Electric Cars and Wind-Generated Power – A Giant leap backward for Mankind

Posted by PITHOCRATES - January 31st, 2011

Electric Cars don’t Like the Cold and Snow

There have been some big snow storms hammering the U.S. and the U.K.  Huge snow falls have snarled traffic this past Wednesday in the Washington area.  Not exactly Nome Alaska or Fargo North Dakota.  But it still turned rush hour traffic commutes into parking lots.  Cold parking lots.  Unless you had an internal combustion engine, that is.  And most people did as it turns out.  Lucky for them.  For if they had electric cars, they would have been waiting outside for a tow home.  Or walking home.  Because batteries don’t work well in the cold weather (see Cold truths about electric cars’ cold-weather shortcomings by Charles Lane posted 1/28/2011 on The Washington Post).

It is a basic fact of physical science that batteries run down more quickly in cold weather than they do in warm weather, and the batteries employed by vehicles such as the Nissan Leaf or the Chevy Volt are no exception.

The exact loss of power these cars would suffer is a matter of debate, partly because no one has much real-world experience to draw on. But there would be some loss. Running the heater to stay warm, or the car radio to stay informed, would drain the battery further.

If you want to understand some of the science, here’s some of that science:

“All batteries deliver their power via a chemical reaction inside the battery that releases electrons. When the temperature drops the chemical reactions happen more slowly and the battery cannot produce the same current that it can at room temperature. A change of ten degrees can sap 50% of a battery’s output. In some situations the chemical reactions will happen so slowly and give so little power that the battery will appear to be dead when in fact if it is warmed up it will go right back to normal output.

So think of this the next time your wife is about to start her commute home during the next snow storm.  And then imagine this.  She gets home okay.  Barely.  But you’ve lost your electrical power.  So you can’t plug in your car to recharge.

And many electric-car drivers who did manage to limp home Wednesday would have been out of options the next day: You can’t recharge if you don’t have electricity, and hundreds of thousands of customers were blacked out Thursday from the snow. The Post reports that this will be the case for many of them for days.

An internal combustion engine, though, could start up the next morning.  Because cold weather doesn’t affect them as much as they do batteries.  So if you had to go out for groceries or medicines, your internal combustion engine could get you where you had to go.  Even to a gas station if you needed to fill your tank to give you the range to drive somewhere that had electrical power and open stores.

Wind can be Fickle when it comes to Generating Power

Yeah, but, come on, what are the odds of this happening?  For the most part, batteries are reliable.  Electrical power is reliable.  The chance of losing power after ‘going green’ is so rare that it is statistically insignificant.

All right, let’s forget about driving a car in rush hour traffic in a snowstorm with the heater and your lights on.  Because that rarely ever happens.  Let’s look at wind-generated electrical power.  Like in the U.K.  They’ve added quite a few wind farms.  And they’re providing a rising percentage of their total electrical generation.  And, in a recent cold snap, the wind stopped blowing.  And the windmills stopped turning (see Customers face huge bill for wind farms that don’t work in the cold by Tom McGhie posted 1/9/2011 on the Daily Mail).

In the last quarter ending December 23, wind turbines produced on average 8.6 per cent of our electricity, but the moment the latest bad weather arrived with snow and freezing temperatures, this figure fell to as low as 1.8 per cent.

The slack was immediately taken up by efficient, but dirty, coal-fired power stations and oil-fired plants.

That dirty, filthy, nasty coal and oil no doubt meant the difference between life and death for some.  Why?  Because they’re reliable.  The wind doesn’t have to blow and the sun doesn’t have to shine.  They will always be there.  And this is why they serve as backup to wind generated power.  Because coal and oil are more reliable than wind.

So little energy was generated then that the National Grid, which is responsible for balancing supply and demand of energy in the UK, was forced to ask its biggest users – industry – to ration supplies.

So you may not be able to turn on your lights when you get home.  Cook.  Or run your heat.  But you’ll be saving the planet.  Sure, you may kill yourself in the process, but at least you’ll feel good.  For saving the planet.  By being so green.  As you turn blue.

Only Fossil Fuels can Walk it like they Talk It

There will be some sacrifice going green.  Some could even die (if their electric car battery dies during a blizzard before they get home from Grandma’s).  Or you may have found Grandma shivering in the cold because the wind wasn’t blowing that day.  Muttering to herself about the good old days when we burned coal.  And stayed warm.

When it comes down to it, fossil fuels are life.  Renewable energy sources might give us a brief respite from fossil fuels.  But when anything happens with those renewable energy sources, guess who we go running back to?  That’s right.  Fossil fuels.  And it’s time we stop demonizing the great life-giver of civilization.

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Greece/EU/the Euro are not out of the Woods Yet

Posted by PITHOCRATES - January 30th, 2011

The Price for Greece to Avoid a Sovereign Default

Greece’s troubles ain’t over yet (see European Union talks on Greek debt as IMF flies in by Helena Smith posted 1/30/2011 on the Guardian).

The European Union is engaged in frantic behind the scenes talks to reduce Greece’s debt as international monitors fly into Athens this week. There is growing concern that the eurozone’s weakest state will be unable to end its worst crisis in decades, without a sovereign default.

A sovereign default?  Yikes.  That’s pretty bad.  That means things may be so bad that they may just have to start all over.  And just say ‘so sorry’ to all those debt holders.  Break that sacred obligation of a written contract.  Just like those written contracts with the public sector unions will be broken when they reorganize.

No nation wants to go down this path.  The Greeks certainly don’t.  So what will it take?  And can they do what it takes?

Economists also recognize that even if Athens enforced the fiscal consolidation programme demanded in exchange for the bailout to the letter, the country would have to generate a primary budget surplus of 5.5% just to keep up with debt repayments.

That, in turn, would not only require relentless austerity but years of sacrifice in a nation already racked by a widening gulf between rich and poor and the social tensions that unprecedented policies have brought.

The spectre of a Greek default has divided economists, with many arguing that it would trigger a chain reaction and have a catastrophic effect on Ireland, Portugal and Spain which are also struggling with heavy debts.

