Archive for the 'Economics' Category

Tipping Point for Gas?

Published
by
Larry
on May 27, 2008
in Auto Industry, Economics and Stock Market
. 0 Comments

Peter Gosselin, writing in the Business Section of LA Times, Saturday, May 24, 2008, writes that Ford, GM, and Chrysler are in serious trouble because of the price of gasoline. He quotes Robert DiClemente, chief U. S. economist at Citigroup in New York “The economic outlook has been taken hostage by the relentless surge in oil prices.” Gosselin adds that Ford Motor Co announced Thursday, May 22, 2004, that it was abandoning any hope of making a profit this year or next now that sales of its gas-guzzling pickup trucks and Explorers have plunged.

Gosselin and Bill Vlasic, writing in the (Click here) (or here for New York Times home) quote Ford CEO Alan Mulally saying the auto industry has “reached a tipping point” where energy costs were fundamentally changing what kind of vehicles Americans buy.

While Gosselin and Vlasic write that Ford, GM, and Chrysler are in trouble, Toyota and Matsushita Electric are investing US $192 Million / 20 Billion yen to build plants to manufacture batteries for hybrids (Click Here).

You can see this by looking at the stock value of these companies. An investment of $2,000 in Ford and General Motors, on Dec. 24, 1999 would be worth Toyota and Honda would be worth about $540 today, not counting the value of any dividends paid, as both Ford and GM lost 73% of their value. On the other hand, An investment of $2,000 in Toyota and Honda stock on Dec 24, 1999 would be worth about $2,860, not counting any dividend payouts because Toyota increased 11.36% and Honda increased 72.53%. These data can be found on the Google financial pages, (click here).

Date \ Investment 12/2000 5/2008 % Change
Toyota $1,000.00 $1,113.60 11.36%
Honda $1,000.00 $1,725.30 72.23%
Ford $1,000.00 $274.10 -72.59%
GM $1,000.00 $273.20 -72.68%
       
Toyota & Honda $2,000.00 $2,838.90 41.95%
Ford & GM $2,000.00 $547.30 -72.64%

Mr. Gosselin can be reached at Peter.Gosselin (at) latimes.com

(Please Note that I am not licensed to sell investment advice. This should not be construed as such.  It is just an interesting observation. Note also that I have no investment in any of these securities. I do own a ‘99 Chevy Malibu and a ‘99 Mercury Sable. My next car will get 45 mpg, which means it will probably be a Prius.)

The Economic Value of Solar Power

Published
by
Larry
on April 11, 2008
in Economics and Solar
. 0 Comments

One of my friends recently complained that the electric bill for his business has doubled in the last 5 years – and runs to about $500,000 per year. I was stunned. Being a ‘numbers guy’, I ran the statistic backwards and realized that it’s a 15% annual growth rate. I also realized that it’s the same for me at home. My power and fuel bills, electricity, heat, and gasoline have also doubled, to about $6,000 a year, over the last few years.

I told him that just like I could install a photovoltaic solar power system on my roof that would generate all the electricity I need, he could use solar power to generate much of the electricity he needs. His response was ‘You’re may be right. But how?’ he asked.

‘Simple’, I said, ‘just put solar modules on the roof. Add an inverter to convert DC power to AC, a meter than can run backwards, and you’re in business. Just like we’re talking about for the school system.’

On top of that, the Solar Renewable Energy Certificate, or SREC, value of the power, in New Jersey, add considerably to the value of that power. The SRECs work like this. The Board of Public Utilities tells the Electric Utilities that they have a choice. Generate power using solar, pay a fine, or buy SRECs. The SRECs today are worth MORE than the price of each kwh if generated by those old 19th and 20th Century technologies, coal, oil, and nuclear. Click here for the NJ Clean Energy Program, click here for SREC trading and historical values.

Bill Scott, of Akeena Solar, says “Solar will be competitive WITHOUT INCENTIVES when electricity is at $0.21 to $0.25 per kwh.” We at Popular Logististics think may be the summer of 2009. The incentives, however, make it much better, today.

