Election Weary?

   Are you weary of this election just passed? I know I am and I am now looking forward to what will happen. All the sound bites, demogogury, lies and spin is over for now and President Obama and the Congress must get down to actually governing. The so-called fiscal cliff is approaching because everyone has kicked the can down the road. They have delayed the decisions that have to be made until after the election when they will have a so-called mandate for the direction we must go.
   The crux of the matter is that we spend too much. We spend more than we take in by $1Trillion dollars per year. There are lots of reasons including the aging of the society collecting SSI and the increasing cost of health care paid for by Medicare. However, explaining the reasons does not make it less important to fix it. The Congress and the President must come together and fix this.
    "A rising tide lifts all boats" is a quote from JFK regarding improving the economy. getting the economy growing again at rates needed will require Congress to relook the basics of supply side economics. By stimulating the supply side of the economy we stimulate the economy. The economy is simply trade. Products for products. Trade is the reason we go to work every day. The fruits of our labor and production are used to trade for the things we don't produce, food, clothing, cars, houses etc.. Taxes are the cost of productivity. The more you produce and the more you make, the more taxes you pay therefore you are increasing the cost of work and productivity. Is that what we want? If we want to increase productivity should we not be reducing the cost of production?
    In addition, capital gains taxes are a tax on capital which is price paid on investment. There would be no companies and no jobs without investment first, therefore any tax on capital reduces the amount of capital available for investment in new companies.
    We should be reducing the cost of production and the cost of capital as much as possible to stimulate the trade we all want to improve the economy.
    We have historically been the country that attracts the best and the brightest of the world to come here and produce in their pursuit of happiness. We are poised to raise the cost of capital and the cost of production in Jan 2013. If the President and Congress want to stimilate the economy, increase revenue and solve out debt and deficit problems, they must not let that happen. 

The Election

As we reach the end of this hard fought election and we filter through the media spin and the candidate's surrogate's spin, the election come down to two points. 1) Do you want more government or less government and 2) Do you trust the President or Mitt Romney?
     I will attempt to put this in some perspective. Government by and for the people ie representative government has not been representative for a long time except for what we can get from government. Many politicians measure their performance by how much largesse they can bring home from Washington. Robert C Byrd, my Senator, was the master at this and many present Senators are trying to emulate his example. Government as the founding fathers described was for three things. 1)Establish Justice  (Rule of Law) 2) Promote the General Welfare (Protection of our unalienabhle rights) and 3) provide for the Common Defense. Our government has grown out of control as people expected more and more from the government. Instead of insuring we can "pursue liberty", the government has intervened in our daily lives in so many ways that we don't even know or understand them anymore. Do we need a Department of Education? In years past local communities provided the funds for local schools, hired teachers, set the direction through a school board and educated our kids. How did we go from that to a Department of Education that has a $43 Billion budget. During the Carter Administration OPEC embargoed oil and drove prices up which caused President Carter to found the Department of Energy for the purpose of getting us off the dependency on the Middle East for oil. Now thirty years later we still import lots of oil from the Middle East and the Department of Energy has a budget of $27 Billion. The EPA Budget is $8.5 Billion, Deaprtment of Interior is $11.5 Billion, Department of Commerce is $14.2 Billion and on and on. We have more government than we can afford and we keep adding more and it costs us more in taxes, more in debt and more devalued money. If Romney does only one thing and repeals the Affordable Care Act, we will have smaller government. Once Romney is in place there will be many opportunities to rationally decide what we can afford and what we can't and do the job of reducing the size and scope of government.
    As for the trust element, Obama said he would be a post racial president but his surrogates have used the race card more than anyone else. He has demogogued the rich as "not paying their fair share" even though the top 10% of taxpayers pay 70% of the total tax. He has pushed for redistribution of wealth. In 2008, Barack Obama ran as a moderate, bipartisan reformer who was going to change the tone in Washington. He has governed as a hyper-partisan, arrogant, divisive, polar opposite of the man he pretended to be in 2008. The Democrats and President Obama have increased federal spending as a percentage of gross domestic product (GDP) to 25.3%.

Thoughtful Americans know the difference between the voluntary agreement to taxation to pay for legitimate government services, and confiscation of wealth for redistribution by the power brokers to fund a welfare state and a block of dependable voters.

Thoughtful Americans know this election is a choice between the American Dream and the Welfare State, or more succinctly between liberty and tyranny.

    

Redistributionist in Chief

While all Presidents preside over a government redistribution scheme, taking from one group of people to give to another, Obama is trying to take it to a new level. His "tax cuts for the rich" rhetoric is becoming tiresome and his overall policies of making everything "fair" is showing his true colors. he is a redistributionist at heart and everything he does including foreign policy reflects that.
Redistribution does not work and has never worked wherever it has been tried, just as Socialism has never worked anywhere ever. If you take away someones' production or means of production what incentive is there to produce? People work for their own best interests, not the collective in spite of what the liberals would have us believe.

The Day Obama Lost

During the recent uprising on the anniversary of 9/11, the President showed he is not equipped to lead, even from behind. Not only did he not take seriously that this was an organized planned attack, (unless your typical demonstrator against a trumped up video carries RPGs with them everywhere) he did not answer some of the fundamental questions about the incident. In fact he did not answer any questions at all except whether Egypt was an ally (he said no).
Why was the consulate not better protected? Why was the ambassador even there in Benghazi? Why the State Department did not know this was coming? If they did know why didn't they do something?
When Romney publically shamed the administration by coming out first to criticize the Embassy statement, Obama criticized Romney and then agreed he was right and criticized the same statement. If they both were critical of the same statement how was Romney wrong for saying it?
Obama's Middle East Policy has been one of appeasement from the start.
"The Embassy of the United States in Cairo condemns the continuing efforts by misguided individuals to hurt the religious feelings of Muslims" the embassy statement reads. The part that the main stream media seems to deny is this; The disgraceful embassy statement was a completely accurate articulation of longstanding Obama policy. No underling in any embassy anywhere would dare issue a statement that he (or she) did not believe was the policy of their bosses all the way up to and including the President. It is just not done. If someone like that had issued a statement under his own signature outside his official responsibilities he would be summarily discharged for insubordination or some such. has anyone been fired for this statement? Of course not because everyone knows they were speaking for the President. While he is trying to put some distance between the administration and the statement. He forgets that he IS the administration. All the ambassadors serve at the pleasure of the President.
     This whole incident is about being the president not playing president. Romney acted presidential. Obama did not.

