Free Trade

Posted by PITHOCRATES - November 28th, 2011

Economics 101

When People can Buy and Sell as they Please without Outside Interference we call it Free Trade

Agriculture advances gave us food surpluses.  Food surpluses gave us a division of labor.  The division of labor gave us trade.  Money made that trade more efficient.  Religion and the Rule of Law allowed great gatherings of people to live and work together in urban settings.  Thus unleashing human capital.  And creating a great diversity in economic output.  Because all these people with spare time could create new things.  That other people discovered.  And wanted.

The Rule of Law gave us property rights.  And it’s because of property rights that people take chances.  Then.  And now.  To create things.  Invest their labor and capital.  Because they own what they create.  And are free to trade these products of their own labor and capital.  Freely.  With whom they want to.  At the value of exchange they agree to.  Encouraging others to do the same.  So they, too, can enjoy the products of their own labor and capital.

When people can buy and sell as they please without outside interference we call it free trade.  Outside interference can include many things.  But mostly it means government interfering with market forces.  Such as taxing things differently.  Placing tariffs or quotas on imported goods.  Subsidies to certain domestic manufacturers.  Etc.  All things that complicate the exchange of goods and services.  Because you have to consider all of these other things in addition to the goods and services you wish to exchange.  Complicating the economic exchange.  Making it more costly.  Less free.  And simply less of it.

The Overregulation of a Free Market Creates a Black Market

The less free and more complicated trade gets something happens.  The overregulation of a free market creates a secondary market.  A black market.  Where economic exchanges occur free from government interference.   The black market then becomes the free market alternative to the overregulated ‘government’ market.

The former Soviet Union is a good example.  Government bureaucrats completely controlled the market.  They set the prices.  And allocated the resources.  Poorly, I might add.  And the result?  Stores full of items no one wanted to buy.  Long lines at stores selling the basic necessities of life (such as soap and toilet paper).  Where people waited to buy their allotted quota because there was so little available to sell.  And a thriving black market where you could buy the latest in Western fashion and electronics.  Which proved very handy in bribing government bureaucrats.  Because even they wanted what the Westerners traded freely.

Another good example are cigarettes.  Stores across certain state lines do very well selling cigarettes.  For these stores can sell cigarettes at steep discounts compared to those on the other side of the border.  Why?  Cigarette taxes.  And some cities and states really pile them on.  Making some people spend more money on gas as well as risking trouble with the law to get these more affordable cigarettes.  Often buying them in bulk.  And then smuggling them back home.

An Overly Regulated Market alters our Economic Decision Making, Resulting in Less Economic Activity

A free market lets us come together freely to buy and sell what we choose.  An overly regulated market alters our economic decision making.  Due to higher prices.  And regulatory costs.  A minimal amount may not affect our purchasing decisions.  Whereas an excessive amount pushes some outside the law.  Into the black market.  Back to a free market.  Which is what we all want.  To freely buy and sell what we choose.

The net effect on the economy?  The less free the market is the less economic activity there is.  Either due to higher prices.  Or higher regulatory costs.  Both of which leave us with less to spend on other economic exchanges.  And less motivation to commit labor and capital to create new things to trade.

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If it weren’t for High Labor and Regulatory Costs there would be no need for Currency Manipulation

Posted by PITHOCRATES - October 2nd, 2011

Minimum Wage Earners only become Valuable after Costly on the Job Training

Minimum wage jobs are entry level jobs.  And they’re starting to get that in the UK (see Minimum wage harming job opportunities for young by Richard Tyler and James Kirkup posted 10/2/2011 on The Telegraph).

Firms may be reluctant to create jobs by recruiting inexperienced staff because they are put off by the increased wage bill, the Low Pay Commission has suggested.

The Commission’s intervention comes amid calls from businesses for minsters to freeze or even cut the rate to enable more young people to find work…

Official figures last month showed that almost 1 million of the 2.5 million people officially counted as unemployed in Britain are aged between 16 and 24.

