What good is wind energy if we can’t transmit it?

August 28, 2008

Paul called my attention to this NYT article: Wind Energy Bumps Into Power Grid’s Limits. Notable excerpt:

The dirty secret of clean energy is that while generating it is getting easier, moving it to market is not.

The grid today, according to experts, is a system conceived 100 years ago to let utilities prop each other up, reducing blackouts and sharing power in small regions. It resembles a network of streets, avenues and country roads.

The basic problem is that many transmission lines, and the connections between them, are simply too small for the amount of power companies would like to squeeze through them. The difficulty is most acute for long-distance transmission, but shows up at times even over distances of a few hundred miles.

The antiquated electricity transmission infrastructure poses a classic Catch-22: we need alternative energy and the technology exists, but we can’t utilize it because the grid can’t handle it. An overhaul of the grid is needed – something which became very apparent after the NYC blackout and Hurricane Katrina – but it’s almost impossible to accomplish on a national scale because of all the competing interests.


States Are in Trouble

July 24, 2008

From Today’s WSJ: States Slammed by Tax Shortfalls

The stumbling U.S. economy is forcing states to slash spending and cut jobs in order to close a projected $40 billion shortfall in the current fiscal year.

…Unlike the federal government, most states are required to balance their budgets. Most have so far resisted tax increases, instead opting for raising prices on things like tolls and college tuition, and cutting back on services like education and health care. Some chose one-time measures such as tapping rainy-day funds that were built up in flusher times.

The housing slump, now well into its second year, is the primary culprit. The decline in home sales has cut into real-estate transfer taxes. Construction spending and employment has declined. Fewer home sales have resulted in lower sales of home furnishings and washing machines, eating into sales taxes.

Of course, for many states, today’s budget woes stem at least partly from expanding their services during good times and not planning enough for the inevitable downturn.

[rant]

Ahh! The last sentence is only partly true: I would say that at least 95% of the state’ budget woes stem from expanding government too much in the good times of the past few years. This is cold and cynical but here’s my analysis of the current situation:

Many states (New York, New Jersey, California, Maryland, Massachussets all come to mind) have horribly irresponsible governments. These states are run by liberals who use any chance they get to increase the size and scope of the state government. They got their chance too: all of these states participated in the housing bubble. This created a temporary surge in tax revenues. These states increased services and made promises with the expectation that the good times would last forever. Anybody with half a brain (much more than anyone in the New York State Senate has) could have seen that this was a bubble and was not going to end well.

Now that the shit is hitting the fan and the bubble is busting, legislatures in these states are acting like their problems were inevitable. The irony is, if these states raise taxes and fees, they will further encourage the people who live there to get out and move to more responsible states where taxes are lower.

The tendancy of democratically elected governments to overspend (and over-promise) in the good times is a key reason why inflation/debasing of the currency is a virtual guarantee.


US Government Is To Blame For The Energy Crisis

July 9, 2008

Here is my summarized view of how we got into this mess: since I’m a believer in the power of incentives, I think the blame goes to the US Government.

Cheap energy in the 1980’s and 1990’s was a huge driver of the economic growth in the US during those decades. Our economy and lifestyle as a nation became dependent on cheap oil. As a result, the suburbs expanded and we severely under-invested in mass transit.

Because so much of our energy is imported, the economy is very sensitive to price increases. With oil priced at $140 a barrel, we are transferring a tremendous amount of our national wealth to oil exporting countries – most of whom hate us. Because of oil imports – and the trade deficit generally – we are experiencing a depreciating currency, inflation, and weak/no economic growth.

We got here because of a severe lack of leadership from the US Government. Gasoline never should have been so cheap because it incentivizes the wrong thing: relying on foreigners for 70% of our oil. For this reason alone – never mind the environmental reasons – we should have had high consumption taxes on gasoline.

Adjusting to the new reality will force many of the changes European countries have made years ago. The adjustment will be painful. It’s a shame we’re being forced to make them at gunpoint (and at great expense) rather than incentivizing people to conserve energy in the first place.


Bill Gross on Inflation

June 2, 2008


OER is understating CPI

May 30, 2008

I recently heard (can’t recall where) a great characterization of today’s inflation: “high frequency items are going up in price while low frequency items are going down.”

Things we buy every day – energy and food – are going up in price. Things we buy less frequently – washing machines, electronics and housing – are going down in price.

I think this phenomenon is helping to understate inflation as measured by the CPI. Or, at the least, it does not reflect the pain people are feeling as a result of the current economic environment. It’s true that housing has gotten considerably cheaper (called Owners’ Equivalent Rent in the CPI). But a large segment of the population is stuck in a house they purchased at the top of the market. For these people, housing hasn’t become any cheaper. Also, most people are not benefitting from a cheaper washing machine or ipod because they can’t afford it anyway – they’re too broke from buying food and gas.

A possible reason why low frequency items are going down in price: prices are being slashed to move inventory. This is exactly what happened to Sears this past quarter.

Inflation Anecdote:

The Laundromat in my building has raised prices substantially:

Medium Size Wash: was $3; now $3.25 – 8% increase

Dryer: was $.25 for 8 minutes; now $.25 for 6 minutes – 25% increase


Fertilizer Shortages

April 30, 2008

* Today’s NYT has an interesting article, filled with pictures, charts and video describing the global fertilizer shortage.

* For help understanding “scarcity economics”, read Jim Jubak’s latest article: Why we’re stuck with insane prices

As with every market bubble, we’re all looking back with 20/20 hindsight and thinking: “this agriculture boom was just so obvious!” In this case, I feel pretty good because I’ve owned Potash and John Deere for about a year, catching huge gains in both stocks. Even so, of course I wish I had been a couple years earlier!

Setting aside moral concerns for now (and I certainly have some), the recent sell-off in the sector could be a good time to initiate or add to positions. The demand for agricultural products — especially fertilizer — is white hot and not likely to decrease anytime soon.


Is US monetary policy to blame for food crisis?

April 28, 2008

Scathing editorial in today’s WSJ: The Fed’s Blunder

Eight months into the Fed’s most recent rate-cutting spree, the evidence is overwhelming that it has been a major policy mistake. Aggressive rate cutting – taking the fed funds rate to 2.25% from 5.25% last September – has had little effect on the banking crisis it was supposed to ease.

Meanwhile, the Fed’s decision to open the general monetary spigots has inspired a global commodity boom unlike any since the 1970s. Oil has climbed to nearly $119 a barrel today from $70 in late August, a 70% increase. Farm and other commodities have seen a similar surge, with corresponding increases in food prices leading to shortages and riots in Egypt and other places, and to rice hoarding even in Southern California.

The popular media explanation is that this price surge is a result of rising global demand, greedy speculators and human profligacy. All of a sudden, without warning, the world is said to be running out of food. After 30 years in intellectual hibernation, Thomas Malthus and the Age of Scarcity are back in style.

As for food prices, it’s true that government policies supporting biofuels have created new demand for corn and other grains. This and price controls in some countries have contributed to the food panic. But the price surge has been so rapid and so broad across nearly all commodities that it can’t merely be a function of supply glitches or new demand for specific grains.

I agree with almost everything here except the editors’ certainty that rising prices are caused by monetary policy alone. As with all inflationary periods, the current one is caused by some combination of two factors: rising demand and monetary policy.