We Fact Check the Left, Too!

CounterPunch describes itself:

Here at CounterPunch we have many friends and all the right enemies. And, guaranteed, you'll never see any of us on the pundit line up at MSNBC. We try to stay beyond the pale.

Someone I know described CounterPunch's Cockburn (that's pronounced "coe-burn" for those of you who are still stuck in the locker room) as 'fallen off the far left edge'. We here at GNB have a tendency to, shall we say, concentrate upon the peccadilloes of "The Right" or "The GOP", or "The NeoCons". But this post is presented as evidence that we write about the knuckle-dragging-left-my-brain-at-home-stupidity of "The Left" as well.

At CounterPunch, Ismael Hossein-Zadeh writes about problems with the theory of Peak Oil. Interestingly, he gets it pretty much all wrong. Let's see how!

Peak oil theory is based on a number of assumptions and omissions that make it less than reliable. To begin with, it discounts or disregards the fact that energy-saving technologies have drastically improved (and will continue to further improve) the efficiency of oil consumption. Evidence shows that, for example, “over a period of five years (1994-99), U.S. GDP expanded over 20 percent while oil usage rose by only nine percent. Before the 1973 oil shock, the ratio was about one to one.”[4]

This is absolutely irrelevant to Peak Oil theory. Peak Oil says nothing about oil consumption.

Second, Peak Oil theory pays scant attention to the drastically enabling new technologies that have made (and will continue to make) possible discovery and extraction of oil reserves that were inaccessible only a short time ago. One of the results of the more efficient means of research and development has been a far higher success rate in finding new oil fields. The success rate has risen in twenty years from less than 70 percent to over 80 percent. Computers have helped to reduce the number of dry holes. Horizontal drilling has boosted extraction. Another important development has been deep-water offshore drilling, which the new technologies now permit. Good examples are the North Sea, the Gulf of Mexico, and more recently, the promising offshore oil fields of West Africa.[5]

Also irrelevant to Peak Oil theory. Peak Oil talks about the rate of extraction and how it follows a normal curve. Peak Oil theory says nothing about exploration.

Third, Peak Oil theory also pays short shrift to what is sometimes called non-conventional oil. These include Canada's giant reserves of extra-heavy bitumen that can be processed to produce conventional oil. Although this was originally considered cost inefficient, experts working in this area now claim that they have brought down the cost from over $20 a barrel to $8 per barrel. Similar developments are taking place in Venezuela. It is thanks to developments like these that since 1970, world oil reserves have more than doubled, despite the extraction of hundreds of millions of barrels.[6]

Irrelevant to Peak Oil theory. Peak Oil theory is about the rate of extraction, not about the form of the oil. If unconventional fields like tar sands and oil shale become a significant part of the actual extraction market, then we'll have more data (and more oil). In the meantime, Peak Oil theory talks about what it knows: extraction of oil from any given field follows a generally normal distribution over time.

Fourth, Peak Oil thesis pays insufficient attention to energy sources other than oil. These include solar, wind, non-food bio-fuel, and nuclear energies. They also include natural gas. Gas is now about 25 percent of energy demand worldwide. It is estimated that by 2050 it will be the main source of energy in the world. A number of American, European, and Japanese firms have and are investing heavily in developing fuel cells for cars and other vehicles that would significantly reduce gasoline consumption.[7]

Irrelevant to Peak Oil theory. Peak Oil theory is about the extraction of oil. It says nothing about alternative forms of energy. It also says nothing about the rate of consumption of energy or even oil.

Fifth, proponents of Peak Oil tend to exaggerate the impact of the increased oil demand coming from China and India on both the amount and the price of oil in global markets. The alleged disparity between supply and demand is said to be due to the rapidly growing demand coming from China and India. But that rapid growth in demand is largely offset by a number of counterbalancing factors. These include slower growth in U.S. demand due to its slower economic growth, efficient energy utilization in industrially advanced countries, and increases in oil production by OPEC, Russia, and other oil producing countries.

What any proponents of Peak Oil theory say about demand has nothing to do with Peak Oil. Demand has nothing to do with Peak Oil. Peak Oil has to do with the available rate of extraction of oil from known fields.

At this point, one wonders why we're bothering to continue reading Mr. Hossein-Zadeh, since he either:

1. knows nothing about Peak Oil theory; or
2. knows but is willing to deceive his readers

Peak Oil is about the extraction of oil from known fields. It takes advantage of the observation that oil extraction volume from a field follows a known distribution: low at the beginning to high in the middle and low at the end. By looking at known volume of extraction of fields, it's possible to predict where/when the peak (maximum) extraction value will occur. It's not quite exact, and large new finds would make a difference, but the essential correctness of the idea was established when King Hubbert accurately predicted peak flow in the US. His 1956 paper offered two scenarios for US production, the second of which came true when US extraction peaked in 1970.

Peak Oil is not about oil consumption, oil exploration, or oil alternatives. If oil extraction technology improves, generally it allows us access to new oil supplies not previously economically extractable. If that happens, Peak Oil theory allows for a modification of the expected peak. Peak Oil is about adding together the know profiles of extraction for existing known sources of oil and getting a realistic picture of when oil extraction will peak. It worked for US fields, it will work for the rest of the world as well.

...