Congress and Reform

   It is time we reformed Congress to get back to the citizen Congress that our founders envisioned. Our Congress has become a political class with such a cushy job that they will do everything and anything to protect it. The job has become so lucrative that many aspire to do that and only that. Granted there are some in Congress who made it in the private sector and now want to give back, but too many are there to perpetuate their position and power.
    Congressmen and women make a base salary of $174,000.00. In the 112th Congress they worked approx 170 days. Even with four weeks vacation most of us work 240 days. They only have to work 5 years to qualify for a full pension. They have access to a full time physician for $500/year. They are allotted $900,000 for staff (House) (Senators get $3.3 Million) They get an additional $250,000 for office expenses and travel (not counting the actual office which is a federal building) and $40,000 per year for home offices.
   Given this largesse and their intransigence in doing something productive like pass a budget I think we should fire em all and start over. Start with paying them $1.00 per year. Give them an office at the Capital and one staff assistant. They should work 9-5 Monday through Friday and once a quarter they can take Friday or Monday off to go home to their home districts for Town Hall Meetings.
Qualifications for Congress should be that they worked in the private sector for at least 10 years and NOT as an attorney. They should have had to operate a business under the oppressive laws they continue to promulgate. Once in Congress they should be required to have any personal assets in a blind trust controlled by an independent third party with no connection to the member or his family.
     Any law passed by the Congress must be adhered to by the Congress. No more exemptions from the very laws they pass and any increases in pay or benefits must be approved by an independent pay and benefit commission appointed by representatives from each branch of government.
    Our government is no longer transparent and the entrenched special interests both inside and outside the government have to be stopped. This would be my start.
 

Affordable Care Act and Costs

I read often that the Affordable Care Act passed by the Democrats and signed by Obama will save money on health care costs. Since most people get confused between healthcare and health insurance I will not comment on the difference. Suffice to say, what we are talking about is health "Insurance". While many of us don't have health insurance, we still can get health care and do. And we pay for it contrary to the ACA advocates who say that the rest of the rate payers subsidize those without insurance but I digress,
Health insurance is a mechanism by which we defer health care costs to a third party, usually the insurance company but also defer some of the costs to our employers as a form of compensation. Insurance premiums reflect the risk of paying claims and are subject to the demographics of the population insured. In addition, state mandates on what should be covered and what has to be covered as well as deductibles, co-pays etc  drive the premium costs. All things being equal a given group's premiums should exactly offset their claims plus administrative costs plus profit. Here is where it gets dicey. If an employee has a major claim ie heart surgery, then the group's premium has to increase to cover the loss. There is no free lunch. Increasing state mandates for coverage have increased premiums across the country and the Affordable Care Act is no exception.
The following parts of the ACA will increase premiums:
1) Keeping adult children on parent's plan. This increases premiums because you are now insuring more people.
2) No pre-existing conditions. This will increase premiums because insurance companies will no longer be able to avoid those risks.
3) No lifetime caps. Premiums have to cover actual costs. If you cannot cap the loss you have to increase premiums.
4) Guaranteed issue. With no way to avoid losses from possible negative selection premiums have to increase.
If insurance companies were allowed to construct policies that could avoid the mandates and find creative ways to insure more people, overall premiums would come down as more people would be insured spreading the risk over more premium payers. As long as the government dictates the coverages and the limits to flexibilty then insurance premiums will continue to escalate.

Middle Class and Economics

Today I am puzzled by the recent comments from Obama that we are building the economy from the "middle out" and not from the "top down". This is confusing because where do the middle class work? Do they just start working at middle class wages and 'poof' we have an economy? I think not. The economy is built on small businesses. Most jobs are created by small businesses. The so called middle class got there by either working, gaining experience and earning wages commensurate with their skills or they started a small business and grew it to a size where they could take home a meaningful middle class wage. The so called top down approach means people of means invested in that entrepreneur and helped him get started and thus create the jobs for the middle class. There is no other way. The only way to create middle class employment other than "top down" is through government. Obama's soaring rhetoric is so predicatably government based that when he said "You didn't build that!", everyone knew what he meant. Especially when he prefaced the YDBT remark with "You think you worked so hard" or "you think you are so smart". His arrogance knows no bounds and his sense that government did or will build that is evidenced in his stump speech. He wants to recruit more teachers (government jobs), fix our crumbling infrastructure (government funded Union jobs), invest in education and research and development (government funded jobs) and renewable energy jobs (government funded and fading fast).
The government that President Obama wants to fund all these jobs has to get their money from somehwere else. Governments don't have any money. The only money government has is what they take in the form of taxes from someone else. The "top" income earners (top 10%) produce 70% of all the money the government takes in in revenue. Therefore the Obama plan IS "top down". You can spin it anyway you want but the government centric mind set of the Obama administration is the opposite of what he claims it is and by demonizing and trying to increase taxes on these job creators he is undermining and will destroy the engine that creats wealth, creates jobs and creates the revenue Obama so loves to spend. If he destroys the "TOP", where does the money come from?