It is an uphill battle.  They got into this mess because of uncontrolled deficit spending.  They just couldn’t cut spending or raise taxes enough.  Now to prevent default, they will have to cut spending and raise taxes even more than they were willing to before.  Can the Greeks pull off this Herculean task?  Or should Ireland, Portugal and Spain be getting a little nervous?  Time will tell.

If East Germany could do it so can Greece

The Greeks have a friend in Angela Merkel, the chancellor of Germany.  Germany is the strong economy in the European Union.  And they have experience in bringing someone back from the brink.  The reunification of Germany after the fall of the Berlin Wall was not easy.  West Germany was a prosperous nation with a strong currency.  East Germany was not.  Rescuing Greece will be similar.  Restoring financial health to a weaker nation.  While protecting a strong currency (the Euro) that is key in the rescue (see Merkel’s Defense of Euro Forged in East Germany by Jack Ewing and Katrin Bennhold posted 1/30/2011 on The New York Times).

There are also practical lessons for Europe. Like Greece and Portugal, the former East Germany suffered from a crippling competitiveness gap yet it was locked into a strong currency, the German mark.

Mrs. Merkel has witnessed the enormous political divisions that can arise when taxpayers from one region are compelled to rescue residents from another.

And how bad did it get?

About 14,000 businesses were shut down and four million jobs lost in the first five years after formal reunification in 1990. Unemployment eventually peaked at more than 20 percent in 2005.

Since the fall of the Berlin Wall in 1989, two million of the 16 million people living in the east have moved west. Long-term unemployment and wage depression bolstered xenophobic parties like the National Party of Germany, which holds seats in the state Parliament of Saxony.

It won’t be pretty.  But it can be done.  If the Greeks can handle “relentless austerity.”  If the other EU members are willing to rescue the Greeks.  And if the Greeks can resist xenophobic fears of those trying to help them.

And while the Greeks face this austere future, the rest of us should think about reducing our own deficits.  Before we find ourselves saying, well, if the Greeks could do it, then so can we.

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The Iranian Regime is bad for World Peace. An Iranian controlled Egypt is even Worse.

Posted by PITHOCRATES - January 29th, 2011

They Smile in your Face and then Sneak across the Border to Wreak Havoc

President Obama was a young senator with no executive experience.  And he had no foreign policy experience.  But he could talk to our enemies.  And make them like us.  Those same people who hate us with the fury of a white-hot blast oven.  Throw a couple of kind words in and an apology or two and, voilà, or our past bad blood is gone.  It was that simple.  Why any of the dunderheads who came before him couldn’t understand this was beyond him.  Then again, he is a super genius.  They weren’t.   So he would come in and save the day.  By saving the world (see Obama Doctrine is Failing in the Middle East by James Carafano posted 1/29/2011 on Heritage’s The Foundry).

Obama also bought into the false belief that improving relations between Palestine and Israel was the solution to “all problems” in the Middle East. That simplistic notion masks the serious challenges in the region—lack of healthy civil societies, a paucity of economic freedom, exploding demographic growth, endemic unemployment, environmental troubles, lurking Islamism, terrorism, and troublemaking from Iran. Much the enmity expressed against the West is more properly the product of homegrown problems. Yet, Obama has done little to address these issues other than try to solve them all with a single speech in Cairo.

So how has making nice to the Muslim world worked?  Has Palestine warmed up to Israel?  Have they warmed up to the Arab nations that have recognized Israel?  No.  Nothing has changed.  Apology Tour notwithstanding.  In fact, it looks like they have intensified their efforts (see Red Alert: Hamas and the Muslim Brotherhood posted 1/29/2011 on STRATFOR).

The Egyptian police are no longer patrolling the Rafah border crossing into Gaza.  Hamas [which formed in Gaza as an outgrowth of the Egyptian Muslim Brotherhood (MB)] armed men are entering into Egypt and are closely collaborating with the MB. The MB has fully engaged itself in the demonstrations, and they are unsatisfied with the dismissal of the Cabinet. They are insisting on a new Cabinet that does not include members of the ruling National Democratic Party.

By trying to make nice appears to have emboldened our enemies.  Imagine that. 

Iran supports Hamas.  And both call for the destruction of Israel.  Now there’s unrest in Egypt.  And Israel’s enemy in the Gaza Strip (located between Israel and Egypt) may be moving unopposed across the border into Egypt.  And you can probably guess why they’re going there.  You want a hint?  They’re not going there to be nice.

Damn College Students, always Rioting without Thinking about Tomorrow

President Obama is asking President Mubarak to exercise restraint in dealing with the protesters.  To let democracy work.  The problem is it’s not really democracy at work.  What’s happening in Egypt is kind of like what happened in Iran.  Without the American hostages

There are forces at work to replace the ‘conservative’ Mubarak (he was clamping down on Islamic extremism as well as human rights) with Shari ‘a Law.  Like in Iran.  And like it was in Afghanistan.  And those protesting should be careful of what they ask for.  Because they may just get it.  If they think Mubarak’s regime was difficult to live under, they need to talk to those who have lived under the Taliban in Afghanistan.  Or those currently living in Iran.

And speaking of Iran (see Dutch ends Iran ties over hanging posted 1/30/2011 on Al Jazeera).

The Dutch government has frozen official contacts with Iran to protest the hanging of a Dutch-Iranian woman, the foreign ministry said… Bahrami had been jailed in Iran since December 2009 after protests against Iranian President Mahmoud Ahmadinejad’s re-election. Protesters took to the streets, saying the vote was marred by fraud and that opposition leader Mir Hossein Mousavi was the rightful winner.

Rioting college students should pay attention to this.  Some of those students who overthrew the Shah of Iran were women.  Hoping for a better life with their college education.  Of course, after the Revolution, that’s about all they got from their college education.  Hope.  Because opportunities were now limited for second-class citizens.

Where have all the Cowboys Gone?

Things are not good in Egypt.  Or the greater Middle East region.  This could mark a watershed moment in history.  With Iranian influence in Egypt and Iranian control of the Suez Canal, life will change in most of the world.  Probably not for the good.  The shift in the balance of power could be so devastating that it could result in world war.  These are “the times that try men’s souls.”  And we look for a leader to get us through these perilous times. 

