Saturday, November 29, 2008

The Energy Trinity: IT, Space Race, and Military-Industry

We bought a solar photo-voltaic system during a window of opportunity in which you get both the lifting of the $2000 fed tax credit and the , in the midst of the Financial Chaos Round defined by period after the $700 Billion TARP and before the TARP became the Head-Fake-No-Look-Pass-to-Direct-Equity-Investment.

We had looked seriously at solar in January 2008, but I don't like spending money. I like investing. And while the rate of return appeared to be there, it was not attractive enough to want to finance $10K and pay $8K, even though it would positively impact cash flow between $350 to $400 for the first year and grow at an annual rate of %10+ plus from there. There are lots of ways to 'crunch the numbers on solar photovoltaic, some impacting cash flow (cost of electricity off the grid, price at which the utility will buy back electricity ) and some impacting equity (increase in value of home, expected lifespan). I liked eliminating the equity and focusing on simple cash flow return. I came up with 4% to %6 guaranteed. Not bad for an illiquid conservative investment in 2008, but not great either. Better return than a FDIC backed short term CD, but no liquidity.

Then came TARP, and with it an earmark, that in my opinion is not a dirty word. The earmark lifted the $2000 cap on tax credit for residential solar energy. Now the system installed will be only $3300 after tax credit and rebate. That boosted the rate on return to a conservative $12%. A 12% guaranteed, even an illiquid investment is tough to come buy these days. However, you won't be able to come by it any more. XCEL, the public utility mandated by a ballot generated Colorado initiative in 2006 to meet requirements related to the percentage of its electricity generated from renewable energy has reduced the amount of the rebate it offers. This is not a knock on XCEL--this is an example of effective government initiated energy transformation. Give the utility a goal, and let it figure out how best to achieve it. Let it be tied into market forces as much as possible. We took advantage of the window of opportunity before they rolled the rebate back.

Since then, I have researched consumer generated energy sources, and if you were to ask me, "Can we truly do what Obama suggests: commit to an energy policy that would be conducted with the urgency and success of the space race,?" I would say, "Yes, we can. And here's how."

National Purpose

In post WWII USA, we perceived there to be a threat from the Soviet Union. They had beat us in an intial heat of the space race by launching Sputnik. This fear drove us to do what we do best: innovate to win. We put a man on the moon.

However, America can be at both its best and worst when it is focused on a goal driven by an existential threat to its existence. In 2001, it became the War on Terror. By 2008, Americans were discovering what Al-Qaeda already knew: that the War on Terror would look more like the War on Crime, the War on Poverty, and the War on Drugs than it resembled WWI or II, the Civil War, or even the War on Polio. And as such, there could never really be a defining 'moment of victory' after which we would never have to revisit this threat again with any more seriousness or gravity than demanded by this Civil War inspired themepark.

We need a mission with positive measurable results. We need to believe in our regenerative ability to lead the world by transforming our nation, as we have done so many times in the past. An economy that transformed its ability to generate energy would reduce the risk, cost, and threat of being dependant on foreign dominated fossil fuel. It would be consistent with our Fore Fathers and Mothers empasis on frugality and saving. Not "Drill, baby, Drill," but "Save, baby, Save" Save those fossil fuels for our great grandchildren.

The Power of the Productivity of Power

As the IT age boomed and busted throughout the turn of the Century, we discovered the power of technological innovation increasing productivity. We led the world. At the time, we were worried about Japan overtaking us economically. Technology brought us great rewards. The same innovations could be applied to increasing the productivity of power generation. Innovations would not be limited to technology. They would also include finance and tax policy. For example, rather than the government lending/giving billions to the banks, the government could create sound solar photovoltaic financing that would be made direct to the consumer. The soundness of it would come from using as collateral the stream of payments that the utility makes to the owner of the solar system. In the case of default, the US government would be the recipient. For example, a home owner buys solar photovoltaic and is being paid 10cents per kilowatt hour of electricity generated sold back to the utility through the grid. The home owner defaults on the house note and the bank takes possession. The bank sells to a new buyer. The Federal government would still receive the revenue from the electricity generated from the panels. The new owner would have the option to buy system at price level determined by a factor applied to the amount of debt left on the original solar note. This would be set at a level to meet specific policy goals.Perhaps it would be such that the new buyer could make a return of X + Libor, while the government's losses would be less than without any collaterol. Home owners would have a new asset class to invest in. With the right tax rebate and financing options, it could be a very attractive option.