Almost 220,000 have been out of work for more than a year and some economists fear a “lost generation” of young people who never learn the habits of work and face a lifelong struggle ever to find employment…

“The concern is that the current rate is discouraging some employees from taking on young people and giving them a chance to get into the workplace,” he said. “Some companies are finding the rate is a real problem.”

The New England Patriots pay Tom Brady more money than the Detroit Lions pay Mathew Stafford.  Stafford was the number one draft pick.  Brady wasn’t.  But Brady has 3 Super Bowl rings.  Stafford doesn’t have one.  Yet.  He may have one soon, though.  He’s having a very good season.  Undefeated through 4 weeks.  But Brady is better.  Because of his 3 Super Bowl rings.  And his experience.  It’s that experience that makes him worth more.

What’s true for quarterbacks in the NFL is true for workers everywhere.  Experience makes a worker worth more to an employer.  Inexperienced workers are worth less.  So they’re paid less.  Just like in the NFL.

The New England Patriots pay Brady a lot of money.  But they can’t pay everyone that amount of money.  Most players will make less than him.  Just like in the workforce.

Key employees are paid more.  And less critical employees are paid less.  Entry level workers with the least skill and the least experience get paid the least.  These are the minimum wage workers.  Who are just starting their working careers.  Most of who are grateful for the work experience.   Because they know if they show ability they can move up.  Gain more experience.  And earn more as they become more valuable to their employer.  Or to their employer’s competitor.

So of course employers oppose high minimum wages.  Because minimum wage earners only become valuable after costly on the job training.  That’s why they’re paid the least.  They come in with nothing.  And don’t provide any value until the employer gives them value through training.  Mentorship.  And experience.

If you Protect your Markets too much from Imports you will Hurt your own Export Markets

Costs are costs.  And labor costs are some of the more expensive costs.  Because there are a lot of other costs attached to wages.  They add up.  And often are a percentage of an employee’s wages.  The higher the wage, the higher these other costs.  Which makes it harder for a business to be competitive.  And in today’s competitive global economy, nations will help their businesses be competitive any way they can.  To try and make up for all those onerous regulations they impose on their businesses (see One more such victory posted 10/1/2011 on The Economist).

A YEAR ago Brazil’s finance minister, Guido Mantega, declared that the world had entered into a “currency war”. He worried that in a depressed global economy, without enough spending to go around, countries would sally forth and grab a bit of extra demand for themselves by weakening their currencies. The dollar, for example, fell by 11% against Brazil’s real in the year to August 2011, much to the chagrin of Brazil’s manufacturers. Like other emerging economies it fought back by imposing taxes and other restrictions on foreign purchases of local securities…

A cheaper real, zloty and rupee will help emerging economies win a bigger share of global spending. But that is small consolation if global spending declines…

Falling export orders was one of the complaints voiced by Chinese manufacturers in a preliminary survey of purchasing managers published by HSBC last week.

Yes, a cheaper currency gives you an advantage.  So a nation wants it.  But so do other nations.  And what’s more, these other nations don’t want your nation to have a cheap currency.  Because a cheap currency means more exports.

But a currency war is a double edged sword.  If you protect your markets too much from imports you will hurt your own export markets.  Yeah, you may succeed in having a cheap currency but little good that will do if your primary export market slaps a punitive tariff on everything you sell there.

And then there’s the danger of releasing the inflation genie from its bottle.  If you devalue your currency too much your own manufacturing costs will rise.  It’ll take more dollars to buy the stuff you need to manufacture the things you sell.  Which means you’ll have to raise prices.  And anyone who buys from you will have to raise their prices.  And so on until this inflation ends in a recession.  Which will slash overall consumer spending.  Making any win in a currency war a hollow one.

The Senate Bill to Punish China for Currency Manipulation is nothing more than Pandering to a Recession-Weary America

So rational thinking bets against any currency war.  Or antagonizing any trade relationships.  Of course, in an election cycle, rational takes a back seat to winning an election (see Senators court 2012 voters with China currency bill by Doug Palmer posted 10/2/2011 on Reuters).