CAFE Standards: Here We Go Again

I read today that president Obama announced the new CAFE (Corporate Average Fuel Economy) standards entered into by the Department of Transportation and the automakers. The 54.5 mpg target is the largest mandatory fuel economy increase in history, and officials claim that the plan will save Americans $1.7 trillion in fuel costs by 20251. It is also expected to lower petroleum consumption by a total of 12 billion barrels and curtail the daily requirement by 2.2 million barrels a day (b/d) by 2025 (11% of current demand). Apparently, there is no downside to the new rules:
However, the new technology to get to that standard will add an additional $6000 to the price of an automobile not to mention the fact the resulting cars are lighter and therefore not as safe.
The effects of higher fuel efficiency standards are more complex than generally proclaimed. There is a lack of historical evidence to conclude that the 54.5 mpg CAFE will reduce oil demand in the absolute sense being assumed. Much more likely, oil and oil imports will stay an essential component of the energy portfolio for decades to come. Over the next 20 years, the EIA expects the U.S. to add more than two Japans to its Gross Domestic Product ($9.5 trillion) and expand its population by the size of France (65 million people).  To that end, not even the widening focus on wind and solar power will alter our fundamental need for more crude because oil-based electricity accounts for only 3% of our total oil demand. Pre-recession growth trends are beginning to reemerge. In the International Energy Outlook 2011, the EIA’s NEMS has domestic oil demand rising by as much as 21% by 2030.  Considering that 80% of the world’s proven oil reserves are controlled by a single cartel, OPEC, we need policies to enhance, not impede, the domestic suppliers of this irreplaceable liquid fuel.

Free Enterprise

"The most important single central fact about a free market is that no exchange takes place unless both parties benefit." Milton Friedman

Wealth creation is not a zero sum game. People who get rich do so by providing a good or service that other people want and are willing to exchange something of value for. In early Mesopotania it was those people who discovered that they could collect certain types of grain and cultivate those rather than collecting them from the wild. By cultivating they were able to grow more than they might have been able to collect in the traditional hunter gatherer model. Now by inventing "Farming" they were able to produce a surplus which they then could trade for something else they wanted. Others individuals could grow domesticated animals which could be traded for grain. Once the basics of food were covered other specialties began to emerge. The potter, the clothier, the tanner, the armorer all provided a service or product people could trade for grain or meat. As societies developed they were organized around this simple  system. As new needs arose someone with a new idea would strive to meet that need. In every case the exchange was mutual. If someone wanted a better bow, or sword or pot or clothes, another was there to provide it. Housing developed and with it builders. Bronze was invented and with it came founderies. Every business continued to innovate and improve their product or service. New ideas became new products. Eventually fiat money was invented as a means to exchange which improved on the barter system and commodity money. The shekel was originally a measure of weight of an amount of grain. People gained wealth (money) by providing products or services. People with no means of exchange used their labor to gain the products they needed.
The fallacy that the rich get richer and the poor get poorer assumes that you have nothing of value or that the rich have taken from you. If a farmer produces grain to sell by his work and sweat, how does that make you poorer. If a potter digs the clay, throws the pot sells, the pot and uses the money to buy grain, build a house or hire additional help to make more pots how are you worse off. He is better off by his work but you are no worse off. He has created value and increased his wealth. You have not, so your wealth is the same. Free enterprise allows for both.

Innovation is Driving our Economy

Yesterday I was on the road and needed to check my email for a quote I expected. I stopped at a McDonalds Restaurant where I plugged in to their free wireless internet, downloaded my quote and was able to continue my journey with the information I needed. As I was cruising down the Interstate I wondered how exactely that had come about. The idea that my computer could connect to a network that included my company's email server and get a document I needed is almost beyond my comprehension. The evolution of computers, networks, servers, routers, the Internet and the people who have made it all work and continuously improved it boggles my mind.
I remember when the first personal computers came about. My company had a large mainframe to do A/R computing. It was cumbersome and slow but still way faster than doing it by hand. The personal computer's first "killer ap" as Bill Gates called it was word processing. Once people learned that this system could make typing documents easier it was adopted post haste and the typewriter went the way of the buggy whip. Since now we had documents on computer disks printers had to evolve to keep up with the speed of the computers and we went from large tractor feed printers to document printers and many new companies were formed and grew quickly. One such company Xerox had been doing some research on how to get different computers to all use the same printer and ultimately the Internet was born. Now this is probably an oversimplification but the internet was originally conceived by a private company to get an edge on the competition.
Originally the internet was slow and over phone lines. As phone companies moved to fiber optics the speed got faster. With faster speeds more things became possible. Innovators saw an opportunity to access millions of customers around the world with their applications. Where once we had the local hardware store selling shovels and rakes, nails and hammers to the local populace now from your living room through the internet you can sell anything and your market is the 2 Billion people worldwide connected.
The amount of wealth created across the internet/computer universe is something to behold. What will be the NEXT BIG THING.