According to the Asbury Park Press, “School District Sold on Solar” in addition to the money they don’t spend on electricity, and any revenues they hope realize from the sale of carbon offsets, The Toms River, NJ School District expects to realize $1.25 to $1.5 million from the sale of their SRECs next year.

Law of Diminishing Returns, Teddy Bear Corollary

Published
by
Larry
on December 9, 2007
in Deep Economy, Economics and Humans
. 0 Comments
Original Teddy Bear

The original Teddy bear can be found at the Smithsonian Institute National Museum of Natural History.

The Law of Diminishing Returns: Teddy Bear Corollary:

“A child will be love one stuffed animal. And will also love two. He or she will give them names. With 10 or 20, however, there will be the one or two named favorites on the bed, and the rest will gather dust in boxes, drawers, shelves, under the bed, etc.”

Once people have enough food to eat, and a warm clean bed in which to sleep, additional things don’t make people happy. Or, as Bill McKibben put it, in Deep Economy, “Up to a certain point, more really does equal better.”

Below $10,000 money buys happiness, and as Ed Diener and Martin Seligman quantified in “Beyond Money,” University of Illinois, etc, (click here) “Above U. S. $10,000 per capita income … there are virtually no increases … in well being. Moreover, health, quality of government, and human rights all correlate with national wealth, and when these variables are statistically controlled, the effect of income on national well-being becomes non-significant.”

McKibben tells the story of Du Pei-Teng, who by age 20 had managed to save $12,000 yuan over the course of two years in a shower curtain factory. This is about half of what Du would need to build a small house in his hometown. McKibben reported that Du was able to save this sum by giving up Coke-Cola, even tho it only costs about 8 or 9 yuan, because one can of Coke each day, over two years, would amount to about 6,000 yuan – half of what he had saved, and one fourth of what you need to build a hosue and start a family in China.

Continue reading ‘Law of Diminishing Returns, Teddy Bear Corollary’

Prius v Hummer - The Battle for the Brains

Published
by
Larry
on October 21, 2007
in Connecting the Dots, Economics, Electric Vehicles, Energy, Environmental Issues, Hybrids, NYC and SUV
. 0 Comments


Another HummerPrius

An outfit called CNW Market Research, which advertises “Clarity Context Vision” like Fox News uses the term “Fair and Balanced,” published a “study” claiming that the Hummer H2 has less of an environmental impact than the Prius. You can look for the 450 + page report here.

CNW asserts that the per mile cost of the Hummer H2 is $3.027 and the Prius is $3.249.

Heidi Hauenstein and Laura Schewel of the Rocky Mountain Institute analyze the data and conclude that CNW’s mathematics was flawed. You can find the their report on the web pages of EV World. They say that IF CNW’s methodology is correct, the Prius has a significantly lower impact on the environment than the Hummer. And, by the way, they question CNW’s methodology.

Dr. Peter Gleick of the Pacific Institute also weighed in on the debate. (Click Here) He states “the report’s conclusions rely on faulty methods of analysis, untenable assumptions, selective use and presentation of data, and a complete lack of peer review. Even the most cursory look reveals serious bias and flaws: the average Hummer H1 is assumed to travel 379,000 miles and last for 35 years, while the average Prius is assumed to last only 109,000 miles over less than 12 years. … “Dust to Dust” has already distorted the public debate.”

So here’s what I think.

According to Edmunds, the MSRP of the 2007 Hummer H2 is $54,100. The Prius is $22,175. I assume the vehicles have a lifetime of 100,000 miles and the price of gas is $3.00 per gallon. I know that the EPA estimates for the Prius are 50, and the H2 is so big and so heavy that it is exempt from EPA milage estimates, but I use 40 mpg for the Prius - because that’s what limo drivers who use the Prius in NYC get - and 8 mpg for the Hummer. GM Hummer claims that the Hummer H3 gets 20 miles per gallon on the highway. Maybe they put a hybrid engine in it. Maybe that’s rolling downhill, outfitted for sail, with the engine off and running in neutral.

