Up the Creek, Without any Power

In the Virginian Pilot Editorial “Coal Plant Harm Swamps Benefits” (March 4, 2012), the Pilot asserts that the 1,600 acre, Cypress Creek Power Station is an environmental nightmare and, if constructed, will cause “a few dozen deaths and cost $200M a year in medical expense in Hampton Roads.” The article then lists all the pollutants emitted by the plant and their potential impact on every political constituency they can identify. 

The Pilots argument is fear mongering at its worst: a text without a context.

First, the Pilot does not place these emissions within regulatory limits.  Since 1990, even as US coal use more than doubled, coal-fired power plant emissions have declined: 58% for mercury, 67% for nitrogen oxides, 70% for particulates, 85% for sulfur dioxide – as well as for most of the other 80 pollutants.  Second, the health impacts projected are most likely based on EPA studies that assume that the technology required to reduce mercury emissions will reduce other pollutants (primarily related to soot and particulate matter) that are already regulated elsewhere, in effect  double counting. Last, the article leaves it to the reader’s imagination to come up with another economic alternative to provide 1,500 Mw to 400,000 citizens: power which provides jobs and powers all the things progressives want to give away for free to their constituents.  Replacing this plant with a wind farm for example would require not 1,600 acres of land by a minimum of 800,000 acres of land. 

Life is full of risks: the question is do the benefits outweigh them and are the costs reasonable.

Climategate 2.0

A new batch of 5,000 emails between pro-global warming scientists were anonymously released to the public yesterday, igniting a new firestorm of controversy nearly two years to the day after similar emails ignited the Climategate scandal.

Three themes are emerging from the newly released emails: (1) these scientists view global warming as a political “cause” rather than a balanced scientific inquiry; (2) prominent scientists central to the global warming debate are taking measures to conceal rather than disseminate underlying data and discussions; and (3) many of these scientists frankly admit to each other that much of the science is weak and dependent on deliberate manipulation of facts and data.

The purported negative effects of industrialization and population growth on the environment (viz., Anthropogenic Global Warming (AGW)) are central to the Administration’s adoption of progressive regulation that negatively impacts individual liberty and free-market economic activities.  These regulatory initiatives include removal of large tracts of land and natural resources from development, promotion of feel-good energy technologies, and increasing reliance on international bodies to “save us from ourselves.” 

Maybe it is time for us to save ourselves from politically motivated scientists.

Putting a “Happy Face” on Progessivism

Jefferson said “The course of history shows that as a government grows, liberty decreases.” Well, the government has been working diligently over the past several years to keep up its end of the bargain by taking away "life" (legislated healthcare rationing) and "liberty" (promotion of Comprehensive Planning on the state and local level that separates property ownership rights from development rights).  If that were not enough, the government now seeks to eliminate all vestiges of our God-given rights, by taking away our individual "happiness" and replacing it with that of the collective. 

Case in point: Maryland’s state website has established a "Genuine Progress Indicator” that advocates for the adoption of the so-called “Happy Planet Index," developed by the New Economy Foundation (NEF) with support from Friends of the Earth.  To calculate the HPI, authors use the following equation: Life Satisfaction times Life Expectancy divided by the community's Ecological Footprint, as measured by environmental regulation. (see http://bit.ly/q8kbTx).  It is left to the reader to plumb the philosophical depths (the “dark” depths, I may add) of this thinking by visiting the link and exploring Maryland’s “happiness metrics,”  which not only describe the Happy Planet Index, but promote the concepts of “Gross National Happiness” and “Subjective Measures of Human Wellness.”  

The idea that government can define “happiness” much less use government resources to promote its secular, communal definition on a website should scare the hell out of any reasonably informed, freedom-loving American citizen.    In effect, the state of Maryland is attempting to put the final post-modernist nail in the Constitution’s coffin by hypothecating that ALL rights come from the state (man) and not man’s Creator: that is, rights are not individual, but collective. 

So, keep this in mind.  Using the HPI definition and simple math, if you have low life satisfaction and life-expectancy because the government makes you worker harder and longer in a job you do not like because it’s the only job you can find, you can help the planet as a whole by reducing your ecological footprint.