Innovation and Tweaking

The world economy is driven by innovation. Inventors finding a better way of doing things. People finding a better way is part of our DNA and we have been doing it a long time. The Tigris and Euphrates valley which is now part of Iraq is considered the "Cradle of Civilization". In about 6500 BC the hunters and gatherers discovered that certain stalks of grain had changed (mutated) so that the seeds were held on the stalks longer and not spread by the wind. In nature, this mutation would be a death sentence as it would leave all the seeds vulnerable to weather and varmits. The Mesopotamians used this mutation to harvest more grain and when planted intentionally in prepared fields saved them days of hunting for the wild versions. This enabled a society to be built to replace the nomadic lifestyle they had enjoyed previously. People became specialists, farmers, hunters etc. With new found free time they began to invent and civilization has never been the same. Once people settled down in communities the sense of property ownership led to conflict over territory, water and natural resources. Innovation for hunting and killing evolved from killing animals for food to killing opponents in war. Bows and arrows and swords and knives led to guns. Catapults and other seige machines led to cannons and artillery and ultimately to planes and nuclear weapons. Each innovation was driven by trying to get better at killing but the ultimate goal was peace and prosperity.
Fast forward now to modern day inventions. From the spinning machines that began the industrial revolution in England to the steam boiler, to multiple farm innovations like the threshing machine, the cotton gin, the corn picker, cow milking machine, reaper, tractor, haying equipment and  crop rotation. Agricultural innovation has allowed modern farmers to feed the world. Innovation at each level and each age of society has started with inventors who saw a need for a better way but has been further developed by tweakers. These innovators have taken inventions by others and made them better. The tweakers of the world have given us personal computer that get smaller, faster, and cheaper every year, a system based on the Internet that has revolutionized communication, digital everything, solar panels, windmills, geothermal heating systems, automobiles, planes, trains and many many more. We owe our modern society to tweakers.

Energy Prices and Speculation

Energy Prices and Speculation

Nothing gets me more riled up than when the President says he has no control over energy prices, especially gasoline prices. While technically the president does not control what happens on the world market, what the US does will affect the worldwide market more than he will admit. Speculation, that is buying commodities in anticipation of selling at a profit, can only be profitable if the speculator accurately predicts what the market will do either going up or coming down. Most commodity traders will tell you that the best thing necessary to fix high prices is high prices. The market is the market. If traders feel the demand is outstripping supply they will buy now to lock in supplies for their refinery or plastic plant or power plant. If they feel that supply is outstripping demand they will either not buy or sell some of their hedged supplies. If the market anticipates increased supply in the near term then why would they buy? The market today is priced based on reduced drilling on federal lands (down 44%) reduced leases in the Gulf of Mexico (down 57%) reduced or no drilling in ANWR. permits for new drilling (down 39%) and the lack of the Keystone Pipeline which will bring North Dakota shale oil and Canadian tar sands oil to market. While none of those things would bring down gasoline prices overnight, the anticipated supply down the road would moderate prices by eliminating the anticipated shortages and thus the higher prices. The market works.

Economics, Manufacturing and Jobs

The constant drumbeat of "outsourcing" or "offshoring" and " jobs going overseas" does a disservice to all the manufacturers here in the USA and the size and scope of our economy. For all the noise about imports from China, they only represent a small percentage of our GDP. In a recent publication (8/8/2011) by Galina Hale and Bart Hobijn, two economists at the Federal Reserve Bank of San Francisco, titled "The U.S. Content of 'Made in China." Hale and Hobijn find that the vast majority of goods and services sold in the United States are produced here. In 2010, total imports were about 16 percent of U.S. gross domestic product, and of that, 2.5 percent came from China.
Much of what China sells us has considerable "local content." Hale and Hobijn give the example of sneakers that might sell for $70. They point out that most of that price goes for transportation in the U.S., rent for the store where they are sold, profits for shareholders of the U.S. retailer, and marketing costs, which include the salaries, wages and benefits paid to the U.S. workers and managers responsible for getting sneakers to consumers. On average, 55 cents of every dollar spent on goods made in China goes for marketing services produced in the U.S.
Going hand in hand with today's trade demagoguery is talk about decline in U.S. manufacturing. For the year 2008, the Federal Reserve estimated that the value of U.S. manufacturing output was about $3.7 trillion. If the U.S. manufacturing sector were a separate economy — with its own GDP — it would be tied with Germany as the world's fourth-richest economy. Today's manufacturing worker is so productive that the value of his average output is $234,220, three times higher than it was in 1980 and twice as high as it was in 1990. That means more can be produced with fewer workers, resulting in a precipitous fall in manufacturing jobs, from 19.5 million jobs in 1979 to a little more than 10 million today. Add to that the rise in the minimum wage which drives many low skilled workers out of the workplace. And the various rules and regulations in all sectors of the economy which drive up the costs of everything including labor. Our schools are failing their students by not training them for the jobs that exist.
The bottom line is that we Americans are allowing ourselves to be suckered into believing that China is the source of our unemployment problems when the true culprit is Congress and the White House.

Renewable Energy

Renewable energy is a joke. I just received the latest numbers on the growth of renewables worldwide and the breakdown of total world energy consumption by supply. For the renewable gang it is not encouraging. The headline sounds good "Renewables supply 16.7% of global energy consumption". While that number sounds impressive, once you look at the breakdown it is less so. Let's look at it.
Global energy consumption from fossil fuels, coal, oil and natural gas is 80.6%. An additional 2.7% is from nuclear power. That leaves the 16.7% from renewables. Not too bad you say? Not so fast. of the 16.7%, 8.5% is from "traditional biomass". That means all the subsistance farmers who are cutting down the forest or using dung for cooking fuel. This source has been used for centuries. Lumping it in as a renewable is really laughable since it is difficult to measure and it is outside the traditional energy uses. I would consider traditional (acceptable) uses of energy as 1) energy for electric power 2) Energy for transportation fuels 3) Energy for heating but I digress.
Removing the 8.5% "traditional biomass" you are left with 91.8 % of energy use from fossil fuels or nuclear. Of that 3.3% is hot water from biomass/geothermal/solar, 3.3% is hydro, .9% is power from wind/solar/biomass/geothermal and .7% is biofuels.
Now, don't get me wrong, I am not against renewables as an energy source. There are many places on the planet where renewables make sense and alternative fuels will make an impact sooner rather than later. However, for the greenies to eliminate fossil fuels from the mix is not only unrealistic but it is impossible in the near term. Societies have been built on relatively cheap energy and our lifestyle and standard of living is based on that. That is why most emerging societies are trying to emulate the success of the western world. They want what we have and they will need energy to get there.
We are learning about conservation, energy efficiency, waste management, recycling and "smart" technology all of which will contribute to the overall energy picture. Ending the use of fossil fuels is not in the cards.

