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Double Your MoneyAuthor(s): Carlos LozadaSource: Foreign Policy, No. 145 (Nov. - Dec., 2004), pp. 88-89Published by: Washingtonpost.Newsweek Interactive, LLCStable URL: http://www.jstor.org/stable/4152954 .

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Global Newsstand

Michaels thus conclude that the IPCC's results overstate the climate change crisis.

Of course, questioning assump- tions is a healthy part of the scientif- ic process. But by obsessing over one point of uncertainty, McKitrick and Michaels ignore the vast amount of data that prove human activity's acceleration of climate change. In so doing, they obstruct answers to the vital question of how to mitigate cli- mate change's destabilizing effects- answers that could prove expensive for some of their patrons.

Michaels, a climatologist at the University of Virginia, is a senior fel- low at the CATO Institute and a visit- ing scientist at the George C. Marshall Institute, both of which receive finan- cial support from the energy indus- try. He also edits the World Climate Report newsletter, published and funded by the energy industry. A 1995 Harper's magazine article claimed that Michaels received more than $115,000 from coal and ener- gy interests between 1991 and 1994. McKitrick, an economist at the Uni- versity of Guelph in Ontario and coauthor with Christopher Essex of the 2002 book Taken by Storm: The

Troubled Science, Policy, and Politics of Global Warming, also publishes papers at the Marshall Institute.

Despite these real or perceived conflicts of interest, the arguments of scientists such as McKitrick and Michaels have gained traction among conservative legislators. U.S. Sen. James Inhofe, a Republican from Oklahoma who chairs the Sen- ate Environment and Public Works Committee, cited Michaels's work in the debate last year that ultimately blocked the Climate Stewardship Act, which sought to control car- bon dioxide emissions from energy producers. Articles about the scien- tists' work have appeared in news- papers and magazines throughout North America, and their work is cited in Marshall Institute briefings for U.S. Congressional staffers on global climate change.

Their arguments also found a receptive audience in U.S. President George W. Bush's administration, which withdrew from Kyoto Proto- col discussions without proposing or discussing any alternatives for coop- eration. Yet the U.S. National Acad- emy of Sciences, directed by the Bush administration to conduct its own

climate change assessment in 2001, found conclusively that global tem- peratures are rising due to anthro- pogenic, or human-induced, sources of greenhouse gas. In August of this year, the federally funded U.S. Cli- mate Change Science Program reported to congress that anthro- pogenic greenhouse gas emissions are the only plausible explanation for cli- mate change in the last few decades.

Skeptics of climate change con- tinue to make headlines. Danish scientist Bjorn Lomborg, famed for his 2001 work The Skeptical Envi- ronmentalist, left the Danish gov- ernment's environmental advisory panel earlier this year among much criticism. Four members of Climate Research's international editorial board resigned last year to protest its publication of a controversial study disputing that the 20th cen- tury has been the Earth's warmest, generating a spate of articles in the academic press.

But these debates only contribute static to what should be a clear mes- sage. As the world's leading emitter of greenhouse gas, the United States should be broadcasting the message, not adding to the noise. I

Double Your Money By Carlos Lozada

N Oxford University Comparative Law Forum, 2004, Online

A lbert Einstein-who knew a thing or two about numbers-reput-

edly hailed compound interest as the

"greatest mathematical discovery of our time." Consider: If you invest $100 at a simple annual interest rate of 10 percent, you'll have $110 after 12 months. But invest the same $100 at the same rate, compounded quar- terly, and you wind up with $110.47, because compound interest adds interest on the interest. Over time, compound interest can yield huge financial gains.

Curiously, legislatures and judges around the globe are reluctant to

spread the wealth. "In today's eco- nomic world," explains Villanova University law Professor John Y. Gotanda in the online Oxford Uni- versity Comparative Law Forum, "compound interest, and not simple interest, is the norm in both third- party financing and investment vehi- cles. Yet, in disputes between transnational contracting parties, simple interest awards are the norm." This seemingly minor discrepancy represents an odd exception to the

Carlos Lozada is a Knight-Bagehot fellow in economics and business journalism at

Columbia University and a FOREIGN POLICY contributing writer.

88 FOREIGN POLICY

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push toward harmonization and common standards currently under way in the global economy.

Legal verdicts in business dis- putes often include payments of interest by the losing party. Interest awards are common because claimants suffer not only from whatever profit or value they lose-say, a late loan repayment or an expropriated proper- ty-but also from their inability to invest or exploit that lost value. The bias against compound interest awards seems born of a mistaken belief by many courts that such awards are generally prohibited: A U.S. District Court ruled in 2000 that "the prohibition on compound interest was so well settled that it could be con- sidered a principle of customary interna- tional law."

Yet Gotanda surveys laws in Europe, Asia, Australia, New Zealand, and the Americas and finds that, when awarding such damages, some nations "prohibit [compound interest], others allow it in certain circumstances, and a number of statutes are silent on the issue." In Italy, for instance, a guilty defendant must pay compound interest only when the two parties had a prior agreement to that effect and when interest is overdue by at least six months. In Belgium, the interest must be overdue by a full year before compound interest is allowed. And in Mexico, compound interest awards are prohibited unless the two parties previously agreed upon it.

Special tribunals resolving transnational commercial disputes typically opt for simple interest awards as well, Gotanda explains. More recently, though, some tribunals have begun awarding compound interest. In 2002, the International

Centre for Settlement of Investment Disputes awarded U.K.-based Wena Hotels Ltd. $8.1 million in its claim against Egypt over properties expropriated in 1991, but it added a whopping $11.4 million in com- pound interest damages. Those 47 extra cents really add up, don't they?

Gotanda argues that compound interest awards make sense when all parties have previously agreed to it, when the guilty party's failure caused the claimant to incur com- pounded financing charges, or when the claimant can prove that it would have earned compound interest on the money owed. And in a global business environment where compound interest prevails,

at least one of those conditions will generally hold.

Indeed, it is hard to imagine that this unlikely divergence between business and law will endure. In a globalizing economy, transnational standards are emerging in everything

from accounting prac- tices to intellectual property protection. Beginning in 2005, for example, Europe's pub- licly traded companies will have to comply with the financial reporting standards issued by the London- based International Accounting Standards Board. This body is also working with U.S. accounting officials to establish a common global "language" for financial reporting. Moreover, at a time when massive corporate fraud will likely produce major damage awards, the difference between simple and compound interest damages will

prove impossible to ignore. Why have legal practices lagged

behind? Gotanda speculates that some laws may linger from eras when disputes were solved quickly, thus minimizing the gap between simple and compound interest. Less convincingly, he wonders if past judges and legislators preferred simple interest because they lacked the computers needed to estimate compound interest. That supposi- tion seems a tad unfair: Economic historians trace the compound interest concept as far back as 2000 B.C., to scribal schools in Sumer and Babylonia. Like compound interest itself, these early thinkers' influence is felt very much in the long term. [I-

A genius investor, too? Einstein was a fan of compound interest.

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