For lawmakers eyeing their re-election prospects next year, this week provides a chance to show they mean business about cracking down on China’s currency practices and returning jobs to America…

“It is very easy to say that China is the bogeyman,” said Doug Guthrie, dean of business at George Washington University. He said the bill would do little to help U.S. jobs and would raise U.S. import costs, but said it might yet pass…

The Senate bill is the wrong approach because most of the goods the United States imports from China are no longer made by U.S. industry, Frisbie [president of the U.S.-China Business Council] said.

“I’ve always been of the view that, if the Chinese currency were to appreciate, we’re not going to get those jobs back in the U.S. They will migrate to Indonesia or Vietnam or Bangladesh perhaps Sub-Saharan African — the lowest next lowest cost place,” Lardy [a senior fellow at the Peterson Institute for International Economics] said.

So this Senate bill is nothing more than pandering to a recession-weary America.  It won’t help the economy.  And probably will end up making things worse.  By making life that much more expensive for the American consumer.  By replacing those cheap Chinese goods with almost as cheap goods from Indonesia, Vietnam, Bangladesh or Sub-Saharan Africa.  All the while creating zero American jobs.   It will just make life more difficult.  But it may elect a politician or two.  And really, now, isn’t that what’s really important?  I’m jesting, of course.

Why Exactly is the ‘Made in USA’ Stamped Stuff more Expensive?

Perhaps it isn’t the Chinese.  Or the other emerging economies.  Perhaps it isn’t the weak currencies of our trading partners.  Maybe it’s us.  I mean, why do we play with the currency in the first place?  To make our goods cheaper.

So the issue we should be addressing is why are our goods more expensive in the first place.  Why exactly is the ‘Made in USA’ stamped stuff more expensive?  Higher labor and regulatory costs.  Such as the minimum wage.  And the hundreds of other costly regulations American businesses have to comply with.  Remove these and America can be competitive again.  With anyone.  Anywhere.  And in any industry.

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Economic Recovery Requires less Keynesian Spending and more Cutting the Cost of Employment

Posted by PITHOCRATES - September 26th, 2011

The Structural Defect in Keynesian Economics is that Sustained Inflation Creates Asset Bubbles that Must Burst

More bad news for the housing market.  And the American economy (see New-home sales fell in August for 4th month by Derek Kravitz posted 9/26/2011 on the Associated Press).

Sales of new homes fell to a six-month low in August. The fourth straight monthly decline during the peak buying season suggests the housing market is years away from a recovery…

New-homes sales are on pace for the worst year since the government began keeping records a half century ago…

Last year was also the fifth straight year that sales have fallen. It followed five straight years of record highs, when housing was booming.

The housing market is bad.  There’s no denying that.  And this affects everyone.  Not just homeowners.  Because where the housing market goes the economy follows.

While new homes represent less than one-fifth of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Jobs and taxes.  Both of which the government is having trouble generating these days.  That’s why they are desperately trying to stimulate the housing market with all that easy monetary policy.  Getting interest rates to their lowest in years.  If not of all time.  Because new houses equals jobs.  And tax revenue.  Especially when housing values increase over time.

Home prices have dropped more since the recession started, on a percentage basis, than during the Great Depression of the 1930s. It took 19 years for prices to fully recover after the Depression.

But not so much when they don’t.

Worse than the Great Depression.  Now there’s something you don’t hear every day.

One of the missions of the Federal Reserve was to prevent another Great Depression.  In particular, preventing a devastating deflationary spiral.  Such as we’re seeing in home prices now.  Looks like they’ve failed.  Or rather, Keynesian Economics has failed.

The problem is the dependence on Keynesian Economics.  Which uses monetary policy to maintain economic growth.  By having permanent but ‘sustainable’ inflation.  But the structural defect in this model is that sustained inflation creates asset bubbles.  As people bid up the prices of these assets.  Like houses prior to the subprime mortgage crisis.  And when these bubbles burst these asset prices have to fall back to market levels.  Like house prices are doing right now.  And apparently will do for another 19 years.  Give or take.

