the “Green” Movement


The highly publicized – first by the White House, now by the media – “Green Movement,” which subsidizes alternative energy while strangling hydrocarbon-based energy, is a near-perfect example of why government is the worst source for making generalized economic policy.

First, on broad-stoke issues. Assuming that we need to rid ourselves of hydrocarbon-based energy, and that we must do it now, politicians offer nothing substantive beyond the statement itself. The assumption is accepted as axiomatic. There should be a rational conversation on both halves of that assumption – that change is necessary, and that change must occur now.

Assuming that we must wean from hydrocarbon-based energy, given the current state of alternative energy technology, how long will it take for viable alternatives to be in a position to replace hydrocarbons for transportation, electrical power generation and winter heating without severely stunting GDP, all other things being equal? In other words, how long do we have to ramp-down oil and gas use? Again, two parts – how long will it take, and how much will it cost?

Government is functionally silent on both parts. In public, politicians act as though we can do it tomorrow if we just let go of gasoline and incandescent light bulbs; and, of course it will cost more, but it’s worth it. In reality, they are clueless on the first part and indifferent to the second.

We have a test-case for following the administration’s blueprint for rapid adoption of existing alternative energy sources: Spain. Europe’s current policy and strategy for supporting the so-called “green jobs” or renewable energy dates back to 1997, and has become one of the principal justifications for [our] “green jobs” proposals. Like politicians everywhere, the Spanish government phased-in their proposals over a five-year period, so it wasn’t really in effect until 2002. How did “green jobs” do? In 2002, unemployment is Spain was 11.3% – normal for heavily socialized and taxed Europe – and in 2008 (the year that the global recession hit in November) it was 13.9%. It is now over 20%.

Turns out that a rush to “Green Energy” cost the conventional economy 2.1 jobs for every “Green” job created. Everything touched by the “Green Economy” rose in cost. Spain is now functionally bankrupt (next in line after Greece). Just when they need to return to oil and gas to reduce costs, their dismantled hydrocarbon sector is in no position to resume supplying oil and gas at pre-Green levels, and they can no longer afford to import enough to take up the slack. Spain’s energy sector has turned gangrenous.

“No matter,” says our administration, “we’ll do it better.” The early signs are not encouraging.

First, we mandated that ethanol be blended into gasoline in the US, and subsidized its production from corn – “Brazil has almost completely transformed their automotive use over to ethanol-burning cars,” we were told. The subsidy made it more profitable to grow corn to burn than to grow corn to eat, so other crops were ignored to plant more corn, meaning that our foodstuffs exports plummeted, causing increased hunger and food riots in south Asia and Indonesia (and, incidentally, increased trade deficits). Other users of ethanol, mainly the plastics and pharmaceutical industries, find one of their basic feed stocks suddenly scarcer, raising their cost of production, raising their price to consumers. This “let’s burn food” policy is now recognized as a misstep, but the agricultural states who benefit from the subsidies won’t readjust their practices back toward growing for food and export, and their congressional delegations won’t vote to end the subsidies. In other words, we’re stuck with a poorly thought-out policy that is costly and dysfunctional.

After the West Wing took over General Motors, it saw a two-birds-one-stone opportunity if it insisted that Chevrolet rush its Volt electric car out as a hybrid, giving buyers a $7,500 rebate. The car, a converted $18,000 Cruze, costs ~$40,000 after the rebate, doesn’t perform as well, and has sold fewer than 8,000 (GM had estimated 10,000 cars sold by the end of 2011). Add to that, National Highway Safety Board testing has resulted in three battery pack fires after side-crash tests. All Volts have been recalled for adjustments to the liquid-cooled batteries, and loaners given to owners who request them. Total cost of this hasn’t been released, but the math is fairly straight forward – research and development of the fix, plus dealers’ time in applying the fix, plus rental cost per diems for those requesting a loaner. It will be in seven figures.

