of Hydrocarbons and Unicorn Flatulence

Magical thinking always amuses me – “I can spend $2 trillion we don’t have, and it will help the economy.” Or, “The enemy won’t hear me if I say on national television that we are going to leave Afghanistan by the end of 2014.” Or the point of this essay, “We’ll replace oil and coal with algae.”

Can unicorn farts be far behind?

If this administration is serious about using government to aid our inevitable transition to moving beyond oil and coal, it would anchor that vision with a bridge strategy – something that can be used by today’s people, using today’s devices, with little or no modification and at an affordable cost. Anything else will prove disruptive to both families and industry, and will likely fail because of that.

If the transition is supported from fact-based grounds – that our current dependence on foreign oil is geopolitically dangerous – than the way forward clarifies. Streamlining the availability of domestic sources would be a smart first step. Futures markets are emotional, and the knowledge that we are getting serious about exploiting our own reserves (as well as clearing the way for the Keystone pipeline) will have immediate and lasting impact on spot oil prices. The reality is that it will take decades before oil and coal cease to be the main producers of energy in America, and pretending otherwise demonstrates a nearly clinical detachment from reality.

Our power grid needs immediate attention – it will not be able to handle expected increases in electricity demand, no matter how it is produced, and it is extremely vulnerable to cyberattack. We need to develop a national strategy to deal with both of these weaknesses, and government is best suited to lead in this effort – but not by doing anything, rather hosting panels of industry leaders to arrive at practical upgrades to the grid’s robustness and some sort of firewall that can be placed between the internet and powerplant controllers. DoD and NSA experts could be of help in the latter as to strategies and capabilities without compromising classified systems. This task will take a decade or longer, so we need to start on this right away. It’s hard to get political involvement in the real work involved because its not very sexy and they won’t be able claim credit for it, but it needs to be done before we go off in search of butterfly-powered houses.

Is there a bridge technology that can ameliorate our oil and coal use while we are researching replacement technologies? Yes. Natural gas can be used in most oil and coal applications – power generation and transportation. There are some applications for which coal and oil are still the best source – coking furnaces (coal), pharmaceuticals, plastics and cosmetics (petrochemicals), to name just a few – but large segments of power and transportation can be given over to natural gas, and natural gas is cleaner, cheaper, and it’s here. The technology is already in hand.

Then, all subsidies on energy production need to be removed, probably over a five-year period. This will put energy production on an even footing, having removed artificial blindfolds from the public as to which technologies can mass-produce energy at the best price – that’s the only criterion that comports to reality. As a sidebar here, it should be noted that corporate loopholes should be closed as part of a complete overhaul of our Byzantine tax code – with an eye toward broadening the base and leveling the rates. These two policies will result in a slightly higher base-price of energy – both for electricity and transportation – but it will finally be an honest price.

American Exceptionalism


The term “American Exceptionalism”, coined by Alexis de Tocqueville in 1831, refers to the perception that the United States differs qualitatively from other developed nations, because of its unique origins, national credo, historical evolution, and distinctive political and religious freedoms[1].

The rest of the world agrees. More émigrés seek out America than any other place, by orders of magnitude. The United States holds a special place in the world, offering opportunity and hope for humanity, derived from constitutional ideals that are focused on personal and economic freedoms. You want to learn about America? Ask an immigrant. They come here, not for a welfare-state, but for the opportunity to succeed. They come here, learn the language and work in order to provide their children with better opportunities than they had in their home country.

We are unique in that our government was founded on a promise rather than a bloodline, ethnicity, or ruling class. The politically liberal idea upon which our nation was formed has to do with the supremacy of individual liberty over the devices of government. This concept was (and is), quite literally, exceptional. For the first time, a nation was formed with the idea of its citizens being free to make their own destiny. A government built around the Greco-Roman ideal of republicanism; a legal system centered on Judeo-Christian ideals of mutual respect and tolerance; and a meritocratic economy. Political freedom, individual liberty and economic opportunity.

To accomplish this, the Founders constructed a government of limited powers with internal checks and balances between the operational branches. Individual liberties were so central to the concept that after completing the legal definition of government, they appended the Bill of Rights, ten aspects of personal liberty that were specifically shielded from federal usurpation. Taken together, these were to be “the rules in the box lid.” Whatever future and fortune brought, these were the legal limits of government.

It was never intended to be easy to be an American. Reward is linked to effort. The purpose was to make sure that each individual had opportunity to succeed, within which is the risk of failure. A strong, independent people is what raised this country to greatness, and a lazy, entitled populace will bring it down. America isn’t exceptional because we are “better” than other nations, but because we are freer.

