At France 24 Cyrielle Cabot echoes the point I have made:

But in stark contrast to this promising trend in many parts of the world, China moved against the tide, darkening the global picture. “China’s steady new coal plant additions (26.8 GW) offset coal plant retirements in the rest of the world (23.9 GW) in 2022,” said Global Energy Monitor.

China now has 365 GW of generating capacity, compared to an average of 172 GW elsewhere. More alarmingly, China alone now accounts for 68% of coal-related projects under development worldwide, and 72% of those are in the pipeline.

“Because of its size and population, China’s energy consumption is necessarily very high,” explained Thibaud Voïta, a researcher at the Center for Energy and Climate at the French Institute of International Relations (IFRI). “One of the major challenges for Beijing is to meet the energy demand that has been constantly increasing for several years.”

Here’s an eye-opening observation:

This saw annual coal capacity additions for many Chinese provinces topping the capacity additions for entire countries. Citing the example of the northern Chinese province of Inner Mongolia, the report noted that, “Inner Mongolia (6 GW) surpassed India (3.5 GW) despite India being the country with the most coal commissioned in 2022 after China. In fact, Inner Mongolia nearly had more new capacity than the next two countries after China combined (India and Japan).”

If the objective is eliminating the use of coal for power generation by a date certain, it can’t be achieved that way. If the objective reducing the amount of carbon released into the atmosphere, it can’t be achieved that way.

The only objective that might be achieved that way is to reduce the amount of carbon released into the atmosphere relative to what might have been released if no other measures were adopted. That’s pretty weak tea.

Here’s the formula for ending the war in Ukraine proposed by Richard Haass and Charles Kupchan at Foreign Affairs:

The best path forward is a sequenced two-pronged strategy aimed at first bolstering Ukraine’s military capability and then, when the fighting season winds down late this year, ushering Moscow and Kyiv from the battlefield to the negotiating table. The West should start by immediately expediting the flow of weapons to Ukraine and increasing their quantity and quality. The goal should be to bolster Ukraine’s defenses while making its coming offensive as successful as possible, imposing heavy losses on Russia, foreclosing Moscow’s military options, and increasing its willingness to contemplate a diplomatic settlement. By the time Ukraine’s anticipated offensive is over, Kyiv may also warm up to the idea of a negotiated settlement, having given its best shot on the battlefield and facing growing constraints on both its own manpower and help from abroad.

The second prong of the West’s strategy should be to roll out later this year a plan for brokering a cease-fire and a follow-on peace process aimed at permanently ending the conflict. This diplomatic gambit may well fail. Even if Russia and Ukraine continue to take significant losses, one or both of them may prefer to keep fighting. But as the war’s costs mount and the prospect of a military stalemate looms, it is worth pressing for a durable truce, one that could prevent renewed conflict and, even better, set the stage for a lasting peace.

I see all sorts of things wrong with that formula. First, it isn’t “the West” that is providing more weapons for Ukraine but the United States. Germany in particular has largely been issuing press releases and otherwise doing relatively little. In fairness Germany’s imports of crude oil and natural gas from Russia have declined substantially but they are still not non-existent.

The second thing I see wrong with it is that weapons are not enough. Ukraine’s greater problem is the possibility of running out of people to carry the weapons. The reports of UK and U. S. special forces operating in Ukraine is disturbing. If true, it’s an error.

Third, the costs in manpower to Russia are being exaggerated. Most of those lost are in militias. Their deaths have next to no political cost to Putin or Moscow.

Fourth, I see no indications that either Ukraine or Russia is stepping back from its maximalist goals. I would think that would be a pre-requisite for any talks.

I do agree with this observation:

For over a year, the West has allowed Ukraine to define success and set the war aims of the West. This policy, regardless of whether it made sense at the outset of the war, has now run its course. It is unwise, because Ukraine’s goals are coming into conflict with other Western interests. And it is unsustainable, because the war’s costs are mounting, and Western publics and their governments are growing weary of providing ongoing support. As a global power, the United States must acknowledge that a maximal definition of the interests at stake in the war has produced a policy that increasingly conflicts with other U.S. priorities.