And of course, there’s Solyndra, Beacon Power, and Ener1 bankruptcies, costing over $660 billion with no successes to show for God know how much more taxpayer money. All of these examples – ethanol, GM and solar/biofuels/batteries – show what has been widely known all along: politicians are abysmal at picking winners and losers in the marketplace. They don’t make business or economic decisions, they make political ones.

On the other side of the equation, EPA is, as I write, formulating regulations that will render coal mining and coal-generated electricity non-profitable far faster than we can replace them. The administration’s plan for forcing the market to adopt inferior technology is to outlaw what works, making available energy more expensive than the experimental sources it favors. The net losers? Us – the people who use energy in their daily lives, or use the things that use energy in their production and transportation (read: everything).

Any sane examination of the energy problem would seek a way to increase private research and development in alternative energy, while expanding domestic oil and gas production to bridge the gap until reliable, cost-effective new energy sources are brought on-line, and updating our fragile electric grid which simply can’t add America’s cars to existing industrial and domestic electricity use. None of this is finding its way into this administration’s thinking.

Regardless of the goodness of the intent, the execution of this administration’s energy policy is profoundly wrongheaded in demonstrable ways, and will result in quite predictable and profoundly costly failure.

Dr Gabriel Calzada Álvarez, et al, Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 27 2009, p. 1.

CIA World Factbook, Central Intelligence Agency, January 1 2011, p. 344.

Alvarez, pp. 27-29.

Headed Straight for the Reef

We all watch in horror the tragedy of the cruise ship aground off Giglio Island. “Inexcusable!” is the universal cry. “Those reefs are on my chart,” says veteran sailor and FOX News host Geraldo Rivera. Anyone else see President Obama as Captain Schettino, America as the Costa Concordia, and self-absorbed Euro-style social democracy as the well-charted Giglio reef?

Virtually everything that Republicans warned us about is happening – a jerk to the left in the trajectory of America: healthcare designed to become nationalized; Iran accelerating toward a nuclear weapon; a gutting of the military; the abandonment of Iraq and predictable descent into chaos (and soon Afghanistan, and the embracing of the Taliban); the abandonment of Israel and embrace of Hamas and Fatah; discomfort with America being a superpower; Keynesian economics run wild; the punishing of success and reward of failure; on and on ad nauseum. Meanwhile, the President’s European model is sinking as they frantically bail out Greece’s stateroom, throwing the water into Germany’s. The reefs are well-charted, and yet we set-sail straight for them.

Newt Gingrich (and then Mitt Romney, and then Rick Santorum) is right in that this is truly a pivotal election. The last one disruptively changed the direction of America, and it must be reset before it’s too late – before we hit the reef of economic and diplomatic self-destruction. Gingrich compares it to Lincoln’s re-instatement of the Union, but I also see it as akin to Reagan’s recapturing momentum from President Carter’s disastrous agenda of denuding the military while pursuing policies resulting in double-digit unemployment, double-digit inflation and double-digit interest rates.

We are headed for unsustainability and that needs to be changed before we drift into blissful disaster.

We are nearing the twin reefs of majority dependency and majority [income-tax] non-participation. That combination will give politicians a free hand to build personal fiefdoms at the expense of sound national policy. We are living the practical results of entitlement mentality. The collapse of the housing bubble was set in motion by the liberal desire to make home ownership more of a right than an earned option, and they accomplished this by using one of their favorite ploys – the sock-puppet of class warfare. “The rich bankers and realtors,” the narrative went, “are denying minorities affordable loans by ‘red-lining’ their neighborhoods for exclusion of consideration.” The fact of the matter was that bankers (and therefore realtors) were unwilling to extend ownership to those unable to service the debt. Laws were changed, banks were coerced, and “fairness” became loans to people who couldn’t afford them. This went on for thirty years, until the pyramid could no longer support itself and the housing market collapsed. Know who the liberals blamed? The bankers and realtors!