A George Washington.  An Abraham Lincoln.  A Franklin Delano Roosevelt.  A Harry S. Truman.  A Dwight D. Eisenhower.  A John F. Kennedy.  A Ronald Reagan.  A George H.W. Bush.  A George W. Bush.  Men hated by their enemies.  Men who pursued foreign policy with confidence.  Guts.   And without losing sight of the big picture.  The kind of leader that our enemies took seriously.  And the kind they respected.  Despite hating them.

That’s the kind of leader we need now.  Instead, we have an apologist.

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The Turmoil in Tunisia Ripples over into Egypt. And other Arab States.

Posted by PITHOCRATES - January 28th, 2011

Bad Economic Times Foment Dissent

The annual Arab Economic Summit opened in the Egyptian resort of Sharm el Sheikh on the 19th.  And there were some fears that the trouble in Tunisia may be exported to other Arab countries (see EGYPT: Trouble in Tunisia dominates Arab Economic Summit by Amro Hassan and Jeffrey Fleishman in Cairo, posted 1/19/2011 the Los Angeles Times).

There are countries “disintegrating, people rising up and rights being lost while the Arab citizen wonders if there is an Arab system that would deal with these events effectively and efficiently,” said Kuwaiti Foreign Minister Sheik Mohammad Sabah al Salem al Sabah. 

He added: “The Arab citizen might wonder if such a system would identify the human suffering, in their living conditions, health, education and future and provide a better and dignified life.”

Such comments — along with what is expected to be a $2-billion pledge to improve the region’s economies — were an indication that Arab capitals worried the furor in Tunisia had the potential to sweep the region following years of simmering anger over unemployment, human-rights abuses and widespread frustrations over tough living conditions.

Well, they had good reason to be worried.  Because Tunisia did export her troubles.  Egypt’s economy is in the toilet.  And they’re now rioting in Egypt.  The question now is what will the army do?

Will they?  Or won’t they?  What will the Army Do?

The 2008 movie Valkyrie about an assassination plot against Adolf Hitler shows the difficulty in overthrowing a dictator.  In a police state, you need the military to be on your side.  Because the police/security forces will be on the side of the dictator.  They have a privileged life because of the dictator.  The army, on the other hand, may be more independent of the dictator.  But a lot of their ranking officers will probably be indebted to the dictator.  Like those officers in the security forces.  So they have a tough decision to make.

People tend to hate security forces.  But they may respect the military.  For many families had family who’ve served honorably.  Who defended their country from their hated enemy.  But to shoot on your own people, that’s another story.  You do that and you’ll be cursed as much as the security forces.  Which can become a problem.  Especially if the dictator (and his security forces) are overthrown by an angry mob.  But if you don’t, and the dictator and the security forces are victorious putting down this angry mob, that could be an even bigger problem.  They’re addressing this dilemma now in Egypt (see Egyptian President Mubarak has never hesitated to use force against challenges to his rule by Janine Zacharia posted 1/28/2011 on The Washington Post).

A privileged and respected elite in Egypt, the armed forces has always been the backbone of power for Mubarak, who at 82 is battling an unknown illness but still cultivates jet-black hair intended to project youthful vigor. There was no indication that leading officers would abandon a leader to whom they owe their comfortable salaries and housing.

Like the Roman Empire (or perhaps left over from the Roman Empire), there is a bloated civil service.  People living the good life courtesy of the dictator.  So there are a lot of people with a vested interest in continuing the status quo.

Estimates of the size of Egypt’s domestic security services, which include the police, riot police and numerous intelligence services, vary widely from 300,000 to 2 million. The military is estimated to number 340,000.

Beyond that vast security apparatus, Mubarak has relied for support on a bloated civil service of roughly 5 million workers who depend on him for government jobs. But his traditional base of laborers, hard-hit by economic reform, have abandoned him and taken to the streets.

But there’s a problem with a big military and civil service.  They’re expensive.  And have to be paid.  But the people paying the bill are those laborers.  Many of which are unemployed now due to bad economic times.  Hence the rioting.  Which makes the military’s choice even more difficult.

High debt.  High deficits.  And High Unemployment. 

Greece, France, Great Britain, Ireland, Spain, Portugal, the United States, Tunisia and Egypt.  What do all of these countries have in common?  High debt.  High deficits.  And high unemployment.  But they’re not all rioting.  Yet.

We probably should learn some of these lessons about excessive government spending.  Like how it can end badly for one.

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LESSONS LEARNED # 50: “What do the great entrepreneurs have in common with politicians? Not a whole hell of a lot.” -Old Pithy

Posted by PITHOCRATES - January 27th, 2011

Cigarettes may be Bad for You, but they’re Good for Government

Government services cost money.  A lot of money.  And there are only a few ways government can get money.  They can tax their citizens.  Borrow money.  Or print money (if they’re the federal government).  When the government provides only the bare essentials for its populace, they can usually pay for those services with the taxes they collect.  This is the best way to pay for things.  It has the least adverse affect on our money.  And our credit rating.  But you have to be careful not to dampen economic activity.  Because taxes are a function of that activity.  And that activity can be a function of taxes.  There is a general inverse relationship between the two.  High taxes often gets you low economic activity.  Low taxes tend to give you high activity.  Other things being equal, of course.

But government spending tends to grow.  For various reasons.  And sometimes when it does, the spending is greater than the amount collected in taxes.  Especially during recessionary times.  So, to cover the deficit between revenue and spending they borrow money.  Or print it.  Lots of governments do this.  You can see record debt levels and record deficit spending throughout the world.  Greece was in the news recently.  Argentina suffered some bad times a few decades ago.  And now the United States is reeling a bit from their crushing deficits and debt.  And there are more.  Few nations are immune from this problem.

As this progresses, governments begin looking for additional tax revenue.  Such as sin taxes.  Cigarettes may be bad for your health.  But they’re still legal.  Why?  Taxes.  Few things do we tax so heavily.  And they’re one of the few things that we can heavily tax.  Because they’re addictive.  Cigarettes are a windfall for the government coffers.  But it doesn’t stop with taxes.  The government even sued Big  Tobacco.  To help pay for the medical costs the government incurs treating people (via Medicare and Medicaid) with smoking related diseases.

Which came First?  The Politician or the Entrepreneur?

