The more Electric Cars people drive the greater the Stress on the Electric Grid

Posted by PITHOCRATES - April 16th, 2014

Week in Review

Have you ever noticed your lights dim when your air conditioner starts?  They do because when an electric motor starts there is a momentary short circuit across the windings.  Causing a great inrush of current as they start rotating.  Once they are rotating that inrush of current drops.  During that surge in current the voltage drops.  Because there is no resistance in a short circuit.  So there is no voltage across a short circuit.  And because everything in your house goes back to your electrical panel that momentary voltage drop affects everything in your house.  Including your lights.  The lower voltage reduces the lighting output.  Momentarily.  Once the air conditioning motor begins to rotate the short circuit goes away and the voltage returns to normal.

Air conditioners draw a lot of power.  And during hot summer days when everyone gets home from work they cause the occasional brownout.  As everybody turns on their air conditioners in the evening.  Stressing the electric grid.  Which is why our power bills rise in the summer months.  For this great rise in demand causes a corresponding rise in supply.  Costing the power companies more to meet that demand.  Which they pass on to us (see Electricity Price Surged to All-Time Record for March by Terence P. Jeffrey posted 4/16/2014 on cnsnews).

The average price for a kilowatthour (KWH) of electricity hit a March record of 13.5 cents, according data released yesterday by the Bureau of Labor Statistics. That was up about 5.5 percent from 12.8 cents per KWH in March 2013.

The price of electricity in the United States tends to rise in spring, peak in summer, and decline in fall. Last year, after the price of a KWH averaged 12.8 cents in March, it rose to an all-time high of 13.7 cents in June, July, August and September.

If the prevailing trend holds, the average price of a KWH would hit a new record this summer.

All-electric cars are more popular in California than in Minnesota.  Because there is little cold and snow in California.  And batteries don’t work so well in the cold.  AAA makes a lot of money jumping dead batteries during cold winter months.  So batteries don’t hold their charge as well in the winter.  Which is when an all-electric car requires more charge.  For the days are shorter.  Meaning that at least part of your daily commute will be in the dark and require headlights.  It is colder.  Requiring electric power for heating.  Windows fog and frost up.  Requiring electric power for defogging and defrosting.  It snows.  Requiring electric power to run windshield wipers.  Slippery roads slow traffic to a crawl.  Increasing the time spent with all of these things running during your commute.  So the all-electric car is more of a warm-weather car.  Where people who don’t live in sunny California may park their all-electric car during the worst of the winter months.  And use a gasoline-powered car instead.

As those on the left want everyone to drive all-electric cars they don’t say much about the stress that will add to the electric grid.  If everyone switched to an electric car in the summer it would be like adding a second air conditioner at every house.  Especially after work.  When everyone gets home and plugs in.  Causing an inrush of current for an hour or so as those discharged batters recharge.  A discharged battery is similar to an electric motor.  As it’s the current flow that recharges the battery cells.  There’s a high current at first.  Which falls as the battery charges.  So summer evenings will have a lot of brownouts during the summer months.  As the added electric load will greatly stress the electric grid during the evenings.  A demand that the power companies will have to supply.  At the same time they’re replacing coal-fired power plants with less reliable renewable forms of power generation.  Such as solar farms.  Which will be fast running out of sunshine as these cars plug in.

If people switch from gasoline to electric power in their cars en masse the average price for a kilowatt-hour will soar.  It’s simple economics.  Supply and demand.  The greater the demand the higher the price.  And there is little economies of scale in power production.  Because more power requires more fuel.  And the kicker is that even people who don’t drive will have to pay more on their electric bills when people switch from gasoline to electric cars.  And their gas bills if gas-fired turbines provide that peak power demand.  Raising the price of natural gas.  Making everyone pay more.  Whereas only drivers of gasoline-powered cars are impacted by the high cost of gasoline.


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Keynesian Economists are Narcissists who don’t know the First Thing about Economics

Posted by PITHOCRATES - March 2nd, 2014

Week in Review

There was a sketch on the Benny Hill Show that reminds me of Keynesian economists.  Benny was singing a song and they were showing the unrequited love around him.  They showed one woman who loved a man.  But that man loved another woman.  Who loved Benny.  And who did Benny love?  The camera remained on Benny.  Because that’s who he loved.

Keynesian economists are a lot like that.  They like to sound erudite.  They like to write things with impressive economic jargon in it.  The layman can’t understand a thing they say or write.  But that’s okay.  As they are writing to impress their peers.  People who are as narcissistic as they are.  And they tell each other how brilliant they are with all of their demand-side pontificating.  Pinching each other’s cheeks and saying, “Who’s a good economist?  You are.  You’re a good economist.  Yes you are.”  Even though they are always wrong.  Reminding me of another television show.  Hogan’s Heroes.  Where Colonel Hogan and Colonel Klink were disarming a bomb in the compound.  They’re down to two wires.  One disarms the bomb.  The other detonates it.  Colonel Hogan asks Colonel Klink which wire to cut.  He picks one.  And just as he’s about to cut it Colonel Hogan changes his mind and cuts the other wire.  Disarming the bomb.  Colonel Klink asks him if he knew which wire to cut why did he ask him.  And he replied that he wasn’t sure but he knew for sure that Colonel Klink would pick the wrong wire.

