Washington Square Capital Management Blog

Todd Woody writes in the New York Times on the obstacles solar energy plants in the Southwest face in securing necessary water rights.  Certain solar technologies, particularly solar thermal can require large amounts of water to produce and cool steam.  Coal, natural gas and nuclear plants require much larger amounts of water per unit of energy produced (though not all of it is consumed), but they can be located near large bodies of water, with the nuclear or fossil fuel being transported to the plant.  Utility scale solar power plants in contrast, must be located in areas that receive a lot of sunlight, have high temperatures and by definition are arid.  This makes the water sourcing problem much more acute for solar, particularly solar thermal.  The American Southwest has had a history of battles over water rights, and the alternative energy industry is only the latest entrant in a long running dispute between cities, farmers, miners and environmentalists in a fast-growing area which has historically been a desert.   The US Department of Energy produced a report for congress in 2006 on the interdependency of water and energy production including a discussion of various technologies to improve water-use efficiency in power plants.  Wind turbines do not require water.

We believe free and fair trade are not only integral to economic growth, but also essential for a sustained global recovery. Barriers to trade reduce efficiency, inhibit growth, and hurt consumers. We are sympathetic to the argument that countries with weak legal protection for individuals can exploit resources and workers in an irresponsible fashion, but we feel in many cases the benefits from trade can outweigh these concerns and often spur the creation of better institutions and laws. We are also particularly wary of trade barriers being erected at the present time because this is exactly the type of action that exacerbated the economic impact of the crash of ’29, and led to the Great Depression. We’re not there yet, but there are some worrying signs of increasing protectionism. Within this context, we would like to highlight, an article in the Economist about the new US tariff on tires made in China, a report in the New York Times on the union which pushed for this tariff, and Arthur Laffer’s op-ed in the Wall Street Journal on tariffs and the depression, and George Will’s Op-Ed in the Washington Post on the tires tariff.

The Conference Board’s Task Force on Executive Compensation issued a report earlier today on their findings. They recommend claw-back provisions, tough restrictions on perks and disclosures on fees paid to compensation consultants. The Financial Times, New York Times and Wall Street Journal have articles on the report.

In our view, as long as a society enjoys relatively free markets and the rule of law, long-term economic growth rates are largely determined by two factors: demographic trends and the pace of technological advancement.

In terms of demographics, birth rates high enough to keep a country’s population relatively young, replenish the work force and keep dependency ratios low are crucial to sustained growth. Because of low birth rates, limited immigration and rapidly aging populations, Japan and Western Europe face significant challenges ahead as their population continues to age. Two recent articles on demographic trends in different parts of the world served as reminders of the importance of demographics. The first is an article in the Economist on demographic trends in Africa and another in China Daily about rapid demographic changes in China.

Technological advancement allows a society to produce goods and services with less effort and resources, allowing its population to be more efficient. The classic example is the mechanization of agriculture, which has allowed much of the world to satisfy its demand for food while freeing most of us to pursue careers other than farming. In some cases, technology can even help make demographic transitions easier, for example, Japanese firms have been developing robots to help care for their rapidly growing elderly population.

For us, the impact of technological advancements was underscored earlier this week while reviewing an official statement for a municipal bond initially issued in 1993. The entire 75 page document had been hand typed (on an actual typewriter) and made us realize how far word processing has evolved from the days of the humble Smith-Corona. We can only imagine the amount of effort it required to calculate various tables on a hand-held calculator and the toll repeated revisions must have taken on the typist’s fingers. Inexpensive electronics, modern word-processing and spread-sheets have transformed this process entirely, and let us use our time far more productively. Happily for global growth, the pace of technological progress continues unabated and we fully expect that by 2025 we will look back at 2009 and find much that is amusingly archaic.