LESSONS LEARNED #72: “Moms are a lot like CEOs. Only with more responsibility, longer hours and less pay.” -Old Pithy

Posted by PITHOCRATES - June 30th, 2011

A Genius may have a Brilliant Idea, but it’s an Entrepreneur that brings it to Market

A CEO is a lot like an entrepreneur.  They’re both a cut above the rest.  And can do what few can do.  Bring two worlds together.  The theoretical world inhabited by great thinkers and inventors.  And the practical world inhabited by people who act.  Who take the things the great thinkers and inventors create and give them to us.   There is a difference between the people that inhabit these worlds.  And most can only live in one or the other.  But CEOs and entrepreneurs can live in both.  That’s what makes them special.  Thinkers and inventors possess a genius of theoretical creativity.  But they can do little with their idea.  The action people can build great things (cars, airplanes, buildings, power plants, cell phones, etc.) but only from a construction plan.  Someone else has to have an idea and think and create the construction plan before they can build.  These are the two worlds.  The genius.  And the builders.  And it is the CEO and entrepreneur that bring these two worlds together.

Nikola Tesla was a genius.  A brilliant theoretical thinker.  He created the world in which we live.  But do you know who he is?  What he created?  Probably not.  Unless you’re a Croat.  Because there are probably a lot of statues of him in Croatia. Because he was born there to Serbian parents.  He eventually moved to America.  Got a job with a guy name Thomas Edison.  Who didn’t appreciate his genius.  Or his one particular ‘crazy’ idea.  But George Westinghouse did. 

That ‘crazy’ idea is the AC power we use today.  Thomas Edison was building DC power plants and a DC electric grid.  Despite all the failings of DC distribution (DC power doesn’t travel far requiring lots of generating plants, different voltages have to have their own generating plant, large power loads require very thick and expensive copper wires, etc.).  There was already a DC electrical infrastructure.  And it was Edison’s.  Which he wanted to expand because it would pay him well.

But Tesla’s AC system was better.  Because it could use transformers.  One power generating plant could provide power at a variety of voltages.  You just needed a transformer to get the voltage you wanted.  Also, electrical power is the product of voltage and current.  High power, then, requires either a high voltage or a high current.  High currents require thick, expensive copper wires.  So high voltage was the way to go.  It allowed power to travel farther over thinner wires.  Therefore, it required fewer generating plants.  And a single electric grid (not one for each voltage).  AC power was much more economical than DC power.  And George Westinghouse saw that.  And took Tesla’s brilliant idea and built the AC power generation and distribution system we use today.

The Business of Beautiful, Estée Lauder

You see, Tesla was at home in the lab.  He was a scientist.  Not a salesman.  That’s why he wasn’t an entrepreneur.  Because, just like being a CEO, you need sales skills to be an entrepreneur.  Because you are the number one sales person in your business.  And Edison and Westinghouse were great salesmen.  That’s why they brought a lot of Tesla’s great inventions to market.  And why Tesla did not.  He was just not a sales person.

But Estée Lauder was.  She was always selling.  And creating.  She was the classical entrepreneur.  Her uncle was in the chemistry business making beauty products.  Which fascinated her from a young age.  He taught her the chemistry.  Taught her how to make the products.  How to use the products.  And she did.  Loved them.  And started selling them.  With a passion.

She started creating her own products.  Using her own kitchen as her laboratory.  When not tending to her two sons.  She demonstrated how to use her products.  Gave away free samples.  And sold.  She was always selling.  She started out small.  By herself.  From these humble beginnings she grew to dominate the industry.  She was relentless.  She worked herself to the premier counter space in department stores by redefining the way cosmetics were sold.  Starting with Saks Fifth Avenue in New York.  She visited each counter to ensure they were meeting her high standards.  She gave away free samples.  She demonstrated.  She touched.  Personally applying products on customers.  That’s why when you walk into a department store you’ll see the Estée Lauder counter first.  And you’ll see all the counters selling the same way.  Giving away free samples.  Demonstrating products.  Showing how to apply products.  The Estée Lauder way.

One Smart Cookie, that Mrs. Fields

Debbi Fields liked to bake cookies.  She married young at 19.  To a Stanford graduate.  And aspiring financial consultant.  And about a year later decided to go into the cookie business.  After an incident at a party with her husband and a lot of his snobby associates.  She apparently mispronounced a word.  Said ‘orientated’ instead of ‘oriented’.  A snob pointed out her faux pas.  Sending her home in tears.  Didn’t much like that experience.  And decided to be something more than a ‘just’ a housewife.  Not that there was anything wrong with that.  And she would love being a housewife.  She would raise 5 daughters.  And add another 5 stepchildren in a second marriage.  But the snobs in her husband’s circle did look down on that particular institution.  It was so old fashioned.  It wasn’t progressive.  It wasn’t what people in their circles did.  So they acted like real asses.

Yet they liked her cookies.  Loved them.  Her husband would take them to work.  Where they were a big hit.  Soft and chewy.  Gourmet.  They were different.  When she asked them if she should go into the cookie business, they said it was a bad idea.  The conventional wisdom said crispy cookies were the way to go.  People didn’t want to buy soft and chewy.  They said as they stuffed their mouths with soft and chewy cookies.  And there were others who told her not to do it.  Even her husband doubted her.  But he loved her.  And would support her. She had no business experience.  But she was a hard worker.  And believed in what she was doing.  She got a bank loan to open a cookie store.  Not so much because the banker believed in the business idea.  But because of the good character of her and her husband.  Whatever the outcome, the bank was willing to take a chance.  Because, success or fail, they knew they would repay the loan.

She opened her first store in a mall food court.  Did not sell a single cookie.  Until she used the Estée Lauder sales method.  She gave away free samples.  People tried.  And people liked.  Soft and chewy was a hit.  She grew the company.  Added more stores.  And made a lot of money.  She was very hands on to maintain the quality.  Again, like Estée Lauder.  She visited her stores.  To make sure they maintained her high standards.  Which is why she refused to franchise.  She was too worried about losing that quality.  Which is what made Mrs. Fields cookies better than the competition.  Her husband computerized her operation.  Adding a computer at each store.  All wired to the Internet and tied into her headquarters.  It was state of the art technology.  Allowing more growth.  While retaining full control.  The growth was fast.  Too fast.  The hands-on management didn’t work well with so many stores.  The debt started to pile up.  And then a recession hit.  Her expensive gourmet cookies became too expensive.  And people stopped buying them.  To save the company she had to sell 80% of it.  And the new owners changed the business model.  Franchised stores.  And bumped Debbie Fields from CEO.  But she remained chairman of the board.  And though only a minority shareholder, the business Debbie Fields created continues on.  Her only mistake was being so successful so fast.  And if you’re going to have a fault that’s not a bad one to have.  By the way, don’t forget that she did all of this while raising 5 daughters.  Which probably made the running of the multi-million dollar business the easy part of her life.

Entrepreneurs, CEOS and Moms

Entrepreneurs and CEOs.  They’re a different breed.  They can be both brilliant thinkers like Nikola Tesla.  And aggressive sales people like Thomas Edison and George Westinghouse.  Such as Estée Lauder.  And Debbie Fields.  These mothers dominated their industries.  And set the bar for everyone else.  Lauder built an empire that dominates still.  Fields use of technology to streamline operations is a model for business efficiency at Harvard Business School.  Two of America’s most successful entrepreneurs and CEOs.  And both were moms first.

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The Space Shuttle versus the Airbus A380, an Economics Lesson

Posted by PITHOCRATES - June 29th, 2011

The Space Shuttle, a Public Sector Failure

People like to point to the Apollo Program as the ultimate example of the American ‘can do’ attitude.  Apollo put men on the moon and retuned them safely.  If we can do that we should be able to do anything.  Even cure the common cold.  If only we attacked our greatest problems today the same way we solved the moon problem.  With a great big government program.  That marshaled a vast network of private contractors.  Where cost was no object.

But that was the problem with Apollo.  Cost.  It cost in excess of $20 billion dollars in the late 1960s and early 1970s.  Today that would exceed $130 billion.  At the peak of the program spending consumed nearly 5% of all federal spending.  We’ve come close to shutting down government over lesser amounts in budget disputes.  The numbers are huge.  In comparison, the big three of federal outlays are Social Security, Medicare/Medicaid and Defense, each consuming about 20% of all federal spending.  Imagine the fireworks if any of these were reduced to 15% (a 25% reduction in spending) to pay for another Apollo Program.  Suffice it to say it’s not going to happen.

This is why we don’t have more ‘Apollo’ programs to solve our problems.  We simply can’t afford to.  And in case you hadn’t noticed, NASA discontinued the Apollo Program, cancelling three moon landings.  Because of costs.  These cost savings help fund Skylab and the next big project.  The Space Shuttle.  Which was going to fix the cost problem.  By paying for itself.  Based on the private sector model.  The reusable vehicle was going to shuttle payload to space for paying customers and earn a profit.  The program, then, would pay for itself once launched.  And consume no tax dollars.  That was the plan, at least. 

But the Space Shuttle had its problems.  For one it was very dangerous.  And it turns out that the first manned mission was likely to be a disaster (see Shuttle Debuted Amid Unknown Dangers by Irene Klotz posted 6/29/2011 on Discovery News).

What NASA didn’t know at the time was that there was only a 1-in-9 chance the astronauts would make it back alive. Managers put the odds of losing the shuttle and its crew at 1-in-100,000.

Safety upgrades, including those initiated after two fatal accidents, have made the shuttle 10 times safer than it was in its early years, but the odds of a catastrophic accident are still high — about 1 in 90.

That is the largely unspoken part about why NASA is retiring its shuttle fleet after a final cargo run to the space station next month.

The Space Shuttle was just too complex a machine to meet any of its original goals.  Two shuttles were lost.  And the Space Shuttle Program never turned a profit.  The program that was going to pay for itself along the private sector model didn’t.  It required tax dollars.  A lot of them.

… preparing the shuttles for flight is extremely labor-intensive, which drives its $4 billion-a-year operating expense.

This is why we shouldn’t ask for any more great big government programs.  Because they’re typically abject failures.  Few companies in the private sector can fail as grandly.  Missing their profitability goal in excess of $4 billion dollars?  Year after year?  Only government can do this.  For only in government can a failed business model survive.  Because only government can tax, borrow and print money.

The Airbus A380, a Private Sector Success Story

This doesn’t happen in the private sector.  Where such gross mismanagement would put companies out of business.  Because they can’t tax, borrow or print.  Well, they can borrow.  But not at the low rates the government can.  Such failure would force them into junk territory.  And with a proven track record of losing billions year after year, even that wouldn’t be an option.  No, the private sector has to do it the old fashioned way.  They have to earn it.  You don’t have to be perfect.  You just have to be profitable (see Damaged Qantas A380 Refurbishment Underway by Guy Norris posted 6/29/2011 on Aviation Week).