It is the High Cost of Labor that is Hurting the Advanced Economies

Manufacturing has been better than the housing market.  But it’s not looking too promising right now (see U.S. manufacturing slowdown: 4 cities at most risk posted 9/26/2011 on CNN Money).

U.S. manufacturing has been one of the rare bright spots in an otherwise annoyingly slow economic recovery…

But expectations of slower growth could threaten the rebound and cities that have gained from it. The ongoing European debt crisis and efforts to curb worries over inflation in China have analysts predicting lower demand for everything from American-made electronics to machinery.

U.S. manufacturing grew 6% during the economic recovery after declining 13% following the financial crisis in 2007. IHS Global Insight economist Tom Runiewicz says the industry has grown 4.5% so far this year. While that’s still robust growth, he expects manufacturing growth to slow to 2.9% next year.

The American consumer may not have been buying but consumers in other countries were.  A good example of American exports is the delivery of the first Boeing 787 to ANA.  And Boeing’s 747-8, too.   Though the largest U.S. exporter, Boeing won’t be able to fix the economy alone.  Especially when they’re competing against Airbus.

It is the high cost of labor that is hurting the advanced economies.  The Europeans subsidize some of their industries to make up for this economic disadvantage.  Boeing charges Airbus with getting subsidies that lets them compete unfairly.  And Airbus, of course, accuses Boeing of the same.   To help gain a competitive edge over Airbus, Boeing wanted to expand production in South Carolina.  A right to work state.  Which the Obama administration has opposed.  In support of their union donors.

The lesson of the Boeing-Airbus rivalry is this.  They’d be able to sell more planes if they could cut their labor costs.

Listening to the Private Sector turned around the German Economy and is why they can Bail Out the Euro

Germany’s high cost of labor was crippling her economy.  BMW and Mercedes-Benz built plants in America to escape their high cost of labor.  But things are different in Germany these days.  In fact, the country is so rich that the hopes of saving the Euro common currency falls on the German economy.  The only European economy rich enough to save the Euro.  So how did they make this turnaround?  Through reforms (see Getting People Back to Work by Matt Mitchell posted 9/26/2011 on Mercatus Center at George Mason University).

Germany’s unemployment rate is only 6.2 percent today. This is pretty remarkable given the severity of the recent recession, the slow growth of Germany’s trade partners (including the U.S.) and the unfolding fiscal crisis in the Eurozone.

NPR’s Caitlin Kenney attributes Germany’s relative success to a number of reforms adopted a decade ago. Kenney reports:

To figure out how Germany got where it is today, you need to go back 10 years. In 2002, Germany looked a lot like the United States does now, they had no economic growth and their unemployment rate was 8.7 percent and climbing. The country needed help, so the top man in Germany at the time, Gerhard Schroder, the German chancellor, made in an emergency call to a trusted friend.

So who did he turn to?  A government bureaucrat?  Or someone from the private sector?

The friend was Peter Hartz, a former HR director whom Schroder knew from his VW days. Schroder put Hartz in charge of a commission, the mission of which was to find a way to make Germany’s labor market more flexible. The Hartz commission made it easier to hire someone for a low-paying, temporary job, a so-called “mini job”:

A mini-job isn’t that great of a deal for workers. In these jobs, they can work as many hours as the employer wants them to, but the maximum they can earn is 400 Euros per month. On the plus side, they get to keep it all. They don’t pay any taxes on the money. And they do still get some government assistance.

He went to the private sector.  To get advice of how to create jobs in the private sector.  And he listened to what they said.  The cost of labor and regulatory costs were crippling job creation.

Generous unemployment insurance and regulations that add to the cost of employment tend to make for a static, unhealthy labor market. Though designed to make life better for workers, these policies may do them more harm than good.

Listening to the private sector turned around the German economy.  Made it the dynamo it is today.  And it is why that the German economy is the only economy that can bail out the Euro.