[1] See Alexis de Tocqueville, Democracy in America, two volumes, 1835.

General Election Issue Number 7: the Mythical Recovery

“Lacking signs of recession, the economy must be in recovery.” This is the unspoken assumption taken by the administration in discussing the economy. What we have, really, is a positive-biased stasis – economic stagnation that exhibits just enough growth (GDP increase) to disqualify it as being in recession (two consecutive quarters of GDP contraction).

Most people judge the health of the economy by the health of the job market – it’s something that’s visible, reported every month, and most people are familiar with the concept. The plain, simple fact is that there are fewer people working today than when President Obama took office, meaning that he has overseen more job loss than job creation. Until unemployment dips below 6%, net jobs created by the Obama economy will be a negative number. The administration claims to have created millions of jobs because the unemployment rate has dropped from a high of 10.1% to 8.1%, but that ignores an historic phenomenon of the Obama recovery – more people have dropped out of the workforce than have been hired from it.

We have to look at a rather obscure metric to see an accurate employment picture: the labor force participation rate, which is the percentage of working-age persons who are either employed or are actually looking for a job. That was at 65.8% on January 20 2009, and is at 63.5% today (the lowest since 1983) – according to the Bureau of Labor Statistics, over 7 million people have dropped out of the labor force while the Obama economy has hired just under 3 million. The drop from 10% to 8% is clearly more a reflection of the people who have given up on finding a job, than of those finding one. By more than two-to-one.

An aspect of the New Normal should be measuring the “employment rate” – the number of people working divided by the number of people of working age – it can’t be “seasonally adjusted,” “corrected for inflation,” or any other of the tricks politicians use to make up a number that’s more favorable than the actual one.

Pundits and news anchors tend to use GDP numbers a lot, which reflects the total output of the economy on an annual basis. Economic growth means that the GDP is higher one year than it was the previous year, and our post-World War II average growth is ~3.4% a year. Knowing that our population tends to grow at around 1.4% a year, that means that the per capita economy generally improves at around 2% a year. Now you have to figure inflation into the equation, to see where real economic growth stands. In other words, if GDP doesn’t increase more than population-growth+inflation, than your economy isn’t keeping up. The Obama recovery isn’t keeping up with population growth, and inflation is being held in-check because banks and businesses are sitting on their cash (over two trillion) instead of releasing it into the economy. That may be the only good thing about this administration’s economic policies – they are keeping financial and business leaders too confused to spend the money necessary to spur an actual recovery, which if they did would spur rapid inflation.

According to the National Bureau of Economic Research, the recession ended in the second half of 2009. Since that time, the economy has grown at 2.4%, below our long-term trend by any measure. At this point, the economy is 12% smaller than it would have been had we stayed on pre-recession trend growth. Today, the economy is 4 percentage points further from the trend line than it was in the first quarter 2009 when this administration’s nearly $900 billion fiscal stimulus efforts began. If forecasts of ~2% growth turns out to be accurate, we will add to that gap this year. The Obama recovery, three years on, is still losing ground.

Contrast this weak growth with the recovery that followed the other large recession of recent decades. In the early 1980s, the economy experienced a double-dip recession, with contractions in both 1980 and 1982. But growth rates in the subsequent two years averaged almost 6%. The high growth that persisted throughout the 1980s brought the economy quickly back to the trend line. Unlike the current period, from 1983 on, the economy was in rapid catch-up mode and eventually regained all that had been lost during the early 1980s.

The Great Depression started with major economic contractions in 1930, 1931, 1932 and 1933. In the three following years, the economy rebounded strongly with growth rates of 11%, 9% and 13%, respectively. This reflects the rule of thumb that the deeper a recession, the steeper the recovery – more idle resources are available for more pent-up demand.

There can be no escaping the fact that this administration’s remedies, regardless of how well intentioned, aren’t working. We have spent ourselves into a corner where any imaginable tax increase represents little more than a rounding error compared to the deficit. A constant threat to raise taxes, to make investment more expensive, to increase regulation, regular new horror stories about the true cost of ObamaCare, looming “sequestration,” yet another debt ceiling “crisis” – it just never ends. A recovery is, by definition, increased business activity, and you’re not going to get the cooperation of business while constantly threatening them with “crucifixion (like the Romans did in Turkey).”

Unemployment was at 5.8% when Mr Obama was sworn in.

Al Armendariz, regional administrator for EPA’s region 6 [Dallas], in comments about his enforcement philosophy, to a local Texas government meeting, 2010.