Work to return to service the Qantas Airbus A380 damaged in last November’s uncontained engine failure is underway in Singapore.

The aircraft, which was substantially damaged when the number two Rolls-Royce Trent 900 shed a turbine disc, is about to be placed on stress jacks for major repairs to the wing and fuselage. Work will likely include replacement or repairs to the number one engine nacelle adjacent to the number two engine which was destroyed. The number two engine and nacelle is also being replaced…

The start of repair work, covered under an Aus $135 million insurance claim, puts a final end to speculation that the A380 would be written off. Airbus meanwhile declines to comment on the implications for possible longer term redesign as a result of lessons learned from the incident.

The Airbus A380 is a complex machine.  It’s expensive to build.  And to operate.  But it packs in a lot of people.  So the airlines can recover their costs through normal passenger service.  By offering passengers tickets at affordable prices.  With a little left over.  So Airbus can afford to sell these expensive airplanes at affordable prices, covering their costs with a little left over.  So their suppliers can sell components at affordable prices, covering their costs with a little left over.  Companies make profits everywhere in the process.  To return to their investors.  To reinvest in their operations.  Or to cover large, unexpected cost hits.  Like Airbus and Rolls Royce did to keep Qantas a satisfied customer.

A380 product marketing director Richard Carcaillet says “the two preliminary reports so far have focused on the engine event. However if there are any lessons for systems and procedures then we will take action. But with the co-operation of Rolls-Royce we have put a line of defense into the Fadec (full authority digital engine control), so that in the event of detecting a similar condition it will shut down quickly,” he adds.

Rolls has “now inspected and modified the whole fleet,” says Carcallet. For the moment the fix is the revised Fadec software, though longer term design changes are also underway to the engine, he adds.

The updated software commands an engine shut down if it detects the threat of an intermediate high pressure turbine overspeed occurring. Rolls is meanwhile working on a longer-term redesign of the Trent 900 oil system, a fire in which triggered the event.

Rolls-Royce has also agreed to pay (US) $100.5 million compensation to Qantas.

This is how the private sector works.  The profit incentive makes everyone do what is necessary to please and retain customers.  And improve safety.  Because airplanes falling apart in flight do not encourage anyone to buy a ticket.

Bigger Programs only mean Bigger Failures

There’s a reason that the Shuttle Program is no more but there are A380s flying and making money.  The difference between the Shuttle Program and the A380 is that one was in the public sector and the other is in the private sector.  And guess which one is the success story?  The one in the private sector.  Of course.  This despite the A380 having far more competition in Boeing (in particular the Boeing 747-400 and 747-8) than the Space Shuttle ever had.

Moral of the story?  Keep government programs small.  Because bigger programs only mean bigger failures.  And more tax dollars pulled from the private sector to pay for these failures.

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FUNDAMENTAL TRUTH #72: “Moms are a lot like CEOs. Only with more responsibility, longer hours and less pay.” -Old Pithy

Posted by PITHOCRATES - June 28th, 2011

Thinking and Deciding

Boy, do people like to demonize CEOs.  I mean, they really hate them.  These chief executive officers.  Overpaid and underworked.  And then there are all those stock options.  Making them bazillionaires.  By increasing the value of the company to shareholders.  Without a whit of concern for the little guy on the factory floor doing the work.  It just isn’t fair.  Sitting in their plush offices.  Flying in their private planes.  Staying in 5-star hotels.  Living in mansions while vacationing on some island paradise that they might in fact own.  Living champagne and caviar lives.  For doing what?

Actually, for doing quite a lot.  Mostly thinking.  And deciding.  Making decisions that will impact every employee of the company.  Now.  And years into the future.  Decisions that will determine if there is even a future.  For a corporation is like a ship.  It is large.  Complex.  And has momentum.  It can’t turn on a dime.  One decision today could steer that ship into open waters for clear sailing.  Or into an iceberg. 

The world is a changing place.  Nothing is static.  Including the economy.  And consumer spending.  For the consumer can be a fickle person.  We know what they’re buying today.  But no one knows what they’ll be buying tomorrow.  And that’s the problem CEOs face.  The things they’re making today will sell tomorrow.  Or later.  In fact, factories they build today will make things that will sell years later.  So the decision to build that factory had better been a good one.  Based on some good market research.  Objective analysis.  With no personal prejudices involved.  Such as laughing at new innovation.  Saying there’s no way it will replace the current industry standard.  Such as a phone company not getting in to the cellular business because everyone will always have a landline into their house.  In fact, they’ll have a few.  One for their phone.  One for their fax machine.  And one for their dial-up modem.  “And what could ever change that?” said the fat-cat phone executive while chomping on a cigar.  Shortly before the board of directors fired him.

Pay not Commensurate with Responsibilities

Moms are lot like CEOs.  They, too, have to look long-term.  And it starts with choosing a husband.  When they are ready to settle down and raise a family.  And they’re not going to waste their time with men who don’t want to settle down.  Like Beyoncé says, “if you liked it then you shoulda put a ring on it” (Single Ladies).  It’s no longer about dating for fun.  It’s now about finding a life partner.  And women will choose carefully.  They’re looking for someone with a good job.  Someone who is responsible.  Someone they can trust.  Someone who is healthy and will sire healthy children.  Someone who is strong and self-confident.  Who can be both a provider and protector.  Perhaps someone who goes to church.  So they can bring their children up with strong morals.  They’ll start choosing their dates based on these criteria.  Then love can enter the equation.  Which it does.  And it’s often a deeper and more long-lasting love.  Because attraction is based on all of these things.  Not just physical appearance.

This decision is important to be a good mom.  Because it will affect the next 20+ years of her life.  And it will affect the lives of her children.  So she has to weigh a lot of things in making this decision.  Like a CEO’s vetting process choosing his or her officers.  Because it’s for the long haul.  She’ll work 7 days a week.  And must be available at all times of the day.  Even if she is sick.  Like a CEO.  Only NOT with pay commensurate with her responsibilities.  Unlike a CEO.  And those responsibilities include raising her children.  And managing the household.  While her husband works.  Old school.  Like Paula Cole says.  “I will raise the children if you pay all the bills” (Where have all the Cowboys Gone).

A CEO has a chief financial officer (CFO) to manage the finances.  Mom just wear another hat.  And manages the finances, too.  The husband works.  But he gives his wife the paycheck.  For although his earnings pay the bills, she writes the checks.  And balances the budget.  Which often take a little finesse.  Because there isn’t a lot of money in the beginning.  And raising children and owning a house can be very expensive.  So managing cash-flow becomes a fast learned skill.  Because groceries, school supplies, clothes, utilities, insurance, mortgage and taxes don’t all come due in pay periods equal to the amount of the paycheck.  Which means she has to put a little aside each pay period (like a sinking fund in corporate America) to pay the big things that come due at various times throughout the year.  Or tap her line of credit (i.e., credit card), making cuts in the monthly budget to service the new debt and pay down the high-interest loan as quickly as possible.  Oh, and she cooks and cleans, too.

“Are you wearing Clean Underwear?”

Some may belittle the classical housework of being a mom.  The cooking and cleaning.  But when raising children they can be the most important of her responsibilities.  Of all the animal kingdom, human offspring are the most helpless.  And they’re helpless for the longest time.  It takes 18 years before they leave the nest.  And they’re growing that whole time.  Fueling that growth with three meals a day.  Two if they buy lunch at school during the school year.  This is something a CEO doesn’t have to worry about with employees.  Being accountable for everything they eat or drink.  And not getting them sick in the process for food preparation is a dangerous business.  Especially when working with raw chicken.  So she’s health inspector.  And dietician.  Managing their growth with the family doctor.  Making sure they eat their vegetables.  Drink their milk.  Because it all matters.  To make sure their bones are strong and healthy.  And to have strong immune systems.  For the old maxim is true.  We are what we eat.  Which is a challenge for a mother.  Because kids don’t like eating healthy.  Or being clean, for that matter.

Yes, it’s true.  Mothers want their kids to wear clean underwear. But it’s not just to save them the embarrassment should their child be in an accident where someone may see his or her dirty underwear.  (Well, maybe a little.)  It’s because poor hygiene kills.  And there are few things more unhygienic than pooping.  These are some nasty germs.  They cause outbreaks of cholera when they contaminate drinking water supplies.  And cause E. coli food poisoning when transferred to our food supply (that’s why there are signs in restaurant bathrooms saying that all employees must wash their hands so they don’t kill anyone with their food).  Nasty stuff.  So mothers are fanatical about bathing their kids.  Making sure they wash their hands after using the bathroom.  And that they wear clean underwear.  Also not to pick up food that fell on the floor (that 5-second rule is a dad rule).  Or put things in their mouths that they shouldn’t.  And they’ll keep all their cleaning and plumbing supplies locked up and out of reach of their children.  Their medicines, too.  Because kids like to put things in their mouths.  And will eat or drink anything they find that isn’t a vegetable on a plate.

As protective as she may be, her child will most probably get sick.  Some other kid may sneeze in her child’s face.  Or some other kid may not wash his or her hands after using the bathroom.  Or use a door knob when they have a cold.  Or pass the measles to her child.  Then mother becomes nurse.  Carefully administering medicines.  Emptying barf buckets.  Cleaning her child and the bedding when he or she misses the barf bucket.  All the while cooking and cleaning.  And managing the household. 

Leading by Example

And the responsibilities never end.  There’re good manners to teach.  Honesty.  Morality.  Good behavior.  Inside the home.  And when out of the home.  The mother instructs constantly.  And sets a good example.  Dad, too.  When the kids are around they’ll watch their language.  Because they don’t want their kids to have potty mouths.  And Mom and Dad will treat each other with respect.  Because they want their children to grow up as ladies and gentlemen.  For boys to treat girls with respect.  Not to hit them.  Or objectify them.  And no matter what Mom may have done on spring break when she was in school, she will not do anything now that will set a bad example for her daughter.  Or give ideas to her son.  Like getting girls drunk so they make bad decisions is okay.

This is something moms share with CEOs.  Leading by example.  Because perception in the corporate world can make or break a company.  That’s why they have zero-tolerance policies for bad behavior.  Because a reputation of bad behavior (racist, sexist, hate speech, etc.) will give a corporation bad press that can take years to overcome.  Especially if it’s a high-level manager.  Or an officer.  In fact, it’s worse at that level because of the vetting process.  Like choosing a husband, these people are chosen for the long haul.  And bad behavior in these people reflects poorly on the CEO.  Because he or she chose them.   If your CFO is arrested for tax fraud it shows that you are a poor judge of character.  And have a poor handle on your business operations.  And if you’re CFO is committing tax fraud under your nose, you probably are doing a poor job.  And no doubt the board of directors will be looking for a new CEO.  As one of the best ways to get over a scandal is by cleaning house.

