February 21, 2006
Dubai Ports Deal - Could it be a Good Idea?
There has been a lot of talk, lately, about the security of our ports, as a Dubai-based company is soon to gain control of certain aspects of our container shipping and receiving structure. Concerns about foreign control of these shipping terminals seems rather late, as foreign control is exactly what we've had for years. What's happening is that the British company that has controlled the terminals is being purchased by a company based in Dubai. We're just seeing a transfer of control to a company in another country. More reasonable fears seem to be based in the fact that the company gaining control is in a Middle-Eastern country with potential ties to terrorism. Perhaps these ties are less potential and more actual.
Many of the ports from which containers may be shipped to our shores are already controlled by this Dubai-based company. I believe this is a long-term economic strategy on the part of Dubai to increase its non-oil income. This is a necessary step, as Dubai expects to run out of oil in the next 10 years. Dubai has been taking many steps to replace its oil income, spending billions to create a worldwide economic center and tourist destination. Many world-class hotels have been built, and some other amazing landmarks are being created, as well. Aside from the economic center, they are building a series of huge theme parks, archipelagos in the shape of huge palm trees and even one called The World. Dubai may well be the major tourist destination of the 21st Century.
The major question of the port deal is whether Dubai's control of the container shipping aspects of some of our major ports poses a major strategic threat to America. I do not believe this to be the case. I believe quite the opposite, that having Dubai involved in a major link of our economic chain actually increases our security.
Economics is the key to this analysis. Let's take a look at the feared threats in a bit more detail.
One fear is that having foreign control could have an adverse economic impact on the United States. I do not believe this to be the case. Whichever company controls the container shipping terminals in our ports, that company will create its income by processing ships full of cargo that arrive at, and leave those ports. In order to have a greater income, ships must be processed. Containers must be unloaded from arriving ships and their contents routed to rail and truck services for transport elsewhere in our country. Containers from within our country must be brought in by rail and truck, loaded on ships, and sent elsewhere in the world. That's the business being done at these terminals. Each container processed, and each ship docked, holds a specific dollar value of income for the company involved.
In order for this company to use their control of the ports to damage our economy, they would have to slow the processing of ships and containers. Dubai, in their transitional economic state, isn't trying to reduce their own income in order to hurt the rest of the world. In fact, they're trying to enhance the incomes of the rest of the world to create more customers for their own finance and tourist economy that they are building. It is in the best interest of Dubai to help America improve its own economy, because they can see front-end profits at the shipping terminals, and back-end profits at their theme parks as Americans gain more disposable income.
Why, then, would Dubai want to leverage their control over our ports to reduce the activity at those ports? It makes no sense. Dubai isn't becoming our economic adversary with this move. Instead, they are taking a direct step to make themselves America's economic ally. We could use a few more of those.
Another major fear is that Dubai, through its control of our container shipping facilities at these six major ports, could make us more vulnerable to terrorist threats. I'm not sure that this fear is well-founded, either.
Theoretically, the controlling company of the terminal could allow containers with nuclear, chemical, or biological weapons to enter America. These weapons, in the hands of terrorists, could be used against a variety of targets. Major targets would be governmental and economic sites. On September 11, 2001, terrorists attacked both types of sites. Of those two, the more effective attack was on the economic location of the World Trade Center. For months after the attack, the US economy struggled to rebuild. The damage was done to our financial center, with collateral damage to our manufacturing base, personal incomes and employment.
One major economic target would be the ports themselves. Obviously, an attack on one of the major ports would do serious damage to the ability of the controlling corporation to make an income at that port. To attack one of those major ports would be to damage the economic state of Dubai itself. As self-destructive as Islam is, I doubt that Dubai is interested in cutting its own economic throat by allowing major destruction to its own economic assets. As a side-effect of such an attack, Dubai would likely lose control of other major US ports, as well as major ports it controls in other countries. This would not be a smart move.
So, we can assume that any weapons allowed into our country would not be destined for one of the major ports.
A nuclear weapon brought in through one of these ports may be used on a major city. New York would have to be marked off the list of potential targets, as Manhattan (the obvious target) would allow the blast radius to do great damage to the port in question. Likewise, attacks on the cities hosting the other five major ports would cause damage to the ports in question. An attack on Washington, DC would make more sense from a strategic standpoint. There again, though, some factors must be taken into account. For once, the attack would have to have a near perfect chance to succeed to be allowed. Any failure to detonate the weapon successfully would probably result in an investigation taking place, and the source port of the container would quickly be traced. The resulting scrutiny would probably result in a change of control over the port, and thus the loss of income for Dubai.
Chemical or biological weapons, unlike nuclear, do not vaporise themselves and their surroundings when used. Even if used successfully, the after-effect would include investigation, and the probable loss of control over the ports. Again, I don't believe Dubai wants to slit its own economic throat in this way.
No, I believe Dubai has an interest in making sure that NO NBC (Nuclear, Biological or Chemical) weapons make it through their ports. This is why they would cooperate with officials in ensuring that all containers entering our country go through already-existing controls and audits designed to prevent their use as weapons-transport.
In addition to the above, Dubai knows that a major attack on US soil will have adverse impact on the US economy. Such adversity would result in reductions in exports, as the manufacturing base takes a jolt. Likewise, imports would be harmed as personal incomes dipped and the need for imported goods reduced. Reductions in manufacturing means reductions in imported raw materials, as well. Such reductions will reduce the loads on the ports, and reduce the income to Dubai. On the back end, a hurting US economy means much less international travel, especially to tourist destination.
