Category Archives: Economics

Government Shutdown – Partial – OK, But What’s Next? Default?

Paul Krugman, PhD, Nobel Laureate

The House Republicans, led (or maybe followed) by John Boehner, R, Ohio, are ready to shut down the government in order to force President Obama to delay implementation of various components of the Affordable Care Act, aka “Obamacare.”

They are not shutting down the entire government. The government will halt so-called “non-essential services.” The EPA, FDA, IRS help desk will be furloughed. This is precisely what Grover Norquist, Charles and David Koch and other big Republican donors want. It’s what they mean by “Starve the Beast.” Oddly enough the shutdown does not include Congress, which will remain in session, so our Representatives in the House and the Senate can continue to work, or at least draw paychecks. Continue reading →

Popular Logistics Energy Portfolios. Sustainable Energy Doubles. Fossil Fuels increase by 5.4%

In December, 2012 I created two portfolios, a “Sustainable Energy” portfolio comprised of 8 stocks in the solar, LED lighting, wind and biofuel sectors, and a “Fossil Fuel” portfolio, comprised of 8 stocks in the coal, oil, and fracking sectors. The results, after seven months, as illustrated above:

The Sustainable Energy portfolio more than doubled: it is up 101.77%
The Reference Fossil Fuel portfolio is up 5.4%
The Dow Jones Industrial Average is up 18.75%
The S&P 500 is up 18.6%.

The Sustainable Energy portfolio has significantly outperformed the Dow Jones Industrials and the S&P 500 and the Fossil Fuel portfolio.

These data are summarized in table 1 and below. Continue reading →

How To Fix Social Security

Social Security will be solvent until 2038. (Social Security Adminstration, Summary of 2012 Annual Reports). Social Security is completely funded by the Social Security Tax and the payouts add nothing to the deficit. Reducing Social Security benefits will not reduce the Federal deficit one cent. Social Security benefits are fully funded until 2038. However, there are five changes to the structure of the Social Security tax that could, and I think should, be made.

First, eliminate the ceiling. Currently the Social Security tax is 6.2% of the first $110,000 of income. Everyone who makes $110,000 or less pays 6.2% of his or her income into the Social Security fund. People who make $50,000 pay $3,100. People who make $100,000 pay $6,200. People who make $110,000 pay $6,820. But people who make $1,000,000 also pay $6,820, as do people who make $100 million, or $1 billion. This makes Social Security a regressive tax. Eliminating the ceiling would make it flat tax.

Second, impose a floor, perhaps $25,000 per year. This would transform the tax from a regressive tax into a slightly progressive tax for the lower 80%.

Third, transform the structure of the tax to a fully progressive tax, as illustrated below.

Progressive Structure for Social Security
Income	Tax Rate
Under $25,000	0.00%
$25,001 to $50,000	2.50%
$50,001 to $100,000	3.50%
$100,001 to $250,000	4.50%
$250,001 to $500,000	5.50%
$500,001 to $1.0 Million	6.50%
over $1.0 Million	7.50%
Table 1

Fourth, REQUIRE, elected and appointed representatives in all branches and at all levels of Federal government to participate in the program. That would include the President, Representatives in the House and Senate, the Honorable Justices of the Supreme Court, lower courts, as well as elected representatives in the governments of the states of the Union and territories.

And Fifth, consider Capital Gains, distributions from Trust Funds, and other distributions that are not “W2 Income” as defined by the Internal Revenue Service to be treated like “W2 Income” for the purposes of funding Social Security.

Solar Power & Electric Utilities: Is The Paradigm Shifting?

The 16-module solar array pictured above was built in 2005. It probably has 2.5 Kilowatt (KW) to 2.8 KW of nameplate capacity. In New Jersey, residential solar systems range from 3 KW to 30 KW. Most are between 4 and 10 KW. Commercial systems range from 8KW to 200 KW. Utility scale systems are in the 10 Mega Watt (MW) to 550 MW range. In 2005, the costs for small scale residential systems were around $8.50 / watt, exclusive of any incentives. Today it is probably around half that, and cheaper for the larger utility scale systems. 1.0 MW system would require 4,000 modules of 250 watts each. The system pictured above requires about 50 square feet of land.As illustrated by the photo of the Topaz array, below, a 550 MW system, like Topaz, would require 2.2 million modules, and would cover a lot of ground.

First Solar, FSLR, a $2.8 Billion company, and Sunpower, SPWR, an $840 Million company, two of the pillars of what is left of the American solar energy industry, made some interesting statements in their 2011 annual reports: Continue reading →

Fort Calhoun Nuclear Plant, Update.