Cigarettes may be bad for you.  But this country owes a lot to tobacco.  Back before it was bad for us (well, at least before we knew it was bad for us.  Then again, it wasn’t really all that bad for us back then.  For few were living long enough for it to become a health problem.  But I digress) it was a pretty big cash crop.  Even used for money because it was so valuable.  So an industry grew.  And that industry became a very lucrative one.  With deep pockets.  Producing an addictive product.  A veritable gold mine for a high-spending government.

Now, the government didn’t do a thing to make a single cigarette.  But it profited handsomely off of cigarettes.  It’s sort of like that chicken and egg riddle.  Which came first?  Well, speaking about business and government, it’s not much of a riddle.  Business came first.  For without business, there would be no government.  Because someone has to create wealth first before they could tax it away.  Or sue it away.

You see, that’s the difference between entrepreneurs and politicians.  Government needs entrepreneurs.  But entrepreneurs don’t need government.  Because entrepreneurs create things.  While government takes from people that create things.

Dirty, Sexy Energy is Destroying the Planet

Entrepreneurs have invented some pretty impressive things.  James Watt gave us a pretty efficient steam engine.  Henry Ford gave us a pretty affordable car.  Watt helped to launch the Industrial Revolution.  Ford just took it to new heights.  With his mass production.

The steam engine was the big first motor of the world.  It pulled us forward.  In steam locomotives.  And coal-fired power plants.  It was a giant leap forward for mankind.  Then came the internal combustion engine.  More compact.  And more powerful.  The first diesel-electric locomotive outclassed the state of the art steam locomotive in every way.  This little power plant was smaller.  More powerful.  And cleaner.  (Steam locomotives belched huge plumes of smoke and ash wherever they went.)

It may have been cleaner.  But it was still dirty.  For both the steam engine and the internal combustion engine produced carbon dioxide.  And the environmentalists were saying that this carbon dioxide was warming the world.  They called it global warming.  And it was bad.  Mostly theory.  But the theory pointed to nothing less than apocalypse.  Someone had to do something.  To save the planet.  And, guess what?  Someone was ready.  And willing.

Just give me something to Tax, Entrepreneur

A high-spending government just embraced these environmentalists with wet, slobbering kisses.  Because they knew what to do.  Not about cleaner energy sources.  But about taxing the dirty ones.  And they needed more taxes.  For their high spending.  So the environmentalists and government were rather simpatico.  To say the least.

Their idea?  Carbon taxes.  And carbon trading (i.e., Cap and Trade).  Let’s face it, modern civilization is addicted to energy.  We can’t do without it.  So we’ll never stop using it.  Sort of like cigarettes.  So they would tax carbon.  Or make polluters buy permits to pollute.  Either way they make big money.  All in the name of saving the planet.

Sure, it all sounds nice.  In a touchy feely way.  But taxing energy will kill economic activity.  With the cost of doing business going up, there will be less business.  The carbon taxes/polluting permits may not even offset the loss of tax revenue resulting from this decline in economic activity.  But when times are desperate, they often will try desperate measures.  And when you have deficits and debt at record levels, these are desperate times.  So they’ll try to push carbon taxes.  And pollution permits.  Not to save the planet.  But for the revenue.  And they will thank God for the entrepreneur who was able to make something that people wanted.  That they couldn’t do without.  Because without the entrepreneur, there would be nothing to tax.

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The State of the Union Address Ignores the 800 Pound Gorilla in the Room: Old People.

Posted by PITHOCRATES - January 26th, 2011

Old People:  God Love them but they’re Killing Us

The State of the Union Address was very similar to the one last year.  And a lot of Obama’s campaign speeches.  He still wants to invest (i.e., spend).  Even though record spending to date hasn’t helped anything.  We have record debt.  And deficits.  The nation is broke.  And yet he still wants to spend.  I mean, ‘invest’.

But we can’t ‘invest’ anymore.  We don’t have the money.  We can’t borrow anymore.  Or print anymore.  Without creating problems we can’t walk away from.  We have to reduce the deficit.  For real.  Can’t just talk about it.  And we can’t keep raising taxes.  Because that would stall the economic recovery.  If there was any economic recovery to stall.  No, we can’t indulge in these fantasies anymore (see How Obama’s speech muddied the budget debate by Robert J. Samuelson posted 1/27/2011 on The Washington Post).

What we got were empty platitudes. We won’t be “buried under a mountain of debt,” Obama declared. Heck, we’re already buried. We will “win the future.” Not by deluding ourselves, we won’t. Americans think deficits are someone else’s problem that can be cured by taxing the rich (say liberals) or ending wasteful spending (conservatives). Obama indulged these fantasies.

If deficits stemmed mainly from the recession, this wouldn’t matter. They would shrink as the economy recovered; tax collections would rise and spending (on unemployment insurance, food stamps) would fall. Unfortunately, this isn’t the case. In fiscal 2010, the deficit – the gap between government spending and revenue – was $1.3 trillion. Of that, about $725 billion was a “structural” deficit, says Mark Zandi of Moody’s Analytics. That is, it would exist even if the economy were at full employment (5.75 percent by Zandi’s estimate).

Ouch.  Even Reagan’s tax cuts of the Eighties couldn’t fix this.  There’s a problem on the spending side.  A huge problem.  We have to address this problem.  If we don’t, nothing we do on the revenue side will amount to a hill of beans.

The real issue isn’t the deficit. It’s the exploding spending on the elderly – for Social Security, Medicare and Medicaid – which automatically expands the size of government. If we ended deficits with tax increases, we would simply exchange one problem (high deficits) for another (high taxes). Either would weaken the economy, and sharply higher taxes would represent an undesirable transfer to retirees from younger taxpayers.

And there it is.  Old people.  God love them but they’re killing us. 

So How do we Reduce the Deficit and Care for the Elderly?

Old people are killing us.  There’s no getting around that.  But we just can’t abandon them in their retirement.  But we have to do something with Social Security and Medicare before they bankrupt the country.

The first thing we need to do is the easiest thing.  Repeal Obamacare.  If we don’t, it’s just going to be Medicare writ large.  We haven’t suckered anyone into dependence yet.  So just end it.  Before we do.  This will eliminate a future problem.  So we can address the current ones.

