Smaller Faster Lighter Denser Cheaper

Posted on September 1, 2015 by jackheidel

I look at a lot of books and every once in a while I find one that I really like. Such is the case for “Smaller Faster Lighter Denser Cheaper” by Robert Bryce, a scholar at the Manhattan Institute.
The book starts out: “We are besieged by bad news. Climate change, pollution, famine, water shortages, war and terrorism, the mess at Fukushima, political gridlock, and the ongoing debt problems and economic malaise in Europe and the United States are dominating the headlines.” This leads some people to embrace “collapse anxiety,” the feeling that our problems are so great that our prosperous Western lifestyle cannot be sustained and soon may crash.
“This pessimistic worldview ignores an undeniable truth: more people are living longer, healthier, more peaceful, lives than at any time in human history. Amid all of the hand wringing over climate change, etc. the plain reality is that things are getting better, a lot better, for tens of millions of people around the world.”
“Dozens of factors can be cited for the improving conditions of humankind. But the simplest explanation is that innovation is allowing us to do more with less. We are continually making things Smaller Faster Lighter Denser Cheaper.” Computers are becoming smaller and faster. Nearly everything we use is getting lighter. Our engines and farms are getting denser. Innovators are driving down costs and making goods and services cheaper.
For example, how does the SFLDC perspective apply to energy use?

In July 2012 blackouts hit northern India leaving 600 million people without electricity, even though India’s coal use doubled between 2002 and 2012. India relies on coal for 2/3 of its electricity production and has enough coal reserves to last a century. In India and worldwide, coal use will almost surely continue to increase.
Consider the following power densities (footprints) of various forms of energy:
i) biofuels: .3 watts per square meter
ii) wind energy: 1 watt per square meter
iii) solar photovoltaic panels: 6 watts per square meter
iv) oil well: 27 watts per square meter
v) natural gas: 28 watts per square meter iv) nuclear plant: 50 watts per square meter

Conclusion: From a power density point of view biofuels are a very inefficient source of energy and wind energy isn’t a whole lot better.
What is the best energy policy going forward? Stay tuned!

Biofuels are “A Crime Against Humanity”

Posted on August 30, 2015 by jackheidel

Such has been called the burning of food crops to produce biofuels.
A recent research report by Capt. T.A. Kiefer, “Twenty-First Century Snake Oil: Why the United States Should Reject Biofuels as Part of a Rational National Security Energy Strategy” states that:

“Imagine if the US military developed a weapon that could threaten millions around the world with hunger, accelerate global warming, incite widespread instability and revolution, provide our competitors and enemies with cheaper energy, and reduce America’s economy to a permanent state of recession. What would be the sense and morality of employing such a weapon? We are already building that weapon – it is our biofuels program.”

Here are a few of the reasons for such a severe indictment of biofuels:

Liquid hydrocarbons are unmatched as transportation fuel. Using hydrocarbons to process biomass into transportation fuel is detrimental to civilization’s energy balance and must be avoided.
Not even today’s best liquid biofuels have any prospect of simultaneously attaining the 6:1 EROI (Energy Return on Investment) necessary to support a healthy modern civilization while also achieving the massive yields per acre necessary to supplant any significant fraction of the national energy supply.
Petroleum and natural gas are true primary energy sources and fuel modern agriculture. The use of petroleum to accelerate energy crop growth is ludicrous on its face, as the result is less overall efficiency of energy and greater net consumption of petroleum.
The best use of agricultural land and water is to produce sufficient food for the United States and a surplus for the rest of the world.
The only sensible use of biomass as fuel is to harvest unfertilized biomass from unmanaged land and consume it as is (e.g. firewood) without wasteful attempts to transform it into liquid fuel.
Mandating the use of higher-EROI fossil fuels to make lower-EROI biofuels requires the overall consumption of more energy to deliver the same power output. Current U.S. biofuels policy is accelerating rather than decreasing the use of fossil fuels.

“We must understand that a national energy strategy is nothing less than a national survival strategy.” Is it not obvious that all subsidies and mandates for biofuels, including ethanol, should be ended as quickly and expeditiously as possible?