Back in April, 2011, the Fort Calhoun nuclear power plant, on the banks of the Missouri River about 19 miles north of Omaha, was shut down for refueling. The timing was perfect because in June, 2011, the Missouri River flooded. As pictured above, the plant that had been on the shore of the river was suddenly in the middle of the river.

THE PLANT IS STILL SHUT-DOWN – 20 Months after the incident.

Erin Golden, of the Omaha World News, told me on Dec. 19, 2012,

The plant is expected to be $129 million over budget in 2012. The OPPD [Omaha Public Power District] has set a target for the First Quarter of 2013 to bring the plant back on line. And the people at OPPD are optimistic that they will get the plant back on-line. The NRC, however, is not optimistic.

Continue reading →

How to Fix Medicare, Medicaid, and Social Security

President Roosevelt created the Social Security Administration in 1935.

President Johnson created Medicare in 1965.

President Obama passed the Affordable Care Act in 2010.

People say “Medicare and Social Security are broken. They need to be fixed.” Some say they should be eliminated, or turned into voucher programs. What are the facts? What does “Broken” mean, in the context of Medicare and Social Security?

Continue reading →

“Grandpa” Wen Worth $2.7 Billion: NY Times Blocked in China

Wen Jaibao, NY Times, 10/25/12

Guangxi River

Child in Linfen

The NY Times reported, here, that Wen Jiabao, the Prime Minister of China, has amassed approximately $2.7 billion, and so according to the Guardian, here, access to the Times has been blocked within China by the “Great Firewall of China.” In term’s of China’s population, Wen’s family fortune is approximately $2.08 for every man, woman, and child in China. This is ¥12.978 , at current rate of ¥6.2465 CNY to the $1.0 USD. The Times also details the Wen family empire, here.

Nicknamed “Grandpa Wen” because of his reputation of concern for the underprivileged, or, in Marxist parlance “The Proletariat,” for there are no “Privileged” people in the People’s Republic, Wen has called official corruption a threat to the ruling Communist Party. He should know. This is what happens when a disregard for rights is coupled with tremendous power. However, given that the Chinese leadership has embraced a form of capitalism, wherein the people who run the state own or manages the corporations that produce things or allocate resources, it must be noted that China seems to be following a fascist political and economic model, rather than a Marxist or Maoist communist political and economic model.

What would Mao say? Hard to tell. He ate well during the “Bitter Years” from 1958 to 1962, when an estimated 15 to 43 million people died (wikipedia).

Political and economic theory aside, when coupled with what we know about air and water pollution, working conditions in Chinese factories and coal mines, official attitudes toward intellectual property (Business Week / Popular Logistics) , the challenge posed by a demographic imbalance of a population of 700 million men and 600 million women, cultural attitudes towards homosexuality, prostitution, and HIV AIDS; the long term prospects for socio-economic stability in China seem low.

A small boy walks through the smog of Donglu, on the outskirts of Linfen, where villagers have difficulty in selling their crops because of the severe pollution. Linfen, a city of about 4.3 million, is one of the most polluted cities in the world. China's increasingly polluted environment is largely a result of the country's rapid development and consequently a large increase in primary energy consumption, which is almost entirely produced by burning coal.

Linfen, a city of about 4.3 million, one of the most polluted cities in the world. Courtesy Greenpeace.

Air and water pollution in China, as documented by Elizabeth Economy in The River Runs Black, in 2004, ISBN: 978-080-1442-20-9, available at the Strand Bookstore, here, and also documented by Greenpeace here and here here and here, present tremendous long term threats to the people of China to breathe, drink, and to eat.

River Guangxi

As a public service to the people who make smart phones, laptops, routers, and clothing for use here in the USA, the NY Times article is reproduced below. It is not the policy of this blog to quote entire articles. However, given that the entire article – and the entire web-site – is blocked from within “The Great Firewall,” we have made an exception in this case. We trust that the writers, editors, and publishers of The Times will understand. Continue reading →

Occupy Wall Street, Obama, The American Jobs Act, Veterans & Patriots

The same way that they filibustered the The American Jobs Act of 2011, Senate Republicans filibustered the Veterans Jobs Corps Act of 2012. According to the Examiner, here,

the proposal failed 58-40, with most Republicans voting against it. Sixty votes were needed to overcome the procedural hurdle and push the bill toward final passage. Five Republicans – Sens. Scott Brown (Mass.), Susan Collins (Maine), Dean Heller (Nev.), Lisa Murkowski (Alaska) and Olympia Snowe (Maine) – voted with all 53 members of the Democratic Conference to sidestep the procedural roadblock.