Economic Recovery Requires New Jobs

The economy still looks like it’s going to get worse before it gets better.  Whereas the Germans are doing so well that they may single-handedly bailout the Eurozone from their sovereign debt crisis.  And a lot of Americans are saying that should be us.  Not the bailing out the Eurozone part.  But having the ability to do that.

And that could have been us.  And should have been.  Like it used to be.  When America led the world in creating jobs.  So what happened?  The same thing that had happened in Germany.  The cost of employment grew.  And as it grew new job creation declined.

Economic recovery requires new jobs.  The Germans understood that.  And they did something about it.  So should we.  And the sooner we do the sooner we will see that economic recovery.

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Energy Drives both Food Prices and the Economy. And Politics.

Posted by PITHOCRATES - March 16th, 2011

The Left Promotes and Attacks Electrical Power

The Left wants to get rid of the internal combustion engine and make all cars green.  Plug-ins.  Cars with batteries that charge by plugging them into electrical outlets.  They say it will break our dependence on foreign oil.  And stimulate the economy with new green technology.  For the same reason they want to dot the landscape with high-speed electric trains.  They want to make everything electric.  Because electric motors don’t pollute.

At the same time there is an all out assault on electrical generation in this country.  The nuclear power industry (the closest to a ‘green’ useful source of electricity we have) has been stalled since 1979 thanks to The China Syndrome and Three Mile IslandHydroelectric dams (another ‘green’ source of useful electricity) kill fish and alter the ecosystem.  So we can’t build them anymore.  With two down they’re turning their sights onto fossil fuels.  And they’re locked and loaded (see E.P.A. Proposes New Emission Standards for Power Plants by John Broder and John Collins Rudolf posted 3/16/2011 on The New York Times).

The Environmental Protection Agency proposed the first national standard for emissions of mercury and other toxins from coal-burning power plants on Wednesday, a rule that could lead to the early closing of dozens of generating stations and is certain to be challenged by the utility industry and Republicans in Congress…

She estimated the total annual cost of compliance at about $10 billion, in line with some industry estimates (although some are much higher), and the health and environmental benefits at more than $100 billion a year. She said that households could expect to see their electric bills rise by $3 to $4 a month when the regulation is fully in force after 2015.

With the country struggling to come out of the greatest recession since the Great Depression they want to raise the cost of energy?  For what?  Health and environmental benefits they pull out of the air (there are no ledgers anywhere totaling these costs)?  To offset one of the highest regulatory costs to come down the pike in history?  This is insanity.  One has to ask do they want to push the nation into a depression?  Or are they that ignorant in things economic?

She said that installing and maintaining smokestack scrubbers and other control technology would create 31,000 short-term construction jobs and 9,000 permanent utility sector jobs.

Okay, we increase the cost of electricity forever but we get a few temporary construction jobs.  Construction jobs aside, if you do the math, each of those new permanent jobs will end up costing us over $1 million each year.  In addition to their wages and benefits.  All paid for by the electrical consumer.  The fact that they talk about this as a good thing shows their utter ignorance of things economic.  And contempt for the consumer.

The National Association of Manufacturers said the proposed rule would lead to higher electricity prices and significant job losses.

“In addition, electric system reliability could be compromised by coal retirements and new environmental construction projects caused by this proposed rule and other E.P.A. regulations,” said Aric Newhouse, the group’s vice president for government relations. “Stringent, unrealistic regulations such as these will curb the recent economic growth we have seen.”

Manufacturers use a lot of electricity.  The more they have to pay for it the less they can spend elsewhere.  The new utility costs will always be there.  To stay competitive in the market, they will have to offset that permanent increase with cuts in their operating costs.  Translation?  Layoffs.  Or they simply will not hire new people.  Instead they will make capital investments to increase their productivity.  And use fewer people.  This is how they do things when costs go up.  Either that or they will send manufacturing operations out of the country.