This is just like a Keynesian economist.  Ask them what to do to help the economy and you can be sure they’ll pick the wrong thing to do.  Because they love their demand-side economics with all their charts and graphs and equations.  For it feeds into their superiority complex.  As they can baffle people with their bull s***.  Well, the truth is that the economic data doesn’t support demand-side economics.  For all of the stimulus spending Keynesians have encouraged governments to do have never pulled an economy out of a recession.  It has only extended a recession.  And made it more painful.  For if you want to help the economy you have to work on the supply side.  Make it easier for people to be creative and bring things to market.  Things people will buy.  Even if they had no idea that they existed before seeing them in the market (see How Taco Bell’s Lead Innovator Created The Most Successful Menu Item Of All Time by Ashley Lutz posted 2/26/2014 on Business Insider).

The Doritos Locos Taco is one of the most successful fast food innovations of all time.

Taco Bell released the product in 2012 and sold more than a billion units in the first year. The fast food company had to hire an estimated 15,000 workers to keep up with demand…

The team went through more than 40 recipes, and Gomez told Business Insider he sometimes felt like the idea would never come to fruition.

“Execution was so difficult,” he said.

Gomez was eventually able to perfect the shell by using the same corn masa found in Doritos. He also discovered a process that would evenly distribute the seasoning on the shells. And the company found a way to contain the cheese dust in the production process.

Even after Gomez created the ultimate shell, he still had to design production facilities that would make millions of them.

But for Gomez, the years of effort was worth it.

“When we shared the idea with our consumers, they loved it,” Gomez said. “I was blown away with how immediately popular Doritos Locos Tacos became.”

The taco is the most popular menu item in the fast food chain’s 50-year history.

This wasn’t demand-driven.  As Keynesians believe everything is.  Get more money into the hands of consumers and they will demand things.  Thus increasing economic activity.  But not a single consumer was demanding the Doritos Locos Taco.  As there was no such thing to demand.  And giving them more money wasn’t going to bring it to market.  Only creative people with an idea and an indefatigable passion brought this to market.  Spending a lot of years and lots of money to bring to market something people weren’t demanding.  And might not even like.  But they did.  And it was a big success.  This is how you create economic activity.  On the supply side.  Cut tax rates and costly regulations.  Like Obamacare.  So other people are encouraged to be creative and use their indefatigable passion to bring other things to market.  Creating a whole lot more economic activity than just giving people a stimulus check and telling them to go out and create economic activity.  Because once that Keynesian stimulus is spent it cannot create any more economic activity.  Unlike all of the economic activity it takes to sell a billion or more Doritos Locos Tacos a year.


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Posted by PITHOCRATES - January 22nd, 2014

Technology 101

A Bridge is a Fixed Structure that requires no Active Systems to Function

Bridges are dumb.  While tunnels are smart.  You can build a bridge and walk away from it.  And it will still work.  That is, you can still cross the bridge without anyone at the bridge doing anything.  It can even work in a power outage.  Even at night.  It may be dark.  But a car’s headlights will let a person cross safely.  Because a bridge doesn’t have to do much for people to use it.  All it has to do is stand there.  A tunnel, on the other hand, needs smart systems to make the tunnel passable and safe.

Bridges are high in the air.  Where there is plenty of fresh air to breathe.  If there is a car fire on the bridge all of that fresh air will allow other drivers to breathe as they drive around it.  And for first responders to breathe as they put that fire out.  They can use all the water they bring onto the bridge, too.  Even in a driving downpour.  For that water will just run off of that bridge without causing a drowning hazard.  Visibility doesn’t change driving onto or off of the bridge.  Unlike with tunnels.  Where you can go from bright daylight into a dark hole.  And from a dark hole into bright daylight.

A bridge is a fixed structure that requires no active systems to function.  Just some maintenance.  Painting and roadway lighting.  Maybe some traffic control signals.  But that’s about it.  Tunnels, on the other hand, need machinery.  Equipment.  Systems.  And people.  Because tunneling below grade causes a whole host of problems.  Problems that have to be addressed with machinery, equipment and systems.  And if they don’t work people can die in a tunnel.

Powerful fans at each end of the tunnel pull in fresh air and blow it through the duct under the roadway

Cars have internal combustion engines.  They exhaust carbon monoxide after combustion.  Which is poisonous if we breathe it.  A big problem in tunnels filled with cars with internal combustion engines.  Which is why if you look at a cross-sectional view of a tunnel you will see that the biggest section of these underground structures are used for moving air.

If you have driven through a tunnel you probably remember driving through a rectangular tube.  Little bigger than the vehicles driving through it.  What you don’t see is the air duct beneath the roadway.  And the air duct above the roadway.  Powerful fans at each end of the tunnel pull in fresh air from the atmosphere and blow it through the duct under the roadway.  It exits the duct at about exhaust pipe level.  This fresh air blows into the rectangular tube where cars are pumping in carbon monoxide.

Other powerful fans are also located at each end of the tunnel that pull air out of the tunnel.  Via the duct over the roadway.  Fresh air comes in from below.  Mixes with the poisonous carbon monoxide.  This gets sucked into openings overhead.  Into the duct over the roadway.  And vents to the atmosphere at either end of the tunnel.  Allowing these poison-making machines to travel underground in an enclosed space without killing people.

A Tunnel is a Complex Machine that requires Intelligent Programming not to put People in Danger

Tunnels through mountains go through porous rock that drip water into the tunnel.  Tunnels under bodies of water are low in the middle and high at the ends.  Making each tunnel portal a massive storm drain when it rains.  And water in a tunnel is a dangerous thing.  It can freeze.  It can get deep.  It can cause an accident.  It can drown people.  So when it enters the tunnel you need to pump it out.  Tunnels have storm drains that drain any water entering the tunnel to a sump at a low point.  And pumps move this water from the sump out of the tunnel.