This has led to a steady rise in crude oil inventories over the last two years, “resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices. . . . In fact, during this period global supplies have exceeded demand, according to the US Department of Energy.”[10]

This appears to be flat-out wrong. A "not-so". This Week In Petroleum (Crude Oil Section) at the EIA has something to say about that:
This graph shows US Crude Oil stocks over roughly the last year. The blue band is the average range, and you'll notice that the weekly run over the last couple of months has been sharply down toward the bottom of the band. It's quite clear that last August, US crude oil stocks were considerably higher (above 325M bbls) than they are now (below 300M bbls). According to the data table, on 2008.07.04 the US has 293.9M bbls, and that on 2007.07.07, the US had 352.6M bbls.
This graph tells us that we currently have about 19 days of oil, down from about 23 days in 2007.

The fact that the skyrocketing oil prices of late have been accompanied by a surplus in global oil markets was also brought to the attention of President George W. Bush by Saudi officials when he asked them during a recent trip to the kingdom to increase production in order to stem the rising prices. Saudi officials reminded the President that “there is plenty of oil on the market. Iran has put some 30 million barrels of oil that it can't sell into floating storage. ‘If we produced more oil, it wouldn't find buyers,’ says the Saudi source. It wouldn't affect the price at all."[11]

This one's interesting. It's almost certainly a real quote (although, given the truthiness of the rest of the article, who knows?), but the fact of the matter is that most Saudi excess capacity is "sour" oil -- petroleum with a whole lot of sulfur in it. Prices quoted for oil are almost always for the most desirable variety, generally "light, sweet crude". Sour crude goes for less and is less desired. As Time tells us:

The extra 500,000 barrels they plan to start shipping next month will likely be heavy, "sour" (sulphur-rich) crude, which most Saudi fields produce. Sour crude is far more difficult to market globally than light, sweet crude, because it needs a lot more refining to meet the environmental standards of the industrialized world."The Saudis would discount it further, because refiners don't want it," says Harry Tchilinguirian, senior oil analyst in London for BNP Paribas.

In other words, the Saudis could extract more oil, but that oil would be undesirable because of its sulfur content. So the quote is probably right -- if you want milk, and a store without milk offers to sell you motor oil, you probably won't buy it.

Mr. Hossein-Zadeh "teaches economics at Drake University, Des Moines, Iowa." I hope he's more professional as a professor then he is as a Peak Oil critic.

And I worry about his students.

[20080711 11:21 PDT Updated to correct misspelling of 'sulfur' as 'sulpher'. My bad.]

There's more...

Where Can we Go for our Cup-a-Joe?

Starbucks to close 600 stores in response to world wide slow down.



This is not new news, but pretty big news, especially if you are like me and work in the business. The thing is-- when people start worrying about gas prices and even worse home foreclosures-- one of the first things to go when tightening the belt is discretionary food and beverage spending. That $4.00 cup of coffee starts to look a bit too needlessly extravagant. This slow down in F&B has been world wide and started to really take root just after Feb. 1st as the depth and breadth of the subprime market crisis started to become more clear.

Sadly people who work in and run most food and beverage establishments are among the hardest working, lowest paid people you are going to find. Many people were probably working part time jobs in these Starbucks outlets to pay their rent or go to school. This 600 store closure is going to be equal to approximately 12,000 jobs minimum. And industry analysts say we are just beginning to see the slow down. It will get far worse before it gets better. No restaurants or cafe owners will be spared.

On top of fewer customers basic food costs are going up. Most estimates put the rise in food costs for basic ingredients between 20-40% in the last 18 mons. Base costs rising, customer count falling... going to be a bumpy ride, mostly downhill.

There's more...

Her Earth Laid Open, Appalachia Reveals Her Soul

More Than A Simple Issue Of Black And White

It was a week ago when the heated “discussion” over Appalachia's Democratic primary voting patterns went from orange ember to white-hot flame. The decidedly revealing exit polling from the West Virginia primary set things off in a huge way, sending MSNBC's Pat Buchanan into paroxysms of red-faced keening that made more than a few viewers (like my stunned kids who were watching) actually fear for his health.

But it was his crazed words about what the West Virginia results “meant” that gave many pause. If you looked past the “guy-on-meth-from-an-episode-of-Cops” yelling, the point he was desperately trying to hammer home was one about Obama being in deep trouble with “hard-working, White” Americans because of the state's demographic breakdown post-the vote. The breakdown went nearly 70%/30% in a 95% White state, going against the prevailing trends—numbers that should indeed concern Obama, but can not be forced into the general election template Buchanan nearly stroked-out trying to cram it into.

It also doesn't help when allegedly more cosmopolitan states try to cast that primary in dumb, lowest-common denominator bolierplate, as shown in the following day's New York Daily News front page and main spread.


But that is the world we live in, where the three-word tag is king. The sound-bite, the five-second run-down...with no consideration of history or a desire to actually look with a discerning eye at why some things are the way they are. Consider this: West Virginia and Kentucky, and virtually everyplace else in that chain of states that form Appalalchia proper are not simply the short-hand, Cliff Notes™ snapshots we're force-fed the appearance of. Not the hard-core bastion of retrograde hate and susceptibility to the worst impulses of jingo-tastic, faux-American disregard for forward-thinking we are led to believe they are. I could see how that mask is mistaken for the region's face, thanks to people like Buchanan...