What Happens in Vegas isn’t much these Days

Economic activity is driven by disposable income.  That’s the money you have left after paying the things you have to pay for just to subsist.  Food.  Mortgage.  Gasoline.  Property taxes.  Those kind of things.  Once we pay these, we can splurge on economic stimulation with what’s left over.  Dinners out.  Movies.  Vacations.  And gambling (see The Penny Slot Economic Indicator by Douglas French posted 3/16/2011 on Ludwig von Mises Institute).

Those at the Fed and in the financial press are telling us that the economy is turning around. Corporate America is ginning up profits so prosperity on main street can’t be far away…

However, if gaming trends in Nevada are any indication the middle class is hurting. Tourism and gaming peaked in 2007, with middle America making the trek to the gambling city to sit down and play a little blackjack (or 21). Latest figures have blackjack revenue down 31 percent from 2007, the Las Vegas Sun reports.

Last year was the first time baccarat, a game favored by Chinese high-rollers, generated more revenue than blackjack. But the $1.2 billion in baccarat revenue pales next to the $2 billion that penny slot machines generated…

So Las Vegas is limping along dependent on high rollers from China and low rollers playing penny slots. “This is why Vegas got hammered,” Anthony Curtis, publisher of Las Vegas Advisor says. “It needs the middle market.”

Casinos worked in Las Vegas because people went to Las Vegas to lose their money.  It’s a destination city.  All the other cities who opened casinos to cure their budgetary woes saw no magic.  The middle class just spent their money at the casinos instead of at the movies or the restaurants.  And by taking staycations.  We spent the same amount of money in the community.  We just spent it at different locations.

The recession may be over according to Washington, but it’s not over for the middle class.  Because they haven’t returned to vacationing in Las Vegas.  Why?  They don’t have as much money as they used to have.  And prices are going up.  A double whammy.  They have less to spend and subsistence costs are on the rise.

If Energy Costs Rise Food Costs Rise

In the summer of 2010 the Obama administration was touting their summer of recovery.  Declaring that their stimulus spending had ended the recession.  They were a bit premature.  Unemployment is still close to 9%.  Despite all of their quantitative easing.  They printed a lot of money.  Didn’t help.  Worse, on top of stubborn high unemployment, prices are going up on almost everything (see Wholesale prices up 1.6 pct. on steep rise in food by the Associated Press posted 3/16/2011 on Yahoo! Finance).

Wholesale prices jumped last month by the most in nearly two years due to higher energy costs and the steepest rise in food prices in 36 years. Excluding those volatile categories, inflation was tame…

Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose.

Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.

Separately, the Commerce Department said home construction plunged to a seasonally adjusted 479,000 homes last month, down 22.5 percent from the previous month. It was lowest level since April 2009, and the second-lowest on records dating back more than a half-century…

Food costs, meanwhile, are rising. Bad weather in the past year has damaged crops in Australia, Russia, and South America. Demand for corn for ethanol use has also contributed to the increase.

Prices rose 1 percent for apparel, the most in 21 years. Costs also increased for cars, jewelry, and consumer plastics.

Some would love to see $4/gallon gasoline again.  It would push people into electric cars and mass transportation.  But there’s a downside.  A big one.  Higher energy costs make everything more expensive.  Even our vegetables.  Because those vegetable don’t appear by magic in the grocery store.  They travel long ways on trucks that burn diesel fuel to get to the grocery store.

Food and energy are tied at the hip.  If energy costs rise food costs rise.  And when you siphon some food off to make low-energy ethanol that no one wants that just increases food costs more.  We should use food for food.  And oil for fuel.  It’s more cost efficient.  And consumers will have more money left over to stimulate the economy with.