Defined benefit pension plans are a thing of the past.  They’re chronically underfunded.  And mismanaged.  Just look at our biggest cities.  Those public sector pension plans are bankrupting them.  Meanwhile, most businesses have moved away from them.  Instead, they use 401(k) plans.  Or other plans where the employee is in charge.  Not the employer.  Best thing about these?  They’re portable.  You contribute.  And the money is yours.  No matter how long you work at a company.  The government needs to move in this direction.  They need to make a transition from a defined benefit pension plan (i.e., Social Security) to a personal retirement plan (i.e., a 401(k), an IRA, etc.).  The oldest people will be more in the Social Security system as we know it.  The younger people will be in a personal retirement plan.  And don’t start bitching about the risk of putting our retirement money into the stock market.  First of all, stocks are cyclical.  They usually climb after they fall.  Second, Social Security is going belly up.  Once it does, you ain’t getting anything out of it anyway.  So it’s a moot point.  At least with the stock market, we have a chance to retire.

The government has to get out of health care.  It’s a very complex thing.  And the most unqualified people shouldn’t run complex things.  Like pensions, we need to put people in charge of their health care.  We need to transition to private health insurance.  And remove the obstacles in the health insurance industry (restriction of competing across state lines, tort reform, etc.).  We have to move away from Medicare.  People need to buy their own private health insurance policies.  The oldest people in the system can get vouchers to help them.  The younger ones just need to learn NOW that they will have to take care of themselves.  The best thing about this?  Your health insurance will be portable.  You’ll never have to work again at a place you hate because of their health insurance benefit.  You can do whatever the hell you want to.  Because you will be paying for your own health insurance.  And you’ll take the same insurance with you no matter how many times you change your job.  Your days of bitching about a change in your prescription coverage will be over.  Because you will be getting exactly what you choose to buy.

Now, doing the above is going to cost.  Because there is no such thing as a Social Security trust fund.  Or Medicare insurance.  It’s all pay as you go.  Today’s taxes pay for today’s beneficiaries.  So when the young transfer out of the existing systems, there will be a huge funding shortfall for these systems.  We will have to borrow to cover this transition period.  But we will have to show that this borrowing is a temporary thing.  So that our creditors won’t fear that we’ll be dancing with default.  And how do we do that?  By making huge tax cuts. And by making sweeping rollbacks in regulation.  You make the United States so business friendly that jobs come running back to this country.  Because business owners will see that if you want to be profitable in business, you have to locate your business in the United States.  Sure, there will be some revenue shortfalls in the beginning of the transition.  But in the long run, the economic expansion will shower Washington in tax revenue.  Even at lower tax rates.  And because businesses are being so profitable, they’ll be bidding up labor rates to get the best employees.  Because they’ll have to.  You see, in a bustling economy with portable retirement and health insurance plans, no one will have to work where they don’t want to.  Everybody wins.  Employers.  Employees.  Even government.  Because they will finally escape the huge costs of Social Security and Medicare.

Getting back to the Founding Fathers

So there you have it.  A simple and doable plan.  In bullet form, the plan is:

  • Repeal Obamacare
  • Privatize Social Security
  • Privatize Medicare
  • Cut taxes and rollback regulation
  • Live happily ever after

Simple.  And the transition pains will hurt far less than bankruptcy.  Of course, there is a downside to this simple plan.  At least for Big Government liberals.  Because this plan gives us limited government.  Like the Founding Fathers wanted.  Which isn’t all that bad for liberals.  Because in this plan they’ll lose their jobs in a booming economy where there will be other jobs available for them.  Unlike being laid off when the Great Recession turns into another Great Depression.

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FUNDAMENTAL TRUTH # 50: “What do the great entrepreneurs have in common with politicians? Not a whole hell of a lot.” -Old Pithy

Posted by PITHOCRATES - January 25th, 2011

A Mathematician, an Engineer and a Beautiful Woman

Stop me if you heard this one.  A mathematician and an engineer are at one end of a long room.  At the other end is a bed.  On the bed is a beautiful, naked woman.  She also happens to be a brainiac.  And someone who enjoys a bit of fun.  If you know what I mean.

She offers to get intimate with the guy who can solve this riddle.   Cross the room in a series of moves.  Each move shall be one half of the distance between them and her.  Be the first to do that and reach her and she’ll make all of your dreams come true.

Well, the mathematician sits down with paper and pencil and starts scribbling.  He proves mathematically that is impossible to ever reach the beautiful woman.  Because by moving half of the distance each time, there will always be a remaining distance to cover.  Therefore, he concludes, it’s impossible.  He looks up to tell her this.  And when he does he sees the engineer lying up in bed with her.  Smoking a cigarette.

Entrepreneurs Like to Think outside the Box

So what happened?  Well, while being theoretically impossible to reach her, the engineer could get close enough for a bit of fun.  And did.  It’s an old joke.  With many variations.  And depending on who’s telling it the loser is sometimes a physicist.  Or even the engineer.  Of course, some may say it’s the beautiful woman that losers in all cases.  Because smoking hot women don’t hang out with math and engineering geeks.  Until they get rich enough to buy them things, that is.  But I digress.

Entrepreneurs and politicians are a lot like mathematicians and engineers.  At least in this joke (and I apologize to mathematicians everywhere who are offended.  But you shouldn’t feel bad.  I’m sure if you could have been engineers you would have).  Nothing is ever easy for a politician.  Like the mathematician, they feel that they must over analyze everything.  Get a lot of bureaucrats involved. Layers and layers of oversight and control.  Hoops to jump through.  Exhaust every possibility to get to the ‘best’ solution.  Even if it takes weeks.  Months.  Years.  Time is never of the essence.  They have forever.  And they take forever.  No matter the costs.

Entrepreneurs don’t work this way.  They have an idea.  And want to act.  They hate waiting.  Time is money.  They hate bureaucracy.  Because time is money.  And they have an easier way to determine what the best solution is.  Sales.  Those who have the greatest sales have the best solution.  Because thus speaks the market.  So they keep thinking.  Keep creating.  Keep coming up with good ideas.  They see what the market is demanding.  Or what it will demand.  Once they show that market the wonderful new thing they’ve created.  Sales proved the Sony Walkman a success.  And sales proved the Apple iPod a success.  Why?  Because Sony and Apple are a couple of companies that like to think outside the box.  And create things people aren’t even demanding yet.  And you gotta admit that that’s some pretty damn good thinking.

