through which climate change could threaten financial stability. Financial firms are exposed to physical risks: floods, for instance, lead to big insurance payouts and sink the value of banks' mortgage books. Then there is "transition" risk. New government policies, such as a carbon price, could see investors dump the assets of polluting companies. Share prices could collapse, and defaults on bank loans rise. Polluters also risk climate-related litigation. Exxon, an oil company, was accused of misleading investors over the costs of climate change, though on December th a court in New York found it not guilty.
④So it is important to understand companies' exposures to climate risk. In central banks from the group of large economies set up a "task force" to encourage disclosure. To date these suggest that exposures are significant but not daunting. As of June nearly half of the world's largest companies (by market capitalisation) had reported exposures, much of which are expected to be realised within the next five years. Those added up to trn - or of the firms' total market value.
⑤Some supervisors have started including climate risk in their assessments of banks and insurers. The Bank of England requires banks to have a plan for dealing with such risks. The Network for Greening the Financial System (ngfs), a group of central banks and supervisors, collates guidelines for regulators and disseminates scenarios to help analyse potential losses to the financial system. The Dutch central bank was the first to conduct a stress test along these lines in , finding the effects of climate risk to be “sizeable but also manageable”. Dutch banks, exposed mostly through their loans to companies, stood to lose up to of their assets. Insurers and pension funds, exposed through holdings of corporate bonds and equities, could make losses of around .
⑥The People's Bank of China (PBOC) helped set up the ngfs, and has led efforts to firm up the definition of a “green bond”. Malaysia's central bank is working on a similar taxonomy with the World Bank, and in September hosted a powwow on climate change. But one big emitter has been relatively reticent. Although America accounts for of the world’s emissions, its Federal Reserve is not part of the ngfs—no doubt reflecting a lack of political interest.
⑦Even the Fed, though, is talking about how climate change might eventually affect the economy. In November Lael Brainard, a member of its board of governors, said climate-related disruption could affect productivity and long-term economic growth, with consequences for interest rates. Central bankers in commodity-producing countries such as Norway and Australia note that a shift from polluters would alter the structure of their economies.
⑧A far more controversial question, though, is whether central bankers should seek to change polluters' behaviour. As part of its asset-purchase scheme, the ECB holds bn (bn) of corporate bonds. Its purchases are broadly representative of the market. Energy and utility firms, which are sizeable issuers of corporate bonds, account for roughly a third of the ECB's corporate-bond holdings. On November th former central-bank officials and activists pressed Ms Lagarde to stop buying dirty assets or accepting them as collateral when it lends to banks. She plans to study the idea.
⑨Supporters argue that such steps would help correct investors' failure to price polluters' riskiness in full. They would not necessarily conflict with the day job of central banks, says Patrick Honohan, a former head of Ireland's central bank. Many are charged first with ensuring price stability, and second with supporting wider government policy. But critics are unconvinced. In October Jens Weidmann, the head of Germany's Bundesbank, worried that a climate objective could compromise ratesetters' commitment to stable inflation.
⑩Greening asset purchases would mean deciding how much polluters should be penalised - a job for elected politicians, not technocrats, says Tony Yates, an economist formerly at the Bank of England. Notably, the pboc accepts green bonds as collateral and gives banks' green assets favourable regulatory treatment. But central banks in places where the government holds less sway may be loth to follow its lead. As its economic and financial effects become clearer, climate change is certain to loom larger in central banks' thinking. What they do about it will depend on their willingness to tread on political turf.
Free exchange
A new book argues that anti-competitive firms are killing American innovation
①When thomas moved from France to America in 1999 to begin a philippon phd in economics, he found a consumer paradise. Domestic flights were dazzlingly cheap. Household electronics were a relative bargain. In the days of dial-up modems Americans, who were charged a flat rate for local calls, paid far less than Europeans to get online. But over the past two decades, Mr Philippon writes in "The Great Reversal", this paradise has been lost. Europeans now enjoy cheap cross-continent flights, high-street banking, and phone and internet services; Americans are often at the mercy of indifferent corporate giants. Perking up their economy might mean cutting those giants down to size.
②Much that has happened to the American economy since the s has not been to the typical worker's advantage. Growth in output, wages and productivity has slowed. Inequality has risen, as have the market share and profitability of the most dominant firms. Economics journals are packed with papers on these trends, many of which argue that the dominance of big firms bears some blame for other ills. Between and the share of employment accounted for by firms with over employees rose from to . Between and , this newspaper reported in , the average share of revenues accounted for by the top four firms in each of economic sectors grew from to .
③Two rival stories vie to explain the rise in concentration. One is that domestic competition has been weakened by lax antitrust enforcement, anticompetitive practices and regulatory changes friendly to powerful firms. This is Mr Philippon's view. Some economists reckon, though, that concentration is rising because of the success of superstar firms - highly innovative and productive companies that have shoved aside unfit competitors. Either explanation could account for the size and persistent profitability of industry-dominating companies. But the implications of each for future growth - and policy - differ greatly. Which is right?