The same fundamental flaw in the housing debacle is present in ObamaCare. You can’t make a right out of somebody else’s labor – the market has to be so distorted to support that surreal idea that it dysfunctions to the point of self-destruction. The difference between housing and healthcare is that ObamaCare is poised to bring down the American economy. In their normal obsession for implementing an idea regardless of the actual consequences, liberals have now saddled us with a sweeping new entitlement program just as Baby Boomers are retiring en masse – fewer workers per retiree every day. We are doing to ourselves what we did to the Soviet Union – give the economy an impossible imperative. This is all happening during a financial crisis that hasn’t yet been resolved – what happens in Europe will echo in our economy.

We need to steer back into clear waters before we hit a shoal we knew was there.

Creative Destruction

Newt Gingrich and others are making a lot of noise about Mitt Romney’s time as managing partner at Bain Capital, a private equity firm. This is disappointing coming from Mr Gingrich because he knows better. It’s the first time that I know he is being disingenuous with the voters, and it damages his earlier effort at speaking truth to those who would listen. I question his decision to go negative in the first place, but the way he has chosen to do so all but eliminates him for my consideration as being deserving of the office he seeks.

The charge is that Mr Romney presided over a company that, by and large, bought control of companies to drain them of worth, fire everybody and sell the remaining assets, generating an overall profit for the effort. He then points out a couple of companies that seem to match that description.

That is nothing short of cheap demagoguery.

Bain Capital, as a private equity company, specializes in turn-a-rounds – buying troubled companies, jettisoning the unproductive aspects, and reorganizing the working parts into a profitable company which it then seeks to sell to owners interested in operating the company from there. Most of the time they succeed, and the reorganized company goes on to grow and hire and produce wealth. Some do not, and they end up in bankruptcy (which is where they were headed before Bain – or any private equity firm – came in to try and save it).

The critics never mention Domino’s Pizza and Staples, Bain Capital’s two largest successes that, between them, have created a couple of hundred thousand jobs and created billions of dollars of new wealth. Yes, 22% of Bain’s acquisitions have failed. That means, of course, that 78% of them have not, and that is typical of the private equity industry, whose economic function is to save companies that are faltering for whatever reason. It’s a different undertaking than venture capitalism – which provides seed money for new startup companies – and “corporate raiders” – whose activities resemble those described by critics of Mr Romney’s tenure at Bain Capital.

Arthur Rock is a quintessential venture capitalist. He invested $100,000 in a startup (Intel) in exchange for “eight points” – 8% of the nascent company. One would probably need one of their microprocessors to figure what eight percent of ground-floor Intel is worth today, but that is the idea behind venture capitalism: to absorb the risk of a good idea propagated by good people and enjoy the reward if it succeeds. Carl Icahn is a primary example of a “corporate raider.” He takes over companies to “flip” them – to extract the maximum amount of money from a failing venture, normally by “piecing it out.” They are noticeable by their proclivity for hostile takeovers, where they take control of a company against the wishes of the current owners – a practice not exhibited by private equity firms.

I would expect these anti-business arguments from Democrats – especially the anti-business Democrats now in power – but not from Republicans – especially those claiming to be conservatives. Disappointing.

Mr Rock also underwrote $2.5 million in convertible debentures, an arcane financial instrument which he used in an unconventional way – forgiving them as they were “paid back” in lieu of the 8% ownership stake.

the Two Firsts Produce a First

Mitt Romney became the first Republican non-incumbent to win both Iowa caucuses[1] and New Hampshire primary contests. While this provides great momentum (and that’s no small thing in political campaigns), it by no means anoints him.

Returns from 69% of New Hampshire precincts showed Mitt Romney with 38% of the vote, followed by Texas Representative Dr Ron Paul with 24%, former Utah Governor Jon Huntsman with 17%, former House Speaker Newt Gingrich and former Pennsylvania Senator Santorum with 10% each, and Texas Governor Rick Perry, who didn’t really campaign in New Hampshire, got 1%[2]. Romney’s win was worth 7 delegates to the Republican National Convention next summer, Paul earned 3 and Huntsman 2. That brings totals after two contests to Romney with 20 delegates, Santorum with 12, Paul with 3 and Huntsman with 2. It will take 1,144 delegates to win the nomination.