Politicians Fear what’s Outside the Box

Politicians, on the other hand, fear what’s outside the box.  They want to stay inside the box.  They like it there.  It’s snug.  Familiar.  Dark.  Orderly.  No surprises.  No new things to have to think about.  Or worry about.  Like all that uncertainty in an uncontrolled free market.  Yeech.  They don’t like that.  Or understand it. For when it comes to the economy, these progressives are ‘conservative’.  They want to build on the governmental bureaucracy of the past.  The bureaucracy they know.  And love.  It may not have worked.  But so what?  It’s just so cozy.  And makes a [deleted expletive]-load of federal jobs.

Of course, this expanding bureaucracy doesn’t give us anything new.  Anything innovative.  Anything that we’re yearning for.  Or anything we will yearn for once we learn about that next great thing.  Because they don’t create anything.  Other than obstacles to those who do.  Once someone comes up with an idea, though, they’ll then want to take that idea and over think it.  Manage it.  Regulate it.  Tax it.  Because an entrepreneur may come up with a great idea.  But a politician knows best how to use that idea.  Or so they believe.

Of course, when you think of the great inventions, you never think of a politician.  To prove this, tell me who you think of when I mention some famous inventions.  The telephone?  (Alexander Graham Bell).  AC power distribution?  (Nikola Tesla).  An affordable automobile?  (Henry Ford).  The light bulb?  (Thomas Edison).  An efficient steam engine?  (James Watt).  Notice anything about all of these inventors?  That’s right.  They don’t have a ‘Senator’ or ‘Congress Person’ in front of their name.  But Senators and Congress people have been regulating and taxing these great inventions ever since.

Can’t see the Nude Woman on the Bed

An entrepreneur, like an engineer, doesn’t get lost in the theoretical.  They see possibilities.  And they act.  Politicians, like mathematicians, like to crunch numbers.  Prove things can’t be done.  And then call for blue ribbon panels or commissions to further analyze things.  Entrepreneurs are positive, can-do people.  While politicians are negative, can’t-do people.  They can’t see the forest for the trees.  Or the nude woman on the bed.

Politicians can’t not interfere with people.  An entrepreneur can’t stand being interfered with.  He or she is too busy creating stuff.  They’re not sitting around waiting for something to happen.  They’re leading the way.  While the politicians are nipping at their heels.  Trying to catch up with them.  Just so they can slow them down.

Our future is like the nude woman on the bed.  The entrepreneurs know how to get to her.  And will.  If left alone to do what they do best.  To think.  And create great things.  Make the world a better place.  But the politicians haven’t a clue.  They covet the nude woman.  But they can’t get to her.  Because she’s somewhere outside the box.  Smart.  Complex.  Something new.  Waiting to be discovered.  And when her riddle is solved, it won’t be a politician smoking a cigarette in bed with her.  It’ll be an entrepreneur.

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It Ain’t 1996 – Obama’s path to Reelection isn’t Quite the same Road Clinton Traveled

Posted by PITHOCRATES - January 24th, 2011

Obama Doesn’t have the Healthcare and Economic Edge Clinton Had

Clinton was lucky.  Hillarycare (Clinton’s attempt to ‘nationalize’ healthcare) was a disaster.  It crashed and burned.  So it was off the table come reelection time.  And he had a smoking hot economy.  He had both a real estate bubble and a dot-com bubble.  Now, strictly speaking, bubbles aren’t good things.  Because they burst.  And recessions follow the bursting.  But until they burst, you got a smoking hot economy with low unemployment numbers.  Just the kind of things that gets presidents reelected.  REDSTATE has a list of other things, but let’s focus on items 3 & 4 in their list (see Why 2012 Is Not 1996 by Dan McLaughlin posted 1/24/2011 on REDSTATE).

3: Obamacare passed; Hillarycare didn’t: As unpopular as the Clinton Administration’s health care plan was, it wasn’t a major issue in the 1996 campaign because it had failed and, with Republicans controlling both Houses of Congress, it wasn’t coming back…Not so Obamacare, which remains very much a live issue.

4: The Economy: The unemployment rate is the most obvious of numerous economic indicators showing the U.S. economy in bad shape in 2011: unemployment, as low as 4.3% when voters elected the Democrats to control Congress in November 2006, was 6.5% when Obama was elected and 8.5% when he was inaugurated, and he expended much political capital arguing that his “stimulus” package would fix this with federal spending on “shovel-ready” projects; instead it peaked at 10.6% in January 2010, and remains above 9% a year later. These are very high numbers historically; since 1960, the unemployment rate has been above 6% on election day five times, and the only time the party in power wasn’t booted was 1984, when the 7.2% rate was the lowest it had been since before President Reagan took office and had plunged more than three points in two years. By contrast, the unemployment rate in 1996 was 5.4%, down from 7.4% when Bill Clinton was elected. If Obama can’t make the argument that Presidents Reagan and Clinton made – that they were not only making major headway on unemployment but in better shape than they were when elected (in Reagan’s case, the slight drop in unemployment was accompanied by an enormous drop in interest rates and inflation and a stock market boom) – he’ll face an electorate that is much more suspicious of entrusting him with the economy for four more years.

Historically speaking, history will favor who is not Obama in 2012 on these two issues.  And they’re about the biggest issues you can have.  A recession that just keeps on keeping on.  And a massive explosion in new spending.  Which can’t possibly help anything economic.

Old People and Jobs:  One Unpleasant Tradeoff

And there you have the ultimate showdown.  Obamacare versus the economy.  More spending and even more taxes.  Or less spending, less taxes and more jobs.  On one side you have emotional tugs of the heartstring (we have to help those poor uninsured people).  The other you have reality (we can’t raise taxes or borrow anymore without ending up like Greece).   