We are on the cusp of a major coup in international relations. By allowing this transfer of ownership to continue, we have the chance to turn the United Arab Emirates into a major economic ally of the United States. I think this is a good idea.
The long-term implications of such an economic alliance are great. In Middle-Eastern politics, UAE would be forced to argue against support of terrorist attacks on the United States. In order to safeguard their own economic well-being as their oil-based income dries up, UAE would become an example of how cooporation with the United States and the Western world is in the best interest of other Middle-Eastern states. As time passes, and UAE reaps the economic benefits of our alliance, other states would be forced to either stand with them and join the greater economic world, or fight them and invite the judgement of the rest of the world.
In the end, the rest of the Middle-Eastern and Islamic world will be forced to choose. Will they see this economic divide and follow the UAE to prosperity and membership in the greater world society, or will they divide the Middle-East against itself and weaken themselves?
Either way, the United States and the greater peaceful world benefits.
Thoughts?
Posted by Lockjaw at 9:33 AM | Comments (5) | TrackBack
November 3, 2005
Excellent Explanation of Oil Markets
DJ Drummond, over at Polipundit has written a fantastic entry on the economics of oil. I've written on this subject in the past, but Drummond really did a fine job of covering a lot of the details of why the oil prices fluctuate. Also, there's a great chart showing the inflation adjusted prices of gasoline since the early 1970s. If you think gas prices are outrageous, and that the oil companies exist just to screw you, this post should be a good education.
Posted by Lockjaw at 8:12 AM | Comments (0) | TrackBack
November 1, 2005
100 Million Missing Women?
While persusing the website of one of the authors of Freakanomics, I found an interesting article from Slate by Stephen J. Dubner and Steven D. Levitt. The article tells of the work of Emily Oster in studying the problem of the "missing women" in Southeast Asia. The hypothesis of the missing women is that, given normal ratios of births of male to female children, there should be many more females in Southeastern Asia societies than there are. The supposition is that the reason for this disparity is mysoginistic in nature. Oster showed that much, but not all, of this disparity can actually be traced to a higher than normal rate of Hepatitis B infection in those societies. As Hepatitis B infected women are more likely to give birth to boys, many of those missing women were simply never born at all.
The article is quite an interesting read. It ends with another anecdote about Oster that I found quite interesting as well. I'll leave it to you to check it out.
Posted by Lockjaw at 10:06 AM | Comments (0) | TrackBack
October 5, 2005
How to Lower NC's Gas Price
North Carolina has the highest gas price in the lower 48 states. That's the latest news on the gas price front. There's a good reason that this is the case, too. North Carolina's gas tax now sits at a whopping 27 cents per gallon. Unlike sales taxes, gasoline taxes are paid by the gallon, as opposed to a portion of the price. Well, that's not entirely true either. The Democrats who control the North Carolina Legislature thought it was a good idea to design the taxes so that they would rise when the gas prices did. In other words, if something happens to drive up the cost of gas to the point that people are having trouble finding the money to buy gas, and SUVs are nearly impossible to sell, the Democrats of North Carolina will make sure that your prices go even HIGHER.
What if North Carolina abolished its gas price altogether? The average gas price in North Carolina would immediately drop from $3.07 to $2.80. Gas stations on the border of Virginia, South Carolina, and Tennessee would start to see a lot more cross-border traffic for gas (right now, that traffic goes into Virginia, not out of it). Along with the gas, customers would spend money on drinks, snacks, and other items. Those items would be taxable through the sales tax. North Carolina would see an immediate economic benefit from lower gas prices, and that would result in an increase in revenues from other taxes. It is not unreasonable to expect that the revenue lost from the abolition of the gas tax would be completely offset by other increases.
Unfortunately, Democrats don't understand economics enough to do this kind of sensible thing. If they did, they wouldn't be Democrats.
Posted by Lockjaw at 6:29 AM | Comments (3) | TrackBack
September 1, 2005
Oil Company Boycott? Not Workable
I've just gotten another one of those viral emails calling for a day of boycott against the oil companies. These things seem so reasonable, on the surface. Unfortunately, or fortunately (depending on your economic knowledge), the whole concept is unworkable.
The standard line starts out something like this. "If we all used no oil for one day, the oil companies would run out of storage space for their stockpiles." It would be easy to say that this statement leaves an important detail out. It leaves a LOT of details out. The whole statement is flawed, unworkable, and plainly false.
Oil and gas don't work the same way other products do. The stockpiles of gasoline from which we purchase are counted in many locations. There are huge storage tanks. There are smaller storage tanks. There are trucks, train cars, ships, and pipelines full. All of this is counted in the stockpile. The gasoline in the storage tanks at your local station are also a part of the stockpile. At many points in the supply chain, slack space is available.
Note that because the local gas station's tanks are included in the stockpiles, the price you pay at the pump is actually the replacement cost. You're not paying to buy from the tank. You're buying from the stockpile. That's why price increases at the wholesale level almost immediately pass down to the gas pump.
With that said, why couldn't we simply boycott the oil companies for one day and show them we don't need them? The answer to this one is even simpler. We DO need them. Far from being the evil corporate greedmongers that some would like you to believe, the oil companies are providing a necessary product on a massive scale at a reasonable price.