As interesting to political strategists as the horse race itself are the exit polls, which ask the all important “why did you vote the way you voted” questions. AP and the network pool had polling conducted among 2,670 voters[3]. Sixty-one percent of respondents said that “the economy” was their most important concern, and another 24% cited “the deficit” as theirs.

Fully a third of voters noted as most important to them the nomination of someone who could beat President Obama in November, and Romney won this group overwhelmingly. Another quarter of voters said that experience was the most important attribute in a candidate, and Romney and Huntsman split these voters.

Twenty-two percent cited “moral character” as their criterion, and Ron Paul won this category. Unusual for a sitting politician to be thought of as “moral,” but I think this is attributable to his unwavering message, which is virtually unchanged for 30 years. This is also partially attributable to the intense loyalty of his followers, which borders on fanaticism.

Thirteen percent of those interviewed said they were looking for a “true conservative,” and Ron Paul won most of these voters. This reflects the “tit-for-tat” thinking that surfaces when it is perceived that an extreme has been detected (the Obama-Pelosi-Reid administration), and reacts by wanting to counter with the opposite extreme (Ron Paul).

In and of themselves, none of these figures is surprising from a party out of power, but the mosaic illuminates the theme that Republicans should emphasize: the economy; deficit/debt, and experience will resonate with a plurality of primary voters in this cycle. For the general, the administration’s amorphous foreign policy should also be in play.

On to South Carolina and Florida!

[1] FYI, 14 states use the caucus system to select delegates (electoral votes) [Republican delegates]: Alaska (3) [27], Colorado (9) [36], Idaho (4) [32], Iowa (6) [28], Kansas (6) [40], Maine (4) [24], Minnesota (10) [40], Nebraska (5) [35], Nevada (6) [28], North Dakota (3) [28], Texas (38) [155], Utah (6) [40], Washington (12) [43] and Wyoming (3) [29]. A total of 115 electoral votes (271 needed to win) and 585 delegates [1,144 needed to win].

[2] See David Espo and Steve Peoples, Romney sweeps NH to cement top status; Paul second, Associated Press, January 11 2012.

[3] This sample-size yields a margin of error of ±3 percentage points at a 90% degree of confidence.

It’s Hard Hat Time Yet Again!

According to USAF’s Strategic Command, Russia’s Phobos-Grunt (grunt is Russian for “ground” or “soil”) probe, which was to land on Mars’s moon Phobos, will re-enter our atmosphere between January 14 and January 17. It’s currently stuck in a decaying Earth orbit – falling from a perigee (low point) of 130 miles ASL to 114 miles now – the 29,100-pound spacecraft, stuffed with 8.3 tons of hydrazine fuel, will likely come down around January 15, the Russian Defense Ministry agreed. It was lifted into Earth orbit November 8 from Kazakhstan, but the kick-motor intended to send Phobos-Grunt on its eight-month journey to Mars failed to fire. NASA and the European Space Agency have been feverously trying to help the Russians re-establish communications with the spacecraft[1].

Phobos-Grunt could impact anywhere from 51.4° north latitude (about as far north as London), to 51.4° south latitude (nearly as far south as the tip of South America). On the upside, the toxic hydrazine rocket fuel is carried in aluminum tanks, which will easily melt during re-entry, allowing the fuel to burn-off very high in the atmosphere, posing no problem for those on the ground.

Russia’s space program, according to Michael Listner, a space law attorney and writer for The Space Review, “is way too ambitious, and way too underfunded, to reach its goal. Adding the Chinese orbiter late seems to have pushed the risk to [this] mission very, very high.” The $163-million spacecraft carried a piggybacked Chinese Mars orbiter, added late during the mission preparation, and a Planetary Society microbe experiment.