...but even cursory look at the region and what it has gone through tells the real story of why things are.

There is the very nature of the land itself. Rugged in its raw form, and rougher still through what has been done to it by man and moguls, this is a place where large corporations make mega-fortunes on ripping the very heart out of the earth and cleaving off its scalp. The coal mining industry, while not employing the huge numbers it once did, is still a major economic force in the area. With upwards of 600 open and active mines in the region, pulling out close to 300 million tons of coal every year, pitting and scarring the land as the dark manna is hauled out on the cheap, the region's workers average a paltry $25,000 per year in pay for this back-breaking hollowing out of the earth beneath them. You add in the mills that have taken up the slack, where every fiber-filled, right-to-work breath steals a little bit of a person every day, and then stir in the “legacy” economy that pays to keep alive the people who gave of their bodies for decades—pensions and stratospheric late-in-life health care costs, and you have a population dangling by its economic short and curlies. And the moguls who own and ioperate these cash-cow companies have a vested interest in keeping the area's population ill-educated (which lessens the opportunity to gain work beyond home), financially on eggshells and “American Dream”-starved. Were these folks to in large numbers move beyond the necessity to work in these life-stealing industiries, where-oh-where would the cheap labor come from? There simply isn't enough of an incentive for “illegals” to descend upon the mountains and snatch these jobs up. For that low level of pay (and it'd be lowered still for brown-skinned folks) and body-busting work, there would have to be more of a secondary, benign payoff than Appalachia-as-it-stands can provide. Things that many take for granted, like ease of inexpensive travel and access to the culturally familiar would work against a replacement, outsider workforce. So you have in effect, a group almost permanently chained to the corporations that call the shots in the area. That is what is called “a captive workforce”.

This is the main reason why the young leave there in droves—the limited opportunities for success compared to the rest of America. Sadly, Appalachia is not a place you think of when thoughts of making the most of the “American Dream” come to mind. And that's the way the region's controlling interests want it. Born poor, keep them poor, and said poverty keeps enough there to be used as fuel for the money machine. It's also why the voting populace skews so heavily older. These are the folks tied to home—be it by duty to family who needs them, or an inability to escape. They will be born there, live there, work there, and yes—die there.

Now, this is not to say that they are terminally morose, or constantly unhappy...or dare I say it—bitter. They most certainly are those things when times are at their hardest, as would anyone who feel the weight of clouds limiting their sight of prosperity's sky. But they get by. It doesn't consume them. They live their lives as fully as things allow. And they no doubt know that the country outside of where they are experiences life differently—maybe with the odds stacked in a less-high pile against them. It's only human for there to be some envy, and even some antagonism.

Here's where race creeps into the picture. When you take into account the relative scarcity of Black folk in the region, racism's spectre seems odd in that it would appear hard to hate people who aren't there to be hated. Racism though, is a chameleon, changing pattern and texture depending on environment and situational catalysts. It manifests itself in Appalachia as an outgrowth in large part from socio-economic pressures and good, old self-esteem issues. This is also in the interests of the “bosses” whose businesses so dominate the region, and further, the local politicians in their pockets. As a distracting straw man, they unsubtly perpetuate the dusky, but actualy unseen “other” as a factor in their doing so poorly. And since time immemorial, no group wants to be regarded as the low man on the totem pole (The irony of using a Native American metaphor should give us all pause.), and in America, regardless of social station, African Americans can never truly escape that position.

You may be bad off. You may be under-educated, or ill-housed...but as long as you ARE NOT a n*gg*r, you ARE NOT at the bottom.

For some people—for a LOT of people, that's more than enough to make them feel a little bit better about themselves. And anything that enables that is hunky dory when you're effectively parked in what America deems its sweaty regional armpit.

This is why plays to race as a subtle “feel-good” mechanism work in Appalachia—never mind that the person cast as the “one you should consider below you and thus unworthy of your trust” might actually help them. It's that gut play to emotion and self-esteem that is fertile ground for the evil's seed to take root. It clouds reason and common sense. It allows people to instantly believe the worst of Black folks—never mind the ridiculousness of a specific claim. Someone must be at the bottom and as long as it's a n*gg*r and not them, a sigh of relief can be breathed. It is much more of a tool than a belief system in a place where the overwhelmingly White population is so hopelessly beaten down, ironically worse off than a lot of their African American comrades in poverty.

It is why a Harvard educated Black man scans there as an other to be rejected out-of-hand as a potential leader...or more simply, a boss. (And “the boss” already doesn't play well in their circles, understandably) The “Harvard” hurts, but the color of his skin is the true dividing line here, and the one that ultimately wounded him in his primary battle against the equally well-educated, but demographically different in other unmistakable ways, Senator Hillary Clinton. On the whole, these people are not garden-variety racist in the practice of their day-to-day lives. In fact, considering their isolation from Black folks, racism is probably quite the non-factor in everyday life. Fighting to survive in the face of a constant economic strangulation is. There is the chance that in a general election that these folk could be swayed by strong economic revival messaging should Obama win what seems like a near-certain nomination. Their issue isn't so much about hatred of people like him as it is a desperate boosting of the wounded self-esteem of folks like themselves.