Using those assumptions, My back-of-envelope reckoning concludes that the Hummer will burn 12,500 gallons and the Prius 2,500 as they are driven those 100,000 miles. That’s a difference of 10,000 gallons of gas. At $3.00 per gallon, fuel will cost $37,500 to drive the Hummer and $7,500 to drive the Prius. That’s $30,000 bucks. And if the average price of gas is $4.00 over the life of the vehicle, it’s $40,000.

Ignoring the purchase cost, and assuming $3.00 per gallon, the fuel cost is 38 cents per mile for the Hummer, and 8 cents per mile for the Prius. Factoring the costs to purchase the vehicle, and the cost of oil changes every 3000 miles, (34 oil changes at $25 each) the costs to drive a Hummer H2 are $92,460 while the costs to drive a Prius are $30,525. This works out to 92 cents per mile for the H2 and 31 cents per mile for the Prius.

So the bottom line is I don’t care what CNW says, altho it would be nice if their arguments were logical, coherent, and based on fact. Regardless, my next new car will be an aerodynamic hybrid.

How to make gas prices go down

Published
by
Jon
on October 10, 2007
in Economics and Energy
. 0 Comments

Use less gas. Demand goes down, price follows. SomethingEpic makes the following argument, persuasively, in my view:

 I’m both amused and annoyed by the various schemes going around by email to lower gas prices. I got two today: one that’s calling for a don’t-buy-gas day and one that’s calling for a boycott of a specific chain.

Clearly people don’t really get the whole supply-and-demand thing. Demand is still demand, regardless of what day it is or where you do your demanding. The market is not going to reduce costs of a limited-supply commodity unless demand goes down.

Though it certainly wouldn’t be popular, I think the best long term outcome for the US would happen if gas prices continue to rise. I’d be in favor of pretty drastic measures to get people to stop using so much gas. So much of what we do use is wasteful (seriously, why do you need an Expedition for a commuter vehicle?), and maybe we could positively impact one of our other “great outrages”, the cost of health care, if people actually started walking and biking more (not to mention reducing the long term effects of city pollution).

Enough ranting for me. If you’re bored, go replace your incandescents with CFLs.

Link to post here.

And a word about gasoline taxes: since gasoline consumption, especially over the long run, as they choose replacement vehicles, is highly elastic - gas taxes may initially raise prices, but the lowered demand will push them downwards again. It may be, in fact, that up to a certain point - gasoline taxes result in a transfer of wealth from oil companies to the government - rather than from consumers to the government - if the net price is the same. Or less.

I’m Shocked, SHOCKED - We Invaded Iraq for Oil!

Published
by
Larry
on September 17, 2007
in Connecting the Dots, Economics, Iran and Iraq
. 0 Comments

Greenspan says ‘We invaded Iraq for Oil!’

Well, now that the cat is out of the bag, lets do the math. Iraq, according to the Global Policy Forum, and the CIA , Iraq has 112.5 Billion Barrels of “proven reserves” of oil. At $80 per barrel … Iraq’s oil is worth $9.0 Trillion. We’re only spending $1 trillion, so it’s a pretty good return on investment. 900 percent return on investment for the 112.5 billion barrels of proven reserves.

And they said George W couldn’t do math.

And Iraq’s “probable reserves” are estimated to be another 200 billion barrels. If the “probable” reserves are only another 100 billion barrels - that’s 212.5 billion barrels of oil. Black Gold. Texas Tea. That ups the ante to 1,700% ROI. Why that’s better than Microsoft’s historic $3 thousand in 1986 worth $One Million in 1999.

Of course this is assuming we win the war. There are people who suggest that we have given Al Queda 9 to 17 Trillion Dollars worth of oil. Some people are just negative.

Henry Ford, Tom Watson, Fidel Castro, and Arafat

Published
by
Larry
on August 28, 2007
in Economics, Ethics, Logistics, Making Things Worse and guns-v-butter
. 0 Comments

During the Depression, Henry Ford kept his factories running. Similarly Thomas J. Watson, hired salesmen at IBM. Both knew they were investing for the future.