Being a CEO is hard.  So is being a mom.  There’s a lot of on the job training.  Which is more of just figuring things out as you go along.  You learn from your mistakes.  All the while being overworked.  And underpaid.  Working horrible hours.  With little sleep.  On call 24/7.  With no breaks or vacations.  Yes, there may be family vacations.  But Mom will still be working on those vacations.  Same responsibilities.  Just a different setting.  At least the CEO has a staff to handle things while on vacation.  At best a mom gets a quiet bubble bath while the kids are at school.  Or a quiet moment on the toilet.  Safe behind a closed door.  For a few quiet minutes. 

Moms and CEOs have their differences.  But their responsibilities are the same.  A corporation’s success depends on the good decisions of its CEO.  Just as the success of a family depends on the good decisions of Mom.

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High Gas Prices may be Keeping some of Us in Recession, but the Rich and our Elected Leaders are doing Okay

Posted by PITHOCRATES - June 27th, 2011

The Oil Supply determines Gasoline Prices

President Obama will release approximately 30 million barrels of oil from the U.S. Strategic Reserve to try and bring down gasoline prices for this summer driving season.  Because the high cost of gasoline is leaving consumers with little disposable income.  Or a reason to reelect him in 2012 (see U.S. Consumer Spending Stalled in May by The Associated Press posted 6/27/2011 on The New York Times).

Americans in May spent at the weakest pace in 20 months, a sign that gas prices are taking a toll on the economy, according to a government report Monday.

Recessions don’t reelect presidents.  Because people don’t like recessions.  People have little money to spend on the ‘luxuries’ (dinner out, movies, vacation, etc.) in life.  And barely have enough to pay for the necessities of life.  So the high price of gasoline does not make a happy constituent.  And if you need a happy constituent to reelect you, the smart money is bet on making the constituency happy.  By bringing down gasoline prices.  Which we know how to do.  President Obama has shown us.  You simply Increase the amount of oil in the market. 

So far, drawing down the Strategic Reserve is the only thing his administration has down to increase the supply of oil.  He stopped drilling in the Gulf of Mexico.  And new drilling permits have not exactly been flying out of Washington.  But there’s still hope.  Thanks to our good friends to the north.  Who have some of the largest oil reserves in the world.  And only need a way to get it to the American refineries.  Which Obama can make happen.  By saying ‘yes’ to an oil pipeline (see China eyes Canada oil, US’s energy nest egg by Rob Gilles, Associated Press, posted 6/26/2011 on Yahoo! News).

In the northern reaches of Alberta lies a vast reserve of oil that the U.S. views as a pillar of its future energy needs.

China, with a growing appetite for oil that may one day surpass that of the U.S., is ready to spend the dollars for a big piece of it.

The oil sands of this Canadian province are so big that they will be able to serve both of the world’s largest economies as production expands in the coming years. But that will mean building at least two pipelines, one south to the Texas Gulf Coast and another west toward the Pacific, and that in turn means fresh environmental battles on top of those already raging over the costly and energy-intensive method of extracting oil from sand.

Uh-oh.  Environmental battles.  You know what that means?  No relief at the pump.  Not from this administration that set green energy as the cornerstone of its economic recovery.  I mean, lowering the price of gasoline so people don’t remember the vacation that wasn’t come election time is one thing.  But making gasoline cheap and plentiful?  In an administration with Steven (somehow we have to figure out how to boost the price of gasoline to the levels in Europe) Chu as Energy Secretary?  Not going to happen.

Critics dislike the whole concept of oil sands, because extracting the oil requires huge amounts of energy and water, increases greenhouse gas emissions and threatens rivers and forests. Keystone XL, the pipeline that would bring Alberta oil to Texas Gulf Coast refineries to serve the U.S. market, compounds the issue…

Environmental groups want [President Obama] to reject it, seeing it as a test of Obama’s will to fight climate change.

The Chinese may likely get their pipeline.  But the environmentalists will be pressuring Obama to just say ‘no’.  So get used to those high prices.  They’ll probably be around for a long time to come.  At least until 2012.

The Rich get Richer, We get Poorer and Senators get Bigger Offices

People are getting richer than ever before.  Even during the Great Recession.  Some feel it’s not fair.  Especially those who hate corporate America (see The rich aren’t like you and me by Michael Winship posted 6/27/2011 on Salon).

The annual wealth report by Merrill Lynch and Capgemini finds that the assets of these so-called “high net worth individuals” reached $42.7 trillion in 2010, a rise of nearly ten percent from the previous year at a time when, as The Guardian observed, “austerity budgets were implemented by many governments in the developed world…”

Ernest Hemingway claimed that when F. Scott Fitzgerald once said to him, “The rich are different from you and me,” he archly replied, “Yes, they have more money.” Whether it’s true or not, the Hemingway in the story got it wrong. The rich not only have more money, they have more power, more clout — and more to hide.

Interestingly, this hasn’t changed during the Obama administration.  In fact, crony capitalism has never been better.  Bailouts for friends on Wall Street.  GE with a booming green energy business thanks to Obama’s green energy initiatives (and who are NOT, by the way, paying any income taxes).  Automotive bailouts that favored the UAW over actual stakeholders.  Oh, it’s good to be king.  And part of the ruling elite.  Now it’s time to reward them for a job…done (see Senators Stay Put in Hideaways by Daniel Newhauser posted 6/27/2011 on Roll Call).

A number of long-serving Senators are sitting out this year’s draw for coveted hideaways…

It’s a Senate tradition that is a cross between “Trading Spaces” and the NBA draft. Every two years, after some of the longest-serving lawmakers retire or pass away, the remaining Senators start the process of shuffling spaces, seeking to enhance their status with a coveted secret office.

The Great Recession lingers on because of high gasoline prices caused by government policies that hinder bringing more oil to market.  George W. Bush and Dick Cheney never did anything like this to drive up the price of oil.  And they were oilmen.  Who would have profited handsomely from high oil prices.  As the Democrats and the mainstream media pointed out endlessly as gasoline prices entered $4/gallon territory.  No such accusations now.  Just silence.  As the Obama policies leave a swath of destruction across the fruited plain.  Congress could do something about this.  But there is more important business to attend to.  Namely, showing other senators who has a bigger office.

Four of the 10 longest-serving sitting Senators decided it was time for an upgrade, including Hatch, who snagged the legendary space once occupied by the late Sen. Edward Kennedy (D-Mass.), and Levin, who moved into the impressive hideaway of former Sen. Chris Dodd (D-Conn.).

Hatch said his elegant new third-floor office, with a fireplace, large windows and high arched ceilings, is a significant upgrade, especially because it is just paces from the Senate floor.

And a nicer office.  Elegant?  Fireplace?  High arched ceilings?  What is this?  Imperial Rome?  Some get so upset when the rich get richer but when the people’s representatives, our servants, live just as good as the rich there is barely a whisper of disapproval.

Leahy, meanwhile, said he was in no hurry to move.

“Why would I want to give up mine?” he asked. “I’ve got the most beautiful view probably in the whole Capitol.”

An avid photographer, the second-most-senior Senator, brandishing a professional-grade digital camera, scrolled to a freshly snapped photo to prove his case.

“Recognize that guy?” he asked Wednesday, pointing to a man clad in familiar orange-tinted sunglasses, his arm casually resting on a balcony ledge looking out on a spectacular view of the Washington Monument. “It’s Bono.”

The seven-term Senator is the proud inhabitant of a first-floor hideaway, formerly the stomping grounds of the late Sen. Ted Stevens (R-Alaska). With a fireplace, built-in bookshelves, a private bathroom and a balcony, it is a rare gem among the Capitol’s hidden offices, and certainly enough to impress even a rock star.

This is your U.S. Senate.  Taking care of the people’s business.  Totally insulated from the Great Recession.  While taking the time to swoon over celebrities.  From the balcony of a gem of a hidden office.  It would appear that the rich are not the only ones who have more money, more power, more clout — and more to hide.

Out of Touch with American People

The Left attacked Ronald Reagan and George W. Bush as being out of touch with the American people.  Tax breaks for the rich.  And spending cuts for the poor.  That neither saw the suffering masses their policies created.  Well, President Obama is addressing this income disparity.  By making everyone poorer.  Except, of course, his cronies who are generous with the campaign cash donations.

The high cost of gasoline is hurting Americans and keeping the Great Recession alive and well.  And we can blame Barack Obama now for the high cost of gasoline.  By restricting the supply of oil to the market.  Because more oil means lower gas prices.  (Obama proved he knows this by drawing down the Strategic Reserve to do just that.)  His administration placed a moratorium on drilling in the Gulf of Mexico.  His administration is making it difficult to get drilling permits.  And now his administration may say ‘no’ to that pipeline from the Alberta oil sands to the Texas Gulf Coast.  Or delay saying ‘yes’ for as long as possible to appease the environmentalists.  Meanwhile, the Chinese will move ahead and do whatever it takes to get that Canadian oil.  Because without oil a modern economy will grind to a halt.  And no amount of windmills or solar panels will change that. 

The Chinese know this.  And they’ll probably get that Canadian oil while the Obama administration is still dithering over the environmental impact of the proposed pipeline.  Completely indifferent to the plight of struggling American families.  And quite happy to sit by and watch the price of gasoline get to European levels.  To advance their green energy policies.  So they can reward their most generous cronies.

And it was Ronald Reagan and George W. Bush who were out of touch with American people?

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The Far Left Hates Christians more than Radical Muslims

Posted by PITHOCRATES - June 26th, 2011

No Morality Police under 20 Years of Republican Presidents

The far Left hates conservatives.  And Christians.  They don’t want them shoving their morality down their throats.  Like conservatives do in some countries (see Iran’s Hardline Fashion Police by Babak Dehghanpisheh posted 6/24/2011 on The Daily Beast).

It’s that time of year again. As summer temperatures soar in Tehran and other large Iranian cities, the morality police, or gasht ershad as they’re called in Farsi, come out in droves to make sure the citizenry isn’t flashing too much skin or acting in other inappropriate ways. The activities of the gasht ershad ramped up after the election of hardline president Mahmoud Ahmadinejad in 2005, but it seems this year they’re going for broke: since mid-June, 70,000 morality police have been sent out into the streets of Tehran alone.

Ronald Reagan was president for 8 years.  George H.W. Bush for 4 years.  George W. Bush was president for 8 years.  That’s three Republicans occupying the Oval Office for 20 years.  All the while the far Left was attacking them for being too close to the Religious Right.  Trying to scare everyone into believing that they would set up a Spanish Inquisition-like morality police to punish people misbehaving.  But in those 20 years let me ask you this.  Did any of these Republican presidents ever send 70,000 morality police to any American city?  No.  In fact, by my recollection, during those 20 years we still had pornography.  Women were still wearing bikinis in public.  Birth control and abortion were still available legally.  And guys were able to do whatever they wanted to with their hair.  Even wear gold chain necklaces if they wanted to.  But in Iran…

No more mullets (a move even some Tehran fashionistas applauded), ponytails, or a popular hairstyle called the rooster, which swoops up in a faux-hawk in the front and flares out at the back. And there’s a new restriction for men this summer: no necklaces.