Nationally, our goal would be to produce X amount of energy from renewable sources each year. It would have the added effect of directing finance right at the source of our problems: housing.


The Military Industrial Complex: conservatives' dirty little socialistic secret

Socialism as defined by conservatives is when the government takes money away from you and spends it on what it thinks is important. Elected liberals, too afraid to be labeled as"Weak on Defense" have never challenged conservatives on their hyper-socialism. Money spent on the military, currently the largest portion of our spending except for maybe debt service, is socialism. The government tells me that a certain amount of my income goes to the military. The government tells me what countries we are going to invade and when, and tells me what weapons it is going to build. I get no choice. The Iraq War is the largest experiment in socialism that the US has ever taken on. However, there are good lessons from our military socialism that could be applied to an energy policy, with the added benefit of private ownership and choice. We would need to re-examine our military policy--and soon because we are strategically in a weak spot now. Colin Powell's doctrine of overwhelming force and being able to fight two wars simultaneously is no longer a doctrine--it is reality. As such, our enemies have learned much about us strategically.

Conception of a new politics


Tenets of a new political thinking will be caused the left fertilizing the right. So this blog is not about repudiating All that is the Right.

However, we kicked your ass, and there will be some new ground rules. Every time the government wants to spend money, the right can no longer cry 'socialism.' Invading Iraq is the epoch of socialism. It takes up 30% of our budget.

The right can no longer cry 'free markets.' I am an Adam Smith fundamentalist. I am a believer in free markets. I am not a believer in the bastardization of Adam Smith's writings that the right calls 'free markets.'

I am willing to trade: I am willing to let die some lefty ideas.

Sunday, November 23, 2008

Big Government? yes--Bailout for the Big Three? No. Why Mitt Romney is right about Detroit and the GOP is wrong about government

The Big Three auto makers need a new moniker. I say they be called "The Three Beggars." They are burning cash at rate of about $6BN a month. They are asking for another 25$BN. It would be folly to lend to them. Mitt Romney is correct, the government should not reward business failures. They have had decades to change. They haven't. I recently rented a 2007 Ford Mustang. It sucked. It reminded me of a cheapened knock off version of the classic 66 Mustang. The style and design principals have not changed in 42 years, but they did swap out the real chrome dash trim for plastic. Guess that's progess.


. It doesn't. Deep throaty engine rumblings are out of style. Hi-tech hi-rpm engine whining is in. The cockpit stylings that made the 66 Mustang cool: 'visor' dash, horizontal rectangular wind shield, 'chrome' finish, round vents, etc. are out. Bubbly wind shields with greater visibility and dash stylings that understand the human driver are in.

Currently, the amount of our economy generated by the government in general is about 30%. In 1929 it was about 6%. One of the things keeping our economy heading for 25% unemployment that was around during the Great Depression is this fact: government employment and spending tends to be insulated from the ups and downs of the economy, except on the tax receipts side.

Tuesday, November 4, 2008

An economic mandate for healthcare reform

Below is something I wrote on the night of the 2008 presidential election. I did not publish it until today because I had not proof read it. I hate proof reading. So with any typographical errors you find, you should score that as proof of its authenticity. A season has almost passed since Obama was elected, so this might be fun reading:

At this moment, my community organizer is kicking your hockey mom's ass in the election. Now you may say that this is not a fair comparison. I should be comparing top of the ticket to top of the ticket, not Obama to Palin. But the comparison is accurate, as McCain and Biden were always the non-alpha personalities in this election. Which is a compliment that I bestow on Sarah Palin.

Now that the election seems to be over, there will be much discussion as to what the 'meaning' of this election is to America. Does it transform our conversation on race? Is it a mandate for a 'liberal' agenda? What of the war in Iraq? And taxes? What of health care reform? In a 'normal' election year, these same questions would difficult to answer. In this year it would be nothing short of chaos to make a lot of meaning out of. Equally difficulat, is to assign 'reasons' for the results. What if the market had not cratered? What if Hilary had beat Obama? If McCain had run a better campaign, could the results be different. If he had picked Lieberman, what would have happened?