And there is the nub of it—a wounding. Wounding the vast bulk of the country America never sees when it thinks of those of us in dire straits. A wounding with the mocking “Soooooey!” calls and barbs on incest being a norm instead of a taboo. The day-in/day-out wounding that is the direct result of the social, cultural and economic armpit-ization of a mountainous swath of 21st century America encompassing some 25 million people. Starved of opportunity and resources to make better not by chance, but by design, because somebody more powerful wants it that way. When you back a bunch of folks into a corner and kick them about like trapped rats, you really can't be surprised at what they'll do to make a point. Silly, spiteful and self-defeating as it may seem.

Looking down our noses at Appalachia is what's at the root of this. Looking askance at them as the Daily News and other opinion-makers did is what perpetuates it. But it's going to take looking at them eye-to-eye as fellow human beings the way a Bobby Kennedy did in 1968 and trying to understand their problems, to finally help these people, and remove the stigmas that have been put in place to specifically keep them where they are—physically and socio-economically. It means actually doing things to fix their situations—not cheap pandering and playing to the short-term “gains” brought by emotions and dog-whistles. It's easy to hate on them, and even easier to simply dismiss. Greater America has been utterly guilty of this in its treatment of Appalachia to this very day, simultaneously ignoring and faux-courting them, and in the end giving them nothing.

What we saw there wasn't quite your boilerplate systemic racism—there is endemic prejudice involved in the voting pattern, but looking at the facts—and the true demographics, it's also a lot of conditioned response. Conditioned negative response—to their own very real oppression. It doesn't make it right or fair. But it is what it is.

“Writing these people off” isn't the thing to do, though. as it only continues the status quo that keeps them reacting as they do. Appalachia's race problem is more of a symptom than a disease. It can be fixed. But it is going to take an honest effort to make America “work” better for them. Effort. Care. Pressure. And time.

It's almost miraculous what those things can do. And if you don't think so, hell...just ask a former lump of coal.

There's more...

Doctors Learn to Say “I'm Sorry”

X-ray of an electrode left inside a patient during a C-Section.
Photo: University of Illinois Medical Center. Published in The New York Times, May 18, 2008.

Transparency From Doctors Results in Less Lawsuits
Better Overall Results

Gee Gidge, you think?

Transparency damn near always works.

Hospitals which expose their mistakes to patients, are discovering their malpractice costs drop dramatically.

The New York Times

By promptly disclosing medical errors and offering earnest apologies and fair compensation, they hope to restore integrity to dealings with patients, make it easier to learn from mistakes and dilute anger that often fuels lawsuits.

Malpractice lawyers say that what often transforms a reasonable patient into an indignant plaintiff is less an error than its concealment, and the victim’s concern that it will happen again.

Despite some projections that disclosure would prompt a flood of lawsuits, hospitals are reporting decreases in their caseloads and savings in legal costs. Malpractice premiums have declined in some instances, though market forces may be partly responsible.

At the University of Michigan Health System, one of the first to experiment with full disclosure, existing claims and lawsuits dropped to 83 in August 2007 from 262 in August 2001, said Richard C. Boothman, the medical center’s chief risk officer.

“Improving patient safety and patient communication is more likely to cure the malpractice crisis than defensiveness and denial,” Mr. Boothman said.

Mr. Boothman emphasized that he could not know whether the decline was due to disclosure or safer medicine, or both. But the hospital’s legal defense costs and the money it must set aside to pay claims have each been cut by two-thirds, he said. The time taken to dispose of cases has been halved.

The number of malpractice filings against the University of Illinois has dropped by half since it started its program just over two years ago, said Dr. Timothy B. McDonald, the hospital’s chief safety and risk officer. In the 37 cases where the hospital acknowledged a preventable error and apologized, only one patient has filed suit. Only six settlements have exceeded the hospital’s medical and related expenses.

I had a major malpractice lawsuit against a physician once.

The outcome is sealed, as is often the case. According to the terms, I'm forbidden to talk about how it turned out.

I will say, a large part of what drove the case, is how ANGRY I was at what I saw as brutal malpractice on the doctor's part. A genuine apology... I don't know what it would have done. I'm someone who believes in authentic apologies. At the same time, I had (and still have) permanent long-term damage, so I probably would have felt some compensation was appropriate.

But that's the point. When a mistake is made, admit it, clean up the mess, and move on. When there isn't a legitimate mess, fight it with everything you have.

The New York Times

There also has been an attitudinal shift among plaintiff’s lawyers who recognize that injured clients benefit when they are compensated quickly, even if for less. That is particularly true now that most states have placed limits on non-economic damages.

In Michigan, trial lawyers have come to understand that Mr. Boothman will offer prompt and fair compensation for real negligence but will give no quarter in defending doctors when the hospital believes that the care was appropriate.

“The filing of a lawsuit at the University of Michigan is now the last option, whereas with other hospitals it tends to be the first and only option,” said Norman D. Tucker, a trial lawyer in Southfield, Mich. “We might give cases a second look before filing because if it’s not going to settle quickly, tighten up your cinch. It’s probably going to be a long ride.”

If you know that you'll be fairly compensated for genuine negligence, the adversarial relationship begins to shift between the trial bar and hospital staff.

Transparency -- telling the truth -- benefits everyone. Financially, in terms of time it takes to reach a settlement, in putting systems in place to correct problems, and emotionally both to the medical staff and the patients.