Ever spend an hour or so shoveling snow on a bright day?  And then go inside only to temporarily lose your vision?  This is snow blindness.  Your pupils shrink down to a tiny dot outside to block much of the bright sun and the light reflecting from the snow and ice. And when you walk inside that tiny dot of a pupil won’t let enough light into your eye so you can see in the reduced lighting level.  After awhile your pupils begin to dilate.  And you can see.  Same thing happens when driving into a tunnel.  Of course, temporarily losing your vision while driving a car can be dangerous.  So they add a lot of lights at the entrance of a tunnel.  To replicate sunlight.  And as you drive through the tunnel the lighting levels fall as your eyes adjust.  At night they reduce the lighting levels to prevent blinding drives as they enter.  And prevent snow blindness when exiting the tunnel.

A bridge doesn’t need any of these systems.  But a tunnel won’t work without them.  As people could die in these tunnels.  Because it’s dangerous when people go below grade with machines that create poison.  So tunnels need computers and control systems.  To monitor existing conditions such as exterior lighting levels, carbon monoxide levels, smoke and fire detection, water levels and high water alarms, etc.  Based on these inputs a control system (or a person) turns lights on or off, increase or decrease supply and exhaust fan speeds, pump down the sump when it reaches a high water level, etc.  Only when these systems are on line and operating properly is driving through a tunnel as safe as driving over a bridge.  Because bridges are dumb things.  They only need to stand there to work.  While a tunnel is a complex machine.  That requires intelligent programming not to put people in danger.


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Electric Car Builder Tesla increases Battery Order by 900%

Posted by PITHOCRATES - November 2nd, 2013

Week in Review

Say’s law states that supply creates its own demand.  Think of some of the greatest inventions in our life and you’ll see that Say’s law is true.  Today’s kitchens aren’t complete without a microwave oven.  Yet we didn’t demand a microwave oven.  Because we had no idea what it was until someone created it.  And told us how wonderful it was.  Then we started buying them.  The supply of microwaves came first.  The demand then followed.  Hence, supply created its own demand.  Just like Say’s law states.  You know who else believes in Say’s law?  Elon Musk.  The guy who founded PayPal.  SpaceX.  And Tesla Motors (see Tesla boosts battery order from Panasonic by Reuters posted 10/30/2013 on The Globe and Mail).

Tesla Motors Inc. will sharply increase the number of lithium ion battery cells it receives from Japan’s Panasonic Corp, in a deal that underscores the U.S. car maker’s confidence in the future of all-electric cars.

Electronics maker Panasonic, already Tesla’s primary supplier of lithium-ion batteries, will provide nearly 2 billion lithium ion cells to the car maker in the four years to 2017, the two companies said on Wednesday.

That is a big step-up from the 200 million cells Panasonic is expected to have supplied to Tesla in the two years ending this December.

The deal shows Tesla’s faith in its models despite slower-than-expected global sales of electric vehicles.

Going from 200 million to 2 billion?  That’s an increase of 900%.  It’s one thing to have faith and believe in your product.  Believing that your supply will create demand.  But there is another economic concept that may be pertinent here.  One from the Austrian school of economics.  Malinvestment.  Taking advantage of cheap capital and government subsidies to make bad investments.  Hence malinvestments.  For it is unlikely that any business is going to see a 900% sales growth in the coming year let alone the narrow niche market of electric cars.  Even Jean-Baptiste Say himself would probably say that’s some pretty wishful thinking that a 900% increase in supply will generate a corresponding demand.


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A Renewable Boom means more Expensive and Less Reliable Electric Power

Posted by PITHOCRATES - October 20th, 2013

Week in Review

The news on our green energy initiatives sounds good.  We’re importing less oil.  And adding more and more wind power.  If you’re a proponent of green energy you no doubt are pleased by this news.  But if you understand energy and economics it’s a different story.  You’ll think the country is moving in the wrong direction.  Ultimately raising our energy costs.  Without making much of an impact on carbon emissions.  And just because we are exporting gasoline doesn’t mean we’re on the road to being energy self-sufficient (see The Renewable Boom by Bryan Walsh posted 10/11/2013 on Time).

Earlier this year, the U.S. became a net exporter of oil distillates, and the International Energy Agency projects that the U.S. could be almost energy self-sufficient in net terms by 2035.

This is not necessarily a good thing.  Being a net exporter of oil distillates.  It means that US supply exceeds US demand at the current market price.  That’s an important point.  The current market price.  The US has been in an anemic economic recovery—though some would say we’re still in a recession—since President Obama assumed office.  During bad economic times people lose their jobs.  Those who haven’t are worried about losing theirs.  And they worry about the uncertainty, too, about the cost of Obamacare.  So people are driving less.  And they are spending less.  Because they have less.  And worry about how much money they’ll need under Obamacare.  So they’re not taking the family on a cross-country vacation.  Some are even spending their vacation in the backyard.  The so called ‘staycation’.  No doubt the 10 million or so who disappeared from the labor force since President Obama assumed office aren’t driving much these days.  So because of this US demand for gasoline is down.  And, hence, prices.   Even though gasoline prices are still high and consuming an ever larger part of our reduced median family income (also down since President assumed office), gasoline prices are higher elsewhere.  Which is why refineries are exporting their oil distillates.  To meet that higher demand that has raised the market price.

But the biggest source of new electricity in the U.S. last year wasn’t a fossil fuel. It was the humble wind. More than 13 gigawatts of new wind potential were added to the grid in 2012, accounting for 43% of all new generation capacity. Total wind-power capacity exceeded 60 gigawatts by the end of 2012—enough to power 15 million homes when the breeze is blowing.