Searching for New Sources of Energy and Looking in all the Wrong Places

Recently, Frank Luntz, a pollster, corrected a Fox News pundit, who stated that Americans were in favor of drilling for more oil. Luntz stated that Americans did not want to drill for more oil, they “wanted to explore for new energy sources.” Personally, I believe this is a distinction without a difference; however, it appears that the liberals and environmentalists have convinced Americans that drilling equals environmental apocalypse. So, following the lead of Albert Einstein, I decided to perform some “thought” experiments to see what sources I could find and thereby meet the needs of my fellow citizens, who currently are sitting on 86 billion barrels of oil, with 85% of it off limits to drilling (USA Today, June 13, 2008, pg 2A).

Serendipitously, I came across a 2006 USA Today article “Feds: Obesity Raising Airline Fuel Costs,” in which USA Today suggests, based on a 2000 Center for Disease Control study, that the 10 additional pounds gained by the average American in the 1990s, costs the American airlines an additional 350 million gallons of fuel per year and produces 3.8 million additional tons of carbon dioxide. The article states that this represented a fuel price increase of $275 million. I was “flabbergasted,” pardon the pun, which resulted in an epiphany. What if I could turn “flab” into “gas?”

First, I needed to confirm some facts. I had to determine the scope of the opportunity. First, I checked the projected benefits of simply reducing the cost of airline fuel. I found it circumspect that 350 million gallons of fuel could cost only $275 million dollars (78.9 cents per gallon). Lo and behold, to my surprise, the International Air Transport Association (www.iata.org) tracks the weekly price of aviation fuel. In 2000, a gallon of gas traded at 87 cents per gallon, which compares favorably to that reported). Even more surprising, the cost of a gallon of aviation fuel on June 13, 2008 was listed as $4.03 per gallon. Then I knew I was really onto something. The potential savings from solving this problem alone was worth almost 5 times the originally reported cost savings – $1.27 billion.

But were there other benefits? Several came to mind: reduction in food cost, better health were obvious… how about generating energy from the fat stored in the bodies of all these overweight individuals.

Additional research was required to estimate the additional benefits that could accrue to my fellow Americans – those sitting on 86 billion barrels of oil, 85% of which is off limits to drilling (are you starting to see a theme here). Here is what I learned:

- 65% of adult Americans are overweight or obese (source: CDC). This is defined in terms of body mass index (BMI), but it is generally accepted that it would include individuals who are at least 20% above their ideal body weight. Using the mid-point weight, by BMI, an average weight of 147 pounds for a 5 foot, 9-inch height individual was calculated. Using the 20% factor, “overweight or obese” was determined to be 30 pounds of fat.

- 75.4% (226.3 million) of all Americans (299.4 million) in 2006 were older than 18 (source: Census Bureau).

- Various newspaper reports state that the average American (those sitting on 86 billion barrels of oil, 85% of which is off limits to drilling) consumes 4,000 calories per day. According to the calculator on www.health.com, a 147-pound person doing office work and light reading 16 hours per day and sleeping 8 hours per day, requires 2,399 calories per day. Other sources indicate a minimum need of 2000 calories per day. These statistics are comparable to those reported by the Food and Agriculture Organization (FOA) of the United Nations which states that the average American consumes 3,790 calories per day compared to some third world countries that consume 2,020 calories per day. Conservatively, Americans consume at least 1,500 calories each day more than they need.

- According to www.health.com, 1 hour of vigorous walking exercise consumes about 368 calories. For purposes of this analysis, I will assume it is all fat; clearly that is not the case, but this is a blog not a scientific journal.

- There are 9 calories per gram of fat (source: www.wikipedia.com ). There are approximately 500 grams in one pound (source: basic high school education, circa 1967).