④If concentration is caused by ultra-productive firms outcompeting weaker rivals, then investment ought to rise as those firms scale up to exploit their competitive edge. Investment, however, has been disappointing across the American economy. In the s a statistic called Tobin's q (a measure of a firm's market value relative to the cost of replacing its assets, named after an economist, James Tobin) closely tracked rates of net investment. A high Tobin's q indicates that future profits are likely to be high relative to the cost of expanding production. That suggests leading firms should scale up or see a flood of investment by competitors seeking to divert part of that profit stream. In this millennium, however, investment has lagged behind what one would expect, given the level of Tobin's q across the economy. A finer-grained analysis shows that the most concentrated sectors account for nearly all the investment shortfall. The change could be caused in part by a shift in investment from tangible capital, such as buildings and machines, to harder-to-measure intangible capital, such as intellectual property, brand value and firm culture. Superstar firms may invest more in intangible capital. But accounting for intangibles, says Mr Philippon, narrows but does not close the investment gap.
⑤Then there is productivity. If concentration is mainly caused by the triumph of superstar firms, it should be rising. Here the data are murkier. The authors of "The fall of the labour share and the rise of superstar firms", a forthcoming paper in the Quarterly Journal of Economics, find a clear link between size and productivity (bigger firms are more productive) and between industry concentration and patenting (which they use as a proxy for innovation).
But the relationship between concentration and measures of productivity is less clear, particularly outside manufacturing. Mr Philippon, on the other hand, finds a positive and statistically significant relationship between concentration and productivity in the
s but not more recently. What seems clear is that even as concentration has risen across the economy over the past two decades,
the rate of productivity growth has not. If superstar firms are indeed a force for concentration, their unique capabilities have not
translated into broader gains for the American economy.
Few economists—or Americans—would deny that there are
problems with competition in certain sectors, including health
care, finance, telecoms and air travel. The most heated arguments
about corporate power, however, concern tech giants. They have
not, for the most part, used their market power to raise prices; on
the contrary, much of what they provide to consumers is free. The
most aggressive invest heavily and eke out rather modest profit
margins. Comparisons with Europe are not very helpful, since the
continent has mostly failed to produce big and innovative rivals to
Google, Apple and Amazon. Would it really be wise for America to
carve up its tech champions?
The harder they fall
As Mr Philippon notes, economic power is not all that matters.
America’s tech giants have gobbled up competitors and spent lavishly on political donations and lobbying. There is no guarantee
that superstars, having achieved dominance, will defend it
through innovation and investment rather than anti-competitive
behaviour. And even if large platform firms are perfectly efficient,
economically speaking, Americans might worry about their influence over communities, social norms and politics.
There is no obvious right answer to the question tech giants
pose. It was far from clear, in 1984, whether dismembering at&t
would be remembered as a triumph, a fiasco—or simply nothing
much. The choice facing American regulators is harder now, precisely because of America’s lack of dynamism. Since innovative,
productivity-boosting, socially useful firms come along so rarely,
it seems risky to tackle tech behemoths too vigorously, lest doing
so weaken the economy’s most vibrant parts. But that reticence
may prove a recipe for long-run stagnation.
Data storage
DNA could be used to embed useful information into everyday objects
①A hard drive is a miracle of technology. For anyone can buy a modern machine that can comfortably store the contents of, say, the Bodleian Library in Oxford as a series of tiny magnetic ripples on a spinning disk of cobalt alloy. But, as is often the case, natural selection knocks humanity's best efforts into a cocked hat. DNA, the information-storage technology preferred by biology, can cram up to petabytes of data into a single gram. That is m times what the best modern hard drives can manage.
②And DNA storage is robust. While harddrive warranties rarely exceed five years, DNA is routinely recovered from bones that are thousands of years old (the record stands at years, for a genome belonging to an ancestor of the modern horse). For those reasons, technologists have long wondered whether DNA could be harnessed to store data commercially. Archival storage is one idea, for it minimises DNA's disadvantages - which are that, compared with hard drives, reading and writing it is fiddly and slow.
③Now, though, a team led by Yaniv Erlich of Erlich Lab, an Israeli company, and Robert Grass, a chemist at the Swiss Federal Institute of Technology, in Zurich, have had another idea. As they describe in a paper in Nature Biotechnology, they want to use DNA data storage to give all manner of ordinary objects a memory of their own.