Medical staff from Day One of their training are raised with “First do no harm.” Transparency allows them to tell the truth about what happened, fix the problem, and know that their patients get treated fairly. And the medical staff know that patient outcomes benefit, while they are not held to blame for honest mistakes.

Patients know that in a system built around transparency, if something does go wrong, there is an institutional commitment to telling the truth, and making certain they as patients find out what happened, while simultaneously fixing the underlying problem in the system. And as patients they know, they will be fairly compensated for any damage.

All that is needed is trust, and a commitment to tell the truth.

Transparency is good for everyone.

There's more...

Econ 101: Supply, Demand, and the Gas Tax Holiday

Basics of Supply and Demand
Anyone who has taken a survey econ course has seen diagrams like the one above, commonly called a supply and demand diagram or supply and demand curves.

The horizontal axis (Q) is Quantity supplied of a product. Q2 is a larger quantity (greater supply) than Q1. The vertical axis (P) is Price to purchase the product. P2 is a larger price than P1.

The blue line labeled S is a supply curve for our product. As with most supply curves, it increases monotonically and tells us that, as the price P rises, the quantity Q of the product supplied also rises. This makes intuitive sense: if someone will pay a lot more for a hamburger, more people go into business selling hamburgers and the supply increases.

The red line labeled D1 is a demand curve for our product. As with most demand curves, it decreases monotonically and tells us that, as the price P falls, the quantity Q of the product demanded rises. This also makes intuitive sense: if the price of hamburgers drops, more people buy them.

These are typical supply and demand curves. There are others. These are representative supply and demand curves, they do not represent any specific product and market. It is possible (given the right sort of data) to generate actual supply and demand curves for actual products.

The point where S crosses D1 is a market equilibrium, where the supply of and demand for our product are equal. At this point, the market price is P1 and the quantity supplied is Q1. Equilibrium indicates that the price and supply will stay there once they are there. If the price is below the equilibrium, less of the product will be supplied (a shortage) and the price will be bid up. The higher price will encourage entry of other suppliers (or current suppliers will increase production if possible), the quantity supplied will increase and the price will drop toward the equilibrium.

The red curve labeled D2 is an alternate demand curve. Suppose that our product is made available to a new market: at any given price, more people want to buy our product, and the demand curve is shifted right, representing an increase in demand. With this increase in demand comes a new equilibrium, where D2 crosses S. Notice that both the price and quantity produced have increased at this new equilibrium: price from P1 to P2 and quantity from Q1 to Q2.


Markets
"Free markets" are amazing things. Left to themselves, they establish price and production amounts magically, without human intervention. Or do they?

"Free" market sounds like something that is unfettered, unconstrained, unregulated, and well, unreal. Markets are unable to operate without certain preconditions: good governance, stable currencies, security, confidence, etc. Without security and stability, markets fail. Without contract enforcement mechanisms, markets fail. Without producer and consumer confidence, markets fail.

Free marketeers often complain about government regulation. Economists (and remember, there's a reason why economics is called "the dismal science") will use supply and demand curves to show you that almost any government intervention (taxation, price supports or caps, etc.) distorts the free market and generates inefficiencies. And according to the theory, they are correct. However, honest economists will also admit that there are good reasons for governments to regulate markets (pdf), reasons which may go beyond economics.

Market Failures
One of the biggest reasons for government to regulate markets is "market failure". We've just seen an enormous one in the US, the so-called "subprime meltdown". The Long-Term Capital Management fiasco of the late 1990s also comes to mind.

Market failures include things like:

• Monopoly: where a producer has market power
• Monopsony: where a consumer has market power
• Externalities: where a producer or consumer doesn't pay the "real" cost of a good
• Public Goods: where a producer can't be properly compensated for the real benefit of a good
• Asymmetric Information: where one side of a transaction lacks relevant information

McCain's Gas Tax Holiday Proposal

John McCain wants to suspend federal gasoline taxes for the three months of the summer holiday. Specifically:

McCain urged Congress to institute a "gas-tax holiday" by suspending the 18.4 cent federal gas tax and 24.4 cent diesel tax from Memorial Day to Labor Day. By some estimates, the government would lose about $10 billion in revenue. He also renewed his call for the United States to stop adding to the Strategic Petroleum Reserve and thus lessen to some extent the worldwide demand for oil.
Combined, he said, the two proposals would reduce gas prices, which would have a trickle-down effect, and "help to spread relief across the American economy."

What would such a "gas-tax holiday" actually do, economically, to supply and demand? Since economists aren't physicists, it's impossible to say for sure, but here are a couple of the more believable scenarios:

• Assuming we are currently at a market equilibrium (a questionable assumption, considering the constant change in gas prices), reducing the price of a gallon of gas by 18.4 cents to the consumer would increase demand for gas. Increased demand should increase supply, but the summertime supply of gasoline in the US is relatively fixed, so the supply cannot increase. As a result, the price will resume the starting equilibrium -- and the total value of the tax reduction will accrue to the oil companies.
  
• The tax reduction will be split between the producers and the consumers, as apparently happened in Illinois in 2000, when gas hit $2/gallon for the first time. In the case of a real reduction in price to consumers, demand for gas will rise, raising the price of gasoline, but not as much as in the first scenario. However, gasoline usage will also rise, increasing the US carbon footprint.
  