- According to a University of Washington Cooperative State Research, Education, and Extension Service (CSREES) study (March 2008), Adam Drewnoski, checked the prices of 372 foods sold at local supermarkets in the Seattle, WA, area, comparing the prices with calorie density. High calorie density foods include things like peanut butter and granola; low-density foods included things like fruits and vegetables. “Based on a standard 2000 calorie diet, the researchers found a diet consisting of calorie dense foods costs $3.52 per day, but a diet consisting primarily of low-calorie foods, costs $36.32 a day. The average American eats a variety of foods, throughout the day, spending $7 per day.” Further, the study reports that during a the two year study period, the price of high –calorie foods decreased by 1.8% and the price of low-calorie foods increased 19.5 percent. While the $7 per day seems high, it does compare favorably to the number reported in Agriculture Fact Book, 2000 – 2001, food expenditures in the United States were $2,964 per capita or $8.12 per day, which represents a higher caloric intake than 2000 calories per day. Based on this data, I non-scientifically extrapolated the data to state that the cost of 200 calories of food is $0.43 (200 x $8.12 per day / 3,790 calories per day).

So, what can you deduce from all this? Assuming the 147 million average Americans, who are either overweight or obese, (and sitting on oil, etc) were to walk one hour per day five days per week and reduce their food consumption from almost 4,000 calories per day to 2,500 per day, they would:

- Lose 4.4 billion pounds of fat over a period of 1.3 years, resulting in better health and a feeling of self worth due to their accomplishment.

- Save the American airline industry ~ 800 million gallons of fuel per year (350 million gallons per 10 lbs multiplied by 30 pounds per person and divided by 1.3 years) costing $3.2 billon dollars (800 million gallons multiplied by $4.00 per gallon), but probably an overstatement, because the cost of fuel would most likely come down due to supply / demand … so discount this by a third, and reduce the savings by $1 billion a year to $2.2 billion). This is the equivalent of one-day’s energy consumption for the whole United States (20 million barrels per day at $137 per barrel, as of this writing).

- Reduce individual adult food cost by at least 32%, assuming a 2,500-calorie diet (i.e., (3,790 calories – 2,500 calories)/(3,790 calories)) or a savings of $948 per year per adult. Assuming a family of four, comprised of two adults and two minors, this represents a family savings of almost $1,900 per year or 4.5% of the average American family income (assumed to be $42,000). Not factored into the calculation is the costs required to produce the food which can be 12 to 100 times as energy intensive as the calories consumed (i.e., it requires 12 calories of energy to produce 1 calories of corn; 96 calories of energy to produce 1 calorie of beef).

- Reduce carbon dioxide emissions by 9 million tons per year. The US electric utility industry releases 2.8 billion tons of carbon dioxide per year (source: Washington Post). Airline savings would equate to a little more than 1 day of carbon dioxide savings.

- Even though it is beyond the scope of this blog post and will be the subject of another blog, if the walking energy expended by these 147 million Americans was harnessed on treadmills and converted to useful work (assuming a conversion ratio of 0.7), then we could generate approximately 85 watts per person or approximately 12,500 Megawatts (Mws) in total capacity. Assuming each person walks1 hour per day, five days per week, for 1.3 years, this is equivalent to approximately 50,000 Mw-hr in generation. This is approximately 4 days of generation from a 600 Mw coal fired fossil unit.

In spite of these benefits, I suspect that the average American (who is currently sitting on 86 billion barrels of oil, with 85% of it off limits to drilling) will not choose to capture them. Instead, they will use the additional calories to generate hot air, the energy content of which cannot be captured for useful purposes, and only will contribute to global warming and the eventual energy death of the world. That assumes that the flawed ideas and inaction generated by their talking doesn’t destroy it first.

A Lesson from the Other Side of the Rabbit Hole

I love connecting the storyline of two separate newspaper articles, which the editors see as disparate, but are actually interrelated.  On July 19, 2011, the Wall Street Journal published two articles: “Get ready for 70% marginal tax rate" by Michael J. Boskin and "Notable and Quotable" a quote of a Heather McDonald statement on the University of California's diversity obsession. When read as one, the two articles lay bare an assumption that is critical to the liberal progressive view of government:  government never has a spending problem – it is always a revenue problem.  Really?  Only if you are Alice in “Wanderland.”

When progressives look at government – as Alice might have – “through the looking glass,” they see a well-oiled, efficient, and effective machine, which can only be harmed if taxes are not raised.  When conservatives look at government through a microscope, they see an out-of-control bureaucracy whose tax-and-spend profligacy robs them of their individual rights to life, liberty, and the pursuit of happiness – the basis of which is economic freedom. 