These numbers do sound big for wind.  Like it’s easy sailing for wind power to replace coal.  But is it?  Let’s look at the big picture.  In 2011 the total nameplate capacity of all electric power generation was 1,153.149 gigawatts.  So that 13 gigawatts though sounding like a lot of power it is only 1.127% of the total nameplate capacity.  Small enough to be rounding error.  In other words, that 13 gigawatts is such a small amount of power that it won’t even be seen by the electric grid.  But it gets even worse.

We used the term ‘nameplate capacity’ for a reason.  This is the amount of power that this unit is capable of producing.  Not what it actually produces.  In fact, we have a measure comparing the power generation possible to the ‘actual’ power generation.  The capacity factor.  Which measures power production over a period of time and divides it by the total amount of power that the unit could have produced (i.e., its nameplate value).  Coal has a higher capacity factor than wind because coal can produce electric power in all wind conditions.  While wind power cannot.  If the winds are too strong the wind turbines lock down to protect themselves.  If the wind is blowing too slowly they won’t produce any electric power.

The typical capacity factor for coal is 62.3%.  Meaning that over half of the installed capacity is generating power.  Some generators may be down for maintenance.  Or a generator may be shut down due to weak demand.  The typical capacity factor for wind power is 30%.  Meaning that the installed capacity produces no power 70% of the time.  And it’s not because turbines are down for maintenance.  It’s because of the intermittent wind.

So coal has twice the capacity that wind has.  Does this mean we need twice the installed capacity of wind to match coal?  No.  Because if you tripled the number of wind turbines in a wind farm they will still produce no power if the wind isn’t blowing.  In this respect you can say coal has a capacity factor of 100%.  For if they want more power from a coal-fired power plant they can bring another generator on line.  Even if the wind isn’t blowing.

You could say wind power is like parsley on a plate in a restaurant.  It’s just a garnishment.  It makes our electric power production look more environmentally friendly but it just adds cost and often times we just throw it away.  For if coal provides all our power needs when the wind isn’t blowing and the wind then starts blowing you have a surplus of power that you can’t sell.  You can’t shut down the coal-fired power plant because the wind turbines don’t produce enough to replace it.  You can’t shut down the wind turbines because it defeats the purpose of having them.  So you just throw away the surplus power.  And charge people more for their electric power to cover this waste.  Like a restaurant charges more for its menu items to cover the cost of the parsley the people throw away.


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FT190: “The children are our future. God help us.” —Old Pithy

Posted by PITHOCRATES - October 4th, 2013

Fundamental Truth

Our Universities praise Government Intervention, Vilify Capitalism and Denigrate US History

I recently saw some students on television from our most prestigious universities.  I won’t say who or where they were because it doesn’t matter.  For they all pretty much think the same.  There were liberal Democrats.  And conservative Republicans.  Young people.  Just into their twenties.  They spoke of economics, health care, free markets, investing in education, etc.  Kids too young to have experienced life.  In fact, most were still on their parent’s health insurance policies.  But they knew everything there was to know.  Particularly the liberal Democrats.

In college kids don’t know anything.  That’s why they are there.  So someone can tell them all those things they don’t know.  The problem is this.  The people telling them what to think have a liberal bias.  It’s no secret.  The teachers’ unions demand pay and benefit packages well beyond what most people can get in the private sector.  The government let’s them gouge taxpayers.  And in return they teach our kids in public schools to become Democrat voters.  Then it’s on to college.  Where the anti-capitalist hippies of the Sixties went on to become college professors.  Who talked about the fairness in the former Soviet Union and the former East Germany.  Where they put people before profits.  Admiring their love of people.  And hatred of profits.  While glossing over on their oppressive police states, thought crimes, prisons for political dissidents, torture and wholesale executions.

These radical hippies took over higher education.  And wrote the curriculum.  Which praised government intervention into the free market economy.  Vilified capitalism.  And denigrated the United State’s role in history.  Programming our children to hate whatever they hate.  And to love what they love.  Even when the facts get in the way.  Which they can fix with a little history revisionism.

The Arts did Very Well during the Eighty thanks to the Generosity of Gainfully Employed People

They call the Eighties the decade of greed.  While at the same time calling President Reagan’s economic policies a failure.  Supply-side economics.  Of the Austrian school.  Everyone did well.  Everyone made money.  Which is why they were so materialistic.  Because they had good-paying jobs that allowed them to be materialistic.  Allowing them to buy Sony Walkmans and CD players.  Which everyone had to have.  Even though no one knew what they were before they hit the stores.  Proving Say’s law.

Say’s law is a part of supply-side economics.  In general it states that supply creates its own demand.  No one was clamoring for Sony Walkmans or CD players in the Eighties.  But when these companies explained how great they were all of a sudden we were demanding them.  Supply created demand.  Just as PC supply created PC demand.  PCs were on the market long before they were in everyone’s home.  It was a tough sell in the beginning.  Because no one knew what they would use them for.  But they have them now.  Just like the Internet.  For a generation who had just mastered the recording functions on their VCRs (video cassette recorders—what we used to record TV programs on before DVRs) the Internet was a confusing thing.  And many said “thank you, but no thanks.”  Then people began creating content and putting it on the World Wide Web.  Today, people can’t live without their Internet connection.  Again, supply created demand.