The Left Makes a Very Poor Argument Against Nuclear Power

And speaking of energy, nuclear energy is in the news these days in a big way.  But not in a good way.  Japan has some reactors that were hit with a one-two punch of earthquake and tsunami.  The tsunami took out the cooling systems.  So there’s a little trepidation over these plants right now.  And absolute glee as anti-nuclear people exploit this for all it’s worth.  They’re saying, “See!  That’s what could happen in America right now.  And in Europe.  We need to stop all nuclear power.”  I’m paraphrasing, of course.  But you get the gist.  Why, some are even playing loose with facts.  Even lying.  And some are writing top 10 lists why nuclear power is bad and why solar and wind are good (see Too Cheap to Meter: The Top 10 Myths of Nuclear Power by Michael Rose posted 3/15/2011 on The Huffington Post).

The best way to generate new power for the long term is not to build nukes but to invest in large scale solar and wind, coupled with natural gas as a transition in the short term.

The problem has been coordinating the power produced when the wind blows and the sun shines, distributing the power and storage. There are solutions to all of these. “You need to link up the disparate sources to compensate for when the wind is blowing and the sun isn’t shining,”

Coordinating the wind and the sun?  Really?  That should be our energy policy?  And how will that work during a major blackout?  Like the Northeast Blackout of 2003?  Can solar power really run all our air conditioning systems during the dog days of summer?  Our fossil fuel-fired plants can’t always do that.  Can you imagine a hot summer without those high capacity plants?  The inevitable blackouts won’t be rolling.  They’ll simply be scheduled daily during air conditioning weather.

The nuclear industry has asked for loan guarantees from the Federal government because the banks looked at the risk and took a pass. With the loan guarantees in hand the companies can get financing and if they default, or walk away from the projects (which is what happened before) the taxpayers will be stuck with the bill. “It’s the same as if you defaulted on your mortgage and the Federal government had to step in to pay the banks back,” said Hirsch.

We saw above how new regulations are going to cost the coal-fired plant operators.  The new regulations will probably force some plants to shut down.  This is the fear of regulation.  Uncertainty.  If you change the rules midway through the game there’s a good chance you’re going to end up losing in the end.  Power plants are costly.  They are difficult to build because of the regulatory hoops you have to jump through.  It is a very high-risk game.  And nowhere are the risks and regulatory hoops greater than nuclear power.  These plants take even longer to build.  Are far more costly because of the regulatory compliance costs.  And have by far the greatest uncertainty because of the length of time from drawing board to operating on line because of these regulatory hurdles.  This is why banks don’t want to invest.  Because the government can change the rules and prevent a plant from ever going on line, leaving the bank to eat the construction costs.

It’s true that building the reactors does create jobs, but these disappear when the reactor is complete. And there are staff positions for running the reactors, providing maintenance and security but not enough to warrant the high costs and risks…

Ironically some fear that building new nukes will chase jobs away because electric rates will have to dramatically increase to pay them off. “No state ever created a net increase in jobs by raising electric rates to commercial and industrial customers. Such a policy drives jobs out of many businesses to create relatively few permanent jobs at the new reactor,” said Bradford.

Funny.  The same arguments work for other federal stimulus spending.  Those short-term construction jobs are good when they’re trying to pass a stimulus bill.  But it’s not good if it will stimulate nuclear power.  And they say here that increasing the cost of electricity will kill jobs.  Meanwhile, increasing the cost of electricity by adding new regulations for coal-fired plants will increase jobs.  Costs are funny that way.  Sometimes they’re bad.  Sometimes they’re good.  Sometimes they’re rooted in reality.  Other times, in fantasy.

France is pointed to as demonstrable proof that nuclear power can be affordable and safe. While it’s true France gets about 75% of its electricity from nuclear power and that it has avoided a large scale disaster but we don’t know very much about their accident record since its industry is nationalized and run behind a veil of secrecy…

It also adds to the costs of the producing nuclear power which is one reason French electric rates are 20% above U.S. rates despite subsidies, according to Bradford.

So, yes, France has energy independence.  And they haven’t had a nuclear disaster.  But that doesn’t mean anything.  They could.  Just because they didn’t doesn’t mean they can’t have a China syndrome next week.  Or tomorrow.  So we should proceed as if they will.  Despite their safety record.  And the cost?  Interesting.  Because the source they cite paints a little different picture.