In “Get ready for a 70% marginal tax rate," by Michael J. Boskin, the author addresses the perilous nature of our economic future under a tax-and-spend scenario.  Boskin states “the current top federal rate of 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000). The payroll tax is 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap). While the payroll tax is theoretically split between employers and employees, the employers’ share is ultimately shifted to workers in the form of lower wages.” Using California as an example, state income tax is about 10.5%. Thus the marginal tax rate paid on wages is approximately 44.1%. As Boskin points out, this is a net figure because state income taxes are deducted from federal income. Under this scenario, for a California citizen, the expiration of the Bush tax cuts in 2013 will result in the addition of a 0.9% increase in payroll taxes to fund the Affordable Health Care Protection Act. Obama's proposal to eventually uncap Social Security taxes will lead to a combined marginal tax rate in California of 58.4%.

But things get worse. The non-partisan Congressional Budget Office projects that an additional $841 billion deficit in 2016. Assuming a goal of a balanced budget through tax increases, all income tax rates will have to be increased by 31.7%, raising the combined marginal tax rate for a California citizen to 68.8%. Mr. Boskin then uses this argument to make the point that a California teacher, earning $60,000 a year, would keep approximately 30% of her wages or about $18,000. He states, “At the margin, virtually everyone would be working primarily for the government, reduced to a minority partner in their own labor.”

In the second article, Heather McDonald paints a clear picture of California’s true situation as it stares at the brink of economic disaster.  She states that “California's budget crisis has reduced the University of California to near-penury, claim its spokesmen.” “Our campuses and UC Office of The President already have cut to the bone," the university system's vice president for budget and capital resources warned earlier this month. According to Ms. McDonald, they have not cut their staff to the bone. “The University of California at San Diego is creating a new, full-time Vice Chancellor for Equity, Diversity, and Inclusion." This position will augment UC San Diego's already massive diversity apparatus which includes the following:

·         The Chancellor's Diversity Office

·         An Associate Vice Chancellor For Faculty Equity

·         The Assistant Vice Chancellor For Diversity

·         Faculty Equity Advisors

·         Graduate Diversity Coordinators

 

·         Staff Diversity Liaison

·         Undergraduate Student Diversity Liaison

·         Graduate Student Diversity Liaison

·         A Chief Diversity Officer

·         The Director Of Development For Diversity Initiatives

·         The Office Of Academic Diversity And Equal Opportunity

 

·         The Committee On Gender Identity And Sexual Orientation Issues

·         The Committee On The Status Of Women

·         The Campus Council On Climate, Culture, and Inclusion

·         The Diversity Council

·         Directors of the Cross-Cultural Center

 

·         The Lesbian, Gay, Bisexual, Transgender Resource Center and

·         The Women’s Center.

I wonder if the California teacher – whose take home pay is about 30% of what she earns – believes that the University of California may have a little further to go before they “reach the bone.”   That is unless she works for UC, in which case, the progressives’ view of the Utopia has come almost full circle: the teacher will be working almost full time to pay the taxes that pay her own salary.  

Alice would be proud.

Economics In One Page

In the article “Rebuild wages to restore economy," by Holly Sklar, (Virginian Pilot July 23, 2011), the author states "it's time to stop stuffing the penthouse of the economy with gold and rebuild the crumbling foundation." She argues that minimum wage should be raised to $10.00 per hour because $7.25 per hour ($15,080 per year) does not pay “… for rent, groceries, transportation, medicine and everything else.” She asserts that this will not harm the economy. She quotes John Shepley of the Business for A Fair Minimum Wage: “ … the notion that raising the minimum wage will kill jobs is just bunk. People at the lower end of earnings tend to spend 100% of their after-tax income. They put it right back into local businesses buying food, clothing, car repairs and other necessities. When the minimum wage is too low it not only impoverishes productive workers, it weakens the key consumer demand at the heart of our local economy."  While this article quotes many "facts," these facts do not tell the truth.

First, it is neither an employer’s fiduciary responsibility nor the government’s Constitutional responsibility to “rebuild wages.” Wages are set by supply and demand.  In fact, if an employer is able to produce a high-quality, high-demand product at a market-based price and produce that product with absolutely no employees, it will do so. Businesses are concerned with productivity not employment.  To the extent that employees can provide a function that can be done more economically than by a machine, they will be employed. This is demonstrated by the history of manufacturing in the United States since 1940.