This is Say’s law in action.  Supply creates demand.  You make it easier for people to be creative and bring things to market and they will.  Two ways to do this is to lower tax rates and reduce the regulatory climate.  So people are more willing to take risks.  Which they will do if there is sufficient reward for taking that risk.  Reagan did both during the Eighties.  The economy exploded.  Everybody was working.  The jobs were so good that we had money for material comforts.  And generous donations.  The arts did very well during the Eighties thanks to the generosity of gainfully employed people.

Obamacare will take Money from the Young and Healthy to pay for the Old and Sick

But this isn’t what they’re teaching in our universities.  They say that Reagan did cut taxes and created an economic boom.  But at what cost?  For he had record deficits.  Because of those tax cuts.  Which is where that history revisionism comes in.  Yes, he cut tax rates.  And when he did tax receipts (actual money flowing into the treasury) nearly doubled.  But our universities don’t teach that.  As demonstrated whenever a liberal talks about Reaganomics.  Instead they attack Reagan.  Capitalism.  And Republicans in general.  Because they all believe that limited government is best.  Which threatens a ruling class.

Our universities teach our kids the economics school that benefits the ruling class.  By supporting an ever expanding government.  Keynesian economics.  Which has a proven track record of failure whenever we’ve tried it.  John Maynard Keynes himself advised FDR during the Great Depression.  FDR didn’t think much of Keynes.  But he liked his idea about government spending during times of recession.  Even though it only delayed the correction—and prolonged the recession—by interfering with market forces trying to correct market prices.  Giving us the Great Depression.  Keynesian economics also gave us the stagflation of the Seventies.  Japan’s Lost Decade in the Nineties.  The American dot-com bubble and recession in the Nineties/early 2000s.  The 2008 subprime mortgage crisis.  And the ongoing European sovereign debt crisis.  All of these crises have their roots in Keynesian economics.  The school of economics of the ruling class.  But what do they teach in college?  Free market capitalism is bad.  And Keynesian economics is gospel.

These twenty somethings were anxious to show how smart they were.  How in a mere 2-4 years of college they had learned everything there was to learn.  And could regurgitate the party line.  Rolling their eyes at the idiots around them.  Laughing with all-knowing condescension.  Praising President Obama.  Obamacare.  Believing that it will provide more for less.  When nothing in the world works that way.  More costs more.  Yet they naïvely bleat what they were taught.  These kids who haven’t opened up a letter from their private health insurer advising them that their premiums will rise by 50%, 75%, 100%, or more, to comply with Obamacare.  Because it costs more to have more.  And people now have to pay more even if they don’t want more.  In particular young people.  For Obamacare is a transfer program.  Where Obamacare will take money from the young and healthy (like these college students once they graduate) to pay for the old and sick.

These kids, of course, blame the Republicans for the government shutdown.  And that their concern for our deficits is silly.  For they believe we don’t have a deficit problem.  Yet the smaller Reagan deficits were the end of the world as we knew it.  And they don’t have a problem with members of Congress and their staff getting subsidies to pay for their Obamacare.  As paying for their Cadillac health care plans with their six-figure salaries would have been too much of a burden for them.  And beneath them.  So we should pity them while record numbers of Americans have disappeared from the labor force.  Especially during the government shutdown.  Where the grooms of the stool may not be there for them.  Forcing the ruling class to wipe their own bottoms after they go potty.

This is what government and the political left is turning into.  A ruling class.  The very thing we fought our independence from.  And they are getting away with this because they control education.  And because they do they can revise history.  And change their failures to successes.  And change conservative successes to failures.  All you need are fresh young minds to corrupt.  And corrupt they do.  These kids talk like they know everything.  But they know nothing.  Which is sad.  For the children are our future.  God help us.


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Obamacare and the Laws of Supply and Demand

Posted by PITHOCRATES - September 30th, 2013

Economics 101

A Scarce Thing has a Higher Price because Everyone that Wants One can’t Have One

Economics is the study of the use of scarce resources.  Scarce resources that have alternative uses.  For example, we can use corn for human food.  Animal feed.  We can make bourbon from it.  And we can even use it for fuel to power our cars.  So there are alternative uses for corn.

And corn is scarce.  There is not an unlimited supply of it.  During the drought the United States suffered in 2012 farmers brought in a greatly reduced corn harvest.  Which caused corn prices to rise.  Per the laws of supply and demand.  If demand remains relatively constant while the supply falls the price of corn rises.  Why?

Scarce things always have a higher price.  A painting by Vincent van Gogh has a very high price because each painting is a one of a kind.  And only one person can own it.  So those who want to own it bid against each other.  And the person who places the greatest value on the painting will get the painting.  Because they will pay more for it than anyone else.  Whereas no one would pay for a cartoon in a newspaper.  Because they are not scarce.  As they appear in every newspaper.  Newspapers we throw away or put in the recycling tub every week.  Something that would never happen with a Vincent van Gogh painting.

Price Controls fail because People won’t Change their Purchasing Habits when Buying Scarce Resources

Government spending exploded during the late Sixties and early Seventies.  Paid for with printed money.  A lot of it.  Igniting inflation.  Causing a great outflow of gold from the country.  And with inflation spiking prices soared.  Rising prices reduced the purchasing power of American paychecks.  Add in an oil shock and the people were reeling.  Demanding relief from the government.

With the price of gasoline going through the stratosphere President Nixon stepped in to fix that problem.  Or so he thought.  First he decoupled the dollar from gold.  So they could print more dollars.  Causing even more inflation.  And even higher prices.  Then to solve the high prices Nixon implemented price controls.  Setting a maximum price for gasoline.  Among other things.  Sounds nice.  Wouldn’t you like to see gas prices held down to a maximum price so it consumed less of your paycheck?  But there is only one problem when you do this.    People won’t change their purchasing habits when it comes to buying scarce resources.