During those 20 years of Republican presidents there was no morality police.  There was no one saying what fashion was and was not permissible.  As I think parachute pants and the mullet attest to. 

The government has not only spelled out the crackdown in legal terms, but has also tried to make the case that inappropriate clothing can be directly linked to damnation. Last week, an analyst named Ali Akbar Raefipour, appeared on state television and claimed that the word “jeans” actually comes from the word “jinn,” which are supernatural beings that can fly and take the form of animals. He took it a step further by comparing women’s high heels to the hooves of demons. And if that wasn’t enough, Raefipour said that numbers and symbols on some t-shirts can be read as “spells or satanic slogans.”

After only a week of the crackdown, Tehran police chief Hussein Sajedinia held a press conference and claimed resounding success, citing a 50 percent drop in the harassment of women on the streets (without a hint of irony)…

Who would have known?  That wearing blue jeans will send you to hell.  That high heels are the sign of the beast.  And writing on t-shirts is satanic.  If I’m not mistaken, though, during 20 years of Republican presidents I’m pretty sure I saw women in high heels, in tight denim jeans and in shirts with stuff written on them stretched taut across their bosoms.  Not that I looked.  I wonder why the Religious Right allowed this to happen during those 20 years of Republican presidents.

Anyway, it’s good to know that Iranian women are now safe.  Free to walk along the streets.  Without any men harassing them.  Just by exercising a little more modesty in their appearance.

For ordinary Iranians, the evidence of the crackdown is in plain sight. Checkpoints run by the morality police have mushroomed all over Tehran and, residents say, it’s not uncommon to see women getting stuffed into one of their ubiquitous vans…

Soheila, a 28-year old Tehran resident, has had enough. “I was even with my husband one time when a policewoman gave me a warning about bad hijab,” she says. “‘[I’m] going to start wearing the chador [a head-to-toe cloth covering] because [I’m] afraid of the morality police.” 

Exercising a little more modesty in your personal appearance.  And by living your life in absolute fear and oppression.  Again, I lived through 20 years of Republican presidents yet don’t recall any such oppression of women.  Guess there’s a difference between Islam and Christianity.  And women have more freedoms under Christianity.

One thing you have to say about Muslims living under Sharia law, though.  They must really love, honor and respect their women.

Al Qaeda has a PR Problem because they’re Killing Muslim Men, Women and Children

Actually, they don’t.  Which is really a puzzling thing about the far Left’s open hostility towards Christianity and absolute tolerance for anything Islamic.  Christians don’t physically and/or brutally oppress their women.   Or use them as suicide bombers (see Taliban say husband and wife in Pakistan suicide attack posted 6/26/2011 on the BBC).

A husband and wife carried out a suicide attack that killed eight people at a police station in north-western Pakistan, the Taliban has said…

The BBC’s Orla Guerin, in Islamabad, says that the use of a husband and wife suicide squad by the Pakistani Taliban is a new tactic, and a new threat.

Already, our correspondent adds, the militants have resorted to using children as human bombs. And a suicide attack in Pakistan’s tribal areas last December was blamed on a woman bomber.

I don’t think this is the kind of gender equality women living under Sharia law want.  To be sacrificed like men. 

You just don’t hear about Christians doing things like this.  Or Jews for that matter.  Judeo-Christian societies treat women better than this.  They can show a little skin.  Wear high heels.  Even smile at passersby.  Including men they don’t even know. 

With feminists populating the far Left it just boggles the mind that they fear and hate Christians.  While no such vitriol is ever directed against anything Islamic.  And yet it’s elements in Islam that are doing some of the worse things imaginable against women.  And children (see Afghanistan: Eight-year-old girl ‘used in attack’ posted 6/26/2011 on the BBC).

An eight-year-old girl has been killed after insurgents used her in a bomb attack on police in southern Afghanistan, the government has said.

The interior ministry said insurgents gave the girl a package and told her to take it to a police vehicle, detonating it as she approached…

Correspondents say insurgents have recruited both adult women and recently male children to carry out suicide attacks, though the Taliban denies recruiting children.

According to letters seized during the mission that killed Osama bin Laden, Al Qaeda has a marketing problem.  For there was no religious element in the name ‘Al Qaeda’.  And they were losing the PR war with the Americans.  Because Al Qaeda was killing more Muslims than the Americans were.  So bin Laden wanted to change the name to stress the holy war element in the war against the Americans.  But that didn’t happen because of his ‘untimely’ death. 

Apparently he was alone in this view.  Because giving an 8 year girl a package and telling her to take it to the police station without telling her what’s in the package and then detonating the bomb in that package while hiding from a safe distance away doesn’t exactly help put a positive spin on the holy war against the Americans.  Especially when you’re killing Muslim men, women and children by blowing up a bomb being held by a Muslim child.

The Far Left Hates Western Civilization

Islam is a religion of peace that some twist the meaning of to do unspeakable things.  Christianity is a religion of peace, too.  And some may twist the meaning of it to do some unspeakable things.  But if you’re tallying these unspeakable things you’re going to see the tally far greater for one religion than the other.  Unless you don’t consider putting bombs on women and children as unspeakable.

Western societies tend to be Judeo-Christian societies.  And in these societies women have a lot of freedoms.  They can do anything they want.  Have a career.  Go into politics.  Become presidents.  Prime ministers.  Or be porn stars.  They can eat and drink anything they want anywhere they want.  They can go to a movie, a bar or a dance club.  Women have come a long way in Western Civilization.  Nowhere are they empowered more.  And nowhere are they empowered less than in Islamic society.

And yet, despite all of this, the far Left attacks Christianity.  They will say some of the most vile and vicious things.  Insult their institutions.  And openly mock them.  But they don’t do this with Islam.  In fact, if anyone says anything critical of Islam the far Left calls that hate speech.  While their criticism of Christianity is merely free speech.

This makes no sense.  Unless the far Left hates Western Civilization.  Then it makes perfect sense.  The far Left is the liberal Big Government left.  Who wants more government in our lives.  Telling us what’s best for us.  Regulating us.  Controlling us.  And this they have in common with radical Islam.  Because they, too, want to tell their people what’s best for them.  To regulate them.  To control them.

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We’d do better Emulating Bourbon Country than China

Posted by PITHOCRATES - June 25th, 2011

A Generous Government robs the Private Sector

The economy.  It’s bad today.  It’ll be bad tomorrow.  And probably will still be bad when many are thinking about retiring.  I say thinking.  Because that’s all they may be able to do about retirement.  Think about it.  As they keep working well into retirement age (see Retirement As We Know it Is “Dead”: EuroPacific’s Pento by Peter Gorenstein posted 6/22/2011 on Yahoo! Finance).

“Americans are have negligible savings, the real estate market is still in secular decline, stock prices are in a decade’s long morass, real incomes are falling, public pension plans are insolvent and our entitlement programs are bankrupt.”

Pento believes these issues could be resolved if the government takes the right steps. What might those be? He recommends lowering taxes, reducing inflation and balancing the budget as a means to increase the value of the dollar. If the dollar had more purchasing power and interest rates were higher, retirees would be able to live off their fixed income, he says.

Please note the common theme in the resolution.  Less government.  Less government spending.  Les government taxing.  Less government quantitative easing (i.e., stop depreciating the dollar).  Because it is all of this government intervention into the private sector that has killed so many private sector jobs.  Reduced our real incomes.  Bankrupted our entitlement programs.  And destroyed our pensions (because fat pension funds are just too tempting to ‘borrow’ from to pay for more spending.  And by borrow I mean steal).

A generous government is a government that robs the private sector to pay the beneficiaries of the public sector.  But they have taken so much that they have given the private sector the worst recession since the Great Depression.  Which, in turn, has starved government coffers.  Talk about killing two birds with one stone.

There’s no Recession in Bourbon Country

Despite being in the worst recession since the Great Depression thanks to all that government intervention into the private sector, there is some positive economic activity out there.  One area in particular that is near and dear to my heart.  Bourbon (see Bourbon’s popularity feeds growth of Kentucky distilleries by Bruce Schreiner, Associated Press, posted 6/25/2011 on USA Today).

The producers are aiming to quench a thirst for bourbon — especially premium brands — that is steady in the U.S. and rapidly expanding overseas, thanks in part to the comeback of cocktails appealing to younger adults, lower tariffs, robust marketing and a larger middle class in emerging markets.

A tariff is a tax on an import.  To protect the domestic competition.  Or so goes the theory.  Protective tariffs destroyed a lot of American industry that had no incentive to improve (textile, steel, automotive, etc.).  But that’s another story.  Thankfully, bourbon is an American spirit.  All proper bourbon hails from Kentucky.  Thanks to those freshwater streams through the limestone bedrock of those rolling hills.  So there are no foreign bourbon markets to protect.  Keeping tariffs lower than they may be otherwise.  Thus providing a healthy export market. 

Industry observer F. Paul Pacult, editor of the quarterly newsletter Spirit Journal, said bourbon makers are showing an adventurous side with premium offerings that reflect an “intramural competition.”

“There’s more innovation happening in Kentucky right now than any other place in the world,” Pacult said.

Now Kentucky is bourbon country.  There are a lot of distillers competing against each other.  And yet the bourbon market as a whole is growing.  There’s no recession in bourbon country.  Which just goes to prove the old maxim.  Competition makes everything better.

The industry’s biggest boost, though, has come from exports.

Producers of bourbon and Tennessee whiskey reaped $768.2 million in export sales in 2010, up from $303.8 million in 2000, according to the spirits council, citing statistics from the U.S. Department of Commerce and the U.S. International Trade Commission.

The biggest overseas customers include Australia, Japan, the United Kingdom and Germany, but the industry is looking at two seemingly bottomless markets — China and India — along with other emerging markets in Asia and Africa.

China and India.  Those two countries driving up the price of oil.  Because of exploding demand in their emerging middle classes.  Countries that gave up much of their communist/socialist ways.  Who turned their disdain for capitalism to ‘dain’ (which I think means the opposite of disdain).  And they have smoking hot economic growth.  Hard to believe that a communist country, China, is schooling the United States in free market capitalism.

Crony Capitalism and Corruption in China

Or are they?  Oh, they are getting more Western.  But not like the UK or the USA during the Industrial Revolution or the booming times that followed.  But after the growth of Big Government in those counties (see The long arm of the state posted 6/23/2011 on The Economist).

Chinese students used to aspire to a job with a foreign company. Now they are more likely to want one with an SOE [state-owned enterprises].

This may seem an odd choice, since the dynamism in China’s economy is mostly generated by non-state firms… In 1999 government-controlled firms owned 67% of industrial capital; a decade later their share had fallen to 41%. But in the industries that pay the highest salaries, state firms dominate.