Second, the author correctly asserts artificially raising wages does keep employees employed and provides them with more money to spend in the economy – at least for a time. However because they are adding no additional value to the product or service they are providing, within a short period of time the increase in wage is subsumed into the ongoing cost of business, increasing the price of the product to the consumer. The employee may be better off, the consumer is not.  The consumer’s increased price for a hamburger represents dollars that are no longer available to be spent on other innovative, productivity enhancing products or services like personal education. In fact, minimum wage only increases the inefficiency of the marketplace, making overall business less competitive. This is the lesson we have learned and will continue to learn from India and China.

Last, Ms. Sklar points out that minimum-wage workers have only $15,080 to pay for the basic necessities of life, but she fails to mention that these workers qualify for a plethora of government programs that subsidize their basic income, including food stamps, housing allowances, back to work programs, et cetera.  These benefits are part of government “entitlements” that in total represent about 70% of our annual federal budget, which the guys in the “Penthouse” make possible through the jobs they do provide.

Fundamentally, conservatives and progressives have two diametrically opposed views of the way the world works. A conservative believes that one creates wealth through one’s labor, first saving for future investment, and then taking a risk to start a business that meets a real demand. Progressives believe that wealth is created by the government through printing paper money, distributing it to those who are dependent upon the government, who save none of it, and who seek some fictitious future that never materializes. If a conservative fails, the business’s capital – which was created by the owner – is redeployed to alternative economic uses.  If a progressive fails, the government simply prints more money.

So, if one is concerned about low-wage workers well-being, perhaps he or she should donate through their church or a local charity.   Raising minimum wage is an ineffective, inefficient way to accomplish this objective, as proven by the fact that almost half of all citizens receive some form of government subsidy.  Instead, we have created is a large, centralized progressive government that threatens to destroy liberty and freedom for everyone.

CAFE Anyone?

More and more I'm beginning to understand how Alice felt when she fell down the rabbit hole into Wonderland. We are now living in a world in which political science trumps engineering science. Don’t even think about applying engineering economics principles. In this brave new world, the consequences of big business being in bed with big government are becoming readily apparent. Nothing illustrates this better than the Obama administration decree – using linear thinking in a non-linear world – that car manufacturers achieve a 56.5 mile per gallon average efficiency standard by the year 2015. The current standard is 35.5 mpg.

In the Wall Street Journal article "Over Caffeinated CAFÉ" by Holman Jenkins (July 6, 2011), Mr. Jenkins correctly points out "engineering is absent." No consideration is given to the state of the technology or our ability to deliver this mandated efficiency goal. Sean McAlinden of the Center for Automotive Research reports that to meet the stated goal the demand for materials needed to produce ultra high-mileage cars will exceed the supply by several times over. This is in a world where the latest Honda Civic is 42% heavier than its 1990 model and has nearly twice the horse power. The consequences of this mandate will be the production of cars Americans do not want at a price they cannot afford. What is the auto industry’s response to this? They have asked that the timeframe for achieving this goal be extended so that they have time to lobby for its repeal under a new administration. They do not want to directly confront Obama on this issue because they do not want to bite the hand that bailed them out.

So just like the electric utility industry, where over the past 10 years the number of electronic devices owned by each American has gone up by a factor of four to five, but the administration wants to replace high-energy density conventional electricity production with low-energy density solar and windmill production, at three to four times the cost of these conventional sources, the Obama administration wishes to raise fuel efficiency goals without any consideration of technical or economic feasibility.

Just like Alice in Wonderland – where up is down and down is up – the Obama administration will not allow engineering reality to stand in the way of political goals. The overarching natural principle of government is at work – the law of unintended consequences. Taking every gasoline powered vehicle off the road and replacing them with electric vehicles will substitute the carbon dioxide they otherwise would have produced with carbon dioxide that is generated by fossil fuel coal plants to produce the electricity they will require. In the process, as Obama has correctly stated, “prices … will skyrocket.” Does this sound like a good use of precious investment capital to you?