I know the Republicans CLAIM to be “Fiscal Conservatives” and “Patriots” but the evidence shows that they are neither.
Continue reading →

Occupy Wall Street – On Taxes

“Taxes are the price we pay for civilization.” – Oliver Wendell Holmes.

Progressive tax structures are not about punishing the rich. They are a recognition that wealthy people – like everyone else – derive benefits from being in society. Warren Buffett, Steve Jobs, Bill Gates, Michael Jordan, Oprah, for example, got rich because people buy their products or watched them play basketball or on TV. Paris Hilton is wealthy because her great-grandfather built a successful business. Their successes are wonderful. But their success should not require me to subsidize their lifestyles.

Continue reading →

Cognitive Abilities Compromised by Wealth?

The Anna Maria Blog reported here

[Australian] Mining magnate Gina Rinehart intends to bring in semi-skilled migrants to work in her mines. She doesn’t want Australian workers because our wages are too high so she’s had a brilliant idea – bring in desperate people from other nations willing and overjoyed at the opportunity to work for half the Australian wage. She’s trying to convince anyone who will listen that it’s got nothing to do with profit, she’s not being unpatriotic, she is simply suffering from an acute labour shortage.

The Anna Maria Blog reported in the same post that there are 10’s of thousands of Australians who would want the jobs Rinehart wants to fill, but they would want them at union scale.

Rinehart has been publicly advocating that Australians should work for no more than $2 per day, given the rates at which Africans and Asians work. Does she include herself in that? If she was to start working for $2 per day? As she is said to makes $600 per second, 51.840 Million per day, what would she do with the $51,839,998 excess?

Mark Memmott, showing that he can cover arcane neuroscience as well as hard news at the NPR “Two-Way” blog, has reported that Rinehart, reported to be accumulating money at a rate of $600/second, appears to be having trouble with self-awareness, cognition, and empathy. Some memory loss may be indicated. These symptoms of cognitive deficits are most marked in a video which Rinehart produced herself, posted on the website of the Australian Mining Club (one suspects that the A.M.C.’s wine cellars are at exactly the right depth), in which she argues that great fortune is the product of merit. The BBC, which reported the $600 per second figure, also reported that she acquired her wealth via inheritance. It may be that her merit consists of having persuaded the legator of her merit in leaving her or his fortune to her, or that merit may have been self-evident.

Forbes currently lists Rinehart as the world’s 29th-richest person, with a net monetary worth of $18 billion, and the wealthiest woman from the Asia/Pacific region. She could be headed toward becoming the world’s richest person, the magazine speculated last year.

If Australia is, as Rinehart claims, to expensive for business ( Anna Maria Blog / Herald Sun / LA Times ) maybe she should move her operations, and herself, to China or Africa. If she did so would doubtless make Belgium’s King Leopold look like a prince, or Mother Theresa.

Do Rinehart’s mining interests include the mining of lead or mercury? Does she eat the lead? Mainline the mercury? Perhaps she eats whale?

It has also been suggested that lower income class warriors want to “Eat the Rich.” If that is the case, Rinehart could feed a lot of them.

It’s sad that such an obviously superior woman should be experiencing so much stress as the result of her wealth or the rate of accumulation of same. Perhaps Australian health authorities should temporarily place her funds in the hands of a custodian while she returns to her senses or regains her humanity or her sense of affiliation with same.

Perhaps Rinehart should spend some time with Paris Hilton. While Hilton’s net monetary worth is estimated at only $100 Million, as opposed to Rinehart’s $18 Billion, but from an existential perspective there doesn’t seem to be an qualitiative difference between $18 Billion of net monetary worth and $100 Million of net monetary worth – both are greater than an individual can ever reasonably expect to spend. And I suspect that Hilton has more fun and may have a more profound sense of herself as a person.

Note that I use the term “Net Monetary Worth” rather than “Net Worth.” This is deliberate and an attempt to distinguish between a person’s intrinsic or existential worth from the value of assets or resources at their disposal.

Buggy-Whips, Railroads & Oil: Systems Thinking on Fuel

At the 6th Annual Babson Energy Conference, “Energy, Environment, & Entrepreneurship: Challenging Assumptions, Changing Perceptions”, here, held March 30, 2012, Cimbria Badenhausen, (LinkedIn), an alum of the Marlboro College MBA in Managing for Sustainability, asked Tahmid Mizan, Senior Planning Advisor of Exxon Mobil, “Are you an ENERGY company or a PETROLEUM company?”