Economics and Energy

Economics and Energy

I often hear that we are running out of energy or we need renewable or clean energy. While I am sympathetic to the emotion and would love a system of clean renewable energy I am also a realist. In our energy dense economy and given our standard of living that has been enabled by our use of energy there is not a lot I would give up to get to a fossil fuel free world.

Let’s face it, the drive to a “renewable” energy future is based on the notion that we will run out of fossil fuels, fossil fuels are dirty and that the government should intervene in the market for our own good.

I am not an economist. I do, however, understand supply and demand and that economic concept in a free society means everyone responds in their own best interests to market realities. Those realities mean that oil drillers will search for oil or natural gas and coal mining companies will search for and dig coal as long as the revenue produced is enough to offset the cost of production and produce a reasonable profit for the stockholders. You and I will buy their oil, gas or coal or the power produced from it as long as we perceive the price to be worth giving up our money for. Is it worth paying for that electric to have air conditioning in my house? Yes, so far. Is it worth paying for that natural gas so I will have heat and hot showers. Yes, so far. Is it worth paying $4.00/ gallon and getting 20 mpg to travel for my work? Yes, so far. What about using the electric stove or my coffeemaker or charging my cell phones or the TV or VCR or lights after dark or the blender for my smoothies or my computer and laptop and kindle? Yes, so far. We all trade money, which we value, for stuff we value more. And we all make choices every day about what we value more. Do I trade my money for $12.00/lb Filet Minion or $3.99/lb pot roast? Do I buy the $5.00 bottle of wine or the $50.00 bottle?

Energy is a commodity and as such is priced by worldwide demand. As demand increase and supply stays the same the price necessarily increase because more people (customers) are chasing the same supply. If you own a commodity do you sell it for $75.00 if someone will pay $100.00. Nope. The reverse is also true as we have seen in Natural Gas. Large increases in supply from the Marcellus and Utica Shale plays have driven the price down.

Now, with this basic economics in mind will we run out of fossil fuels? Let’s look at it. As the supply declines then the price will necessarily go up as customers who need the fuel will bid up the price. As prices go up, two things happen. 1) there is more of an incentive to look for more where it hasn’t previously been economical to look and 2) people will cut back on uses of fuel that they don’t deem economical ie buy smaller cars, set the thermostat warmer in summer and cooler in winter etc etc. This actually mitigates the price rise until continued higher demand stabilizes prices at the higher rate. The other thing that happens is that the alternatives to traditional fuels begin to look better. If coal fired electric is at $.10/KWH as mine is and Wind Generated electric is $.40/kwh, which one do I choose? If coal goes to $.40/kwh then I would choose Wind. Until then I’ll use coal.

My point here is that the market will decide. The best thing to cure high prices is high prices. Higher fossil fuels costs not only will discourage demand but will encourage lots of alternatives. Artificially raising prices by fiat or regulation or tax credits ultimately will fail because the market is the market. People will find ways around the regulations or the economics just don’t work. Entrepreneurs and innovators have been finding better ways to do things for centuries. That innovation is driven by self-interest.

Economics and Insurance

This is a good stepping off point for a lesson in basic economics. Mr Obama's recent foray into the religious contraception business is a case in point. His compromise to "Make" the insurance companies pay for the coverage is disingenuous at best. Who does he think pays for the coverage? An insurance company's business is managing risk and assuring its policyholders that they will have enough money from premium collections to pay all the claims. To do that the actuaries determine the probability of various claims, their cost and determine premiums based on the exposure to the loss (claim) There is no free lunch, if the insurance company has to pay the claim then the policyholder has to pay the premium. The reason insurance premiums are as high as they are is because politicians continue to insist that people have a right to this treatment or that treatment and they shouldn't have to pay for it. Why is it that if I have fire insurance on my house I consider it protection but if I have health insurance I feel like I am getting cheated if I don't use it. Health insurance originally was invented to get around another government intervention, wage and price controls during WW2. Since the government did not allow wages to increase businesses offered health insurance to attract employees. Government intervention in the free market never works. Insurance was invented to mitigate risk. We have made it something it was never intended to be and in the process have driven up the costs of health care. We equate not having health insurance with not having health "care" and continue to insist that those who don't have health insurance are having their care paid for by everyone else. Please Mr. Liberal stop helping me.

And for the so called “trickle down” policies that caused the 2008 meltdown, we all know or should know by now that the Community Reinvestment Act of 1977 was the beginning of the problem. Over the years it morphed from a relatively hands-off law focused on process into one that focused on outcomes. Then in the 90s the Fed pushed interest rates down. This made refinancing more attractive, and created an investor demand for yield. Fannie and Freddie popularized low-income securitization. Home owners traded high interest credit card debt for low interest mortgage debt. Banks loosened lending standards to comply with the CRA. The housing boom which was fueled by the loose credit ground to a halt as it became clear that the economy was softening and would no longer support the price inflation that was caused by loose credit, no down payment and no-doc or lo-doc loans. To say that all this was caused by the Republicans is just laughable.