I have less confidence in their notion of a “feasible path” out of the impasse:

The West should do more now to help Ukraine defend itself and advance on the battlefield, putting it in the best position possible at the negotiating table later this year. In the meantime, Washington should set a diplomatic course that ensures the security and viability of Ukraine within its de facto borders—while working to restore the country’s territorial integrity over the long term.

or, in other words, acknowledge defeat. Isn’t that what it would be if Ukraine backs away from restoring its pre-2014 borders?

Reports of declining inflation have led to a lively dispute: what should Fed policy be? Should it increase interest rates again, leave them the same, decrease them? Scott Grannis thinks it’s time for the Fed to cut rates:

There is absolutely no reason the Fed needs to raise rates further, and every reason they should begin cutting rates—beginning with the May 3rd FOMC meeting if not sooner.

Barry Ritholz seems to think they should leave them where they are:

If the FOMC were plugged in, they would realize that their work is done, there is no need to throw millions out of work because we have a shortage of houses, semiconductors, and workers of all kinds. Most goods have returned to pre-pandemic price levels. The biggest driver of apartment prices is the shortage of homes and the high price of mortgages. (Gee, whoever is responsible for that?)

Based on the Economist’s “Big Mac index”, the Fed still has some work to do (it has been suggested that the CPI systematically understates inflation).

So too hot, too cold, or just right? I don’t know. I do know that would ordinary people buy is significantly more expensive that it was in 2019.

The one thing we should be able to take away from all of this is that Modern Monetary Theory has been a siren’s song. Although what MMTers prescribe may be technically correct, it’s also politically impossible. You can always spend more but cutting spending or raising revenue is politically fraught.

Wall Street Journal journalists Byron Tau, Sadie Gurman, and Aruna Viswanatha report on the recent leak of classified documents:

WASHINGTON—The U.S. government is treating the apparent disclosure of classified material surrounding the war in Ukraine as an insider’s leak, people familiar with the matter say, but hasn’t yet homed in on key suspects for a massive intelligence breach that has exposed the challenges of safeguarding sensitive U.S. information and tested ties with some of America’s closest allies.

The bulk of the more than 60 documents, if genuine, appear to originate from the Central Intelligence Agency’s Operations Center and the Pentagon’s Joint Chiefs of Staff. Such documents are typically briefed to senior-level decision makers at the Pentagon in an environment protected from electronic surveillance and secured against leaks.

The Federal Bureau of Investigation is using clues in the images that have circulated online in recent weeks to aid its criminal investigation, law-enforcement officials said. Some of the documents would be accessible to several hundred people, while others would be restricted to a much smaller group, U.S. officials said. Focusing on the access to the more-restricted documents gives investigators a way to narrow the field of potential leakers, they said.

That’s the point I have been making since the news of the leak broke. Additionally, the number of individuals who have access to all of the most highly classified documents in the cache should cause that number to decline. If that’s not the case it sounds like an even greater security problem to me.

I sincerely hope the Department of Justice is taking this matter seriously. Failing to do so would call executive branch credibility into question.

Walmart has announced that it is closing four Chicago stores: three on the South Side and one on the North Side:

Today we have made the difficult decision to close four of our stores in Chicago.

The decision to close a store is never easy. The impact is greater than just closing a building. It affects people — people who work in, shop in and live in communities near our stores — and we never take that lightly. Treating people and communities with respect and compassion during this transition will guide everything we do.

All four stores are “underperforming” but it is widely bruited about that security is also a factor.

The closures highlight the risks involved when such major retailers enter a neighborhood. Their entry displaces dozens of small stores. They come; they go; the decision is made on purely business grounds. When they leave, they leave a desert in their wake.

In his latest offering George Friedman declaims that the streams are crossing and that the United States is in for a social crisis, followed by a “massive economic crisis”, followed by a political crisis and a “once every 80 years institutional crisis in the federal government”.

That isn’t the actual point of his piece. His point is that when the U. S. sneezes the world catches a cold.