When the Soviet Union collapsed in the late 1980’s, Cuba found itself in similar, if not worse, conditions. During the Soviet era, Cubans exported most of their main crop - sugar - and imported most of their food and virtually all of their meat. With the collapse of the Soviet Union, they had no export market for overpriced sugar, and thanks to U. S. foreign policy, no way to import food, fertilizer or pesticides.

According to Bill McKibben, in “Deep Economy,” rather than give up, they invested for the future. They planned, they planted crops, and while they lost weight, they succeeded. Their agricultural practices have become a model for sustainable and largely organic agriculture - they don’t use artificial fertilizer or pesticides.

Like the Cubans, the Palestinians have become orphaned children of the Soviet Union. They lost all aid from the USSR. And with the influx of immigrants to Israel from Russia, Ukraine, and other former Soviet Republics, they lost their jobs - why should Israelis hire people who want to kill them when they can hire people who want to join them? Unlike the Cubans, the Palestinians were adopted by Europe and the U. S., who showered money and other aid on them.

But money is a medium of exchange; it is only valuable when it can buy stuff. Thanks, perhaps in large part, to the Arafat’s thievery, the Palestinians have nothing.

Arafat stole every penny he could – to the tune of millions of dollars. He’s gone, but the self-proclaimed “holy men” in Hamas, Hizbollah, Iran and Syria blame the Jews for all their problems. With leadership like this they are doomed. The Palestinians need a leader like Henry Ford, Thomas J. Watson, or even Fidel Castro.

Scrap metal thieves sabotage California farms

Published
by
Jon
on July 31, 2007
in Economics, Infrastructure, pipeline issues and underground systems
. 0 Comments

 Scrap metal prices - particularly for copper - have led to thieves stealing phone lines, plaques from public memorials, and all manner of farming infrastructure.

From Jennifer Steinhauer’s excellent piece in today’s Times  :

The rampant thefts have left farmers without functioning water pumps for days and weeks at a time, creating financial loss and occasional crop devastation in a region still smarting from a spectacular freeze last winter.

Theft of scrap metal, mostly copper, has vexed many areas of American life and industry for the last 18 months, fueled largely by record-level prices for copper resulting from a building boom in Asia. Common in developing counties, metal theft is now committed in nearly every state, largely by methamphetamine users who hock the metal to buy drugs, the authorities say.

Thieves have stripped the wires out of phone lines, pulled plaques off cemetery plots, raided air-conditioning systems in schools and yanked catalytic converters from cars, all to be resold to scrap metal recyclers.

But perhaps no group has been as been as consistently singled out as California farmers, who provide roughly half of the nation’s fruits and vegetables. Irrigation systems, a treasure trove of copper, tend to be in remote places, out of the eyes of farmers and, until recently, law enforcement.

- snip -
Some sheriff’s departments in agricultural counties have rural crime units that investigate metal crimes almost exclusively these days, setting up sting operations in recycling shops and tagging copper bait with electronic tracking devices.

Metal theft from California farmers rose 400 percent in 2006 over the previous year, according to the Agricultural Crime Technology Information and Operations Network, a regional law enforcement group headed by Mr. Yoshimoto [Bill Yoshimoto, an assistant district attorney in Tulare County]. The numbers this year are equally high. Through the end of June, there were nearly 1,000 incidents of scrap metal theft on farms, causing more than $2 billion in losses, the group’s figures show.

Here in Kern County, there were 213 incidents of copper theft, the greatest number in the state.

“They go out and take a farm pump in the middle of nowhere,” said Sgt. Walt Reed, head of [the] county’s rural crime task force. “And they can pull the copper wire strands from the electrical wire box and get 60 feet of wire, remove the insulation and take it to the scrap yard for $2 to $3 a pound.”

Alan Scroggs, an almond farm manager in Wasco, knows the story only too well. Over the course of three months this spring, his irrigation system was raided five times by copper thieves; his well was hit twice, and the booster system that helps pump the water underground to irrigate the almond trees three times.

Copper thieves cut the wires in the conduit that runs to the power source, tie the wires to the back of a pickup truck and drive away, pulling the wire behind them and generally making off with roughly 75 pounds of scrap metal.