Why is this a problem?  Because the oil shock caused a reduction in supply.  With the same amount of gas purchasing with a reduced supply the supply will run out.  Which is what happened.  Gas stations ran out of gas.  Which they addressed with gas rationing.  Which led to long gas lines at gas stations.  With people pushing their cars to the pump as they ran out of gas in line.

Obamacare will Fail because no matter how Good the Intentions you cannot Change the Laws of Supply and Demand

Obamacare is increasing the demand for health care.  By providing health care for millions who didn’t have health insurance before.  So demand is increasing while supply remains the same.  There is only one problem with this.  With more people consuming the supply of health care resources those health care resources will run out.  Leading to rationing.  And longer wait-times for health care resources.  Just like gasoline in the Seventies.

One of the stated goals of Obamacare was to lower health care costs.  But what happens when you increase demand while supply remains relatively constant?  Prices rise.  Because more people are bidding up the price of those scarce resources.  Obamacare may try to limit what doctors and hospitals can charge like they do in Medicare, but everything feeding into the health care industry will feel that demand.  And raise their prices.  Which will trickle down to the doctors and hospitals.  And if they can’t pass on those higher prices to whoever pays their bills they will have to cut costs.  Which means fewer doctors, fewer nurses, fewer technicians and fewer tests and procedures.  Which means rationing.  And longer wait-times for scarce health care resources.

President Obama may say he’s going to provide health care to more people while cutting health care costs but the laws of supply and demand say otherwise.  In fact the laws of supply and demand say Obamacare will do the exact opposite.  So whatever rosy picture they paint no one will be linking arms and singing Kumbaya.  Unless they like paying higher taxes, waiting longer and traveling farther to see a doctor.  Which is what is happening in the United Kingdom.  And in Canada.  Which is why Obamacare will fail. Because no matter how good the intentions you cannot change the laws of supply and demand.


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There is Great Income Inequality on the Set of the Big Bang Theory

Posted by PITHOCRATES - September 21st, 2013

Week in Review

It is hard to explain economic fundamentals to the public.  To explain how free market capitalism made this country great.  And how supply and demand set prices.  How unskilled workers are in less demand than highly skilled workers.  So highly skilled people earn more money than unskilled workers.  Which is why doctors earn more money than those working in fast-food.  Because there always seems to be a shortage of doctors.  While there is no shortage of minimum wage jobs.  So doctors are worth more because they are in greater demand.

Those on the left want a living wage for everyone.  Regardless of their skill level.  Unions are trying to unionize fast-food workers and Wal-Mart employees.  So they can force these businesses to pay them more than the market price for their labor.  As determined by the laws of supply and demand.  Like they do everywhere else.  Computer programmers were in high demand during the dot-com bubble.  Raising the salary of computer programmers.  And people went to college to learn how to be computer programmers to get those high salaries.

But try to explain this to the layperson when the left demonizes Republicans.  Calls them greedy.  Saying they want to take food away from children and the poor.  And throw Grandma off the cliff.  That they’re in the pockets of the big, evil corporations.  And that unfettered capitalism is corrupt, unfair and just plain mean.  What makes it especially difficult to explain these economic fundamentals is that the left controls the public schools and our universities and colleges.  And the entertainment industry.  So they’re teaching our children to hate free market capitalism.  And Republicans.  While the entertainment industry mocks and ridicules anyone who tries to advance sound economic policies instead of expanding the welfare state.  Instead they preach egalitarianism.  Where everyone should get a living wage regardless of their skill level.  And where we treat people fairly and with dignity.  Transferring and distributing wealth fairly.  From those according to ability to those according to need.

It sounds nice.  Caring.  And kind.  Despite every country that has ever tried that became a horrible place to live.  For that’s what they did in the former Soviet Union.  The People’s Republic of China.  The former East Germany.  North Korea.  Cuba.  Nations that had to use a brutally oppressive police state to prevent their people from escaping the kind of egalitarianism the left is constantly trying to bring to the United States.

Perhaps the most frustrating thing in trying to teach economic fundamentals to lay people is that their heroes in the entertainment industry are always campaigning for the left.  They attend fundraisers for the left.  Help them win elections.  And they constantly mock and ridicule those on the right.  Despite indulging in some of the most unfettered free market capitalism themselves (see ‘Big Bang Theory’ Stars Seeking Hefty Pay Raises by Lesley Goldberg, The Hollywood Reporter, posted 9/17/2013 on Yahoo! TV).

Sources tell THR that Emmy winner Parsons (Sheldon), Galecki (Leonard) and Cuoco (Penny) will negotiate together — as they did in 2010 — and are looking for a considerable bump in pay from their current deal. According to a TV Guide Magazine report, the trio currently earns $325,000 per episode and may seek up to $1 million an episode…

The new deals for Bialik and Rauch, who joined the series midway through its run and were promoted from recurring to regulars, will see their salary jump from $20,000-$30,000/episode to the $60,000 ballpark, with increases each year taking them to $100,000 per episode by the end of their new contracts.

One million an episode versus $100,000 an episode?  Wow.  Talk about your income disparity.  There is no egalitarianism on the set of the Big Bang Theory.  There’s no fairness.  And just think how much food this could have bought for the children.  And the poor.  If these people were corporate officers they would be hated and despised for their greed.  Especially when the median household income (the income that supports an entire family) has been languishing around $53,000.  And here are actors making more than that each episode they film.  Is that fair?  When others have so little?