Realistically, the gas-tax holiday will have little effect upon the average American. The price of gas might go down, but if it does, the amount of gasoline used will go up, pushing prices back up and increasing the flow of carbon into the atmosphere.

Sounds like a losing proposition to me, on the merits.

But it does appear to be pretty good political theatre.

NOTE: Nothing in this post should be construed as an endorsement of any Democratic candidate for president. It is an article with facts and opinions about politics. I have not made up my mind, and GNB is not endorsing any candidate prior to there being a clear nominee.

There's more...

What Condition Our Condition Is In

They call Economics "the dismal science". If you've ever taken a basic econ class, you'll know why. The assumptions upon which economics are built are known to be faulty (people do not act "rationally" as defined by economists), the conclusions are often depressing, many of the important questions are left unasked, and the ability of economists to agree on how the world works (or an economy works) is extremely limited. These problems notwithstanding, we spend an appalling amount of time thinking about the economy, worrying about the economy, trying to effect the economy, trying to predict the economy, and generally obsessed with the economy.

So let's take a look at a few current "conditions"

Pricing the War

Joseph Stiglitz and Linda Bilmes suggest that the Iraq War is going to cost $3 trillion or even more. You can see the current direct costs of the war for the US, states, towns, or congressional districts at the National Priorities Project.

The Economist weighs in, largely with quotes from others, so I won't quote it. But check out this blog entry by Robert Reich.

According to the St. Petersburg Times, "Barack Obama says the war costs each household about $100 per month." Here's the math:

• Amount requested by the Bush Administration for 2008 War Funding: $196,400,000,000 (that's $196.4 billion)
• Number of households in the US: 126,316,181 (that's 126 million)
• Annual Cost per Household: $196,400,000,000 / 126,316,181 = $1554.83
• Monthly Cost per Household: $1554.83 / 12 = $129.57

That $1550 annual cost is the whole War on Terror, not just the Iraq War. What could you do with $1550 in your household? Of course, it's not evenly distributed. People who pay more taxes bear more of the direct cost.

But we all bear the secondary costs, like current and future interest expense for the money we're borrowing to pursue the war. We also all bear the opportunity cost. According to the National Priorities Project site, taxpayers in the state of Washington (my nearest US neighbor) will spend $1.9 billion for Iraq War funding in FY 2008. That money could have bought:

• health care for 300,000 people
• health care for 767,000 children
• Head Start for 214,000 children
• 35,000 public safety officers
• 30,000 music & art teachers
• 31,000 elementary school teachers
• 317,000 scholarships to university
• 179 elementary schools
• 25,000 port inspectors for shipping containers
• 10,000 affordable housing units

In FY 2009, projected spending for the taxpayers of Washington state will be $3.2 billion (168% of the FY 2008 spending.

According to Zachary Coile of the Chronicle:

In historical perspective, the Iraq conflict is already one of the most expensive conflicts in U.S. history.

The price tag in Iraq now is more than double the cost of the Korean War and a third more expensive than the Vietnam War, which lasted 12 years. Stiglitz and Bilmes calculate that it will be at least 10 times as costly as the 1991 Gulf War and twice the cost of World War I.

Only World War II was more expensive. That four-year war - in which 16 million U.S. troops were deployed on two fronts, fighting against Germany and Japan - cost about $5 trillion in inflation-adjusted dollars.

In early 2003, White House Office of Management and Budget Director Mitch Daniels said a war with Iraq could cost $50 billion to $60 billion. Even Congressional Democrats suggested it would cost only $93 billion (although they specifically excluded peacekeeping costs).

The Economist article linked above is quick to note that "suggestions that the war is responsible for current economic malaise are misguided--to the contrary, given under-utilised capacity, the war is probably helping to keep the economy moving". Their contention is that we're not using our full production capacity because of current problems with the dollar and demand and the credit crunch and so keeping the machines operating by having a war is reducing our economic problems. IF that is correct, and I doubt it is, surely we could do at least as well by spending that money here in the US, perhaps fixing some of the crumbling infrastructure in which Republicans don't believe we should invest money.

Home Foreclosures

California, Nevada, Colorado, and Florida are experiencing foreclosure rates of more than 1 in 150. If you click through to the zoomable map, you can examine your region, or downtown Tampa, or wherever. Some neighborhoods are getting very hard hit. Absolutely great map.

During the peak of the Great Depression (1932-33), foreclosure rates reached roughly 10% (pdf). That's 10% of all mortgages, not 10% of all houses. Our current rate is about 1% of all households. About 1.3 million homes entered foreclosure in 2007, with 1 to 2 million households predicted to face foreclosure in the next 18 months or so. The US home-loan market was about $3 trillion in 2006. About 1 million new single family homes were sold in 2006. The average house sold in 2006 cost $305,000. If all houses were fully financed (not likely), $3 trillion / $300,000 = 10,000,000 houses sold in 2006. If 1.3 million homes entered foreclosure in 2007, that's equal to 13% of the houses sold in 2006. If half of all home purchase costs were financed, then $3 trillion / $150,000 = 20,000,000 houses sold in 2006 and 1.3 million foreclosures represents about 6.5% of the houses sold in 2006. Without better data I can't get more precise, but we appear to be below the 10% foreclosure rates of the Great Depression, but within an order of magnitude and possibly in the vicinity of half of those rates. Too close for my comfort, certainly.