We need the oil companies because we need gasoline. We need lubricants. We need plastics, tars, and other petroleum products. To not purchase gasoline for one day would be ineffective, if we still used petroleum products for that day. If we drove to work on that day, we'd just buy the same amount of gasoline the day before, or after, thus negating any effect. We would have to avoid using/purchasing drinks in plastic bottles, Vasoline, WD-40, paint thinners, many paints, shingles, electronics, and electricity. The list goes on, of course, but you get the idea. We also don't want to use any products or services that require the oil industry to exist, which rules out pretty much everything. Don't drink water, because the pumps require electricity, which is created by burning oil or another fuel that is transported using an oil-driven machine.
To effectively carry out a boycott on the oil companies, the process would be quite simple. Flip the main breaker on your house to the off position. Seat yourself on the couch and stay still, to reduce food and water needs. Go to the bathroom in a jar, if you can't hold it in for 24 hours. Eat nothing. Use nothing. Drink nothing. Buy nothing. Produce nothing. Do nothing.
Oil impacts every aspect of our lives in this modern age. Instead of complaining about fluctuations in prices on one product of the industry, try considering how the oil industry has made our lives better in almost every way. Be careful that your immediate dislike of market-driven price increases don't drive you to be a luddite.
Posted by Lockjaw at 6:11 AM | Comments (3) | TrackBack
August 1, 2005
The Lorax - An Ecomonic Fable Revisited
Most anyone under the age of 40 who has read a book has read "The Lorax" by Dr. Seuss. It is widely understood to be a book about how uncontrolled greed can cause environmental and economic ruin. Is that all there is to it? The Commons Blog puts an interesting spin on the story.
"The truffula trees grow in an unowned commons. (The Lorax may speak for the trees, but he does not own them.) The Once-ler has no incentive to conserve the truffula trees for, as he notes to himself, if he doesn't cut them down someone else will. He's responding to the incentives created by a lack of property rights in the trees, and the inevitable tragedy results. Had the Once-ler owned the trees, his incentives would have been quite different -- and he would likely have acted accordingly -- even if he remained dismissive of the Lorax's environmental concerns."The story ends with the Once-ler giving a young boy the last truffula seed. He tells him to plant it and treat it with care, and then maybe the Lorax will come back from there. The traditional interpretation is simply that we must all care more for the environment. If we only control corporate greed we can prevent environmental ruin. But perhaps it means something else. Perhaps the lesson is that this boy should plant his truffula trees, and act as their steward. Perhaps giving the boy the last seed is an act of transferring the truffula from the open-access commons to private stewardship. Indeed, the final image -- the ring of stones labeled with the word "unless" -- could well suggest that enclosure, and the creation of property rights to protect natural resources, is necessary for the Lorax to ever return."
How much different could the story have been if the truffula trees had been owned by an individual, or a corporation? Cutting down the trees would still have been allowed, but someone would have been planting new trees. This would not only have prevented the loss of the trees, but also would have protected the industry, and the jobs involved. Only in fiction can such a major operation be a one-man job.
More on trees as a renewable resource here.
Posted by Lockjaw at 6:32 AM | Comments (0) | TrackBack
June 8, 2005
More on the EU and the Euro
I know, I'm a bit of an economics geek. Disinterested Party has some quotes on the problem with the Euro that are quite interesting. There are some notes on the varied economics of the countries within the EU and how this poses problems. Heck, Italy alone has a widely divergent economy depending on where you look at the boot. Trying to work Italy into a monetary policy with Germany and Britan without punishing someone unduly is a rough concept.
Posted by Lockjaw at 2:42 PM | Comments (0) | TrackBack
Will the Euro End?
In a previous entry, I speculated on the valuation of the Euro -vs- the Dollar, should a widespread adoption of the European Union Constitution fail. I proposed this as a good question for the folks over at Marginal Revolution. Well, similar questions are popping up over there now, with speculation over whether the actual monetary unit of The Euro" will come to an end altogether.
I've always thought that the base reasoning for the adoption of a single currency for Europe was wrong. It wasn't all about economic health or creating a stable and healthy economic unit. It was about competing with the economic power of America. If it was about the economic health of Europe, and the potential EU states, things would be much different.
Posted by Lockjaw at 11:03 AM | Comments (0) | TrackBack
June 2, 2005
Paper Recycling is Bad for Your Butt AND The World
So there I was, on the toilet at work. We have a fine restroom, with beautiful stainless steel sinks, track lighting and jazz music piped in from above. It's really nice. When I reached over for some toilet paper, I found that this company, like so many others, uses that horrible recycled paper that's less than easy on the buttocks.
This brought to mind something I've known for a long time. Paper recycling is bad. It's not just bad for your butt, when you look at the toilet paper and see bits of cardboard stuck in the white sheets. It's not all about the substandard paper you're running through your printer. Paper recycling is bad for the economy, and bad for the environment.
Most people believe what they've been told. They believe that recycling paper is a good thing. Stacking up those newspapers and taking them to the recycling center is supposed to help society by reducing waste, saving trees, and making a more economical product in the end. The problem is, it really does none of that.