Yes, it is unfair.  But is it wrong?  No.  This is free market capitalism.  This is the top-rated comedy on television.  It has great writing.  And great characters.  Which the writers created.  But if you watch an early episode and then a later one you will see how these actors have evolved these characters.  In the first episodes Penny was the pretty neighbor Leonard was smitten with.  But watch her now.  And all the things she doesn’t say.  Her body language and facial expressions.  The little nuances that have transformed Penny into a real life person we look forward to seeing every week.  Kaley Cuoco has made Penny into what she is today.  As Jim Parsons has made Sheldon into what he is.  And Johnny Galecki has made Leonard into what he is.  The rest of the cast is probably the best ever fielded on a sitcom.  But it is the interactions they have with these three that make this show the number one comedy on television.

So, no, we don’t begrudge them from getting these unfair contracts.  More power to them to get as much as they can get.  Sure, it’s unfair to the actors that came before them.  When things were very egalitarian.  Where the actors made far less than they do today.  Even if that show went on forever in syndication.  Like Gilligan’s Island.  Making a lot of money for the owners of that show.  But not the actors.  No, they didn’t get a dime from that syndication.  Worse, none of them made close to a million dollars an episode.  They didn’t get paid a lot.  But everyone made closer to what everyone else made.  Because back then actors were more equal.  Unlike today.  Where there is great income inequality between actors.

So there is nothing wrong with Parsons, Galecki and Cuoco making these huge sums of money.  Or anyone else in the entertainment community.  It would be nice, though, if this community wasn’t publically against the very thing that they benefit so handsomely from.  Free market capitalism.  Which has been very good to them.  As it is very good to everyone.  But yet the entertainment community generally endorses the left.  And attacks the right.  Which helps the left raise taxes and burden business with more costly regulations.  Things that hurt the economy.  And keeps the median household income from rising.  Harming the middle class.  But making no impact on these superrich.  This is the problem we have with the entertainment community.  They’re hogging all the free market capitalism for themselves.  While forcing us to live in the miserable social democracy they helped to create with their endorsement of the left.


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Say’s Law

Posted by PITHOCRATES - September 2nd, 2013

Economics 101

(originally published August 6, 2012)

Keynesians believe if you Build Demand Economic Activity will Follow

People hate catching a common cold.  And have long wanted a cure for the common cold.  For a long time.  For hundreds of years.  But no one had ever filled this incredible demand.  All this time doctors and scientists still haven’t been able to figure that one out.  Despite knowing with that incredible demand, and our patent rights, whoever does figure that one out will become richer than Bill Gates.  Which is quite the incentive for figuring out the ingredients to make one little pill.  So why hasn’t anyone found the cure for the common cold?

There are many reasons.  But let’s just ignore them.  Like a Keynesian economist ignores a lot of things in their economic formulas.  In fact, let’s try and enter the head of some Keynesian economists.  And have them answer the question why there isn’t a cure for the common cold.  Based on their economic analysis you might hear them say that we have a cure for the common cold.  Because a high demand makes anything happen.  Or you might hear them say we don’t have a cure because enough people haven’t caught a cold yet.  And that we need to get more people to catch colds so we increase the demand for a cure.

Keynesians believe if you build demand economic activity will follow.  Like in that movie where they build a baseball diamond in a cornfield and those dead baseball players come back to play on it.  So Keynesians believe in government spending.  And love stimulus spending.  As well as taxing people to give their money to other people to spend.  Because having money to spend stimulates demand.  Consumers will consume things.  And increase consumption.  So suppliers will bring more things to market.  And create more jobs to meet that consumption demand.  Unless people save that money.  Which is something Keynesians hate.  Because saving reduces consumption.   Which is about the worst thing you could do in the universe of Keynesian economics.  Save money.  For in that universe spending trumps saving.  In fact, spending trumps everything.  No matter how you create that spending.  Keynesians actually believe taxing people so they can pay other people to dig a ditch and then fill that ditch back in stimulates economic activity.  Because these ditch diggers/fillers will take their paycheck and spend it.

Today People wait Anxiously for the next Apple Release to Learn what the Next Thing is that they Must Have

Of course there is a problem with this economic theory.  When you take money away from others they haven’t created new economic activity.  They just transferred that spending to someone else.  The people who earned that money spend less while the people who didn’t earn it spend more.  It’s a wash.  Some spending goes down.  While some spending goes up.  Actually there is a net loss in economic activity.  Because that money has to pass through government hands.  Where some of it sticks.  Because bureaucrats have to eat, too.  So the people receiving this money don’t receive as much as what was taxed away.  So Keynesian stimulus doesn’t really stimulate.  It actually reduces economic activity from what it might have been.  Because of the government’s cut.

And it gets worse.  Because this consumption demand doesn’t really create jobs.  We get nothing new out of it.  What do people demand?  Things they see.  Things they know about.  For it is hard to demand something that doesn’t exist.  You see a commercial for another incredible Apple product and you want it.  Thanks to some great advertising that explained why you must have it.  In other words, when you give money to people all they will do is buy things they’ve always wanted.  Things that already exist.  Old stuff.  It’s sort of the chicken and the egg thing.  Which came first?  Wanting something?  Or the thing that people want?