Mr. Mizan, of Exxon, didn’t answer the question.

Henry Ford, when asked why he doesn’t use focus groups, is believed to have said, “If I asked people what they wanted, they’d tell me faster horses.” (HBR) Continue reading →

Cyberwar: USA & Israel v Iran, China v USA, Russia v The World

Iranian Pres. Achmadinejad at Natanz.

Focusing on “Operation Olympic Games,” the US efforts behind the Flame and Stuxnet cyber attacks, Mischa Glenny, in “A Weapon We Can’t Control,” an op-ed in the NY Times, 6/24/12, says the U.S. has “fired the starting gun in a new arms race … cyberweaponry.” However, Mr. Glenny ignores efforts by hackers in China and from the former Soviet Union.

Continue reading →

Is Ford Motor Co Sustainable? And is Ford a Value Investment?

Ford Fusion, available as a hybrid

Back in October, 2007, I wrote about the Toyota Prius and the GM Hummer in Prius v Hummer, the Battle for the Streets and the Prius v Hummer, the Battle for the Brains. (Spoiler alert – the Prius won). Now I’m thinking about Ford Motor Company. A few years back their tag line was “Ford Has A Better Idea.” That may not be the current tag line, but I think it is the case. I will go further and say that Ford is on the road to being Sustainable car company, and is a Value Investment.

While Toyota deserves credit for developing the hybrid- the Prius was introduced in 2000 – Ford has an extensive lineup of hybrids and is putting the EcoDrive – which boosts mileage by 20% – on vehicles, from small cars to the F150 truck. And 40% of the F150′s sold today are sold with the EcoDrive engine. Continue reading →

Gingrich: I’ve a ‘Secret Plan’ for $2.50 Gas

Newt Gingrich says, “I have a plan to set gasoline prices at $2.50 per gallon. We have 1.4 trillion barrels of potentially recoverable oil in the United States. Join us to make it happen.” on YouTube, here.

At a rally in Dalton, Georgia, reported here on CNN, he said, “Just tell all your friends we’re setting it up so you can go online at newt.org and you can give one Newt-gallon which is $2.50, or you can give 10 Newt gallons which is $25, or 100 Newt gallons which is $250 or a thousand Newt gallons which is $2500.”

I wonder who’s picture he wants on those “Newt Dollars.”

The Jane Dough blog describes “Today in Improbable Campaign Promises: Gingrich Bus Advertises $2.50/Gallon Gas,” here.

Talking Points Memo, here, says “Newt Gingrich Running On Bitterness and $2.50 Gas.”

Newt doesn’t offer the details, which brings to mind the so-called “investment strategies” of Bernard Madoff and R. Allen Stanford, recently convicted of the largest Ponzi schemes in history. Both consistently refused to explain how they made money; “It’s complicated,” they said, “You wouldn’t understand. But I guarantee that I will make you money. And look at these pictures of me with important people”

In “How to Smell A Rat,” Ken Fisher, of Ken Fisher Investments, with co-author Lara Hoffmans, says, “If a so-called ‘Investment Strategy’ is ‘too complicated to explain’ it’s probably a scam.”

The Chairman of the Communist Party in China can set the value of the currency and price of any commodities in China – because China has a command economy not free markets. The President of the United States, who’s authority, responsibilities, and limits are described in the Constitution, has a lot of power. As Commander In Chief, the President can wage war. But the President can not set the price of commodities traded on free markets.

I don’t believe that Mr. Gingrich has a realistic plan to set the price of gas to $2.50 per gallon. However, I can think of several ways to appear to cut the price of gasoline from $3.73 to $2.50 per gallon:

Devalue the dollar by about 1/3, so that $2.50 “new dollars,” or “Newt Dollars,” as Mr. Gingrich calls them, buys $3.73 worth of gasoline, or other stuff.
Use tax subsidies to pay people the difference between $2.50 and the price at the pump. Then, of course, you would have to raise taxes by $1.23 per gallon.
Drill Baby Drill.
Ration gasoline to artificially cut the demand.

The first two are smoke and mirrors. The third requires massive amounts of clean water and would create massive amounts of toxic by-products. The fourth would work in time of war or disaster. All require what might be termed “Big Government.” All would pour tons of carbon dioxide into the atmosphere, contributing to mile winters such as the winter of 2012, climate change, storms like Hurricanes Katrina and Irene, and acidification of the oceans.