Paper comes from trees. Trees are good. That's hard to dispute. I like trees. Most paper, though, doesn't come from the majestic oaks and redwoods. You won't see clearcutting of virgin timber to make greeting cards. Paper is generally made from pulpwood. Pulp comes from softer wood trees like the pine. These trees grow relatively quickly. Longleaf pines grow quickly and easily enough that they are actually farmed. Land is set aside for the growing of pine trees. These trees grow, are cut down for goods, and then more are grown in their place. Trees, like so many of our resources, are renewable.
So, if recycling paper doesn't actually save the mighty oaks, or the old-grown forests, it must at least be more economical, right? Unfortunately, that's not so. Paper from trees is a relatively simple process. Recycling adds more steps. Paper must be collected, cleaned, shredded and treated chemically before it can then be turned into a paper that is generally of lesser quality than the original whence it came. The treatment of paper to be turned into more paper uses more chemical processing than the original paper did, and you KNOW that can't be good for the environment. In the end, the recycled paper simply costs more than paper directly from wood pulp. The only reason the end cost is lower to the consumer is because the government subsidizes its production, passing the additional costs on to the taxpayer
So, recycled paper costs more to produce, causes higher tax rates, increases chemical pollution, and doesn't save old growth forests. Does it at least help in controlling so-called "greenhouse gasses" to leave trees standing instead of chopping them down? No, it doesn't.
You see, trees grow and they die. When a tree grows, it turns a load of carbon dioxide into oxygen. Trees aren't the best at this job, but they aren't slouches when it comes to oxygen production. After a while, though, the tree reaches a point where it reaches a balance. The cast off leaves or needles fall and begin to decay. This decay process produces carbon dioxide. The amount of carbon dioxide used up by the tree eventually reaches parity with that being thrown off by decaying matter. When the tree dies, the balance shifts completely toward carbon dioxide production. If, however, the tree is turned into other products, the cycle changes.
One of the major complaints about landfills is that the bio-matter in them doesn't have the chance to break down and decay. If we simply buried the old paper in landfills, then it wouldn't decay either. This would result in less carbon dioxide being produced. I argue that the BEST place for old paper is at the bottom of a landfill.
Next time you buy a pack of recycled printer paper or toilet paper, think about the damage you're doing to the environment and the economy. When I'm in that beautiful bathroom at work, I'm just thinking about the damage that recycled paper is doing to my butt.
Posted by Lockjaw at 9:06 PM | Comments (27) | TrackBack
April 27, 2005
France's EU Vote and Monetary Valuation
In recent weeks/months, the US Dollar has been losing value against other currencies, including the Euro. This brings a couple questions to mind. One, what happens to the Euro if widespread adoption of the EU constitution fails? Two, what happens to the value of the Euro, and the dollar -vs- the Euro, if widespread adoption of the constitution fails? This is a good question for the folks over at Marginal Revolution.
Posted by Lockjaw at 11:11 AM | Comments (0) | TrackBack
April 22, 2005
Henry Ford -vs- The Selden Auto Patent
While reading a post on the pharmaceuticals market over at Marginal Revolution, I noted a link to the story of Henry Ford's fight against the Selden Auto Patent. In a nutshell, George Selden conceptualized a poorly designed vehicle that ran on a gasoline engine. No part of it was terribly feasible, and no automobile was ever built to its specifications. Early auto manufacturers, however, banded together to form an industry association and control the patent. Automakers that they liked would be charged royalties, and everybody else would be kept out of the market.
Henry Ford didn't see it that way. He designed a car that was in no way related to or derived from the Selden Patent. When the controllers of the patent came after him, he fought back. The story is a good read, and is a nice lesson in patent law and economics. It also gives a new take on the Henry Ford story that I had been unaware of.
Posted by Lockjaw at 12:55 PM | Comments (0) | TrackBack
Black Market Candy - The Underground Economy
I was reading Bruce Bartlett's article on underground economies, and it got me thinking. What is an underground economy, and how can we learn from them? This led to my own thoughts about what underground economies I had witnessed, and before long I was ready to spew forth with an anti-public-education screed when my browser crashed. Here's take two.
When I was in 7th grade, candy was relatively cheap. Gone were the days of penny candy, but Bazooka Bubble Gum could be had for two cents, and three cents for an Atomic Fireball wasn't too much to ask. Not all places, however, sold candy. One of those places was school. At school, you had breakfast and lunch. Ice cream could be had after lunch, but at no other time could you buy anything other than the institutionally authorized choices.
One day, some entrepreneurial young fellow decided to invest a couple dollars into a little business venture. He showed up at school with a bag full of bubble gum, jawbreakers, peppermints, and what turned out to be his best selling item, Atomic Fireballs. He would charge a nickel for gum and most candy, but fireballs cost a dime. The markup was high, but he had the market to himself. As his stocks ran low, he found that demand was rising, and he could ask a quarter for his last remaining Atomic Fireballs and still sell them.
Within a week, the number of candy sellers at school had multiplied. Almost every classroom had at least one candy seller. Some specialized in the most popular item, the fireball. Others carried a variety. Bubble gum was a big seller, but those who expanded into candy bars found that the markup put the price out of the range of those kids who were spending the extra nickels from their lunch money.
In our own little microcosm, free market economics had taken hold. Some invested and some spent. Those who invested saw their money grow, while others would gladly hand over their extra money to receive the products that they wanted. Those who paid attention to the market sold all their wares each day, while others found themselves cutting prices or eating their profits. While demand outpaced supply, profits were high, but additional sellers entering the market caused a reduction in prices because of competition.
