Category Archives: Deep Economy

Keynes, Reluctance to hire, & 21ST Century Energy

in black and white, because some ideas are.

Tweet During the Great Depression the Classical Economists said “Unemployment is voluntary. Business owners will not voluntarily keep the means of production idle.” While he had been a student of classical economics, John Maynard Keynes observed that the data didn’t fit the theory. And, he reasoned, if the observable data don’t fit the theory, the theory must be flawed. “Business owners are risk averse,” he saw. “A employee needs to be productive, needs to make widgets. But if no one is buying widgets, then contrary to classical theory, factory owners will fire workers and keep capital idle rather than hire workers to create excess inventory. That’s just common sense.”

We see this today.

When unemployment was low, for example in the United States during the tech boom of the 1990’s, people acted on the premise that “There is so much work that we could hire and good people and train them.” Today hiring managers seem to be acting on the premise that “There are so many people looking for work that they can wait for the perfect candidate.” Perfection being unattainable, jobs go unfilled. This is ok, in this context, because

“Budgets are tight.”
“The future is uncertain.”
“Money not spent on a new hire can be saved or used to pay down debt.”

Keynes also observed that the government is an employer that does not need to worry about going out of business. Building infrastructure is government employment that is investment for the future. These observations are as valid today as they were 80 years ago.

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21 Century Energy or Business As Usual?

NY Times Special (Business As Usual) Energy Section

Clifford Krauss’ “Can We Do Without the Mideast?” sets the tone for the “Special Energy Section” in the NY Times, March 31, 2011. “The path to independence – or at least an end to dependence on the Mideast – could well be dirty, expensive and politically explosive.” Is this an April Fool’s Day joke? The path to sustainable energy requires vision and hard work. a solar array on every roof and insulation in every wall and every attic. It will be better for the economy, better for the environment, and better for ourselves, our children, and our grandchildren. Continue reading →

Sustainable Investing

To paraphrase Warren Buffett and Charlie Munger, “Buying a good company at a good price is a good idea. Buying a great company at a bargain price is better.” But to note this in light of L’ Affaire Sokol – Lubrizol, “Buying a great company at a good price when a stick-picker on my staff just bought it for his account is a really stupid idea. And making excuses is even stupider.” (See this article by Joe Nocera at the NYTimes.)

Buffett claims to practice “Value Investing” as defined by Ben Graham, Phil Fisher, Ken Fisher, Joel Greenblatt, Bruce Greenwald, and others. I see “Sustainable investing” as a subset of “Value Investing.” Value Investing seeks to find companies that are currently undervalued by “Mr. and Ms. Market” but that are really effective at delivering Shareholder value. Sustainable Investing would seek to find companies that are currently undervalued but that are really good at delivering Stakeholder value. Continue reading →

Bernie Madoff, Richard Feynman, and The Financial Crisis

Bernie Madoff - In Prison

Interviewed in prison, Bernie Madoff asserted that banks and hedge funds were “complicit” in his elaborate fraud. Diana Henriques, writing in the NY Times, 2/15/11, (here) said “Madoff described as ‘willful blindness’ their failure to examine discrepancies between his regulatory filings and other information,” Quoting Madoff, “They had to know. But the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know.’ ”

Look at this in the context of the the Financial Crisis. The bi-partisan committee on the financial crisis, FiscalCommission.Gov, released its findings on Thursday, 27, January, 2011. The Commission, I think, got this one right. The financial crisis could have been avoided. This thirty-year economic experiment in de-regulation, which started under President Reagan, has proven that self-regulation doesn’t work; the government must regulate the financial industry. The foxes can’t guard the henhouse. Continue reading →

President Reagan's Legacy

As we consider the Centennial of President Reagan’s birth, it is important to note that while he cut taxes on some taxpayers, he raised taxes on other taxpayers. As the graph, presented by Barry Ritholtz at Business Insider, shows, the deficit shot up under President Reagan, as it did under Presidents Woodrow Wilson, Herbert Hoover, Franklin Roosevelt, George H. W. Bush, and George W. Bush.

Cats, Mice, and Sustainable Energy

“Join me in setting a new goal: By 2035, 80 percent of America’s electricity will come from clean energy sources.” – President Barack Obama, State of the Union, January 25, 2011.

When a mouse makes noise, only other mice and local cats take notice. When a lion roars, however, everyone notices; other lions, elephants, zebras, gazelles, smaller cats, mice ….

New Jersey is one of 27 states, which, like the District of Columbia, have a Renewable Portfolio Standard, or RPS, mandating that by a certain date, a specific target of a renewable energy capacity will be deployed. An additional five states have non-binding goals. (This are listed by the U. S. Dept. of Energy at Energy Efficiency and Renewable Energy.)