Real Wages

Real wages are down for this generation of adult Americans. Taking men in their 30s as a generational proxy, real wages are 12% less than in 1974. According to the EMP American Dream Report, released in May 2007 (WSJ article quoted here, gated version here):

Beginning with a comparison of men ages 30-39 in 1994 with their fathers' generation, men ages 30-39 in 1964, we see a small, but fairly insignificant, amount of intergenerational progress...Adjusting for inflation, median income increased by less than $2000 between 1964 and 1994, from about $31,000 to under $33,000 -- a 5 percent increase (0.2 percent per year) during this thirty-year period.

The story changes for a younger cohort. Those in their thirties in 2004 had a median income of about $35,000 a year. Men in their fathers’ cohort, those who are now in their sixties, had a median income of about $40,000 when they were the same age in 1974. Indeed, there has been no progress at all for the youngest generation. As a group, they have on average 12 percent less income than their fathers’ generation at the same age.

Bottom line, our condition ain't everything it should be. It's pretty clear that the experiment in relatively unbridled capitalism over the last 30 years or so has failed many Americans. It's time for change.

There's more...

Borders in Cash Crunch

Wrong Size To Thrive

Borders needs cash.

Guardian UK

The US high-street chain Borders is facing a cash crunch that may force it to put itself up for sale as music sales migrate to the internet and discount retailers muscle in on the books market.

Borders said yesterday that it was suffering a funding crisis as credit became "prohibitively expensive or entirely unavailable". It has borrowed $42.5m (£21.5m) from its biggest shareholder, Pershing Square Capital Management.

Operating profits at Borders' 515 superstores in the US dived from $111m to $56.9m last year. After taking into account exceptional items, the company made a $157m loss.

The firm has called in JP Morgan and Merrill Lynch to advise on strategic options, including the sale of the entire company or of individual divisions. Its shares dived by 25% to $5.34.

Borders' chief executive, George Jones, said: "The company determined that additional capital was required to execute our operating plan, and as a result we began to explore various financing options. The current credit crisis has made many of these alternatives prohibitively expensive or entirely unavailable."

In common with other US retailers, booksellers are struggling with a tough economic environment, which has prompted many shoppers to cut back on their discretionary spending.

The biggest US books chain, Barnes & Noble, revealed a 10% fall in annual profits yesterday to $135m. Its like-for-like sales fell by 0.5% in the final quarter and it warned that sales for the coming quarter were likely to be "slightly negative" - partly because of tough comparisons with last year's release of Harry Potter and the Deathly Hallows.

Borders ranks second in book sales to Barnes & Noble. It was founded in 1971 by two brothers, Tom and Louis Borders, who opened a second-hand bookshop in the university town of Ann Arbor, west of Detroit.

The company has traditionally stocked a mixture of books, CDs and DVDs. But it has been reassigning space in reaction to a steep fall in music sales, which were down by 14.2% on a like-for-like basis in the fourth quarter.

In an interview last year, Borders' chief executive blamed competition from cut-price megastores such as Wal-Mart and CostCo for eating into book sales.

I don't have a problem with this.

I hate to see any bookstore in trouble. I have shopped at Borders when I was in a hurry, however I avoid shopping there routinely. Their prices are ALWAYS too high. I can get stuff cheaper via Amazon, or at damn near any physical bookstore. The books Borders stocks, shows me they don't know what they're doing.

From their Science Fiction section to Buddhism, from Humor to Unix and Messaging (and DNS and NTP), from Biology to Screenwriting, Borders consistently fails -- I say three times, fails, Fails, FAILS -- to carry the authors and books I consider the best in their field.

They carry someone whom the whole world has known for 30-40 years is the best. But they fail to carry the person who actually leads the field. Barnes and Noble carries the best, because they carry everyone. And the small bookstore carries the best, because that's how the small bookstores survive, by specializing in only the best in particular fields, or by carrying everything in one or two fields.

Boarders tries to be a little bit of everything to everyone. MEGA-FAIL.

People want to know who you are. Take a position, dammit. Be a professional.

Stand for something.

There's more...

"We Were the Trend"

...a trend was a trend only because people thought it was, and in thinking so, they made it so. Winston had regarded benchmark stocks only as predictors of what the people in the market would do, and for him trends were always psychological, predictors of how people would follow an artificial model, not the performance of the model itself...

And in selling off Citibank, Columbus had activated a little alarm in its own computer-trading system....

Winston patted him on the shoulder. "Save that for later, Mark. I can see it was a good play."

"Anyway, we were ahead of the trends all the way. Yeah, we got a little hurt when the calls came in and we had to dump a lot of solid things, but that happened to everybody—"

"You don't see it, do you?"

"See what, George?"

"We were the trend."
-- Tom Clancy, Debt of Honor, 1994.

In Clancy's Debt of Honor, a computer attack against US stock exchanges is triggered by an unwitting trading company, the fictitious Columbus Group. Columbus was formerly headed by supertrader and all-around good guy George Winston, who is the first to realize that not only was the computer wiping out of all trade data an active attack instead of a bug, but that a major downturn on the exchange was deliberately engineered using his company. That makes him mad.