Phobos-Grunt joins a couple of other large spacecraft that have fallen in recent months. NASA’s UARS satellite landed in the Pacific Ocean in September, and Germany’s ROSAT plunged into the Bay of Bengal in October.

The troubling aspect of this incident is that Russia is now having problems with both lift vehicles and payloads, which bodes ill for our voluntarily making ourselves dependent on their space program to maintain our own.

[1] See Dan Vergano, Russia’s Phobos-Grunt probe heads for fiery finale, in USA Today, January 7 2012.

the Hawkeye Circus, er, Caucus

The first “First in the Nation” is now behind us, and all those left standing are now working the second “First in the Nation.”

Iowa has played its traditional role of showing the candidates in flannel shirts and coveralls, sitting in diners with small-town folks, talking about crops, hogs, and this year, economics. In the end, Mitt Romney (13 delegates) pulled out an eight-vote win over Rick Santorum (12 delegates), leaving Ron Paul and Newt Gingrich to explain their performance in the arcane caucus process. All others are done, whether they admit it (or know it) or not.

Mitt Romney is still exhibiting his ~25% ceiling (he’ll do better in New Hampshire because he has ties to that state), but Mr Romney’s floor of support and his ceiling are practically indistinguishable. In Iowa, he polled the same this time around as he did in 2008, and that tracks with his national numbers. As the field narrows, his numbers will grow, and I still think he will get the nomination. That will give the GOP “enthusiasm” problems in November, but for once, neither party will enjoy an enthusiasm gap.

Rick Santorum’s Iowa showing is a product of his peaking when the music stopped. He has a good, fundamentally sound conservative record and message, but not an innovative or exciting one. He’ll do well in fund-raising (he got a million dollars yesterday!), and that will carry him through New Hampshire and into South Carolina. How he does there will determine a lot about how much further he goes.

Ron Paul had his best showing ever this year, and that could prove a boon to Democrats. Since Dr Paul isn’t seeking re-election to the House, he could be deluded into thinking a third-party run at the presidency would be justified. This will also be a GOP problem with Donald Trump’s ego until the convention is over. Dr Paul’s Iowa showing helps Mr Romney, keeping the Not-Romney vote splintered going into New Hampshire, which will insure his momentum going into South Carolina. Paul has a national polling of ~3%, which could get as high as 6% this cycle, but that’s only enough to guarantee an Obama victory.

Newt Gingrich now has to balance all his baskets on South Carolina’s egg. He needs to win it. If he can even the playing field a bit, he will do well in Florida, but Romney will hit South Carolina two-for-two, and Gingrich must stop the surge there. To do that, he must neutralize Santorum in New Hampshire (read: finish ahead of him) and win South Carolina.

Michele Bachmann has already announced her withdrawal, and Rick Perry and Jon Huntsman are only lacking the announcement. Huntsman will do reasonably well in New Hampshire (he’s been working it like the others did in Iowa), but has little appeal or backing beyond the Granite State. He’s too much of an insider to appeal to South Carolina’s Republicans, and nothing to show Florida. Perry could stage a comeback in Florida (another southern state), but it would be too late.

Iowa still provided its traditional “three tickets out of the state” – Romney, Santorum and Gingrich – with Paul’s people’s usual acumen for working caucuses. But Newt Gingrich has to stop being the Howard Stern of the race, return to his positive message and hope the networks will continue to pummel us with “debates.”

Official Iowa results show Mitt Romney with 30,015 votes (24.557%); Rick Santorum with 30,007 (24.551%); Ron Paul with 26,219 (21.452%); Newt Gingrich with 16,251 (13.296%); Rick Perry with 12,604 (10.312%); Michele Bachmann with 6,073 (4.969%); Jon Huntsman with 745 (0.61%); No Preference with 135 (0.11%); Other with 117 (0.096%); Herman Cain with 58 (0.047%).