In New Jersey the RPS is 22.5%, about 1.6 gigawatts (GW), by 2021. New Jersey today, in January, 2011, has about 300 megawatts of renewable energy capacity. I am confident that New Jersey will meet, and possibly exceed its RPS goal. We started with 9.0 kilowatts (KW) of photovoltaic solar in 2001. We were up to 211 megawatts (MW), by the end of September, 2010, and we added an additional 24 MW in December, 2010. Even when you factor in 30 MW of biomass, 8 mw of wind power, and 1.5 mw of fuel cells, this is less than 20% of the goal of 1.6 gw. (This is shown at the NJ Clean Energy Program Renewable Energy Technologies page.) However paradigm shifts are systems phenomena. They occur at exponential rates. We went from 9.0 kw in 2001 to 211 mw in mid-2010, to 360 mw by the end of 2010. In December, 2010, we added an additional 10% – moving from 236 mw to 260 mw. We are hitting the handle of the hockey stick.

California’s RPS is 33% by 2030. In Texas, the RPS calls for 5,880 MW by 2015. California , New Jersey and Texas are the roaring mice in domestic US clean energy policy. And a cat – the lion in the Oval Office – the President of the United States – has listened to the mice in California, New Jersey, and Texas. Last night he roared.

Courtesy of the White House.

In his “State of the Union” address, January 25, 2011, President Obama set a lofty goal: “80% clean electric generation by 2035.” While I think we can do better – 100% clean renewable sustainable energy by 2025 – Obama’s goal is specific, measurable, achievable, realistic, and time-bound. It’s SMART. It’s also wise.

As a President should, Obama is thinking, and thinking long term. We at Popular Logistics wish him success because success for a President means a better future for the nation.

–

Two observations.

There is no such thing as “Clean Coal.” Even if we capture and sequester all the carbon dioxide produced from burning coal, which is expensive, there are still impurities, such as arsenic, lead, mercury, uranium, zinc in coal. And mining and processing coal is a very dirty business.
Nuclear is heavily regulated. We exercise tighter control over the wastes. In practice, nuclear power is arguably cleaner than coal. But in reality, things happen.

One question is “Can we achieve Obama’s Clean Electricity Goal?” But a better question is “How can we achieve this goal? ” My back of the envelope response is:

100 gigawatts offshore wind,
100 gigawatts land based wind,
50 gigagwatts solar,
75 gigawatts stored micro-hydro or biofuel, for when the sun isn’t shining and the wind isn’t blowing.

And as Amory Lovins, of the Rocky Mountain Institute, says, “The cheapest unit of energy is the ‘Negawatt’ – the energy you don’t have to buy.” How much can we reduce our energy requirements? How much can we gain by conservation?

Renewable Energy, The Wall St. Journal, Faux News

George Gilder, writing in the Wall Street Journal, 11/18/10, in California’s Destructive Green Jobs Lobby complained of the defeat of the repeal of the “Global Warming Solutions Act.”

“Economic sanity lost out in what may have been the most important election on Nov. 2—and, no, I’m not talking about the gubernatorial or senate races. … This was the California referendum to repeal Assembly Bill 32, the so-called Global Warming Solutions Act, which ratchets the state’s economy back to 1990 levels of greenhouse gases by 2020. That’s a 30% drop followed by a mandated 80% overall drop by 2050. Together with a $500 billion public-pension overhang, the new energy cap dooms the state to bankruptcy.”

Gilder also wrote: “California officials acknowledged last Thursday that the state faces $20 billion deficits every year from now to 2016.” That’s $120 Billion over the next 6 years. This is a state of 37 million people (US Census). It should be able to borrow that money at 4% or 5% – which is $3083 per capita. Borrowed at 5% interest over 20 years, it’s $20.35 per person per month – which does not seem to be enough to push someone into bankruptcy.

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September 11, and the Future of Energy

Combined Cycle Power Plant

The Combined Cycle Power Plant, “Kombikraftwerk” can harness wind, sunlight, water, and biofuels to meet ALL Germany’s electric power needs, 365 days per year, regardless of weather conditions. And if it “werks” in Germany, it will work here.