There’s one other thing we could try:

Develop fuels derived from sustainably grown plants to legitimately cut demand on fossil fuels.

While this would require “Big Government” to fund research this seems to me to make sense. It is also the mid-term to long term plan of Continental / United, Virgin, Alaska Air, Horizon Air, other carriers, and Boeing (click here for Gizmag or here for Bio-JetFuel Blog). Solazyme (SZYM) and General Electric (GE) are working on the technology. The US Navy is also working with Solazyme for fuels derived from algae (Business Wire). However, based on Mr. Gingrich’s statement that “We have 1.4 trillion barrels of potentially recoverable oil in the United States,” I suspect that he is playing fast and loose with facts and ginning up support for “Drill, Baby, Drill.”

Historical peak for gasoline prices occurred in 2008

Politico, fact-checking a claim made by Lousiana Governor Bobby Jindal that gasoline prices under the current administration are higher than they’ve ever been, contradicts Governor Jindal:

Louisiana Gov. Bobby Jindal on Wednesday ripped President Barack Obama over rising gas prices and said any of the Republican 2012 candidates will do “so much better” if elected to the White House. “The reality is, gasoline prices have doubled under this president, highest prices for oil and gasoline in a 150 years. People used to think it was because of incompetence from Obama administration on energy – I think it’s because of ideology. They’re pursuing a radical environmental ideology,” Jindal said on “Fox & Friends.” In fact, the monthly average retail price of gasoline peaked at $4.26 a gallon in inflation-adjusted dollars less than four years ago, in June 2008. It then plummeted to $1.80 a gallon in the next six months during the global financial collapse. Oil isn’t near historic highs either.

Jindal scorches Obama on gas prices xxx Bobby Jindal scorches Obama on gas prices – MJ Lee – POLITICO.com

AmericaBlog, going further, finds that gasoline peak prices under President George W. Bush (the 43rd President, 2001 – 2008) tied the peak price under President Jimmy Carter (1977 – 1980), whose administration included the Iranian hostage situation and an OPEC-sponsored petroleum shortage. And more: here’s an infographic noting major events and gasoline prices:

Under what party did gasoline and oil prices reach their peak? Republican, of course.

Perhaps the most disturbing aspect of the original claim, implying that the Obama Administration’s policies caused high gasoline prices, is its oversimplification. Higher prices matter less – or not at all – if we’re using more efficient devices. A clear example might be traffic lights. Assume for simplicity’s sake that our only use of electricity is for traffic lights: when incandescent bulbs are replaced by LEDs, the energy savings are reported to be in the range of 90%. Once that shift has been made, it would take an increase in cost of 1,000% (that is, a ten-fold increase) in the cost of electricity in order to bring the cost to its original cost – not counting the savings in the labor cost of regularly changing the bulbs. Further, as every traffic light system makes the change, aggregate demand will drop, driving prices down, rather than up.

Similar dynamics – with good and bad outcomes – operate with respect to gasoline and other petroleum products:

When an economy declines (painful for most), economic activity – and gasoline consumption – decline, which tends to cause gasoline prices to go down;
when prices go up, or regulatory rules require it, we use less gasoline, by making and buying more efficient vehicles, using them more efficiently, or by using them less often; an extreme example would be the United States during WW II, during which the civilian economy had gasoline rationing, use of mass transit and other conservation measures were seen as patriotic actions, resulting, according to the British historian Richard Overy, in a reduction in civilian gasoline use of over 90% during the war years (Richard Overy, Why The Allies Won, citation and page reference to be supplied in an update of this post).

Governor Jindal is thus wrong twice:

First, on the basic facts – the claim that gasoline prices have peaked under President Obama;
That oil prices are something over which a president can exert control, particularly in the face of a hostile Congress;
That high gasoline prices can be looked at in isolation: if we had full employment, more energy-efficiency in the use of gasoline, we’d probably be pretty content as a nation; in fact, it’s not the price per gallon that matters. It’s the price per mile. we recently wrote about hybrid electric Lincoln Town Cars. If your Lincoln Town Car doubles in efficiency, operating costs for fuel go down unless the price of gasoline doubles to follow it, even if the mileage is the same.

We’re surprised that Governor Jindal, from a state with a lot of petroleum production and refining capacity, would oversimplify this issue; and we hope this isn’t a case of partisanship over accuracy.