Global Warming and Climate Change

I am a denier. I make no bones about it and will take every opportunity to challenge the ACG school about it. I have seen much of the data and read a lot of the"sky is falling" rhetoric but have not seen any definitive cause and effect documentation. Is the CO2 concentration increasing in the atmosphere? Yes, I think it is based on empirical evidence. Does that mean the Earth will get warmer? I am not convinced that there is a cause and effect there. All the subjective conclusions are based on computer models and my xperience with computers is "garbage in garbage out". There are too many variables to depend on a computer model. The assumptions you must make are too numerous and our knowledge base doesn't give us enough information. Even ice cores which we can examine for CO2 levels have shown that CO2 levels actually trailed warming historically. Besides CO2 is only 0.038% of the atmosphere and is an integral part of all life based on earth. Are we so sure it is bad?
Well, what about glaciers melting? I am sure some glaciers and some sea ice is melting. Given that there are 160,000 glaciers worldwide and only 37 have records going back 30 years and only 120 have been directly measured. I doubt that they can extrapolate to the extent they have accurately. In the Hidu Kush Himalayan Range there are estimated to be 54,000 glaciers of which only 10 have been studied regularly.
If you assume that all the glaciers are melting then it is logical to assume sea level will rise but they aren't and it won't. No one has been able to show definitavely that sea levels are rising and Nils-Axel Mörner, Swedish geologist and physicist, who for 35 years has been using every known scientific method to study sea levels all over the globe, says that all this talk about the sea rising is nothing but a colossal scare story.
When I see that CO2 is only 0.038% of the atmosphere and is necessary for all life forms on earth. When I see global warming computer models showing glaciers melting and sea level rising when they have only studied less than 1% of total glaciers and they can't demonstrate sea level rising I guess I would say I am skeptical.
I have an open mind and if I see more empirical evidence I might be swayed but assumtions based on computer models and supposition probably won't do it.

Liberals versus Conservatives

 It is interesting how the liberals only hear what they want to hear, disregard the reasonable arguments to the contrary and continue to reiterate the half-truths and lies.

Let me start with the needless war. Have we forgotten Saddam Hussein and his weapons of mass destruction? Granted they didn’t find any WMD but given Saddam’s history and predilection for violence against his own people could we afford to take a chance especially after 9/11. I think not.

The tax cuts… generally tax cuts stimulate economic activity and increase the total revenue to the government as happened under Reagan. After 9/11 the effect on our economy could not be predicted but with the tax cuts, revenue to the government rebounded to year 2000 levels by 2006.

Rather than being caused by the lax regulation, the economic collapse was principally caused by the government intervention in the free market with the Affordable Housing Act 1990. This forced banks to lend money in areas and to people who they might not otherwise lend. In order not to end up with that bad loan they sold it to Fannie Mae or Freddie Mac. Then they invented Mortgage Backed Securities to further insulate themselves from the government demanded risk. Many people used the freer credit to refinance their mortgages to pay off credit card debt and many people got interest only or low or no-dock mortgages. When these risky loans began to default, the whole house of cards came crashing down.

Reagan presided over 11 tax increases for a cumulative total of $132.7 Billion. He also presided over 4 tax cuts for a cumulative total of $275.3 Billion. Net effect?  More revenue.  And to be fair some of the tax increases he agreed to were in conjunction to the Congress agreeing to spending cuts which they reniged on.   Historically tax revenues have been steady at 18% of GDP since 1960 even during Jimmy Carter’s presidency when marginal rates were 71%. As the tax rates increase, people change their behavior and tax revenue stays relatively the same. The solution is increased economic activity.

If it comes down to liberalism, belief  in government action to achieve equal results or conservatism, belief in personal responsibility, limited government, free markets, individual liberty, traditional American values and a strong national defense, I’ll take conservatism every time.

Spending is Taxing

As the presidential election heats up we hear continually the Democrats cry "fair share" and "tax cuts for the rich" and the Republican cry "cut spending" "cut taxes". Since all spending is a form of taxing I will take the high road. Cut the size of government and you need fewer taxes on the rich or anyone else for that matter. Art Laffer has been instrumental in helping explain via the "Laffer Curve" that increasing taxes "on the rich" actually decreses revenue. President Obama chalks this up to a fairness issue but the fact is "the rich", the top 10% pay 70% of all personal income taxes.
Leaving taxes aside for a second, let's talk revenue. The total revenue to the US Government is estimated to be 5.1 Trillion dollars in 2012. My vote would be to make Congress (and the President) keep spending within that estimate. Part of our problem has been and continues to be baseline budgeting which assumes baseline at last years spending and allows an increase over that number supposedly for inflation. This is how we get the GSA scandal and other reckless spending. No one looks at how they can reduce spending. They just see additional revenue in their budget each year and figure out ways to spend it. Baseline budgeting goes back to the Congressional Budget Act of 1974 and presently assumes a 6% growth rate. That is why whenever Congress talks about a "cut" it is never a reduction in spending but a reduction in the built in growth of spending. This growth in spending which is automatic has forced continual growth in taxing to keep up.
Government spends too much and therfore we are all taxed too much. By increasing spending when revenues were decreasing due to the recession we have built up a debt we cannot pay. Stop the madness. We need to get back to 0 based budgeting. Every department in the government should have to justify their spending for budgetary approval and Congress should not increase ANY spending until that happens.
This Presidential Election will be about big ideas. This is the biggest one and the most important one. Let us hope and pray that the smart people who want to be President can see that.