④The researchers describe a test run in which they encoded the Stanford bunny - a standard test image in computer graphics - into chunks of DNA. Those chunks were then given a protective sheath of silica nanoparticles. That served to protect them for the next stage, in which they were mixed with plastic and used as feedstock in a printer, which printed a model of the bunny. The result was an object that contained, encoded throughout its structure, the blueprints necessary to produce more copies of itself. By clipping a tiny fragment of plastic from the finished bunny's ear and running the dna within through a sequencer, the researchers were able to recover those blueprints and use them to make further generations of dna-infused bunnies.
⑤Satisfied with their proof of concept, they then repeated the trick by encoding a short video in dna and fusing it in plexiglass, a transparent plastic. They used the plexiglass to make a lens for a pair of spectacles. Once again, clipping a tiny sliver from the lens and dissolving the plastic away was able to liberate the dna, which could be used to recover the video.
⑥The cost of both producing and reading DNA is falling precipitously. The price of reading a million letters of the genetic alphabet has fallen roughly a million-fold since the start of the millennium. For that reason, Drs Erlich and Grass hope their idea might one day have all sorts of uses. One, they think, could be to embed relevant information into manufactured goods. They give the example of custom-fitted medical implants that contain a patient's medical records and the precise measurements needed to make another implant.
⑦A second use, for the privacy-minded, could be steganography - the art of concealing information within something apparently innocuous (this was the idea behind the dna-infused spectacles). Their most futuristic idea is an entire world full of objects which, like biological life, contain all the information needed to make copies of themselves in every part of their structure. Drs Erlich and Grass have dubbed their technology the "DNA of things", and it is certainly a clever idea. But the next job might be to come up with a snappier name.
The FBI
WA S H I N GTO N , D C
The inspector-general's inquiry into an inquiry finds problems, but no bias
①For three supporters have insisted that the years, Donald Trump and his FBI's investigation into links between his campaign and Russia was dishonestly predicated, and rooted in “deep state” contempt and political bias. William Barr, Mr Trump's attorney-general, even condemned the fbi for “spying” on Mr Trump's campaign. They hoped that a report from Michael Horowitz, the Justice Department's inspector-general, would bolster those claims. Released on December 9th, Mr Horowitz's thorough -page report showed serious problems with the investigation, particularly regarding the surveillance of Carter Page, an erratic member of Mr Trump's campaign, but no conspiracy and no evidence of systemic bias.
②Its most fundamental finding was unequivocal: Crossfire Hurricane, as the investigation was called, was amply justified. It did not begin, as Mr Trump and his defenders claimed, with a dossier created by Christopher Steele, a former British spy. The Crossfire Hurricane team did not even see his work until two months after opening their investigation, on July st .
③That was three days after the fbi received a tip from "a friendly foreign government" (Australia, though the report does not name it) that George Papadopoulos, a campaign foreign-policy adviser, "suggested the Trump team had received some kind of suggestion from Russia that it could assist." That was the only trigger, Mr Horowitz's report found, and it was both legitimate and carefully considered.
④Among Mr Trump's accusations was that Peter Strzok and Lisa Page - respectively an FBI agent and lawyer who were having an affair during the election - were central to the "witch-hunt" against him. The report found that Ms Page played no role, and Mr Strzok just a minor one, in the decision to open the investigation.
⑤More broadly, it found no evidence that “political bias or improper motivation influenced the decisions” to investigate Mr Papadopoulos or the three other campaign members with links to Russia: Mr Page; Michael Flynn, briefly Mr Trump’s nationalsecurity adviser; and Paul Manafort, Mr Trump’s former campaign chairman, now imprisoned for a variety of financial crimes. Crossfire Hurricane might more accurately be considered an investigation of these four men, each of whom had dealings with Russia’s government, than of MrTrump’s campaign more generally.
The report did find multiple “significant errors or omissions” in the FBI's applications to wiretap Mr Page, however. These errors “made it appear that the information supporting probable cause was stronger than was actually the case.” The fact that there was no evidence of “intentional misconduct” provides little comfort. If the process for watching an American citizen was so lax and error-ridden in such a politically
sensitive investigation, it may be worse in
less prominent cases. The investigators
“did not receive satisfactory explanations
for the errors or problems we identified.”
They also referred Bruce Ohr, a Justice Department official whose wife worked for
the firm that contracted Mr Steele, to the
Office of Professional Responsibility for
“errors in judgment”.
This verdict will not end the partisan
bickering over the Russia investigation’s
origins. After the report’s release, Mr Barr
dismissed its findings, arguing that the fbi
may have acted in “bad faith”, and based its
investigation on “the thinnest of suspicions”. John Durham, a prosecutor whom
Mr Barr has assigned to undertake yet another investigation of the Russia probe’s
origins, also disagreed with “some of the
report’s conclusions as to predication.”
Steve Scalise, one of Mr Trump’s staunchest
defenders in Congress, said the report
“proves Obama officials abused their...
power to trigger an investigation,” when it
reaches the opposite conclusion.