A new shorthand has entered common parlance: guojin mintui, meaning the state [sector] advances and the private retreats. ..It has been tightening its grip on some industries it considers “strategic”, from oil and coal to telecommunications and transport equipment. It has been devising market-access rules that favour state firms. And to the chagrin of private businesses, it has allowed state companies to remain active in a surprising range of palpably non-strategic sectors, from textiles and papermaking to catering. In recent years property development has become a lucrative sideline for government businesses. “The tentacles of state-owned enterprises extend into every nook where profit can be made,” writes Zheng Yongnian of the National University of Singapore.

Already the young people are choosing the public sector over the private sector when it comes to their career.  Because the bloated public sector pays more.  With this higher pay they must be attracting the best and brightest to these SOEs.  So these SOEs must be kicking the non-state firms’ asses.

Some Chinese economists worry that the government’s response to the global financial crisis will bolster state enterprises and their bad habits at a time when they urgently need reforming. As the confederation’s researchers put it, much stimulus spending has involved “swapping from the left hand to the right hand”: the state lending to the state…

Unirule noted that the profits of state-owned industrial companies had increased nearly fourfold between 2001 and 2009. But their average return on equity was less than 8.2%, whereas that of larger non-state industrial enterprises was 12.9%. Factor in the low cost of borrowing enjoyed by SOEs and their access to land at below-market prices, the report said, and their real return on equity between 2001 and 2009 was minus 1.47%. They are, in effect, destroying capital.

Apparently not.  They actually have a negative return on investment.  So the SOEs are just deadwood propped up by government spending and special privilege.  Reminds me of another Asian country awhile back.  Where there was private sector/public sector partnering.  Where capital was shuttled from the left hand to the right hand.  Anyone like to guess the country I’m thinking about?  Anyone?  No?  Here’s a hint.  China and this other country hate each other.  Bitterly.  Which makes it rather ironic that they’re now following their example.  That Asian country is Japan.  During the Eighties.  A decade of spectacular growth.  That was more bubble than growth.  And we all know what happened in Japan in the decade that followed.  Not a whole hell of a lot.  Because the bubble popped.  And they suffered a devastating deflationary spiral similar to the Great Depression.  It was so bad that they called the Nineties the Lost Decade.

Some foreign businesspeople complain that market-opening measures initiated in the 1990s and early 2000s have run out of steam.  Many saw China’s accession to the WTO ten years ago as a great impetus for reform. But when the country reached the end of its transition period in 2006, its will faltered. Many foreign companies still report doing good business. But especially since the global financial crisis, the government has been widely accused of twisting rules in favour of its state-owned or, sometimes, private-sector favourites…

Local governments sometimes play a decisive role in determining which firms succeed and which fail. Take Himin, a manufacturer of solar water heaters based in the city of Dezhou in the northern province of Shandong. Himin is a private company, but it is the local government’s champion. Together Himin and the government have devised a branding strategy for Dezhou as China’s “solar city”. The government has helped Himin to grow by requiring apartment buildings to be equipped with solar water heaters and by subsidising solar-heated bathhouses in villages.

This is not capitalism.  This is crony capitalism.  Not much different from mercantilism.  And not a sustainable economic model.  Unlike entrepreneurism.  Like they’re doing in Kentucky.  While the nation is suffering the worst recession since the Great Depression, distillers are investing and innovating, competing against each other as they book record exports.  Without any partnering with their government.  While Himin is in bed with government.  A government that giveths.  And can just as easily taketh away.  And with business dependent only on their relationship to government, you can bet that there isn’t a lot of investing and innovating going on at Himin.  Because they don’t have to.  So why would they?

This scheme to encourage what the government calls “indigenous innovation” focuses on seven “strategic” industries, from alternative energy and low-carbon-emitting vehicles to information technology. First Financial Daily, a Chinese newspaper, reported that investments by these industries could amount to as much as $1.5 trillion over five years, of which the state is likely to contribute 5-15%. Mr McGregor says the scheme involves creating new Chinese technologies on the back of foreign ones supplied by companies eager for a share in the government’s massive spending. Some Chinese scientists have complained about the likely waste involved in state-directed R&D, but the party loves big projects too much to listen.

Good innovation doesn’t need government money.  Investors are more than willing to finance a good thing.  What investors don’t like to invest in are bad investments.  Which is typically what the government invests in.  Because a good investment can attract private capital.  So that leaves the bad investments for government to fund.

People flocking to the government for financing are just like ants at a picnic.  They just want to get in while the getting is good.  But they have little of value to offer.  They’ll just pull a lot of money out of the private sector that could have been put to better use.  By producing real economic growth.  With a positive return on investment.

Worse is the state directing private investment.  People risking capital know what good R&D is.  People risking other people’s money don’t.  And they’re far more tempted to consider political reasons than good science.

China’s state-sector reforms in the 1990s went for the low-hanging fruit. A decade ago angry workers were easily cowed into submission by police or bought off with handouts. But any further reform would affect the interests of people in the top echelons of the party as well as their families, who have extensive connections with state-owned firms.

Zhu Rongji, the former prime minister whose reforms obliterated many of China’s state-owned firms in the late 1990s, has also gone on the attack. In April he made a rare public appearance at his alma mater, Tsinghua University. He handed over copies of a four-volume collection of his speeches, due to be published later this year, and pointedly invited readers to “make comparisons with the situation today”. To his supporters, the present looks grim.

Top echelons of the ruling communists, as well as their families, are well connected with state-owned firms?  No wonder they have negative returns on equity.  They’re stealing money from these SOEs.  This is everything the communists said the capitalists did.  And here the wealthy communist elite are doing it themselves.  Exploiting the poor working class.  How ironic.

Maybe the Chinese are just drunk with power.  Or on that fine Kentucky bourbon.

You’re going to Work until you’re Dead

The Chinese economy is a house of cards.  Much like it was in Japan in the Eighties.  And it will crash.  One day.  Just as the Japanese economy fell.  And no doubt a round of deflation will follow.  Like in Japan.  The Chinese are already raising interest rates to stamp out inflation.  To try and stop a bubble in their economy.  Much like the rest of world is.  Well, pretty much everyone but Ben Bernanke in the U.S.  Who may still try another round of quantitative easing.  Silly Americans.  Adding inflation to high unemployment only gets you the misery of the Seventies.  Carter‘s stagflation.

Although some of that economic activity may be somewhat artificial, it is producing surpluses.  Enough for the Chinese to buy U.S. debt.  So the Americans can continue to pay for their entitlement programs.  Such as Social Security.  And Medicare.  Which everyone and their brother knows will go bankrupt in the not so distant future.  Just as the Baby Boomers start retiring en masse to stress these programs like they’ve never been stressed before.  Now imagine the Chinese economy crashing.  And their surpluses turn to deficits.  And they can’t buy U.S. debt anymore.  That’d be one painful scenario.  Unable to borrow money, the U.S. would have no choice but to cut spending.  In a big way.  As in all those entitlement programs.  Which account for almost half of all federal spending.  Ouch.

Retirement as we know it dead?  You better believe it.  You’re going to work until you’re dead.  Even if you saved for your own retirement.  Because a broke government is a desperate government.  And if they can’t raise enough money taxing income, and the Chinese aren’t buying our debt, they’ll start taxing your wealth.  Your savings.  Your assets.  Your retirement.  Some nations already do.  So it’s not unprecedented.  Which would make a Chinese crash rather depressing. 

Gee, I’d hate to be in our shoes.

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Can’t see the Fiscal Forest for the Monetary Trees

Posted by PITHOCRATES - June 24th, 2011

He won’t Drill but he will Draw from the Strategic Reserve

The Great Recession lingers on.  As high oil prices hit consumers hard.  Gas prices are back to $4/gallon territory.  Leaving consumers with less disposable income.  Home values are declining in a deflationary spiral.  Wages are stagnant.  Unemployment is high.  And there’s inflation in food and consumer goods.  All driven by the high price of oil.  And all that quantitative easing (QE) that has depreciated the U.S. dollar (which we buy and sell oil with in the global market).

The demand for oil is soaring.  And yet President Obama put a moratorium on drilling in the Gulf of Mexico.  In fact, the U.S. isn’t drilling anywhere.  Which has forced the U.S. to import more foreign oil.  Because of this squeeze on supply.  Economics 101 tells you when demand increases supply should increase to meet that growing demand.  When it doesn’t, prices rise.  Like they are.  And the QE just compounded that problem.  When the dollar is worth less it takes more of them to buy the same amount of oil it used to.  Which means higher prices at the pump.  From demand outpacing supply.  And a weaker dollar.

The president’s solution to the high gas prices?  Blame the oil companies.  Because their profits were too high.  It had nothing to do with his policies that restricted the supply of oil on the market.  Of course, with an election coming up and gasoline prices too close to $4/gallon, he’s changed his position on that (see Loss of Libya oil bigger disruption than Katrina: IEA by Simon Falush and Zaida Espana posted 6/24/2011 on Reuters).

On Thursday, the International Energy Agency which represents the major oil consumers agreed to release 60 million barrels from emergency stockpiles, sending crude prices tumbling.

Imagine that.  Increase supply.  And prices fall.  For awhile, at least.  Because once these 60 million barrels are gone, the prices will just go back up where they were.  Unless there is a real increase in supply.  Like more drilling in the Gulf.  The Atlantic.  The Pacific.  In Alaska.  We know it works.  Increase supply.  And prices fall.  So why not just increase supply with more drilling?  Instead of drawing down our strategic reserves (America’s share being 30 million of the 60 million barrels).  Which, incidentally, we’ll have to replace.

Energy Policy Driven by the 2012 Election

Even the White House is all but admitting this move is purely political (see The wrong reason for depleting the strategic oil reserve posted 6/23/2011 on The Washington Post).

So on Thursday Obama administration spokesman Jay Carney argued that oil demand is likely to rise over the summer. In other words: It’s vacation season, and the White House is worried about high prices through the summer driving months.

Therein, perhaps, is a political emergency, at least in the White House view: President Obama’s reelection prospects will be harmed if national discontent over high gasoline prices continues. The oil release could be seen as a way for the president to take credit for gas prices that are falling anyway, or as an indirect, pre-election stimulus.

Personally, the president doesn’t have a problem with the high cost of gasoline.  His administration wants it high.  The higher the better.  They’d like to see it European high (see Times Tough for Energy Overhaul by Neil King Jr. and Stephen Power posted 12/12/2008 on The Wall Street Journal).

In a sign of one major internal difference, Mr. Chu [who became Obama’s Energy Secretary] has called for gradually ramping up gasoline taxes over 15 years to coax consumers into buying more-efficient cars and living in neighborhoods closer to work.

“Somehow we have to figure out how to boost the price of gasoline to the levels in Europe,” Mr. Chu, who directs the Lawrence Berkeley National Laboratory in California, said in an interview with The Wall Street Journal in September.