Unfortunately, this burgeouning economy didn't set well with the authorities in the public school system. Public schools are not places where the concepts of free markets, competition, and especially profit are welcome. Within a few weeks, a decree came from above that candy sales would no longer be allowed at school.
When a marketable item, subject to the laws of supply and demand, is outlawed by a controlling authority, the item does not cease to exist. The supply may be affected, but the demand rarely is. Since demands usually dictate the livelihood of a given market, the marketable item usually continues to be available. This viable market now has a new name, "the Black Market."
By declaring candy sales to be against the rules of the school, the school administration had created a black market for candy. This had the immediate effect of reducing the candy sellers, initially, from dozens to a handful. Those candy sellers could no longer arrive at school with grocery bags full of candy, but instead had to limit their product to smaller containers which could be more easily concealed. Smaller containers also gave rise to smaller selections of candies. The two that always stayed around were bubble gum and fireballs.
Following the immutable rules of supply and demand, these few remaining black market candy dealers had to take actions to limit their risk. They reduced the numbers of clients that they would sell to to those with whom they were close friends, or immediate deskmates in their classes. This reduced their immediate demand to manageable levels. They also raised the prices. That nickel bubble gum became a dime, and the fireball now cost a quarter all the time.
A side effect of this new candy black market began to appear. The atomic fireball was the most popular candy sold, but they had certain risks attached to them for the seller. The first was the size. Fireballs take up a certain amount of room. To make their sale worthwhile, you had to carry a certain number of them to school each day. The second risk was packaging. Atomic fireballs were, as they are today, wrapped in crinkly plastic. These wrappers were noisy, and a few dozen of them could make considerable noise when carried or when being removed for sale. This noise could attract the attention of the authorities, causing the dealer to risk capture and punishment.
An answer was found in a completely different product. Some kid discovered a means to provide more heat than could be found in an atomic fireball in a more potent, yet smaller package. The initial financial investment was higher, but the result was a more potent effect with a shorter duration, in a package that could allow dozens of sales each day with virtually no risk of being caught. Quite simply, this kid purchased a bottle of cinnamon oil from the grocery store and soaked toothpicks in it. The toothpicks could be sold for a nickel each, and kids clammored for them on the playground.
As demand rose, supplies did as well. Several kids took the idea and ran with it. Soon, there was a race to have the most cinnamon toothpicks available for sale. As supplies began to meet demand, potency became the issue. Overnight soaking of the toothpicks became a day, for more heat. We all knew who had the hottest toothpicks, or the best prices, and we chose our dealers accordingly.
Little did I know, back then, that I was living in an analogy of the drug war.
Posted by Lockjaw at 11:51 AM | Comments (1) | TrackBack
Oil 101
A classic post from Lockjaw's Xanga Page
One respondent to yesterday's blog pointed out that some have tried to tie the higher gas prices to President Bush, VP Dick Cheney and Haliburton. One of my favorite arguments is that Bush is pushing gas prices up so Haliburton can make more money. This concept is laughable. Anybody who comes up with that kind of idea is so devoid of logic and knowledge that they shouldn't even be taken seriously. Why? I thought you'd never ask.
Let's start with the very basics. Oil is a market commodity. The oil producers range from small businesses to huge international conglomerates. Oil producers operate from, and in, many different countries around the world. Outside of the United States and Saudi Arabia, oil is produced in the North Atlantic, South America, Africa, Southeast Asia and Australia. Once produced, the oil enters the international markets. In these market conditions, the oil has no home. It may as well be thrown into a big bucket. Oil is bought and sold, quite often, months before it is produced.
Once produced, oil must be transported. Transport has more to do with where oil goes than anything else. For instance, some Alaska produced oil must be transported by tanker. The tanker could go down the coast to California or anywhere in the pacific rim. A lot of that oil goes to Southeast Asia, because the cost of transport makes it more efficient. Much of the oil used by the US comes from the Gulf of Mexico and South America, or from OPEC.
So, in other words, the oil being used by Americans could be produced anywhere, by nearly anyone. That's basic concept #1.
Back to the market. Since oil is a commodity, it is traded in futures markets. Futures markets allow investors to purchase contracts to buy or sell commidities. These investors are trying to make money by speculating on the supply and demand of that commodity over a specified time. With oil being an internationally produced and consumed commodity, the futures markets in oil are also international. Since Summertime is a major driving season, more oil is needed in Summer. Since Winter requires more oil for heating, more oil is needed in Winter. During Summer, air conditioning is run a lot more, requiring electricity. Likewise, Winter is a high-demand electricity season because of electrical heat. In the United States, as in most of the world, Oil is the most-used fuel for creating electricity. More electricity demand means more oil demand.
Wait, there's more. When it's Summer in the Northern Hemisphere, it's Winter in the Southern Hemisphere. That means that the higher demands of Summer and Winter are AT THE SAME TIME.
Higher demand, with static supply creates higher prices. That's basic concept #2.
Okay. Knowing all that, how is it possible that George Bush could cause oil prices to be higher? I can only think of two possible ways. One would be to limit supply. In order to do that, he'd have to undertake a worldwide campaign to limit how much oil is being pumped out of the ground. The other would be to corner the commodities markets by purchasing a vast majority of the futures contracts.