Obama may go Clinton.  And Clinton scored some big points with Welfare reform.  Obama has a chance to reform Medicare.  It is, after all, a part of Obamacare.  Gutting Medicare.  But Medicare is not welfare.  Those old people are a powerful voting bloc.  Will anyone, especially a Democrat, throw himself onto that ‘third rail’ (see Health care and the contest of credibility by Michael Gerson posted 1/25/2011 on The Washington Post)?

With Jack Lew and Gene Sperling in charge of its economic policy, the administration’s Clintonian direction is clear. It will seek higher revenue, cuts in defense, spending caps and more aggressive health-care price controls. When measuring deficit reduction, the last is the most important. It is the combination of cost inflation, an aging population and expansive health entitlements that push America toward the fate of Greece. Unless this problem is addressed, no tax increase or cut in discretionary spending will cause federal outlays to flatten at a sustainable percentage of the economy.

Higher revenue means higher taxes.  This is why Obamacare ‘reduces’ the deficit.  It has more new taxes than new spending in it.  But it’s a poor way to reduce the deficit.  If you have a problem because you’ve spent too much on your credit cards, what’s the easiest way to fix that problem?  Increase your revenue (i.e., your salary)?  Or cut your spending?  Of the two, you have far more power over spending cuts than you do on increasing your revenue.  So the smart money always goes on spending cuts to cut any deficit.  If you’re spending too much you just stop spending so much.  Pretty simple and straight forward.

But the 800 pound gorilla in the room is spending on old people (Medicare and Social Security).  We’re spending a fortune on increasing the life of the old so they can keep on collecting social security.  You’d have to be an idiot to not see the problem with that in an ‘entitlement-based’ government.

“The fact is,” says Yuval Levin of the Ethics and Public Policy Center, “Medicare is going to crush the government, and if Republicans leave it unreformed then the debt picture is very, very ugly. They might never – literally never – show the budget reaching balance. Not in the 10-year window and not if they take their graphs out a hundred years. Obama could probably show balance just past the budget window in the middle of the next decade because of the massive Medicare cuts he proposes, even if in practice they will never actually happen.”

Incidentally, those “massive Medicare cuts” he proposed was how he got CBO to favorably score Obamacare.  Without those cuts Obamacare would never have gotten any traction because of the massive cost.  Even with the massive tax increases.

So you see the grim picture? 

The Democratic approach to Medicare cuts would give doctors and providers less and less money while expecting them to cover the same services. “In reality,” says Levin, “providers won’t just provide the same care for less money – some will stop taking Medicare patients, some will go out of business, and some will reduce the level of care or amenities. That’s what we see in every system that takes this approach to cost control: waiting lines, dirty, unsafe hospitals with horrible food and amenities.”

And this is nationalized healthcare.  Healthcare for everyone.  All at an equally horrible standard.  Unless you’re in the government, of course.  Or are affluent enough to fly somewhere where there still is quality healthcare.

Pity the Poor Democrat son of a bitch Running in 2016

Obamacare benefits don’t really kick in until after the 2012 elections.  So when rationing kicks in and the ‘death panels’ start thinning the herd, it will be after the 2012 elections.  This may help.  The quality of our healthcare (Medicare and Obamacare) won’t really really suck until later.  However, taxes, regulations and mandates (and waivers) are kicking in before the benefits.  So the economy will still be in the toilet.  There might still be some tricks in the election bag to pull off reelection.  Who knows?  But one thing for sure.  Pity the poor Democrat son of a bitch running in 2016.  Because he or she will have to answer for the unprecedented mess their predecessor gave us.  Perpetual recession.  And horrible healthcare.

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Stimulus Spending and why it Fails to Stimulate

Posted by PITHOCRATES - January 23rd, 2011

Stimulus Checks are often used to Pay down Debt, not Buy Stuff

We have had a lot of stimulus spending between George W. Bush and Barack Obama.  And yet we still have the greatest recession since the Great Depression.  So why hasn’t this stimulus spending worked?  Because Keynesian Economics doesn’t work (see Where Did the Stimulus Go? By John F. Cogan and John B. Taylor published January 2011 in Commentary Magazine).

Keynesian stimulus packages come in three basic types. In the first type, the federal government puts money directly into the hands of consumers. The hope is that consumers will use the money to increase their purchases of goods and services. In the second type, the federal government directly purchases goods and services, including infrastructure projects, equipment, software, law enforcement, and education. In the third type, the federal government sends grants to state and local governments in the hope that those governments will use the funds to purchase goods and services.

And how has it worked giving the money directly to consumers?

In the 2008 stimulus, the U.S. Treasury began issuing one-time payments to households in the spring. This temporary boost in income was designed to jump-start personal consumption of goods and services and thereby increase production and jobs at the firms that produce those goods and services. It didn’t work.

Why?

It went to pay down some debt or was simply saved rather than spent on consumption.

This should not have surprised anyone. Long ago, the Nobel Prize–winning economists Milton Friedman and Franco Modigliani explained that individuals do not increase consumption much when their income increases temporarily. Instead, they save most of the funds or use the money to pay back some of their outstanding debts. Friedman and Modigliani demonstrated that most people, when deciding how much to consume, consider more long-lasting, or permanent, changes in income. Because one-time increases in transfer payments and temporary tax rebates are, by their very nature, temporary, people should not have been expected to alter their consumption patterns. The Friedman-Modigliani theory, called “the permanent income” or “the life-cycle” hypothesis, profoundly influenced macroeconomic thinking for decades. It was, oddly, ignored in the development and enactment of the stimulus of 2008.

So one-time stimulus payments to individuals don’t stimulate.  We often just use them as an opportunity to pay down high interest debt.  If you get a check for $600, what’s better in the long run?  Spending the money one time and leaving a high-interest large balance on your credit card?  Or paying down your credit card balance, leaving a smaller monthly payment?  A smaller monthly payment will let you buy more stuff each month.  Or help you pay down your balance faster.  In the long run, you’re better paying down your balance.  Which is what most people did.  Which is why the stimulus did not stimulate.

Ditto for state and local governments.

So where did the stimulus funds sent to state and local governments go…most of it went to reduce borrowing by state and local governments.

In fact,

In 1979, the late Ned Gramlich, who served on the Federal Reserve Board and earlier as a professor at the University of Michigan, studied the impact of similar grants in stimulus packages in the 1970s. He found that the federal stimulus grants to state and local governments had little effect on their purchases of goods and services. He concluded that the grant recipients used the grants “to pad the surpluses of state and local governments.”