Raising taxes on Apple to create a more egalitarian society by redistributing their wealth will let people buy more of the old stuff.  But it won’t help Apple create more new things to bring to market.  Things we don’t even know about yet.  If we tax them so much that it leaves little left for them to invest in research and development how are they going to develop new things?  Things we don’t even know about yet?  Things that we will learn that we must have?  Once upon a time no one was asking for portable cassette players.  Then Sony came out with the Walkman.  And everyone had to have one.  Once upon a time there were no MP3 players.  No smartphones.  No tablet computers.  Now people must have these things.  After their manufacturers told us why we must have them.  Today people wait anxiously for the next Apple release to learn what the next thing is that they must have.

Say’s Law states that Supply Creates Demand

Supply leads demand.  We can’t ask for the unknown.  We can only ask for what the market has shown us.  Which is why Keynesian economics doesn’t work.  Because focusing on demand doesn’t work.  Giving people money to spend doesn’t stimulate creativity in the market place.  Because that money was taxed out of the market place.   Reducing profits.  Leaving less for businesses to invest into research and development.  And reducing their incentive to take big risks to bring the next big thing to market.  Like a phone you can talk to and ask questions.  Again something no one was demanding.  But now it’s something everyone wants.

Jean-Baptiste Say (1767–1832) was a French economist.  Another brilliant French mind that contributed to the Enlightenment.  And helped advance Western Civilization.  He observed how supply led demand.  Understood production was key in the economy.  He knew to create economic activity you had to focus on the producers.  Not the consumers.  Because if we encourage brilliant minds to bring brilliant things to market the demand will follow.  As history has shown.  And continues to show.  Every time a high-tech company brings something new to market that they have to explain to us before we realize we must have it.  Or said in another way, supply creates demand.  A little law of economics that we call Say’s law.

If Keynesian economics worked no one would have to have a job.  The government could print money for everyone.  And the people could take their government dollars and consume whatever was in the market place.  Which, of course, would be pretty sparse if no one worked.  If there were no Steve Jobs out there thinking of brilliant things to bring to market.  Because supply creates demand.  Demand doesn’t create supply.  For fists full of money won’t stimulate any economic activity if there is nothing to buy.  So using Keynesian stimulus as a cure for a recession is about as effective as someone’s homemade cure for the common cold.  You take the homemade concoction and in a week or two it cures you.  Of course, the cold just ran its course.  Which is how recessions end.  After they run their course.  Which can be a short course if there isn’t too much Keynesian intervention.


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Basement Medical Marijuana Growers are Depressing the Street Value of Illegal Marijuana

Posted by PITHOCRATES - June 15th, 2013

Week in Review

A common perception is that Canada cares more for her people than America cares for her people.  The Americans put profits before people.  While the Canadians put people before profits.  Which is why Canada has legalized medical marijuana while only a few states in America have.  Because it was something sick Canadians needed.  So because Canada cares for her people (unlike the United States) they made the enlightened decision to legalize medical marijuana.  And it’s worked out swimmingly (see Medical marijuana lets B.C. growers earn thousands on streets posted 6/14/2013 on CBC News).

A B.C. pot grower [Jack] says he and many others are making thousands of dollars every month growing licensed medical marijuana and selling it for illegal distribution on the streets, and there is little police can do to stop it…

Jack says he used to grow his pot illegally and sell it on the Prairies, but that was too risky, so he applied to Health Canada for a Personal Use Production licence.

He filled out a few forms and got a doctor to sign off on a medical condition. The whole process took a half hour he recalls…

But while he’s growing the pot legally, Jack still sells his marijuana to the same middle men he always has and that’s how large amounts of medicinal marijuana end up being sold illegally on the streets, police say…

“Serious organized crime has found a venue that buffers them from law enforcement. They are actively recruiting people to make applications for marijuana licences…

Meanwhile back in his basement, Jack says he actually misses the days when operations like his were illegal because lately so much so-called “legal weed” has spilled onto the street it’s driven down prices.

He used to get almost $3,000 a pound for his bud when he was growing illegally. Now it’s $1,700 pound and falling. Sometimes there’s so much medical marijuana out there he says some growers can’t unload their product.

“It’s going down the tubes because of all these licences. Three years ago you couldn’t have enough of this. Now I know people who have ten pounds from their last crop because they couldn’t sell it. ”

And so Jack pines for the good old days – when what he did was illegal but he made a lot more money doing it.

Imagine that.  Drug dealers lied to their government.  So they could grow marijuana legally in their basement.  So they could sell it illegally on the street.  Even organized crime has taken to recruiting people to become home-growers to feed their criminal networks.  Bet the Canadians didn’t see that coming.

Note the economic lesson here.  Illegal substances are typically low in supply.  Because people can get arrested for supplying them.  Because few people want to risk getting arrested this low supply creates a high demand.  As there are more drug users than the current growers and traffickers of marijuana can supply.  Which would normally bring more suppliers into the marijuana economy.  But not when it’s illegal.  But make it legal and look what happens.  There is an explosion in supply.  Great for the drug user as prices fall.  But bad for the drug dealer as their drugs are worth less and bring in les revenue.

This is what happened during the Roaring Twenties in the United States.  As European farmers left the farm to fight in World War I American farmers stepped in to meet that unfilled demand.  And mechanized their farms to increase their output.  To cash in on that high demand.  But after the war soldiers became farmers again.  And those export markets for American farmers disappeared.  Just as their farms were never producing more with less thanks to their costly mechanization.  As crop prices fell it was good for hungry people as it prevented famine.  But it was bad for farmers.  Who couldn’t service their debt for all of that mechanization they financed.  And began to default en masse.  Causing bank failures in farming communities.  That spread to city banks.  Leading to the great bank runs of the Great Depression.

Interesting what growing pot can teach you.


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