If George Bush has done anything to affect the supply of oil, it has been to INCREASE the supply. Thanks to the war in Iraq, millions of barrels of oil are now being exported that were previously unavailable on the market. As for cornering the futures markets, I really doubt he has the money.
Okay, here comes a more advanced concept. Haliburton is a services company, and not an oil producer. If you have oil you want taken out of the ground, Haliburton is the company you hire to do the job. Once they've started extracting the oil, you can sell it. In other words, Haliburton does not benefit from a higher gas price.
Higher gas prices mean people use less gas. Less gasoline usage means less demand. If demand drops enough, then oil producers will produce less oil. Less oil production means less work for Haliburton. If I were George Bush, and I wanted to make Haliburton make more money, I'd try to get the oil prices down as low as possible, and push production through the roof. That would mean more work for Haliburton, and therefore more money.
You know, these aren't very complex concepts. This is all very simple, Economics 101 stuff. Heck, I understand it and I never took Economics 101. I do, however, have a brain, and I know how to use it. When it comes to economics, I learn from some of the best Econ professors around. Walter Williams and Thomas Sowell are big favorites of mine, that I read often. I also love keeping up with Marginal Revolution and The Volokh Conspiracy, blogs run by Economics professors. Maybe if more liberals read these sites, they'd quit being liberals.
Nah. Truth is no friend of liberalism.
Posted by Lockjaw at 11:49 AM | Comments (0) | TrackBack
The Oil Conundrum
A classic post from Lockjaw's Xanga Page
Many believe that it is necessary to, eventually, do away with the internal combustion engine. They believe that we should use other methods of personal transportation propulsion, instead. I thought it would be fun to examine some of these other methods, and the oil problem itself.
If we're going to replace the current internal combustion engine design, we need to have something to replace it with. Current thought leads to four general solutions to this problem. These "solutions" are the battery operated electric car, the fuel-cell operated electric car, the hydrogen engine, and the hybrid-engine. Let's take a look at each of these, in turn.
The Electric Car
The electric car idea has been around for a while. The car is driven by electric motors, which are fed by a battery pack. The battery pack is charged by an external source, when the car is not in use, or by solar power. This design poses three distinct problems.
The first problem with the electric car design is the battery pack. The thing is, batteries just aren't good enough for this job. While technology has advanced by leaps and bounds in almost every area, battery life technology only increases each year by up to 8%. Cars are like computers. If we can increase the power of a battery each year by 8%, then we will use that capacity to provide more power rather than longer battery life. Just like you'd rather have a faster computer, you'd also like your car to climb that hill a little better. In order to provide the power and the battery life, we have to fill up more of the car's interior space with batteries. More batteries means more weight, which means more power needed to pull the car, which means less battery life.
The second problem with the electric car is recharging. In order to recharge the batteries, you have to plug it in or swap out the battery packs. Plugging it in is no problem if your car is used to travel around town, and has a lot of downtime. If you drive a lot, the only option is to swap out the batteries. For this to work, the batteries would have to be standardized and there would need to be the electric-car equivalent of gas stations, with extra batteries available for a price. It's a workable solution, but one with a steep starting curve for the prospective electric car owner.
Problem number 3 is solar power. Solar cells on the car's surface just can't provide enough power to greatly extend the driving time of an electric car. Solar cells are very inefficient producers of electricity. In addition, they're fragile and expensive to produce. Newer methods of producing solar cells are making them less fragile and expensive, but capacity to produce electricity is rising very slowly.
There are other problems. There are other stop-gap solutions. The battery-powered electric car, though, is simply not a workable solution to replace the current internal combustion engine.
Fuel Cells
The Fuel Cell operated car looks very promising in the very long range outlook. Like the battery-operated car, it uses electric motors to drive the wheels, but instead of batteries, it uses a chemical process to create electricity.
In the short term, fuel cells aren't the answer. Fuel cells are expensive to produce. Once they're used up, they must be replaced. Replacement is expensive. Also, as I understand it, once the chemical process is started, it continues until it is completed. This means that the life of a fuel cell isn't measured in hours of use, but hours since the process was started to drive the car off the factory floor.
The main problem with fuel cells? They use hydrogen for fuel. Read on for the problems with hydrogen.
Hydrogen
Hydrogen seems to be the new fad in alternative fuel car development. Either in fuel cells or in direct combustion, hydrogen is oxidized, producing energy and water. In direct combustion, the hydrogen is injected into the cylinder of a direct combustion engine much as gasoline is, where it is ignited by a spark. The combustion drives a piston, which mechanically turns a crankshaft and provides circular motion. Fuel cells use this oxidation process to produce electricity.
For our purposes, we'll suppose that everyone is aware of the dangerous explosive properties of hydrogen, the Hindenburg disaster and so on. We'll deal with more relevant issues with hydrogen such as production and transport.
Of course, for the transport issue, we need to go back to the dangerous explosive properties. I am already wary of trucks carrying gasoline up and down the highway. Propane trucks really give me the willies. One of those things exploding could vaporize a city block. A hydrogen truck, if caused to detonate, could really do some damage. Gasoline trucks and propane trucks, however, do a good job of keeping these problems from happening, so we'll assume for now that a hydrogen truck would do the same.