In short, none of these questions make any difference, because they are all backwards looking, even if they are fun to discuss.

Where we should look is healthcare. Here is why:

Health care is fundamentally an economic issue. And when we talk about economics, we have been trained to say that "the free market will provide all." This comes from Hayek and Friedman, and somewhat from Adam Smith. Adam Smith invented the theory of the 'invisible hand' of 'free' markets that would efficiently allocate resources, make everyone the best off, and do it thorugh millions of independent decisions of independent decision makers. In general it works. However, later economists after Smith found inefficiencies in the pure theory. Third party externalities created inefficiencies. An important--but ignored by current proponents of 'free market' theory--tenent of Smith's theory is that 'free' markets = 'fair' markets. Essentially, if one party was too big compared to the other players in the market, this was neither a fair nor free market. A current example of this is when an oil company negotiates a contract with a small country. The oil company has many many times the revenue than some small countries. In these cases, the markets will not operate efficiently according the inventor of free market theory Adam Smith.

Health care has many such inefficiencies that the free market cannot take care of. Economic models based on numerous court cases indicates that in many societies, it is better to kill someone than to maim them for life. If you maim them for life, then you have to pay $$ based on what they could have earned over their lifetime. If you kill them, then you only need pay the loss of what they would mean to others.

Insurance is based on the idea of not getting sick. Insurance companies are designed to ensure they have to pay as little as possible for people getting ill, while collecting as much as possible in the form of insurance premiums. Similarly, they are designed to pay as little as possible to doctors, hospitals, etc.

In summary, the free market simply does not work completely. And there is much inefficiency in the administration, paperwork, and bureaucracy. President elect Obama and the Congress should look to impact the health care market first, because the 'free market' is not working their already, so there is more to get out of and less to lose with government intervention.


This was the first salvo at challenging the status quo on exactly how "free market" the health care system is. There are some interesting spellings in there. Obama has not focused on health care, unfortunately. I have found more inefficiencies, especially around birth.

Friday, October 31, 2008

Who would Shel Silverstein like to have a beer with: Keynes or Hayek and Friedman?

Wikipedia says of Shel Silverstein's Where the Sidwalk Ends, "The book's poems address many common childhood concerns, as well as presenting purely fanciful stories."

When economists write fanciful stories about their concerns, they call it theory.

One such theorist was John Maynard Keynes. Keynes' theory generally goes as follows: during boom times, you save money, and during bust times, you spend it. The squirrel knows this. The farmer knows this. Your Grandmother knows this. Keynes felt that the government can--an should--act as a buffer: during boom times the government should have policies that inhibit growth and during bust times they should promote it. The government would run surpluses during the booms, and deficits during the busts. This fanciful story helped get us out of the Great Depression.

Then along came Hayek and Friedman. They disagreed with Keynes. They emphasized free markets and something called monetarism, which focuses on the supply and cost of money and currency. Essentially, they felt that the private market would do best if left to spend its money on its own, rather than have the government do it for. The Federal Reserve, through multiple instruments that they have been using a lot lately, could affect the cost of debt and money. In this way, they could encourage (or discourage) people to borrow money and spend it. Their story got us out of the 'stagflation' of the 70's.

So what happens now? What story do we have to guide us through these scary times?

When the cost of money went chaotic during the credit crisis, the Fed opened the spigots and used all their most powerful tools to stop it, but they could not. Banks refused to lend to each other and were hoarding cash, rather than using it to make the loans that would stimulate the economy. So what of Keynesian theory? Have you heard of 'ear-marks'? Everyone knows that earmarks are bad news. You end up building "Bridges to Nowhere" and expensive planetary projectors. However, these are the same tools we used in the Great Depression to get out of 25% unemployment. We use them differently now. This is where Barack wants to go: to tie in the War on Terrorism or National Security into energy independce, renewable energy and greenhouse emissions, but he could--and should--drop the last one. This would need to be a national effort, as opposed to the piecemeal process that we use earmarks for currently. So Keynes' tool box might work, but we would have to do some major 'job training' of the Congress to show them how to use the tools properly. And there are major pitfalls associated with Keynes.