The present situation is due to the French government deciding in 1974, just after the first oil shock, to expand rapidly the country’s nuclear power capacity. This decision was taken in the context of France having substantial heavy engineering expertise but few indigenous energy resources. Nuclear energy, with the fuel cost being a relatively small part of the overall cost, made good sense in minimising imports and achieving greater energy security.

As a result of the 1974 decision, France now claims a substantial level of energy independence and almost the lowest cost electricity in Europe. It also has an extremely low level of CO2 emissions per capita from electricity generation, since over 90% of its electricity is nuclear or hydro.

In mid 2010 a regular energy review of France by the International Energy Agency urged the country increasingly to take a strategic role as provider of low-cost, low-carbon base-load power for the whole of Europe rather than to concentrate on the energy independence which had driven policy since 1973.

Energy independence?  Low fuel costs?  Almost the cheapest electricity in Europe?  Extremely low CO2 emissions?  And the International Energy Agency wants them to be the provider of “low-cost, low-carbon base-load power for the whole of Europe…”  I don’t know.  These sound like good things to me.  Talk about being a bit disingenuous.  And by a bit I mean a lot.  Clearly they are cherry-picking some facts to forward an agenda.  Speaking of which, back to the HuffPo.

All civilian nuclear programs create spent fuel that can be reprocessed into weapons grade plutonium. This is what Iran, North Korea, India and Pakistan have done.

It doesn’t take much. At first you needed a chunk of plutonium about the size of a softball now it’s down to the size of a golf ball. “If a country has done its engineering, it can take about a week to go to a bomb,” said Gillinsky. “Safeguard inspections are too late.”

And here we come to why we use the energy we use.  Because it’s concentrated.  A little bit of nuclear fuel goes a long way.  Just like our fossil fuels.  That’s why our cars run on gasoline.  Because it’s easy to store and it’s highly concentrated.  With a small tank of fuel you can drive a very long way.  While carrying your whole family.  And a lot of your stuff.  That’s why we don’t drive electric cars.  You can’t do any of this in a battery-electric car.  The battery takes up too much space.  And you just can’t go very far on a charge.

Solar farms and wind farms are not concentrated sources of energy.  The very term we use to describe these generating ‘plants’ tells us this.  You need so many of them that we call them ‘farms’.  Not ‘plants’.  And even with a large footprint their electricity output won’t come close to what the power plants using concentrated-fuels can produce.  A couple of reactors on a small site can power a large city.  It would take a very large plantation of solar panels and windmills to produce the same amount of electricity.  And they will only produce when the sun is shining or the wind is blowing.  Our concentrated fuel-fired power plant will be there 24/7, day or night, rain or shine.

Will the Great Recession turn into the Great Depression II?

Never before has our energy policy been in such a mess.  The children have taken control of policy.  They’re promoting fanciful solar panels and windmills no doubt while dreaming of unicorns and sugar plum fairies.  They don’t understand energy.  Or economics. 

Energy costs.  Construction costs.  Fuel costs are recurring.  While construction costs are one-time.  Therefore, the best economic policy would be to minimize fuel costs.  And coal, natural gas, oil, and nuclear do just that.  You get huge amounts of energy from small amounts of fuel.  Especially nuclear.

Yes, sunshine and wind are free.  And you can’t minimize fuel costs more than free (except with nuclear that can use some nuclear waste to produce more fuel).  But the infrastructure cost to make solar and wind provide meaningful amounts of energy are staggering.  A nuclear plant can sit on a small footprint out of the way.  While solar and wind farms will take acres of land.  Or water (for offshore wind generation). 

While they play with energy and economic policies, consumer costs rise everywhere.  And will continue to do so.  As a direct consequence of their policies.  Consumers pay more.  And the greatest recession since the Great Depression drags on.  Perhaps turning recession into depression.  Could the Great Depression II be around the corner?  I hope not.  But one can’t rule it out with the current administration.

www.PITHOCRATES.com

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