Presidential Elections

Our presidential elections should be about substance, not demagoguery, inuendo or classless attacks based on lies, distortions and falsehoods. We are better than that. Great ideas are what built this country from the start. The founding fathers had seen what happens in a top down monarchy government and wanted something better and more free. The system they came up with, a constitutional republic was different than any other government on the planet and was based on the assumtion that man was free first and mutual free exchange was the best system of managing our affairs. In the process they allowed for government to provide for the common defense as well as the rule of law and private property. In the process they put in place checks and balances which were intended to keep any one branch of the goverment from getting to powerful over the rest of government and the process should proceed slowly.
We have lost our way. We have allowed our Congress to become permanent residents of Washington DC instead of the citizen legislators the founding fathers envisioned. We have allowed the Executuve branch to run roughshod over the Constitution with czars outside the purview and oversight of Congress and the use of Executive orders that counter the will of the people. We have allowed the Executive Branch under whom the Attorney General works to selectively enforce laws they agree with and not enforce laws they don't agree with, completely turning the Congressional lawmaking authority on its head. We have allowed influence peddling on Captal Hill and a revolving door from Congress to lobbying. Congressmen and women have gotten rich by special favors and sweatheart deals not available to the common man.
This election is shaping up to be a turning point where we talk about big ideas. The Republicans will be talking about big ideas, fixing our problems and taking us to the next level. All the Democrats have is race baiting, scare tactics, tax more, spend more and demegogueing everything said on the right. It is time we stuck to the big ideas and not get dragged down in the gutter with the liberals and progressives. We get the government we deserve. We deserve better.

Milton Friedman: Capitalism and Freedom

   Today I'm wondering, after listening to a number of Milton Friedman's videos on the 100th anniversary of his life, how we managed to muck up our government so bad. Dr. Friedman's ideas about Capitalism and Freedom resound so solidly I can't believe that we have strayed so far from his ideas that freedom makes us all better off. When you look at the 19th Century and the Industrial Revolution you see that the free markets improved the lot of most Americans and in the process things got cheaper. When Vanderbuilt was plying the Hudson River providing his passenger service to people wanting to go to Albany he became rich. In the process fares to Albany became cheaper. When mechanization improved farming and allowed individual farmers to farm more land and produce more crops, food became cheaper. In every case where a need was met and a voluntary exchange was made between two parties usually both parties were better off. Products and services were created as needs developed and entrepreneurs built businesses around those products and services.
  As businesses grew, thay wanted protection from unfair competition and asked the government for protection. As soon as the government began to "protect" us we began to give up our freedom and the slippery slope began. When we asked that the government "protect" us from inexpensive steel imports they complied and put tariffs on steel. While the tariff protected steel companies and steelworker unions, the higher price of steel cost jobs in other areas of the economy that would have benefited from cheaper steel. When free trade is entirely free both parties benefit and there is a free exchange. When controls are put in place someone loses. Little by little we have given up our freedom as we have allowed controls to become more and more pervasive on more and more things.
   We have done it to ourselves. In an effort to have equality in everything we have give up freedom little by little. As Milton Friedman said, "A society that puts equality before freedom will get neither."

You Didn't Build That

When the President said "You didn't build that" a few days ago, it struck a nerve in our business community. The President, in an attempt to justify his "fair share" argument has exposed his leftest agenda for all to see. His idea of wealth redistribution based on fairness and equality of outcomes instead of equality of opportunity smacks of the Socialism he so vehemently denies.
The United States of America was built on the idea of free market Capitalism, rule of law and all men are created equal. Have we strayed so far from those ideals that we see government as the savior of everything? When a businessman is told that his hard work and sacrifice means nothing without the state I worry for this country. We live in the most prosperous, most successful democratic society on the planet and most other countries want to emulate our success. Let us not devolve into a society of bureauocrats who don't appreciate what we have.
   

Energy and the Economy

I have commented on several recent occasions that we are NOT running out of oil and never will. I have gotten some significant push back from the climate change people whose agenda is getting us off fossil fuels and using renewable energy. While I can sympathize with a point of view that says we are destroying the earth I see no evidence to substantiate the premise. Is CO2 increasing? Evidence says yes but the correlation between increasing CO2 and global warming has not been proved to my satisfaction. Are glaciers melting? Some are, some aren't, but since there are 160,000 glaciers and scientists have only measured a small percentage of them I doubt that they can conclusively say that all glaciers are melting. Are sea levels rising? Yes. When I was at the beach the sea level rose every 12 hours and then it fell back. With all the variables in the ocean between wind and weather and tides how can anyone say a particular sea level is rising? Besides, aren't they all connected? But I digress.
Fossil fuels as a group are coal, oil and natural gas. Used for power, transportation fuels and heating, these are the least expensive fuels to support our industrial society and our lifestyle. Do we want to give up that lifestyle? I doubt it. At least I don't. Do we want to pay more for that lifestyle? No, at least I don't. So as long as we don't or won't give up that lifestyle then the cheapest available fuels will drive that. As fuels become scarcer Economics 101 says the price will adjust accordingly and rise. As that price rises the alternatives will look better be they solar, geothermal, biomass, wind, tide, hydro or cold fusion. The market will decide. Government will not make it so.