Unfortunately, we don't have any savings. George W. Bush tax cuts during boom years took care of that. We have deficit spending, but then we might run into run into Hayek and Friedman. Huge deficit spending could cause bad things to happen to interest rates and currency exchange rates, such as working to further lower home prices, greatly increase inflation, and rapidly weaken the dollar's status as the reserve currency of choice.

So far, what we have actually done none-of-the-above. We are using the Chinese method in reverse. China is a mixture of state owned and privately owned companies. Currently, China is working to privatise its companies. In the US, we are now buying companies and turning them into state-owned enterprise to prevent the economy from collapsing.

So we are all concerned. Our staid theories and gospel stories are not working as they once did, and we have yet to create anything new.

We have arrived at the point where the sidewalk ends. I should would like to have a beer--or several--with Silverstein, Hayek, Friedman and Keynes.

Barack Obama, a true friend of the conservative

Barack Obama looks to win the election. True conservatives should hope that he does, for history suggests that a leftward swing is in our future, and he appears to be extremely thoughtful, knowledgeable, and curious. His star power will ensure that he, as a President who must appeal to Virginians, Coloradans, Ohioans others in swing states in 2012, will be more beholden to the center voters than he will be to the district that elects Nancy Pelosi.

In other words, conservative family members, you could do a lot worse. Barack wants to win the President to be the President and have an impact. Sure, his views are left of center, but I have no reason to doubt that he means it when he said recently that he intentionally does not criticise the Republican party, because there are too many issues America will need cooperation on.

Lets take the contrary view that Obama is campaigning as a moderate, but when he gets to the White House it will be Liberals Gone Crazy. They will wreck our financial house. They will weaken us internationally. They will bring back the fairness doctrine to eliminate right wing radio. They will encourage abortion. They will tax us so much, there will be no incentive to want to make a lot of money, or be an entrepeneur.

Weakened Financial House: Bush et al have already taken care of this. True, Democrats had a hand in it as well, but the electorate has rightly assigned blame on conservative economic principals supported by Hayek and Friedman. Either way, the house is wrecked, and Americans rightfully don't trust McCain and Palin to fix it. McCain and Palin are economically uncurious, as McCain has admitted multiple times. When you are not curious and are not an expert, you default to the party line, and this line has cost us a lot, and would cost us even more if allowed to continue. Obama, as an intellectual, does not have a pre-defined economic ideology beyond the idea that he believes in a progressive tax code: one where people that make lots get taxed at a hire rate than people that make less. We can argue until we are blue (or red) in the face, but history will show you that when the wealthy get too wealthy, and the poor get too poor, the poor rise up and kick the shit out the wealthy. This does not happen in America, because we have a progressive tax code. If you are well fed, it is hard to have a revolution. Obama He does have relationships with Volcker and Buffett. This is good for America.

They will weaken us internationally: Again, already been done. I have little to say except that it was a poor strategy for Bush to unite our enemies and divide our allies. Symbolically, I believe that only the most cynical of European America haters could not be impressed by what it means historically to elect Barack Hussein Obama. Obama was roundly mocked by the GOP for drawing 200,000 to Berlin. Last I checked, Germany is a democracy, and an ally. Using simple math, if German voters love Barack Obama, then German voters will love German politicians who agree with Obama, therefore, German politicians will have an incentive to cooperate with American policies because it will give them oppotunities for photoops for Obama, rather than having to oppose American policies because Bush is associated with them, and German voters hate Bush. Got that?

They will take away right wing AM radio through the fairness doctrine This is the most absurd. Everyone knows that the right wing dominates the airwaves of the AM radio. If Obama wants to ensure electoral defeat by pissing off all the rural voters in the swing states of 2012, then he will sign the fairness doctrine back into law.

Abortion: Liberals don't like abortion. They just don't like government telling them what to do based on religion even less. Somehow, 'small-government' conservatives aligned with religious conservatives to create a majority in the first part of the new millennium. Historians in the future will wonder at how an alliance between small government conservatives and religious conservatives--who want an expansion of law into what many families now consider there own private life--ever lasted this long.

Now that does not sound so bad, does it? The alternative is for an intellectually bankrupt party lead by someone too old and too young to win. The backlash to that party would be way to the left of Obama, and would likely be an angry leftist ideologue--something that Obama is surely not.