And what they didn’t use to pay down the debt they used on transfer payments (mostly health and welfare).  Not on buying goods or services that would stimulate the economy.

Medicaid grants were unlikely to provide much if any stimulus to aggregate economic activity, and they haven’t. Moreover, these grants appear to have caused state governments to shift funds away from purchases of goods and services and into their Medicaid programs.

What about those Shovel Ready Projects?

Apparently, there’s no such thing.

The slow pace of infrastructure spending is not unique to the 2009 stimulus. The slow-spending phenomenon has been a common element in public-infrastructure appropriations in stimulus programs dating back to at least the 1970s. The administrative process that federal agencies use to allocate appropriated funds, to incur binding obligations, and to eventually liquidate those obligations is cumbersome and slow. The idea of a “shovel ready” job is useful in concept but not in allocating federal funds. A San Antonio official put the reality succinctly: “FEMA stated to me that ‘shovel ready’ was not a term in their lexicon.”

Anyone laid off from a construction company because the federal funding for that big project had been delayed can relate to this.  When federal money is involved things don’t move fast.  Because of that process.  That cumbersome and slow process.  So direct federal spending on infrastructure may stimulate.  But when it does, it’s usually a couple of years after they appropriate the money.  Often when we no longer need the stimulus.

Borrowing from Peter to pay Paul

Stimulus doesn’t create spending.  It just moves money.

To sum up: the federal government borrowed funds that it mainly sent to households and to state and local governments. Only an immaterial amount was used for federal purchases of goods and services. The borrowed funds were mainly used by households and state and local governments to reduce their own borrowing. In effect, the increased net borrowing at the federal level was matched by reduced net borrowing by households and state and local governments.

In effect, borrowing from Peter to pay Paul.  Let’s say the amount in question going between Peter and Paul is $250.  And what do we have after this transaction?  Peter has $250 less to spend.  While Paul has $250 more to spend.  The total economic stimulus is:  -$250 +$250 = 0.  There is no net economic gain.  Which is why stimulus spending fails to stimulate.  It’s the same money we’re spending.  Just different people are spending it.

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Tom Daschle (who was almost HHS Secretary) weighs in on Obamacare

Posted by PITHOCRATES - January 22nd, 2011

Daschle:  Let us Build on what Unites Us

Tom Daschle would have been on point for Obamacare if he didn’t have some IRS issues.  Health care reform was to be his baby.  He was going to be secretary of Health and Human Services (HHS).   But, alas, it was not to be.  So he is keen in seeing Obamacare remain in law.  Health care is his spécialité.

Though out of the Senate these days, he is still finding a forum for his voice.  The New York Times.  He gives some talking points to President Obama for his state of the union address.  For he thinks there is a lot of agreement on health care reform in general.  And that there are just some minor disagreements on some specifics (see The Final Health Care Debate by Tom Daschle posted 1/22/2011 on The New York Times).

“Let us build on what unites us — by constructing marketplaces for health insurance that offer greater choice at less cost; creating organizations that coordinate care efficiently and bring down the unacceptable rate of medical mistakes; continuing to encourage scientists to find new ways to prevent and cure disease; and empowering cities and counties to develop new solutions to the perplexing problems of health care in America now.

Constructing marketplaces for health insurance that offer greater choice at less cost?  As far as the market place, there’s an easier way to accomplish that.  Just let insurance companies compete across state lines.  They could right now and make health care more affordable.  If it wasn’t for a law preventing them from competing across state lines.

Unacceptable rate of medical mistakes?  Actually, there are fewer mistakes in a private health care system than a public one.  Because private enterprises are accountable.  Government isn’t.  The bigger problem out there increasing health care costs is the cost of litigation.  Tort reform would go a long way in reigning in costs.  A simple ‘loser pays’ would prevent most of the frivolous suits.  Or perhaps some sort of bonding requirement for law suits.  Highly suspect lawsuits would require a high bonding and discourage it from proceeding.  A very legitimate case would require a low bonding and numerous non profits would probably pick that up pro bono. 

Encourage scientists to find new ways to prevent and cure disease?  We already have that.  We call it the patent system.  It encourages private enterprise to pour bazillions of dollars into research and development to find those preventions and cures.  And in return for that huge investment, they get an exclusive patent on the pills they create.  That’s why those pills are so expensive.  Because we give patents to help people get rich by working miracles in modern science.  We call that an incentive system.  And this incentive system is working so well that Medicare and Social Security are going broke.  Because people are living longer than anyone every anticipated.  Thanks to those miracle pills.

Empowering cities and counties?  Why, that’s going in the other direction of a national solution, isn’t it?  Obamacare is centralizing, not devolving.  Like the British did.  When they nationalized their health care.  Of course, these days, the Brits are backtracking a bit.  Now they’re trying to devolve power to the cities and counties.  Because their national solution isn’t working all that well.

Is there Enough Bipartisanship for a Bipartisanship Commission?

No, we’re not as united as Mr. Daschle would have us believe.  The Republicans see little in Obamacare they want to save.  Especially with that mandate from the 2010 midterm election to overturn Obamacare.  So there is little point in having a sit-down with both sides to discuss ways of saving Obamacare.  But that’s exactly what Mr. Daschle suggests.

“To that end, I propose that we create a bipartisan commission to examine the best ways to carry out, oversee and, where appropriate, revise the health care reform law. Made up of members of Congress, governors and members of my administration, this commission would provide invaluable guidance and solutions going forward.

Again, he’s offering these words for President Obama.  A bipartisan commission?  I’m not sure what the point of that is when there is little bipartisan support for Obamacare.  Congress passed Obamacare when Democrats held majorities in both the House and the Senate.  Pretty much along party lines.  Now that the Republicans have resumed majority power in the House, the House voted to repeal Obamacare (H.R. 2).  But the Democrats still hold the Senate.  So the repeal may not make it through the Senate.

Bipartisan?  There’s nothing bipartisan about Obamacare.  Never has been.  And never will.  To think so is only wishful thinking.  Or a grasping of straws.

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