Investment Commentary  

June 13, 2011

MELTDOWN

By Robert Brooke Zevin, Chairman

Much has happened in the world since the early March earthquake, tsunami, and nuclear meltdown in Japan. And much of it has been consistent with our gloomiest forebodings.  Even the assassination of Osama bin Laden — so reminiscent of the way Roman emperors and medieval princes disposed of their rivals, not to mention gangland slayings from The Godfather — carried with it the glum realization that the wars in Afghanistan and Iraq had almost nothing to do with bin Laden, and everything to do with establishing permanent military bases in those countries along with compliant governments.  And so the wars continue; tensions with Pakistan escalate; the military budget increases while all other programs are cut; and the Constitution, allegedly so dear to the hearts of Tea Partiers, is systematically shredded and forgotten in an entirely bipartisan way. But this Commentary will focus on nuclear power and its problems as illustrated by this latest disaster.

Fukushima

Although it is three months since these events, the topic remains timely. The incredible cluster of six nuclear reactors and large amounts of “spent” fuel continues to melt and emit radiation into the ocean and into the air. In addition to the immediate death and destruction caused by the twin natural disasters, it appears that this radiation will have significant long-lasting effects on health, at least in northeastern Japan, and perhaps over a much wider area. 

It is common for new technologies involving great speed, force or heat to prove dangerous in the early years of their adoption. Large steam engines employed in railroad locomotives and especially in Mississippi river boats, often exploded with devastating effects. But improved metallurgy, welding and safety valves put an effective end to these explosions after a few decades. For a much longer time, cannons had a way of blowing up and killing their users rather than the intended victims.  The progress of safety was slowed by the desire to achieve more power and distance as well as the general expectation that soldiers will die in warfare both in victory and defeat.

Nuclear power generation now has more than a fifty year history. Complaints about radiation leaks and other environmental damage are ubiquitous around the world. The usual response is to point out that the human and environmental effects of producing, refining, and burning oil are worse and for coal still worse again.  Meanwhile there have now been three horrific nuclear disasters, each reminiscent of the prescient movie, China Syndrome, which preceded them all. The first was Three Mile Island in 1979; followed by the meltdown and explosion in 1986 of the reactor in Chernobyl. And now we have Fukushima.

We know a number of accomplished physicists and engineers who assure us that nuclear power is safe and, therefore, the ideal way to reduce greenhouse gas emissions. This conclusion seems strangely at odds with the evidence in the world of real nuclear power. And this in turn is familiar dissonance between science and society.  Bill Gates thinks science can find the silver bullets that will vanquish diseases that ravage poor countries; but has little interest in developing the appropriate civic institutions in those countries to deliver and explain better health care to the people who need it.  Economic science has “proved” that free markets are efficient, self regulating and deliver maximum benefit to society; but the markets in which human beings actually participate are corrupted and mis-regulated for the express purpose of benefitting some at the expense of many others.

Nuclear power in practice suffers a similar set of shortcomings compared to nuclear power in theory.  There is first of all the intractable issue of what to do with the still radioactive and hot spent fuel with radioactive half-lives of hundreds to thousands of years.  A few countries recycle it by increasing its radiation level and making it appropriate to reuse as fuel.  This is very expensive.  Everyone else leaves it in pools of deep water near or underneath the reactors themselves.  The obvious magnification of risk that this creates has been amply illustrated at Fukushima, where the spent fuel has contributed to the overheating of the complex as the heat evaporated the water in which the spent fuel was buried, thus increasing the release of radiation into the atmosphere.  Nobody wants this stuff buried in their own back yard.  And not many people relish the idea of burying it deep inside a previously undisturbed mountain, trusting that earthquakes and other future natural or human-made disasters will not release it before those hundreds or thousands of years have elapsed.

My Risk Is Bigger Than Yours

The complete misconception of risk embedded in these practices for burying spent fuel is the flaw shared by most of the other problems with nuclear power in practice, not to mention the praxis of civil engineering, financial “engineering” or “risk management”, and environmental management.  We live in a society of nearly global reach in which a once-in-a-lifetime chance of disaster is considered a laughably miniscule probability of disappointment, even though the plain meaning is that the bridge will fall down, the financial implosion will occur, the deep sea oil rig will disgorge tons of oil into the sea, on average at least once in each of our lifetimes.  The designers of the Fukushima facilities considered an earthquake of the magnitude that occurred to be a once in a lifetime probability (50 to 100 years).  And they considered a tsunami of the magnitude that occurred with tremendous devastation as equally “improbable”.  Both events in March were actually a bit larger than the engineers had planned to be completely protected against even though they were well within the historical range of magnitudes for both earthquakes and tidal waves.

But, what really boggles the mind is that they considered these two occurrences, tsunamis and earthquakes to be independent, and so they judged the chances of the two occurring simultaneously as about one in 10,000!  But even schoolchildren know that earthquakes cause tidal waves, just as they cause bridges to fall down, and just as rumblings in the human heart cause financial panics which lead to multiple defaults on mortgages or corporate and government bonds all occurring at the same time.  We now can plainly see that the best and the brightest wizards of risk management ignored these elementary truths.    

In sum, human society is a cross current that leads the pure physical or economic scientist astray.  And this is not solely because science is rational and the rest of us are not.  Most of us would not agree to tolerate the risks of annihilation routinely imposed on us by the threat of nuclear war or by nuclear power accidents or by contamination of our food or environment or financial-societal collapse, or implosion of the value of our own investment portfolios.  A shield of money and power effectively separates the few who benefit from taking these risks from the many who suffer.  As we have seen in the financial crisis of 2008/2009, those who took the extreme risks that drove the global economy toward collapse were motivated by the opportunity to make more money, which they certainly did.  Yet enough of that money has been spent to effectively bribe politicians and influence both public and expert opinion, that none of them has gone to jail or given back significant ill-gotten gains to pay for the damage they caused.  The costs have been borne by evicted home owners, the unemployed, and taxpayers bailing out the over-leveraged, gambling-addicted banks that caused all of this pain.

The nuclear power industry has a similar arrangement which is all written out or paid in advance.  The technology was developed at taxpayer expense.  The cost of any accident is insured 100% by the taxpayers.  And even if it isn’t, as in Japan or bank failures, the government has little choice but to fix vast damage that the companies at fault do not have the ability to repair. The safety regulations are made and administered for the benefit of the industry which exchanges personnel regularly with the Nuclear Regulatory Commission and its counterparts in other countries.  Federal pre-emption bars states, cities and towns from enforcing their own safety regulations on nuclear power plants or the transportation and storage of nuclear materials.  Nuclear power, like health care costs and financial services is a rigged game.  The most powerful and successful political lobby in the United States, what President Eisenhower called the military-industrial complex, is the parent and patron of the nuclear lobby.  Many of the same companies make weapons and nuclear power components.  The military is only too happy to point to the peaceful uses of the atom as another beneficent byproduct of its ingenuity, alongside claims for giving the world penicillin, radar, television and the Internet.    

We continue to believe that nuclear power, in the real world, is dangerous and expensive.  If the costs of insurance, accidents and pollution were paid by the producers, the costs of nuclear power would not be competitive with unsubsidized solar and wind power in many locations or with increased conservation which has long been the least expensive alternative.

Robert has been a leader in socially responsible investing since his pioneering work in SRI forty six years ago. He is currently Chairman of Zevin Asset Management and has held various senior positions at the former United States Trust Company of Boston. In the 1960s Robert was also a pioneer in the use of Modern Portfolio Theory and computer technology applied to investment decision making.

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