Onward to production. Quite simply, where does hydrogen come from? We know it is a basic element, but are there any big pockets of hydrogen we can tap as we do natural gas and oil? The answer is no. Hydrogen must be produced.
Many people are familiar with the method of hydrogen production known as electrolysis. Electricity is pumped into water, causing the water's molecular bonds to break down, producing oxygen and hydrogen. The key to this process is electricity. To produce electricity from hydrogen, one must first provide electricity to create the hydrogen. Since 100% efficiency in this process is impossible, it actually takes more electricity to produce the hydrogen than you could ever get by using the hydrogen to generate electricity. This process is also slow, compared to others. If this was the best we could do, we'd never consider hydrogen a valid fuel.
Another method is steam-methane reformation. This is a relatively inexpensive and efficient method. Natural gas is catalyzed at 1100 degrees to produce hydrogen, methan and water. If waste heat from the process is returned to the process, the whole thing becomes more efficient. As far as I can tell, the only good argument against this process is that natural gas is a fossil fuel. Fossil fuels, according to the people who want us to get away from them, are non-renewable resources. That means that when we use up all the natural gas, this process will go away. Mind you, this isn't MY argument, but it is one of the arguments used by proponents of alternative fuels.
There are other methods, such as biomass gassification (expensive, and not up to the demand), photoelectrolysis (still in the lab, and subject to the inefficiencies of solar cells), production from coal (coal? COAL? Coal is a fossil fuel! Coal burns dirty! Coal, feh!) and biohydrogen (not yet ready for prime time). Maybe, one day, one of these methods will be ready.
Hybrid Cars and Other Efficiency Advancements
Hybrid cars are proof that oil works. Every decade that automobiles have existed, means have been created to ensure that the next generation have access to cleaner burning, more efficient cars. Sometimes this has been driven by a need for more efficiency, such as the 1970s, when high gas prices led consumers to ask for cars that burned less of it. Other times the drive has been for more efficient burning of gasoline in order to put more of its power to where the rubber hits the road. Wasted fuel, to a hot-rodder, means fewer horsepower.
The drive for more efficient cars has let to better carbeurators, fuel injection, electronic sensors and controls, computerization, better spark plugs, computerized design of engines and much more. As a result, the car of today no longer spits out black smoke when operating properly, and it uses less gas to produce more horsepower than ever before.
Hybrid cars are the next big leap in efficiency technology. Gasoline is burned, not to drive the wheels, but to produce electricity for storage in batteries. The batteries provide electricity to electrical motors which drive the car. When the batteries start to run low, the engine starts and charges them back up again. In addition to providing much higher miles-per-gallon efficiency, this reduces the effect of bad driving on the engine. Jackrabbit starts, cold-start revving, and other user-error problems are a thing of the past, so the engine lasts longer.
Hybrid cars, as technology advances, have the potential to allow more people to use the roads, while using less fuel than ever before. The one thing they don't do, however, is do away with fossil fuels.
The Future of Oil
As far as the personal automobile goes, oil isn't going to go away anytime soon. In addition, oil is still the #1 fuel used to produce electricity in the United States. Oil also drives larger vehicles such as trucks, trains, ships and planes. Oil is something that we must use, and so we need to find new ways to find or make oil.
Luckily, we're doing exactly that. This article tells about the first plant of its kind, which produces #4 crude oil from agricultural waste products. Renewable Environmental Solutions LLC is using a new process that mimics that of the Earth itself, apply heat and pressure to turkey bits, and make oil. At full capacity, the plant can turn 200 tons of agricultural waste into 500 barrels of #4 crude oil.
With 40,000 of these plants in operation, we could meet the daily oil requirements of the United Staes at current levels. With approximately 8000 of these plants, we could replace what we import from OPEC. The stuff that these plants are turning into oil is trash. It's organic materials that would otherwise go to landfills. The first plant is operating on trimmings from turkey plants. All that stuff that's part of a turkey when it is on the farm, but isn't a part of it when it's in the grocery store is thrown away. This plant turns it into crude oil.
This plant is merely a test platform. Future versions of this plant will be larger, handle more garbage from more sources, and produce more oil.
Conclusion
Oil is here to stay, for quite some time to come. No matter how much we may WANT it to be replaced with something else, we just haven't come up with the something else to replace it with. Alternative fuels simply have not matured to the point where they can replace oil, and if they do, we end up having to use oil to create them.
Technology advances, but cannot be forced. Basic scienctific laws still govern how our energy needs are met. You can't change these laws. Those laws were put in place by God himself. He's the same God who put all that oil out there, to drive our economy until the day that his son comes back and we no longer have to worry about it.
My buddy Dave Schronce decided to buy his 15 year old son a beer making kit. Hilarity ensues.
Posted by Lockjaw at 11:44 AM | Comments (0) | TrackBack
Payola
A classic post from Lockjaw's Xanga Page
While reading Marginal Revolution, I was goosed to write on Payola. MR linked to a John Mellencamp interview snippet in which he discussed the issue. The original interview was on Salon, but who reads Salon, anyway?
Payola is the term used when record companies pay radio stations fees to put certain songs into rotation. If the record company had a new artist that they wanted to push toward stardom, they simply paid the radio station a fee, and the station played the song. It was a simple system, and it worked very well for both the stations and the record companies.
As with any good market system, somebody (Congress) decided that it was unfair to the artists who couldn't afford to pay the fee, and started forcing changes on the radio stations.