“When the sheriff’s department came out here for the third time,” Mr. Scroggs said, “they said, ‘I can’t believe I am here again.’ ”

Over the last 18 months, copper prices have hovered over $3.50 a pound, hitting $4 at one point, the highest price the metal has reached in recent memory, said Patrick Chidley, a mining and metals analyst at Barnard Jacobs Mellet in Stamford, Conn. By comparison, copper fetched 65 cents a pound in 2001.

“It is really the law of supply and demand,” Mr. Chidley said. “You have a lot of demand in China, where there is a big infrastructure build-out. Every building, every car, every motor, every wind turbine needs copper, and there are not enough mines out there to keep up.”

From Hawaii, where an accused copper thief is about to go on trial for felony theft charges, to Maryland, where a 41-year-old man was electrocuted recently after trying to cut through a high-voltage line in an abandoned discount store, stolen metals have filled a market void. This summer in Oakland, Calif., a memorial to 25 people who were killed nearly 16 years ago in a fire was stripped of stainless steel memorial plaques, and metal scavengers were suspected.

Let’s leave aside  the specious claim [2nd quoted graf above] that it’s all because of drugs and drug use - and please bear in mind that Steinhauer reported it as a claim - rather than endorsing the truth of the claim. Steinhauer has painted a very clear picture of how market forces drive illicit as well as licit markets. And she’s suggested - reasonably, I think - that at current record high prices - thieves are willing to undertake relatively low-risk larcenies and burglaries: unattended farm equipment.

Unattended infrastructure, of course, includes pipelines, water mains, power lines and lots of other things that we’d prefer to have where they are.

But what if prices go even higher? Is there a price at which it makes sense for thieves to start stealing copper from occupied buildings? Of course there is. Let’s just hope the market doesn’t supply it.

It’s Fuel Economy, Stupid

Published
by
Larry
on July 21, 2007
in Auto Industry, Bill Clinton, Economics, Electric Vehicles, Green household, Hybrids, John Dingell and Making Things Worse
. 0 Comments

Congressman Dingell’s loyalty to the US automobile industry is laudable. However, resisting higher mileage standards does not help the industry. It doesn’t help management, it doesn’t help the workers, and it doesn’t help the stockholders. (Click Here or Here) It helps the Japanese, especially Toyota.

 

Ford Motor Company, for example, started losing the taxi and limosine market to Toyota long before Mayor Bloomberg’s initiative that all new taxis were to be hybrids. All around Wall Street, where the limos pick up investment bankers and hedge fund managers in cars that are driven 50,000 to 100,000 miles per year, you see old Lincolns and brand new Priuses.

 

Each Prius (Edmunds, Toyota, Car Talk), which gets 45 miles to the gallon, will burn 2,222 gallons as it is driven those 100,000 miles.

 

Each Lincoln Town Car, (Edmunds, Lincoln, Car Talk), which gets 12 mpg, will burn 8,333 gallons in that 100,000 miles.

 

At $3.00 per gallon, fuel for the Prius costs $6,222; fuel for the Lincoln costs $23,333. It’s economics not environmentalism. Fuel costs for the Lincoln are almost four times higher than for the Prius.


Even with a new set of batteries at $5,000, the operating costs for the Prius are less than half those of the Lincoln.

 

GM and Ford act like a man with a toothache who won’t go to the dentist because it will hurt. But unless he takes action the man will lose the tooth. They act like someone with pain that ‘is probably nothing’ who dies of cancer. And Congressman Dingell is saying ‘It’s ok, it’s probably nothing.’

 

Dingell’s loyalty is laudable. But rather than tell them what they want to hear, he should tell Detroit the hard truth - milage matters. Or to paraphrase Bill Clinton, ‘It’s fuel economy, stupid!’

An economists’ take on the Katrina failure

Published
by
Jon
on July 10, 2007
in Budgets, Economics, Katrina and Planning and Preparedness
. 0 Comments

This is a post-Katrina take on why the system didn’t work - so it’s not new - but no less relevant - from a blog, Marginal Revolution, which we’ve only recently discovered.

Link to post here.