Clancy has at least one prophetic disaster to his credit already, and last week it looked like he may have gotten another as Société Générale (aka SocGen), the second largest French bank '...incurred a $7.2 billion trade loss from an "exceptional fraud" perpetrated by a rogue trader.' SocGen's discovery of the fraud led them to spend Monday (21 Jan) "...unwinding an absolutely massive long position in equity futures".

Starting Monday (21 Jan) morning, Asian markets crashed. European markets followed. How bad was it? Pretty bad. Some described it as "the worst financial crisis since World War II", others as "the worst post-war recession" or "the most serious recession since World War II". Bank of America's Q4 profit was down 95% and Wachovia lost 98% of its profits. By last Thursday (24 Jan), gloom and doom was easy to find online.

What happened?

First, let me dispense with the idea that we can definitely determine causation for the recent market turmoil. We can't. Nobody can. Worldwide financial markets are just too complex a system for us to fully understand. Even if micro- and macro- economics were hard sciences with singular theories about human and market behaviour, the magnitude of the system and its sensitivity to initial conditions means full predictive or explanatory power eludes us, and probably always will. There will be many opinions, and there will be one or more "conventional wisdoms" about what may be known as The Black January of 2008. One conventional wisdom has already been pretty well established: last weeks mess was at least partly a result of US subprime mortgages. Other conventional wisdoms are competing for survival: it was Bush's lame stimulus package, or it was a "rogue trader".

So, having told you that we will never know exactly what happened, what happened? :-)

Rogue Trader Hypothesis
Jerome Kerviel, a futures trader with SocGen, "breached five levels of computer security controls" to make unauthorized trades in European market futures. These trades were unauthorized in that they were over his trading limits and not approved by higher-ups. The unauthorized trades were discovered on or about Saturday the 19th and the company prepared to close them (that is, pay them off now instead of waiting for them to come due, at which point they might be too large for the bank to pay off).

Unfortunately, on Friday the 18th, Christian Noyer, governor of the Bank of France, gave an interview to IHT. In that interview, Noyer said "...he has been assessing the balance sheets of banks like Societe Generale and BNP Paribas before they reveal their 2007 results...". That sentence has been removed from the IHT website, but is archived at Paul Kedrosky's blog. I can't find any suggestion that Noyer suspected these banks specifically, and current supposition indicates that Noyer selected those banks simply as two large French banks, not because he knew anything specific about SocGen's problem.

But "The wicked flee when no man pursueth", says Proverbs 28:1 (King James Bible), and the supposition goes further that SocGen officials feared that Noyer knew something about their exposure in European futures, so on Monday the 21st they dumped "the overwhelming proportion of their huge long position in one day".

And that set off the markets. SocGen was already considered vulnerable the previous week because of US subprime exposure, so rumour and action came together to create reality

It all comes together into a very pleasant story with a villain and even probably some heroes. But is it right? We're missing one critical connection: how did the Australian and Asian markets know something was especially wrong at SocGen? And how do we distinguish between what was happening to SocGen on Friday the 18th (when SocGen was down 8%) and the following week?

It's possible that the problems at SocGen leaked. You don't need special technology to assume that someone noticed unusual activity at SocGen's Paris offices:

On Saturday, Kerviel was hauled into the bank’s Paris offices, where he was questioned by Jean-Pierre Mustier, SocGen’s head of investment banking, and confessed to making a series of unauthorised bets on CAC, DAX and the EuroStoxx 50.

Working through Saturday night and Sunday, the disgraced trader helped SocGen staff to uncover his hidden punts.

and made a phone call, sent an email or an IM, or posted an as-yet-undiscovered message somewhere on the Internet. Because:

On Sunday night, while the bankers worked feverishly in Paris, the Australian stock market had already begun a downward spiral, taking it to its biggest one-day fall in 20 years.

Implications
Let us suppose, as a thought experiment, that the "rogue trader" hypothesis is at least largely true. So far was we can tell, Kerviel was not malicious or even venal. He doesn't appear to have squirreled any of the $7 billion away for himself and once he was caught he seems to have come pretty clean. And yet he destroyed billions of dollars of value.

According to the WSJ, Kerviel 'was able to skillfully circumvent controls...because he had worked in the "back office" and had an intimate knowledge of how trades are processed and monitored.' That implies a failure of security in SocGen's systems.

That security failure is the scariest implication. If a knowledgeable insider can disrupt worldwide markets while trying to make money, what could an attacker do with the intent of damaging our networked economy? 9/11 cost New York alone nearly $100 billion, although direct costs may have been as little as about $30 billion. Swiss Re calculated that 9/11 was responsible for $35 billion to $55 billion in insurance payments and another $50 billion of losses on the capital markets, reducing insurance industry equity by $100 billion.

If someone took a hard shot at the networked economy through a collection of malicious Kerviels, we could be looking at economic shocks many times that of 9/11, and scattered all over the world instead of concentrated in America.

There's more...

Employment up since 2000

Since 2000, employment has actually grown a bit. Additionally, due to a lower rate of population growth, this has translated into a substantial rise in the percentage of working-age people with jobs.

The number of broadband connections per 100 people is largest in the world and connections are both substantially faster and substantially cheaper than anywhere else in the world.

In Europe

Paul Krugman

There's more...