The Slow Growth Economy We’re Stuck In

Posted on August 26, 2015 by jackheidel

We have very high debt and Paul Krugman says in “Debt Is Good” that we need more! The Congressional Budget Office’s latest report this week, “An Update to the Budget and Economic Outlook: 2015 – 2025” predicts slow economic growth for the next ten years, averaging 2.1% per year (see chart below).
Unfortunately, high debt and slow growth are a deadly, self-reinforcing, combination. Today’s Wall Street Journal has a chart (pictured below) showing clearly how budget deficits are likely to increase over the next ten years. The public debt (on which we pay interest) is predicted to grow from 74% of GDP today to 77% of GDP in 2025, increasing by a total of $7 trillion over this time period.
Here is another connection between slow growth and high debt:

Slow Growth means higher than necessary unemployment and under-employment as well as minimal raises for employed workers. The resulting economic slack leads to
Low Inflation. But low inflation means that the Federal Reserve can maintain
Low Interest Rates to try to encourage more borrowing to stimulate the economy. This means, in turn, that Congress can run up huge deficits without having to pay much interest on this almost “free” money. This eventually leads to:
Massive Debt. But what happens when inflation does take off, which has happened before and is likely to happen again? Then the Federal Reserve is forced to raise interest rates quickly and we are stuck with huge interest payments on our accumulated debt. And meanwhile entitlement spending on Social Security, Medicare and Medicaid is also growing rapidly. At this point debt increases very rapidly which leads to a severe
Fiscal Crisis.

Of course things don’t have to happen like this. Congress might become more responsible and either cut spending and/or raise taxes and start shrinking our huge deficits. Or perhaps slow growth really is the new normal and interest rates will remain low indefinitely. But slow growth is not pain free; there are many millions of unemployed and under-employed Americans who want to work and whose lives are stunted otherwise.
Slow growth is a very destructive path to be following. We badly need to adopt policies to speed it up!

Paul Krugman: “Debt Is Good”

Posted on August 23, 2015 by jackheidel

Every Monday and Friday morning when I pick up the New York Times, I immediately turn to the OP-ED page to see what liberal icon Paul Krugman is saying. In his most recent column, “Debt Is Good,” he says that “what ails the world economy right now is that governments aren’t deep enough in debt.”
Here is my response to his argument:

“The federal government can (now) borrow at historically low interest rates. So this is a very good time to be borrowing and investing in the future.” Our public debt (on which we pay interest) is now $13 trillion or 74% of GDP, the highest since the end of WWII, as shown in the above chart from the Congressional Budget Office. It is likely that interest rates will soon begin to go up. Every 1% rise will increase interest payments on our already existing debt by $130 billion per year. Where are the hundreds of billions of new dollars for debt service going to come from in an already tight budget? The more we add to the debt, the worse this problem will become.

“Having at least some government debt helps the economy function better.” I agree! But $13 trillion is way beyond what is needed for this. It is outrageously excessive!

“What we need are policies that would permit higher (interest) rates in good times without causing a slump. And one such policy would be targeting a higher level of debt.” The problem here is the conceit of Keynesians, like Mr. Krugman, that monetary policy alone can restore us to economic and fiscal health. Rather than accepting that the economy has entered a “new normal” with a permanently slow growth rate of about 2% (as has been the case since the end of the Great Recession in June 2009), we need policy changes such as individual and corporate tax reform (revenue neutral to be sure) and changes in the Affordable Care Act and Dodd-Frank Act to remove their job killing features.

Anybody with an ounce of common sense knows that excessive borrowing will eventually lead to disaster. Mr. Krugman seems to think that by constantly ridiculing his opponents, he can get away with denying this simple truth.

Debunking Several Social Security Myths

Posted on August 20, 2015 by jackheidel

The Committee for a Responsible Federal Budget has just published a new report, “Debunking 8 Social Security Myths on Its 80^th Birthday.” Here are several of the “myths” they report on:

Myth: Social Security does not face a large funding shortfall. Fact: Social Security’s trust funds are projected to run out of reserves within 20 years. Although the Social Security Trust Fund currently contains $2 trillion, it is being depleted at a rate of close to $100 billion per year. The looming insolvency is a result of the growing costs associated with an aging population.
Myth: Today’s workers will not receive Social Security benefits. Fact: Even if policy makers do nothing, the program will still pay about three-quarters of scheduled benefits. Once the trust fund is depleted, benefits would be paid only from incoming payroll tax revenue.
Myth: We don’t need to worry about Social Security for 20 years. Fact: there is a very high cost involved in waiting to reform Social Security. Substantial changes are needed to avoid the benefit cuts referred to above. The sooner we make these changes the less onerous they will be for both recipients and payroll tax payers (see above chart).
Myth: Social Security reform is code for slashing benefits, especially for the poor. Fact: under most reform plans, benefits would continue to grow faster than inflation. Most reform plans do not cut benefits from their current levels but rather slow the growth of benefits to reduce some of the pressure that wage-growth and rising life-expectancy place on the program. Under the Simpson-Bowles Plan, for example, benefits for low-wage earners will grow much faster, proportionally, than for higher-wage earners (see above chart).