To make the more expensive green energy less expensive in comparison.  And an easier sell to the American people.  Pleasing his liberal base.  But there’s an election coming.  And high gas prices don’t help you win elections.  Especially during record long-term unemployment.  Even though it goes against every fiber in his body to act to bring down the cost of gasoline, he will.  If it’ll help his reelection chances.  It’s not like he’s going to lose his liberal base.  Who else are they going to vote for?  The conservative?  Not likely.  They’re always going to vote for the most liberal candidate in the race.  And that will still be him.  Despite encouraging more oil consumption.

The Fed doesn’t know why the Economy is in the Toilet

The president needs to get the price down at the pump.  Where people really feel the full weight of his economic policies.  Because the economy isn’t going to get better anytime soon (see Serial disappointment posted 6/23/2011 on The Economist).

THE Fed attracted attention this week for downgrading its forecast not just for this year, but for 2012, as well. More striking is how often it does this. As my nearby chart shows [follow the above link to see chart], the Federal Open Market Committee has repeatedly ratcheted down its forecasts of out-year growth. The latest downward revision is particularly large, and in keeping with the pattern: when the current year disappoints, they take a bit out of the next, as well.

There’s been a steady downward progression of economic projections.  Despite the stimulus.  And the quantitative easing.  Nothing has worked.  When the chairman of the Federal Reserve, Ben Bernanke, was asked why the economy was not responding to the government’s actions his reply was rather Jeff Spicoli: I don’t know.  And he’s supposed to be an expert in this field.

Mr Bernanke does not need lessons about the painful deleveraging that follows crises. His pioneering work with Mark Gertler on the Great Depression introduced the “financial accelerator”, the mechanism by which collapsing net worth crushes the real economy. This concept has been rechristened the “balance sheet recession” by Richard Koo. Stephen Gordon admits he is new to the term and notes (with some nice charts contrasting America with Canada) “it’s not pretty”. (HT to Mark Thoma). Yet until now Mr Bernanke seemed to think America had learned enough from both the 1930s and Japan to avoid either experience. Reminded by a reporter for Yomiuri Shimbun that he used to castigate Japan for its lost decade, Mr Bernanke ruefully replied, “I’m a little bit more sympathetic to central bankers now than I was 10 years ago”…

Mr Koo has argued that quantitative easing cannot help in a balance sheet recession; only fiscal policy can. Does Mr Bernanke secretly agree? He may believe as strongly as he did a decade ago that sufficiently aggressive monetary policy can prevent deflation, but not that it can create enough demand to restore full employment. This does not rule out QE3; it only means it will be pursued with less hope about the results than a year ago.

The Great Depression (during the 1930s) is a complex topic.  And monetary policy played a big role in making a bad situation worse.  In particular, the numerous bank runs and failures can be blamed on the Federal Reserve.  Starving the banks for capital when they most needed it.  But there was a whole lot more going on.  And it wasn’t the stock market crash that caused it.  World War I (1914-1918) is probably more to blame.  That war was so devastating that it took the combatants a decade to recover from it.  And during that time America exploded in economic activity and fed the world with manufactured goods and food.  We call it the Roaring Twenties.  But eventually European manufacturing and farming came back.  Those lucrative export markets went away.  And America had excess capacity.  Which had to go away.  (A similar boom and bust happened in the U.S. following World War II.)  Then all the other stuff started happening.  Including the Smoot-Hawley Tariff.  Kicking off a trade war.  It was all too much.

Japan’s lost decade (the 1990s) followed their roaring Eighties.  When the government partnered with business.  And interest rates were low.  The economy boomed.  Into a great big bubble.  That popped.  Because they stimulated the economy beyond market demand. 

The lesson one needs to take away from both of these deflationary spirals is that large government interventions into the private market caused most of their woes.  So the best way to fix these problems is by reducing the government’s intervention into the private market.  Because only the private market knows how to match supply to demand.  And when they do, we have business cycles.  That give us only recessions.  Not depressions.

Like a Dog having Puppies

The market is demanding more oil.  But the U.S. is not meeting that demand.  So gasoline prices are up.  To lower those prices we need to bring more oil onto the market.  And you don’t do that by shutting down the oil business.

We have high unemployment.  And excess capacity.  That’s not a monetary policy problem (interest rates).  It’s a fiscal policy problem (tax and regulation).  No one is going to borrow money to add jobs to build more stuff when no one is buying.  But if you cut taxes and reduce regulations to make running a business highly profitable, people will build businesses here.  Create jobs.  And hire people.  Even if they have to ship everything they make halfway around the world to find someone who is buying. 

Running the economy is not rocket science.  Because it runs itself.  Like a dog having puppies.  Everything will be fine.  If greedy politicians just keep their hands out of it.  But they don’t.  And they love printing money.  Because they love to spend.  But the problem is that they can’t see the fiscal forest for the monetary trees.

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LESSONS LEARNED #71: “For socialism to be successful no one can be allowed to escape it.” -Old Pithy

Posted by PITHOCRATES - June 23rd, 2011

Socialism Oppresses and Kills tens of millions of People

It’s easy to point at Cuba as an example of socialism’s failure.  You don’t even have to go to the island.  You don’t have to study their institutions.  All you have to do is to look at the risks people will take to escape Cuba.  And they take some crazy risks to escape.  They will board some barely-seaworthy water crafts and paddle out into the ocean.  Away from Cuba.  And towards Florida.  Away from socialism.  And towards capitalism.  Away from a wretched life of despair and deprivation.  And towards a life of plenty and opportunity.  As they paddle their way to America, how many people do you think they pass who are paddling their way to Cuba?  How about zero?  Because when it comes to refugees, the direction is always towards America.  It’s never the other way.

And it’s easy to point to Mao in China.  His Great Leap Forward killed a lot of his own people.  And by ‘a lot’ I mean in the tens of millions.  Depending on the numbers you use.  It could have been anywhere between 15 and 50 million people.  The Chinese communists were not the record keepers the Nazis were.  Though the actual number may be in doubt the magnitude isn’t.  In the spirit of brotherly love that is the hallmark of socialism, millions were beaten, tortured and killed to ‘encourage’ acceptance of the forced collectivization of farming.  And the funny thing is (not ha ha funny but funny as in sad and ironic) that after beating, torturing and killing so many people to collectivize farming, the agriculture output plummeted.  Partly because of bad planning.  And partly due to nature.  But local party officials reported record harvests to avoid beatings, torture and killings by party superiors.  So China exported much of these record harvests.  Leaving nothing for the peasants to eat.  Resulting in famine.  Again, the record keeping is sparse.  As they often are when your policies end up killing your own people.  But deaths were in the tens of millions.  The Great Leap Forward was a big push to modernize China.  To industrialize it.  For there was little infrastructure in China.  Most of it was rural.  Dotted with peasant farms.  Stretching across vast lands.  With little ways to move around.  Where you probably died less than a day’s walk from where you were born.  Which made it difficult to escape the Great Leap Forward.  Or Mao’s ruthless communist rule.

And it’s easy to point to the former Soviet Union.  Where it all started.  CommunismJoseph Stalin gave Mao Tse-tung a run for his money in the greatest mass murderer of all time contest.  Again, the record keeping was a little sparse.  But the Soviets took socialism to a grand scale.  The government controlled the economy.  And your life.  If you grew up in the Soviet Union, you learned how much better it was there than in the decadent West.  Especially the USA.  Of course, when some Soviets were lucky enough to travel outside the country, they learned that their Soviet teachers were liars.  The West was awesome.  Never before did they see such a wonderful world of plenty.  And some Soviets defected to that better life.  Which was a crime.  And a huge embarrassment for the Soviet Union.  Even Joseph Stalin’s daughter (Svetlana Alliluyeva) defected.  Others included Rudolph Nureyev, Mikhail Baryshnikov, Alexander Godunov, Sergei Fedorov, Martina Navratilova, Ivan Lendl and Nadia Comăneci, to name a few (both from the Soviet Union and the Eastern Bloc).  Some got preferential treatment to keep them from defecting like Katarina Witt.  Or they held family members as ‘hostages’ when some traveled out of the country.  It was a real problem for the KGB.  Who had agents living undercover in the West.  And a lot of them didn’t want to come home.  Of course, there was no such problem with people defecting from the West into the Soviet Union.  There were a few.  Like Lee Harvey Oswald.  But he wasn’t playing with a full deck.  And he did return to the United States.  Because even he found it was better in America.  And he hated America.

It’s easy to point at the big socialist failures.  But just about every story of socialism is a story of failure.  And as different as some of the stories are, they all have much in common.  In particular, the exploitation of the people to serve the state.

In Socialism, Slavery is Freedom

In George Orwell‘s Nineteen Eighty-Four, we see a frightening look at totalitarian socialism.  Big Brother is the leader of an oppressive regime.  Where the government plays with language to control the people.  War is peace.  Ignorance is strength.  And freedom is slavery.  War unites a people against a common enemy.  Who then beg for the government to protect them from this enemy.  And they will suffer through any hardship required to defeat this enemy.  Which makes continued war a handy way to control the people.  And to keep the peace among an unhappy and suffering citizenry that might otherwise rise up and complain.  Or riot.  Or attempt to overthrow the government.

Ignorance is strength.  If you don’t know how rotten your existence is you have no reason to be unhappy.  If you don’t know about that better life on the other side of your border, you have no reason to cross that border.  You’ll stay where you are.  And be a good citizen.  You’ll toe the party line.  Work hard.  Sing party songs.  And be happy.  More importantly, you’ll be subdued.  Easier to control.  And easier to lie to.  There’s a reason revolutionaries rounded up intellectuals and people with glasses (people with glasses can read and may be intellectuals) for ‘reeducation’ during revolutions.  Thinkers are trouble makers.  So it behooves them to keep the people ignorant.  So they don’t get distracted from their patriotic duties.  So they can continue to sacrifice to build a stronger nation.

Slavery is Freedom.  Because slaves never have to make a decision.  Or provide for themselves.  What a joyous and simple life.  Someone provides everything you need.  Your job.  Your clothes.  Your food.  Your home.  Your health care.  And your funeral.  And all you have to do is give yourself to the state.  Give up all your freedoms.  Give up all hope.  All your dreams.  And all of your comforts.  You have no bills to pay.  Because you don’t have anything.  You get up, work, eat and sleep.  Simple.  Easy.  And carefree.  True freedom.  Lucky slaves.

Adolf Hitler was a Socialist

Of course, if you talk to some slaves you’ll probably hear a different story.  Real slaves.  Like 19th century American slaves.  Those working the plantations.  They didn’t all buy that ‘slavery is freedom’ line.  If any did.  Because a lot of them did try to escape.  Just like those who tried to escape from Soviet socialism.  Interestingly, there are similarities between the two.  Because if you take socialism to its logical end you do arrive at slavery.  Friedrich August von Hayek wrote a book about this.  The Road to Serfdom.  Even said that if socialism grew unchecked in a state some guy named Adolf Hitler may come along and create an oppressive state dictatorship.  He didn’t quite say it like that.  But a guy named Adolf Hitler did come along and created an oppressive state dictatorship called National Socialism.  Or Nazism.  Anyway, suffice it to say that Hayek was right.  As proven by people everywhere who have tried to escape their socialist utopias.