Professor Jurgen Schmid and his colleagues at the Institute for Solar Energy Supply Systems of the University of Kassel, in Germany, with funding from Enercon GmbH, SolarWorld AG and Schmack Biogas AG, have developed the Combined Cycle Power Plant, or “Kombikraftwerk” and proven that they can use wind, solar, biomass and hydro to meet ALL Germany’s electricity needs around the clock regardless of weather conditions. Schmid says.“If renewables continue to grow as they have done in the past, they’ll provide around 40% of Germany’s electricity needs by 2020. We could therefore achieve 100% by the middle of the century.” Information on the Combined Cycle Power Plant is here, and here, at “Germany’s Renewable Energy Information Platform. Continue reading →

Wall Street and Climate Change

At Deutsch Bank, one of the world’s largest banks, there are some very bright people who understand that climate change is problem. An Internet search on “Deutsche Bank Climate Change” brings up links to Deutsche Bank Climate Change Advisors, which features a carbon counter, showing the tons of Carbon Dioxide in the atmosphere, 3.6659 trillion metric tons. Before the start of the “Industrial Revolution” there were approximately 2.5 trillion metric tons. The question for the scientists is “What are the effects of shifting all this carbon from under the ground into the atmosphere?” For the citizens and policy makers, “Is this good or bad, and if bad, what should we do?”

What should Obama do? What is Celebrity Investor and Adviser to Presidents Warren Buffett doing?

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Barack Obama, a Systems Thinker in the White House

President Barack Obama.

In his State of the Union Address <video, transcript Englsh, en español>, President Obama said “The best anti-poverty program is a world classeducation

watch free the king’s speech online

.” He described a positive, or reinforcing, feedback loop. Education enables people to accomplish more, earn more, and better educate their children, who also accomplish more and earn more. It is one of the most important differences between the populations of New Jersey and West Virginia. This is described in detail in Thinking in Systems, by Donella Meadows<link>, (C) 2008, published by Chelsea Green<link>, ISBN 978-1-60358-055-7.

The President also asked for a better health care plan. I can answer that in five words: “Single Payer; Medicare For All” <link> just approved by the California Senate. Medicare works for my octogenarian father. Health Insurance Care doesn’t work for a 20-something friend of mine. He just graduated from college. He has no job and therefore no medical insurance. If he was a full-time student he’d be covered on his parents’ insurance. A simple reform would cover recent graduates until they find a job that pays a living wage and provides health insurance benefits. Another would be by expanding Medicare to cover all citizens. This is much easier said than done. Our medical care system cannot adequately care for approximately 50 million people – one out of six. This can’t be changed overnight – we need to train more doctors and nurses, and build more hospitals, but it must be changed.

Mountain strip mined for coal. Chris Dorst, Charleston, WV Gazette.

Energy is another set of systems problems. No one who has seen a once pristine valley after strip mining or “mountain-top removal” uses the term “Clean Coal.” Countries like Denmark, Ireland, Israel, Japan, and Sweden built their economies with education not extraction of natural resources. As the President alluded to, conservation and clean, renewable energy technologies – solar, wind, geothermal, hydro – can be implemented faster, at a lower cost, and with fewer negative economic externalities than traditional fuel intensive resource based technologies like fossil fuel and nuclear power. This suggests another of the differences between New Jersey and West Virginia – the “Blessings of Education” versus the “Resource Curse” <link> from which economies built on extraction of natural resources suffer.

Arklow Bank Wind Park, off Arklow Bay, Ireland. Image courtesy Oneworld.net, UK.

The President needs economic advisors who start think in terms of ecological economics <link1 / link2>, of metrics like the Genuine Progress Indicator, GPI <link>, rather than Gross Domestic Product, GDP <link>. Simply put, ecological economics is neoclassical economics with a better understanding of the long term and of costs. Spending one dollar – or one trillion dollars – to clean up a mess is not as good as allocating those resources to build factories, houses, libraries, museums – the infrastructure, culture, and community of a nation.

The False Assumptions of Neo-Conservatives

To paraphrase John Kennedy, “Ich bin ein Keynesian.”

Jude Wanniski coined the term “Supply Side Economics” in 1976 as a reaction to Keynesian and monetarist thought. In his book, The Way The World Works, Wanniski argues against taxes. “Working together three men can build three houses in three months. Working separately, they can build three houses in six months…. If the tax rate on home building is 49% they will work together … if the tax goes to 51% they will suffer a net loss because of their teamwork and so will work separately in the barter economy and pay no taxes. … the government loses all the revenue and the economy loses the production…”

Here are Wanniski’s assumptions:

Working alone three men can build a total of six houses in one year. Working together they can build 12 houses in the same year.
A 4% change in the tax rate, from 49% to 51%, is significant enough to cause someone to “drop out.”
The government taxes people when they work together but not when they work separately.

These assumptions are flawed. Continue reading →