Conclusion: It should be clear from the above discussion that Social Security can be fixed so as to continue to provide retirement benefits indefinitely into the future. It should also be clear that the sooner the needed reforms are implemented the less painful they will be for all concerned. We should tell our Congressional representatives that we want them to act now!

Minorities and Higher Education: a Severe Dilemma

Posted on August 18, 2015 by jackheidel

In two recent posts, here and here, I have established that:

Rapid increases in federal student aid in recent years have led to tuition increases at both public and private educational institutions and for both undergraduate and graduate students.
American higher education is increasing the divide between the haves and the have-nots in the sense that college degree attainment is increasing much faster for those students from higher income families.
Furthermore, students at private, nonprofit (most prestigious) institutions have higher graduation rates and lower debt levels compared to students from public institutions who, in turn, have both higher graduation rates and lower debt levels than students at for-profit colleges (least prestigious).

As if this isn’t bad enough, it gets even worse! The Federal Reserve Bank of St. Louis has just reported, “Why Didn’t Higher Education Protect Hispanic and Black Wealth?” that “White and Asian college grads do much better than their counterparts without college, while college-grad Hispanics and blacks do much worse proportionately.” (see above chart).
In short, the federal government is spending more and more money on higher education, which, in turn, is making colleges and universities more and more expensive. Whites and Asians from higher-income families are graduating in much higher numbers and with minimal debt, while college-grad blacks and Hispanics are mired in huge levels of debt.
How should society address this severe inequality in higher education?

Federal student loans should be limited to $30,000 for undergraduates and $60,000 for graduate students, the average amounts borrowed today for each category of student. Beyond these limits, students could still borrow from the private market, but with no subsidies or loan guarantees provided by the government. This single action alone will help to hold down college costs.
All students, and especially those from low-income families, should be encouraged to avoid excessive college debt. There are many high quality, low-cost educational institutions all around the country (e.g. UNOmaha where I teach) to meet their needs. It should be strongly emphasized that an expensive, prestigious institution is not needed to obtain a good education.

A Vivid Example of Fiscal Irresponsibility at the Federal Level

Posted on August 16, 2015 by jackheidel

An article in the Friday, August 14 edition of the Omaha World Herald, “Why are the BRT stations so expensive? Officials explain the $260,000 price tag,“ describes a new $30 million bus rapid transit plan for Dodge Street with 27 individual sleek, modern bus stop shelters along the route at a cost of $260,000 each. Half of the new $30 million plan will be paid for by the city of Omaha and half by the Federal Transit Authority which has an annual budget of $8.6 billion.
The issue is not whether Omaha should spend $15 million in local funds to achieve a $30 million bus system upgrade. We can expect city officials to make a responsible decision on this matter. The real issue is why the FTA should have annual budget of $8.6 billion to begin with when it is paying for, and therefore encouraging, extravagantly designed bus transit systems all over the country.
The U.S. deficit for the 2015-2016 budget year, ending on September 30, is predicted to be about $450 billion dollars. This adds to the approximately $13 trillion public debt (on which we pay interest) which, at 74% of GDP, is the highest it has been since the end of WWII (see the above chart from the Congressional Budget Office).
It is the responsibility of Congress and the President to figure out how to get the budget under better control. All aspects of federal spending can and should be tightened up, including entitlements (Social Security, Medicare and Medicaid) and discretionary spending (everything else).
The Federal Transit Administration is wasting money on unnecessarily extravagant bus transit systems. Such fiscal irresponsibility means that its budget should be cut significantly. Many other similar examples exist in the federal government. We need people in Congress who can identify these fiscal boondoggles and effectively agitate for needed cutbacks.