Here’s his conclusion:

The current political system cannot manage this situation. A solution must emerge now, to be presided over by the next president. It is impossible to explain all the details of a system failure or the need for a new political order. At this point, the only thing that can be said is that we are heading into failure, and a new president, filling everyone with joyous hope, will oversee what must be done. But what must be done remains murky, taking its bearing only from the breadth and seriousness of the failure.

I wish he wouldn’t sugar-coat it like that.

There’s a lot of fulminating over Chicago’s hosting the Democratic National Convention in 2024. Some think it’s a coup and brilliant; others think it’s colossal mistake.

I think it’s too early to tell. 2024 is a year away and we’ve just elected a new mayor. In a year Chicago’s downtown might be the safest major city downtown in the United States or it might be a combat zone. We just don’t know. We don’t even know how or if the new mayor will try to ensure the convention’s success.

I only have one thing to add. Chicago’s nickname, “the Windy City”, probably doesn’t come from the weather.

AI can’t predict the movements of the stock market. That’s the message of Gregory Zuckman’s Wall Street Journal story:

Wall Street has long used automated algorithms for tasks such as placing trades and managing risk. But investors haven’t made much progress relying on AI to tackle their biggest challenge: beating the market. While some see ChatGPT as a way to boost sales and research efforts, the investing results using AI haven’t been especially impressive.

“Progress in applying AI to investing has been limited, though innovations in language modeling could change that in the years ahead,” says Jonathan Larkin, a managing director with Columbia Investment Management Co., which manages the $13 billion endowment for Columbia University and invests in various funds.

Wall Street had a head start in AI. Four decades ago, mathematicians-turned-quants including Jim Simons, founder of Renaissance Technologies, developed algorithms to turn investing decisions over to their computers.

He and other quants have spent years using machine learning, a type of AI. They have built trading models that can extrapolate from past data to identify patterns and develop profitable trades, with limited human intervention.

But few firms have found success turning all of their operations over to machines, quants say. And they haven’t enjoyed dramatic advances with self-learning or reinforcement learning, which entail training computers to learn and develop strategies on their own. Indeed, Renaissance and others rely on advanced statistics rather than cutting-edge AI methods, say people at the firms.

“Most quants still take a “theory-first” approach where they first establish a hypothesis of why a certain anomaly might exist, and they form a model around that,” says Mr. Larkin.

One big problem: Investors rely on more limited data sets than those used to develop the ChatGPT chatbot and similar language-based AI efforts. ChatGPT, for example, is a model with 175 billion parameters that uses decades—and sometimes centuries—of text and other data from books, journals, the internet and more. By contrast, hedge funds and other investors generally train their own trading systems using pricing and other market data, which is limited by nature.

Personally, I doubt that the problem is data. I suspect it’s more that the market isn’t rational as well as being susceptible to manipulation.

You may not be following it but the dispute over reductions in the amount of water taken from the Colorado River by Arizona, California, Colorado, New Mexico, Nevada, Utah, and Wyoming is still a matter of urgent discussion. At the Wall Street Journal Jim Carlton reports on a new development:

California would have to reduce its use of Colorado River water more than current agreements require under a proposal the Interior Department unveiled Tuesday that could upend a longstanding system of water rights.

The federal agency proposed two methods by which water usage could be reduced as much as 25% next year. The seven states that tap the Colorado have been negotiating with each other since August to make voluntary cuts that could offset any new mandatory ones.

One proposal calls for equal percentage cuts for the three states at the bottom of the river: California, Arizona and Nevada. That would upend current agreements that give water districts in California more senior rights. The cuts would take effect in 2024.

The Bureau of Reclamation, part of the Interior Department, warned in August it would impose large cuts if the states that rely on the river didn’t come up with a satisfactory plan by Jan. 31. Six of the seven states—Arizona, Colorado, New Mexico, Nevada, Utah and Wyoming—in January submitted a possible framework for an agreement that would call for voluntary cuts and conservation totaling between 2 million acre-feet and 4 million acre-feet annually.

As you might imagine California officials aren’t happy with this development—they don’t want the Golden State to be treated equally with Arizona and Nevada.

The dispute pits agricultural, home building, and environmentalists at odds with one another. The DoI proposal is presumably intended to provide an incentive for the states to arrive at their own solution.