Despite popular belief, everyone was not equal in these socialist utopias.  The inner party people lived well.  And their apparatchik.  But little changed for the masses.  In fact, life often got worse for them.  They were hungry, living in crowded quarters, with poor sanitation, some without running water, living in fear of state punishment for breaking a rule or not making quota, days of endless labor, no say in your future, no liberty and little hope for a better tomorrow.  Very similar to a 19th century American slave.

The American plantation is a microcosm of socialism.  The few at the top did very well (the glorious leaders).  Those close to them that ran the plantation (the party apparatchik) did not do as well but did much better than most.  And then there were the slaves at the bottom.  Who were all equal.  Equally miserable.  And without any hope.  Living in fear of abuse for breaking a rule or not making quota.  And working days of endless labor.  This is socialism taken to its logical end.  Which is why people risked death to escape places like the Soviet Union.  East GermanyCzechoslovakiaRomania.  Cuba.  To escape servitude.  Because the state could do anything they wanted to you.  And often did.  Just like a plantation overseer.

Slaves of the Social Democracies Riot

Of course, the critics will say that this isn’t true socialism.  That these are just mad dictators who corrupted socialism in their quest for absolute power.  And I’ll say, well, of course.  You’re right.  But they all used socialism in their rise to power.  Not a one of them said anything about cutting taxes or reducing stifling government regulations in their climb to power.  Quite the contrary.  They used every facet of socialism (egalitarianism, redistribution of wealth, taxing the rich, nationalization of private companies, etc.) in their climb to power.  In fact, one could say that without these tenets of socialism to unwittingly rally the people behind them they could never have risen to power.  Which is why socialism is not just a Road to Serfdom.  It’s a blueprint as well.

Some will roll their eyes at this.  And say Europe is full if social democracies that treat their people pretty damn well.  Let’s call it socialism-light.  These socialist countries have large and generous social welfare programs for their people.  Generous unemployment benefits.  Generous vacations.  Generous health care benefits.  Generous pensions when they retire.  Some at the ripe old age of 50.  A large and generously paid public sector.  Clearly these people aren’t oppressed.  And I’ll agree.  The people receiving these benefits are not oppressed.  But it places an incredible tax burden on those who work.  Who must make continuous sacrifices as their taxes continuously rise.  Let’s call these people slaves-light.  Because they are not allowed to enjoy the full fruits of their labor.  So, yes, the people in these social democracies in general are free.  And happy.  When they’re not rioting, that is.  Like in Greece.  Again.  Where the nation is broke.  And had to borrow money to pay its bills.  Which they have.  But one of the conditions for getting these loans was to cut back on those generous benefits.  Which hasn’t gone over well with the people receiving those benefits.  So they rioted.

Of course they rioted because they had become slaves of the welfare state.  Politicians promised them everything they wanted for their vote.  And delivered.  Until they could deliver no more.  Having become so dependent on the state the thought of taking care of themselves frightened them so that they ran into the streets and started burning things in protest.  The state had no problem keeping these people from escaping their country.  Unable to take care of themselves they were afraid to leave.  But the people with the jobs, and those who created the jobs, that’s a different story.  They could leave.  And a lot did.  So the state made it as difficult as possible for their money to follow them.

You may be able to Escape the Socialist Welfare State, but your Money may Not

New York City is the financial capital of the world.  For now, at least.  It costs a lot to live in the city.  Cost of living is high.  And the taxes are higher.  Way higher.  Which was never a problem for rich people.  Or rich companies.  Rush Limbaugh did his radio program out of New York City for awhile.  But he left because of the excessive taxation.  Went to Florida.  Where there is no income tax.  But every time he traveled to New York City he was required to pay income tax on his earnings for those days in the city.  The New York tax authorities put him through incredible hurdles to prove when he was out of the city.  Showing in multiple ways that he was, in fact, living in Florida.   With receipts.  Phone bills.  Etc.  They put the onus on him.  Said he owed the tax unless he could prove otherwise.

Then came the subprime mortgage crisis that gave us the worst recession since the Great DepressionWall Street income fell.  As did New York City and New York state tax receipts.  People moved out of the city.  Out of the state.  Worked out of their homes.  Some did no work in the state but still kept a vacation home on Long Island.  Desperate for money and unable to keep these people from escaping the state, the taxing authority went after their income.  Said if they spent any time in the state they owed income taxes for the entire year.  Even if you only vacationed for two weeks on Long Island.  While paying the taxes in the state you actually live and work in.  This was worse than taxation without representation.  It was double taxation.  In addition to taxation without representation.

New York City is generous with their social benefits.  Call it socialism-light.  It’s not all out socialism.  But it still suffers from the same fatal flaw.  It doesn’t work well if the people can escape this socialist utopia.  Especially the ones paying the taxes.  As is happening in the social democracies in Europe.  And anywhere where there is high taxation without a secured border.  To prevent the taxpayers (i.e., best and brightest) from escaping.  Like the Soviets did to keep their best and brightest from escaping.  As did the East Germans.  The Czechoslovakians.  The Romanians.  And the Cubans.

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The Problem with Building Car Batteries is that People aren’t Buying Electric Cars

Posted by PITHOCRATES - June 22nd, 2011

The Dot-Com Bubble and Green Energy

Bill Clinton has all the answers.  He knows how to fix the economy.  How to fine tune it so it purrs.  Just like he did during the dot-com boom and bust (see It’s Still the Economy, Stupid by Bill Clinton posted 6/19/2011 on Newsweek).

When I was president, the economy benefited because information technology penetrated every aspect of American life. More than one quarter of our job growth and one third of our income growth came from that. Now the obvious candidate for that role today is changing the way we produce and use energy.

But most of it was just an illusion.  It was a bubble.  There was an explosion in dot-com companies trying to be the next Microsoft.  Investors bid Stocks up into the stratosphere.  Alan Greenspan called it irrational exuberance.  It wasn’t healthy economic growth.  It was only a bubble.  And the bubble eventually popped.  As they always do.  And with the bubble went a lot of those jobs.

Of course, when he says energy, he doesn’t mean drilling for oil.  He means green energy.  As in batteries.  For all those electric cars the president is urging GM to build.

On the day President Obama took office, the U.S. had less than 2 percent of the world market in manufacturing the high-powered batteries for hybrid or all-electric cars. On the day of the congressional elections in 2010, thanks in large part to the cash—incentive policy, we had 20 percent of global capacity, with 30 new battery plants built or under construction, 16 of them in Michigan, which had America’s second—highest unemployment rate. We have to convince the Republican Congress that this is a good thing.

One thing Bill Clinton is right on is the similarity between information technology and green energy.  One was a bubble.  And the other is sure to be one, too.

The Biggest Problem of Electric Cars is the Battery

The all-electric car is an elusive dream.  Hybrids have had some moderate success.  Because they come with a backup internal combustion engine that makes up for all the shortfalls of an all-electric car.  The battery (see Better Batteries Will Save the World by Farhad Manjoo posted 6/21/2011 on Slate).

If we had batteries that matched the price and performance of fossil fuels, we would not only have cleaner cars, but we might be able to remake much of the rest of the nation’s energy infrastructure, too. Wind and solar power are generated intermittently—sometimes the wind doesn’t blow and the sun doesn’t shine—and batteries can moderate that volatility. Stores of batteries placed in the electric grid could collect energy when the sun shines or when the wind blows and then discharge it when we need it. Not to put too fine a point on it, but you might say that the future of the world depends on better batteries—a better battery would alter geopolitics, mitigate the disasters of climate change, and spur a new economic boom.

This glosses over an important point that few discuss.  Batteries are not energy.  They store energy.  Energy that we have to create.  And right now, because we don’t have a massive infrastructure to store energy when the wind does blow and the sun does shine, that leaves fossil fuels.  Which means there is no net saving in carbon emissions if we start driving electric cars.  This just transfers the pollution our cars emit to the power plants.  Most of which use the most polluting of all fossil fuels.  Coal.  So going all electrical in our cars may actually increase pollution.

This aside there are other problems with batteries that make gasoline a better choice.

The fundamental problem with batteries is the existence of gasoline. Oil is cheap, abundant, and relatively easy to transport. Most importantly, it has a high “energy density”—meaning that it’s phenomenally good at storing energy for its weight. Today’s best lithium-ion batteries can hold about 200 watt-hours per kilogram—a measure of energy density—and they might theoretically be able to store about 400 watt-hours per kilogram. Gasoline has a density equivalent of around 13,000 watt-hours per kilogram.

The only reason electric cars might one day compete with cars that rely on internal combustion is that gasoline engines are highly inefficient; nearly all of the energy stored in gasoline is lost to heat. But gasoline makes up for that flaw with another advantage: When your car’s out of gas, you can refill it in a few minutes. With today’s electrical infrastructure, batteries need many hours to recharge. There’s some hope that we might one day install fast-charging stations across the country, but the researchers Fletcher interviews point out that this is a daunting challenge. The battery in today’s Tesla roadster needs about four hours to charge. If you wanted to charge that battery in 15 minutes, you’d need a 200-kilowatt electric substation feeding the charging station. “Your house takes 1 kilowatt,” one expert tells Fletcher. “If you want to have something like a gasoline fuel station that is all electrical, you’re talking about multimegawatts of power at that station. And I just don’t see that happening.”

It’s that energy density of gasoline that lets you sit in rush hour traffic in February with your lights on and your heater keeping you toasty warm.  And alive.  But should you run low on gas you can always take 10 minutes and fill your tank.  Then you can rejoin that rush hour traffic.  And sit in it.  With your lights on.  And your heater still keeping you toasty warm.  And alive. 

The other nice thing about gasoline is that it’s pretty safe to handle.  Most gas stations in America are self-serve.  People pump gas without a second thought about safety.  For an electrical ‘quick’ charge, though, you’re playing with electrical energy that typically only skilled electricians work with.  After extensive safety training.  And while wearing special protective clothing and gear.  Probably not the kind of thing you want your daughter playing with on her way home from the big game.  Unless she is a highly skilled electrician.

In theory, the lithium-air battery could store 11,000 watt-hours per kilogram, which makes it, Fletcher says, “the best chance battery scientists have to beat gasoline.” A lithium-air battery could allow a car to drive 500 miles before recharging. With that range, you wouldn’t need a nationwide system of quick-charging stations. You could drive pretty much wherever you wanted all day, and then recharge your car at night.

But lithium-air is the cold fusion of the battery world—a would-be game-changer that has the unfortunate downside of being impossible to achieve (probably).