How to Avoid a New, and Much Worse, Financial Crisis

Posted on August 13, 2015 by jackheidel

Is it possible for the U.S. to effectively address its enormous debt problem in today’s contentious political environment? Two weeks ago I discussed in “America’s Fourth Revolution” why the political scientist James Piereson thinks this is impossible. He is very persuasive but I think he is too pessimistic.
Since then I have discussed several different things we should do to turn around this perilous situation:

If spending for just Medicare and Medicaid (two very expensive entitlement programs) alone fell by 25% over ten years, as a percentage of GDP, and then stayed in line with GDP after that, the U.S. would actually have a budget surplus in 2040.
Just recognizing the magnitude of our debt problem would do wonders in public awareness.
If the Tea Party were able to grow beyond a protest movement and unite the country behind a majoritarian agenda of work, mobility and opportunity, it would be much more effective in achieving its fiscally conservative goals.
Another significant way to save money, and get better results at the same time, is to turn over more and more programs to the states. A good way to do this is with block grants to the states for federal programs in such areas as welfare, education and Medicaid. This would give the states more flexibility to get the job done in an efficient and cost saving manner.

What we need to do to turn our debt situation around is to greatly shrink our annual deficits below their current level of about $450 billion per year. If the debt is growing slower than the economy, then it will shrink as a proportion of the economy. This is what happened after WWII (see above chart) and it needs to happen again now!

Perfecting Our Union: Ending the War Against the States

Posted on August 11, 2015 by jackheidel

“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The Tenth Amendment to the U.S. Constitution

As the readers of this blog know, I am very concerned about our massive (public) debt, now at 74% of GDP, the highest since the end of WWII. One way to get federal spending under better control is to give more power back to the states (which are required to balance their budgets), as described by Adam Freedman in his new book “A Less Perfect Union: the Case for States Rights.”
Here are some of the many advantages of doing this, according to Mr. Freedman:

Better schools, roads and infrastructure, as states are freed from wasteful federal mandates. The Common Core, for example, should be considered as federal guidelines and not as an attempt to require a specific curriculum.

Lower taxes, as states engage in a virtuous competition for citizens and businesses.

Improved stewardship of natural resources, as decisions reflect local priorities on land use.

Less crowded prisons, by returning criminal jurisdiction to the states, where penal reform is light-years ahead of Washington.

An end to national gridlock, as the most divisive social issues devolve to state and local decision-makers. A good example here is the current interest by states and localities to enact their own minimum wage laws. This is far superior to raising the national minimum wage law in a one-size-fits-all manner.

The way to implement a program of giving responsibility back to the states is with block grants. A plan to do this for social welfare programs was formulated by the House Budget Committee just one year ago. It is often suggested to do something similar with federal education programs and with Medicaid as well.
Moving programs back to the states will improve their quality and help get costs under much better control. It makes much sense to move in this direction!

The Future of the Tea Party

Posted on August 9, 2015 by jackheidel

As I constantly remind the readers of this blog, America has huge fiscal and economic problems which need to be addressed right away. In a recent post, “America’s Fourth Revolution,” I described the pessimistic view of the political scientist, James Piereson, that our polarized and dysfunctional political system will not be able to successfully confront our stagnant economy and massive debt and establish a pathway to recovery.
The president of the American Enterprise Institute, Arthur Brooks, does see a way for this to happen as explained in his new book, “The Conservative Heart: how to build a fairer, happier and more prosperous America.” It is the Tea Party which could do this! Its “future relevance depends on whether it can shift from being a protest movement to becoming a social movement.”
According to Mr. Brooks there are four steps to making the transition from minority to majority and turning a protest movement into a broad-based social movement. They are:

Launch a rebellion
Declare majoritarian values
Claim the moral high ground
Unite the country behind an agenda

These were the steps taken by our own founding fathers over two hundred years ago and by the civil rights movement some fifty years ago. The Tea Party has already launched a rebellion against big government, taxes, spending, etc. Now it needs to take the second step of declaring its support for the majoritarian values of work, mobility and opportunity. The third step is to seize the moral high ground:

Too many Americans have been marginalized and left behind in recent years.
It is neither fair nor compassionate to content ourselves with an economic recovery that only accrues to top earners.
Obamacare is hurting too many people by forcing them out of full-time work and into part-time work.
Huge debt may require spending cuts that fall the hardest on the poor.
We need education reform, especially in big cities, because the welfare of poor kids is more important than job security for poor teachers.

The Tea Party should spend less time protesting big government and more time showing how conservative principles help the most vulnerable members of society!

It Does Not Add Up

Jack Heidel's blog on fiscal responsibility