Marcellus Shale and Jobs

In my previous post we got the well to the finished point where we can start the process of getting the gas out of the ground. Previously I indicated that the drilling rig could be removed. Since these wells are drilled horizontally for some distance the drilling rig can be moved a short distance and begin again. One pad could be the site of multiple wells each drilled in a different compass direction but I digress.
Once the well is drilled and cased we are ready for the process called fracking.
Fracking is the process which involves fracturing the shale rock that we drilled into so that the gas will come out. Fracking begins with a perfotating gun sent down the well casing to the area to be fracked. the area is part of the completion process and is very closely controlled and monitored. the "perf" gun is a tool with a series of explosive charges that perforate the well casing. This allows the water and sand to get to the shale. Once the perforation is done the perf gun is removed and we are ready to frack, right? Nope. In order to do the actual fracking multiple things have to take place. First and probably most important is water. Since it will take about 1,000,000 gallons of water for one frack and there could be multiple fracks for each well a resevoir has to be built and lined and sealed for the water going down the hole as well as the water coming back out. Typically this is done on site with aplastic lined pond. With water available we must now change over the casing to a Frac Stack which is the combination of valves and flanges that allows the mixture of water, sand and chemicals to get to the well. The water is a carrier of the sand. The sand is used to prop open the rock once it is fractured and the chemicals are anti-bacterials, anti-corrosives and modifiers to allow the water to be pumped down hole effectively. In some cases radioactve isotopes are used to determine the extent to which the fracking is accomplished. As you might have figured by now, we have multiple jobs, multiple skills, lots more money and still no gas. Now we need much more equipment because the water and sand mixture has to be pumped down the well and pressurized for the fracturing of the rock to take place. In addition to pump trucks we need sand trucks, some way to mix the sand, water and chemicals and lots of pipe to connect all this together and get it down the hole. Lots of people, lots of equipment, lots of water, sand and chemicals and lots of very sophisticated expertise. Once the fracturing process is accomplished in the area that was deemed appropriate a plug is inserted in the casing pipe, everything is moved to the next section and they begin again. Some wells can have as many as 18-20 frack stages that all have to be accomplished the same way. Once the fracking is done , all the equipment is removed and a special drill is lowered down the well to remove the plugs and allow the gas to flow. As the pressure of the released gas flows back up the pipe provisions have to be made to separate any NGL (Natural gas liquids) from the water and contain the gas. Once all this is done then the frack stack is removed, a production stack is added which includes valving and measuring tools for the eventual production. Now we have gas to sell. However, without downstream infrastructure in the form of gathering pipelines, production pipelines and interstate pipelines and the neccesary compressor stations we can't get the gas to market. In addition any NGL must be removed and processed separately.
All in all getting one well drilled, cased, fracked and produced is a major undertaking with multiple jobs, multiple expertises, huge outlays in equipment and mucho money. Nothing to be taken lightly. The investment in the Marcellus Shale and now the Utica shale is no less than a boon for WV, PA and OH and anyone who doesn't see that should have heir head examined.

Marcellus Shale and Jobs

Much has been reported recently about jobs in the Marcellus Shale and how they have been taken by out of state workers. Setting aside that people tend to go where the work is and where their skills are compensated best lets look at actual jobs and where there might be opportunities for job seekers, entrepreneurs or other contractors.
Lets start with the gas company who wants a piece of ground he can drill on. He employs a landman to seek out the property, research the owner or owners of the mineral rights, negotiate a lease agreement and consumate the agreement. Now we have a site to drill on. However...first we have to prepare the site. That means cutting trees, leveling the site, provide an access road and prepare the drill pad. The contractor involved has to have tree cutters and equipment operators to remove trees and brush and make a clear site. Now the bulldozer comes in to level the site and prepare for the heavy equipment including the drilling rig. That means multiple loads of stone to prevent equipment from sinking in to the mud and the means to spread the stone and level it. So far we have tree cutters, bulldozers and operators, truck drivers, stone yards, loader operators and landmen. Behind the scenes we have geologists and petroleum engineers who determined that this is a good place to drill, environmental engineers who developed the site plan to reduce or eliminate any environmental problems and specialists in permitting who will walk through the permitting process and get the appropriate permits and pay the pertinent fees. Now with a pad and a permit we can drill right? Not so fast. The pad is just solid enough to support the weight of the equipment but is porous so any spills of oil, lubricants, diesel fuel or gasoline will contaminate the environment. Therefore a containment system has to be built to contain and ameliorate any spills. Now we can drill right? Not so fast. Now we can begin to move equipment onto the site. We have a drilling rig, a mud pump, multiple sleds for drilling mud cuttings, drill pipe, drilling mud and supplies, a power plant, water tanks, fuel tanks, lights, rest rooms, trailers for drilling operators contols and housing. Ready to drill now? Nope. Now we have to set up the drill stack. This includes the blow out preventers BOP, cross-over valve (to allow mud to go down hole and cuttings to come back up). Once the stack is in place it has to be hydrostatically tested to make sure it was done right and will support the drilling. Each step has to be completed with people and equipment, some highly trained, some not. In any event we are just about to start drilling. Once the BOP stack is in place and tested the drilling crew can commence drilling. Drilling will proceed to a predetermined depth below the water table. Once this drilling is complete and well casing pipe is run then a cement crew comes in and pumps cement down the hole and out the outside of the casing and cements the entire hole to the surrounding rock. We now have a cased cemented pilot whole below the water table and drilling can begin. For one well we have employed a contractor for tree removal and site prep, a contractor for pad prep, a stone yard to provide the stone for the pad and access road, truck drivers to haul stone, truck drivers to haul all the heavy equipment drill pipe and casing, a contractor to build the BOP stack and test it and a contractor to build a containment system on the pad, a contractor to provide port-a-potty services, rental companies to provide portable lights and housing for the rig crew and operators. Once drilling starts, the drill bit vendor is on site, a company man to supervise the drilling crew and maintenance mechanics to keep all the equipment running.  Since drilling requires mud to lubricate the drill bit and take away cuttings there is a continuous supply of trucks bringing water to the site. Once drilling reaches a certain point the direction changes from vertical to horizontal and another expert in the horizontal drilling has to be used and a new computer controlled bit is involved. More contractors, more pipe, more mud, more water. Now the drilling is done and we have gas right? Not so fast. Once the drilling is done the drill bit is removed and then they have to case the well in pipe for eventual production. More pipe, more trucks, more drivers. Again the cement crew comes in to cement the casing to the rock, the BOP Stack is removed and the drilling rig can be removed.
I have given the readers a basic overview of the drilling process for a typical horizontal well in the Marcellus Shale. One well involves a multitude of people, contractors, equipment, expertise and lots of money. In my next post, I will complete the well and describe the many contractors involved in the next phase of the well.