There is a battery technology out there in the research and development stage.  But it’s a long way from a manufacturing plant.  Right now the electric car is far inferior to the gasoline-powered car.  And if you want a car to take you to and from some place safely, you’re probably buying something with a gasoline engine.  A car where you can use the heat and switch on the lights without worrying if you’ll have enough juice to make it home.  And that’s just something the internal combustion engine will always be able to do better than the all-electric car.  Get you home.

Electric Cars not Selling Well

With Bill Clinton convinced that car batteries for electric cars are an important part of our economic revival, let’s take a look at some electric car sales numbers.  I mean, if everything is contingent on these things, let’s just make sure people are buying them to support this battery economy.  Before we build more plants that may end up building something people don’t want to buy (see Sales update: Nissan Leaf hits 573, Chevy Volt at 493 in April posted 5/3/2011 on Autoblog).

The latest cumulative U.S. sales totals for the plug-in duo, since launching in late 2010, has the Volt leading the pack with 2,029 units sold, while the Leaf comes in at 1,044. Year-to-date, Volt sales stand at 1,703, while Nissan says Leaf production had, as of April 15th, hit nearly 8,000.

And it doesn’t look like people want to buy these electric cars.  Nissan built 8,000 Leafs and only sold 1,044 of them.  That’s pretty bad.  There appears no point in building them anymore.  Not with a backlog of just under 7,000.  And with 87% of all Leafs built sitting unsold, there’s no point in building batteries for more of these cars.

Okay.  Let’s take a closer look at the Volt to see how viable a business model that is (see Will GM’s 2011 Chevy Volt Evolve Or Become A Costly Dead End? by George Parrott posted 6/20/2011 on Green Car Reports).

While the 2011 Chevy Volt will find its way to between 10,000 and 15,000 U.S. buyers, that’s far from enough volume to make any car a production success–or to make it profitable.

Most mainstream car models must sell 100,000 or more units a year to produce black ink.

No point in making batteries for these cars either.  No one’s buying them.  Other than then environmentalists.  Or rich people who can afford a toy car that they can take out for show while using their real internal combustion engine car to commute to work and take on vacations.  And it’s a money hole for GM.  Not exactly what they need while coming out of a ‘bankruptcy’.  If they’re smart they’d give up on the Volt before they have another round of financial problems.

The Irrational Exuberance of Green Energy

There’s a similarity between information technology and green energy.  And that similarity is irrational exuberance.  The market for all those dot-com companies was illusionary.  As is the market for electric cars.  So it makes little sense in building more batteries for cars people aren’t buying.

Adding batteries to our electric grid will be an enormous investment of tax dollars to improve the efficiency of some of the most inefficient energy sources.  Wind.  And solar.  Besides, for anyone who has suffered through multiple power outages each year, do you really want to add more complexity to the electric grid?  Something else that lightning can strike?  Something that is so complex that can’t be repaired or replaced as easily as a downed wire?  I shudder to think about waiting for that power restoration.

The point of green energy is twofold.  To get us off of expensive foreign oil.  And to stop global warming.  But the green energy solution is going to cost us more in the long run than foreign oil.  And with the science telling us sunspot activity may be heading towards a Maunder Minimum, we’re probably going to see some global cooling coming our way.  Not warming.  So what’s the point?  We don’t need green energy right now.   Especially if it costs more than foreign oil.  And we don’t need a bubble of green energy jobs to come back and bight us in the ass when that bubble pops.  As all bubbles do.

We use a lot of oil.  We should build on that.  For now.  Create some good, high paying jobs in the oil business.  Drill for more oil.  And bring it to market.  To meet a soaring demand.  You see, that’s an economic model that works.  Meeting demand with supply.  It works.  Always has.   And always will.

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FUNDAMENTAL TRUTH #71: “For socialism to be successful no one can be allowed to escape it.” -Old Pithy

Posted by PITHOCRATES - June 21st, 2011

One Country Socialism

There’s a debate in the communist community.  About the socialist revolution.  Can it happen in just one country?  Or does it need to be a permanent international revolution?  Lenin said you couldn’t have socialism in only one country.  Stalin agreed.  Until he changed his mind.  Then he was content to have socialism in only one country.  As long as he ruled that one country.  Which he ultimately did in the Soviet Union

But what exactly is the socialist revolution?  What is it revolting against?  Capitalism.  And Lenin saw capitalism export its oppression of the working class into less developed countries.  Capitalist imperialism.  Where advanced capitalist countries exploited the resources and workers of their capitalist colonies.  The capitalists got rich; the workers did not.  And that’s the way it always works.  So it has to stop.  But this is easier said than done.  For this is the ‘danger’ of capital.  It can go anywhere.  That’s why Lenin believed in permanent revolution.  To halt international capital flows.  Which was absolutely necessary for the triumph of socialism over capitalism.  Because if you halt capital inflows in one country, that capital will just seek out another.  And as long as you allow capital to seek out these ’emerging markets’ it will.  Just like that Whac-A-Mole game.  Where you hit the mole down in one location only to see it pop up in another.  And so it is with capitalism.

But there is another problem with ‘one country’ socialism.  If you ignore these international flows of capital things happen.  Sometimes nice things.  A lot of these ‘exploited’ nations got wealthier.  The standard of living improved for some.  And for those who it didn’t they could see what it did for others.  And it looked good.  The ‘have nots’ just saw how much more there was to have.  And they wanted to have it, too.  Interesting fact.  As bad as the working conditions were in some of these ‘exploited’ countries, some of the best jobs were in the imperial economy.  Working in sweatshops for dollars a day sure beat working in the fields for subsistence.  The imperialists helped modernize these poorer countries.  Even made them into better countries.  As much as people liked to hate the British Empire, look at the countries they ‘exploited’ today.  The United States.  Canada.  India.  South Africa.  Australia.  New Zealand.  These aren’t third-world countries.  They’re actually pretty nice places to live.  And immigration patterns prove this.

The Free Rider Problem

This is one of the biggest problems of ‘one country’ socialism.  Because if you compare a socialist country with a capitalist country, the capitalist one always looks better.  Again, based on the direction of immigration.  That’s why it’s hard to maintain a socialist revolution in one country while a neighboring capitalist country is richer and enjoys a higher standard of living.  Because people can simply leave the socialist country and move to the capitalist country.  Let’s look at a simple analogy.  Let’s say you get to study abroad.  You have a choice of two universities.  The Murmansk State Technical University north of the Arctic Circle in Russia.  And the International University of Monaco on the French Rivera.  Which are you going to choose?  Nothing against the Murmansk State Technical University, but I’m betting you choose the warm one by the beach.  Because the weather is nicer.  There’s lots of stuff to do in that nice weather.  And there are a lot of beautiful young people who enjoy sunning themselves with little on in that nice weather.  Because if it’s our choice, we’re going to choose what’s best.  And though Murmansk Tech may be very good, fun in the sun is always better.  So when students choose between the two, Murmansk just isn’t going to win that contest.

In theory socialism is a utopia.  Everyone lives together in one big, happy family.  Everyone works hard.  For the family.  There’s no I, me or mine.  Everything is we, us and ours.  Your labors aren’t yours.  They belong to everyone.  Whether you work a lot.  Or a little.  And the product of all that labor belongs to everyone, too.  Whether you work a lot.  Or a little.  And this is where the utopia breaks down.  Where reality starts setting in.  Because of the free rider problem.  You could be busting your ass for the family while a bunch of worthless wastes of space aren’t.  And yet everyone shares equally in the proceeds of all your labor.  Ergo you work less.  As does everyone else.  Eventually until everyone is doing the bare minimum to get buy.  Or to avoid punishment.

Over time the socialist utopia is not much of a utopia anymore.  If it was ever one.  It’s more of a gray, bleak life.  Where you’re hungry more times than not.  And are always in need of something.  Wanting for the things we take for granted in our capitalist lives.  Toilet paper.  Soap.  A pair of blue jeans.  Things we just go to a store when we need them.  And we do.  We don’t wait for hours in a line at a store with empty shelves in hopes of getting something we need.  Now imagine this store across the street from a store in a rich Capitalist city of plenty.  Which way do you think the people would go?  From the rich city of plenty to the bleak city of empty shelves?  Or the other way around.  Turns out, it was the other way around.

Unhappy in East Berlin

If you’re old like me you know what city I’m talking about.  Berlin.  Which was divided between East Berlin and West Berlin after World War II.  Why?  Because the allies had agreed to occupy the German capital.  Which happened to be deep inside East Germany.  Where the Soviet Red Army still had a presence.  Keeping it in the Soviet sphere.  And in that sphere there was nothing but socialism.  Soviet style.  Stalinism.  The East European countries in the Soviet sphere were for all intents and purposes a part of the Union of Soviet Socialist Republics (USSR).  So whether they liked it or not they now lived in that socialist utopia.  All except a lucky few, that is.

Soviet socialism sucked.  Those in it wanted out of it.  And those in East Berlin could do that by simply walking across the street.  As could anyone that made it to East Germany and into East Berlin.  Caused a bit of a problem.  The best and the brightest in and around East Berlin were walking to their freedom by walking across the street to West Berlin.  Because life was so much better in West Berlin than in East Berlin.  And if you made it to West Berlin you could even leave East Germany.  Go anywhere in Europe.  The UK.  The USA.  Anywhere.

The Soviets learned how it was not possible to have socialism on one side of a street and capitalism on the other.  Because side by side it was clear.  Capitalism was better.  And the people said so with their feet.  Until the Soviets put a stop to it.  You see, for socialism to work, especially in an area where there’s a better life nearby, you just can’t allow people to escape your socialist utopia.  Which is what the Soviets did.  Eventually building a wall between East and West Berlin.  And a kill-zone on the eastern side of that wall.  To dissuade anyone from climbing over that wall.  By killing them before they got there.

The Key to Socialism is Universal Misery

Countries that embrace a more extreme brand of socialism (Marxism, Leninism, Stalinism, etc.) typically share a common theme.  They have very secure borders.  Not to keep people out.  But to keep people in.  Because their people want to escape to a better life.  And the government in that socialist utopia wants to prevent them from getting to that better life.  And does.  Often with extreme force.  Such as the kill-zone in the former East Berlin.

On the other side of the border, though, there is no such police state.  You can come and go as you please.  That is, anywhere but into an extreme socialist state.  Not that anyone would want to.  Because few people choose to live where they go wanting for food and the basic necessities of life.  Or in a police state where your neighbors sometime disappear after talking a little too much about that better life on the other side of the border.

Socialism can work.  It can be that utopia.  As long as people have no choice.  Everyone is equally miserable.  And a better life doesn’t exist anywhere.  It’s hard to lose your freedom.  Many who do try to get it back.  But it’s a different story if you never had it in the first place.  And if it’s the same on the other side of that border.  Because you’ll then be content in your misery.  Blissfully ignorant of anything better.  Obedient.  And that’s how socialism can work.  If there’s universal misery.  And the people are subservient.

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