Now, I have some familiarity with the radio business. The program directors for radio stations get a LOT of new music sent to them each week. Assuming that each song sent to the station for consideration as a new single is 3 minutes long, and that the station receives a mere 10 singles per day, you can easily have two and a half hours of work time eaten up per week just to listen to new music. 25 singles per day, and you've blown a full workday just to listen to new music. One way that program directors gets around this time problem is that they don't even listen to the songs. Often, a PD will give a song 5-15 seconds to catch their ear, or they'll toss it away. Priority is given to established stars and singles with major support from the labels. Major support from the labels means letters, emails and phone calls from the labels, which eats up a lot more than 3 minutes of time.
What is a program director to do?
Payola was one answer to that question. If a record company was willing to spend $200 to have their single put on medium to heavy rotation for a week, the station could not only have a good chance of airing what would be a hit, but could also make some back-end money on the deal.
Payola allowed the PD to put the single at the top of the stack of songs to review for airplay. Since the record company was writing a check, it didn't take multiple phone calls, letters and emails to determine if the record label was giving the song major support. They were. Half of the Program Director's job was done for that single, before he ever heard a single measure.
For the record label, getting airplay for a song was as simple as knowing the asking price for a select number of major radio stations, and putting those numbers into the ad budget. Airplay automatically meant money for the artist in question, obviously.
What if the song stunk? What if a record label was offering money to air a horrible load of stink, and the program director knew it? Quite simply, the Program Director turned the money down. The first job of a PD is to create a product. That product is the many ears of the listeners. If the PD programs a station that plays bad music, the listeners will go elsewhere. If listeners go elsewhere, the amount of money that can be charged for advertising must be reduced, or advertisers won't buy.
What if a song comes across the PD's desk that's perfect for the station, but there's no payment for play? The PD puts the song in rotation. Again, the job of the PD is to get listeners for the station, so the advertising department can sell ads. Good songs mean people listen.
What about that middle road? What about the songs that are good enough, are backed by payola, but for some reason never catch on. You've got a record label paying for the first week, but nobody seems to notice the song. The second week, the label is still paying, but the listeners still don't care. The third week, that song will be tossed into the stinker pile, and the station simply doesn't cash the check for the third week. Payola money isn't where the big bucks are, and advertising is.
That pretty much leaves one group. What about the artists who don't have enough support from the label for the label to pay for play? Those artists have two choices. They can either pony up the payola money out of pocket or they can make good enough music that payola isn't necessary. If they can't do either of those things, then they may just fail to get noticed.
Sidebar time. What are the odds of a new song getting added to rotation, with payola taken out of the equasion? Let's go back to our basic assumptions. We've got 50-250 new singles arriving on the program director's desk per week, at 3 minutes per song. Without commercials, announcements or any other interruption, 20 songs can be played per hour. That's 480 songs per day. Of those 20, 3 will be played once every two hours. Another 5 will be played every 4 hours. Another 8 will be played twice a day. That leaves 318 song slots per day to be filled with other songs.
Ever listened to pop radio? They're not commercial free. In fact, some stations fill almost half of their time with advertisements. Now, that 480 total slots we started with per day has become 240, and the available slots after repetition becomes 168. That 168 is filled, primarily, with songs from the current top 40, older top 40 songs and the like. Then we have morning drive talk, song announcements, traffic and weather. That 168 has now become 100. Out of that 100 slots, the PD will probably fill 5-10, at most, with new songs from that pile on his desk. Those songs will be chosen on a weekly basis. This means that out of 50-250 songs the PD receives each week, he'll probably never choose 5 to be added to the rotation each week that aren't sure to be hits.
The job of the record labels, when dealing with the radio stations, is to get their artists into that short list of 5 songs selected each week. If your band can't get into that short list of 5, too bad. If you can, chances are you'll make money.
Simply put, payola is a useful tool in the music business to ensure that those artists who receive heavy investment from the record labels get the airplay that the labels think they deserve. In that regard, it is a good thing. Likewise, those who don't receive the benefits of the payola system are thrust into the heartless hands of Program Directors around the country to sink or swim based on the whims of individuals. Without payola, the PD must rely on other, less efficient methods of determining which songs are sure hits, and those other bands will STILL be focused on the whims of the PD.
Count me as one who thinks payola is a good thing.
Now, if you've ever heard the song "I Can Only Image" by the band Mercy Me, you'll understand when I say that all it takes is a great song, and no payola system or back-end corruption can overcome the urge for Program Directors to provide good radio. Listeners to a Dallas pop radio station called and repeatedly requested that the song be played. The morning "zoo" type show knew the song wouldn't fit in, and with repeated mentions of Jesus and an overt christian theme, it wasn't the stuff of pop radio. One day, they decided to play the song as a joke, and actually joked as they played it. Listeners responded, however, and kept requesting the song. Next thing you know, the song is picked up by other stations, and pretty soon EVERYBODY has heard it. It's broken the top 20 on the Adult Contemporary chats, and the top 40 on the pop charts. I've heard the song on country stations, as well. That's with no payola, no major label support to the pop stations, and with most of the Program Directors having not decided to play the song within a year of its release.
Payola is a useful tool, yes. An even better tool, though, is just good music. These days, good music is rare on the radio.
Posted by Lockjaw at 11:35 AM | Comments (0) | TrackBack