Monthly Archives: January 2011

No One Knows How To Make A Pencil

On Facebook the other day, my friend Jeff Deckman pondered:

Did you know that no one knows how to make a pencil?

Think about it…… A lot of people know how they are made. They can tell you how they are made and can explain the process. But no one person can do all that is needed to be done to make one pencil.

From cutting the tree to milling the lumber to mining the graphite to extruding it in the pencil to extracting and processing the rubber from the rubber trees to making the metal band and assembling it all.

No one person knows how to do that.

We all need one another, no one is unimportant and everyone has a role and it matters. Respect yourself and others. We all have value.

And it doesn’t just apply to pencils………….

Imagine how much time and expense would be involved if we had to hand craft our own pencils rather than buying them for pennies.

My wife Jacqui and I built our previous home, grew much of our own food and heated with firewood that we cut ourselves. I am a recovering worshiper of do-it-yourself independence. I sometimes sit back and wonder at how dependent and grateful I am for my car, computer, and other tools and luxuries that I have no idea how to build or fix, not to mention all the sophisticated tools and dependencies I needed to pretend that I used to be independent.

About three miles from where we live now is Slater Mill, the first textile mill in America and the birthplace of the American Industrial Revolution. Right next to it, at the now historic museum, they have a home of a typical farm family of the time who came to work at the mill. The speed and efficiency of the mill’s very primitive industrial equipment were incredible relative to the spinning, hand knitting and weaving that families did at the time to craft their their own clothes from the flax and wool they grew themselves.

The transformation we have undergone as a society in the last couple hundred years is amazing. The poorest Americans are far wealthier than the richest kings just a few generations ago. The bountiful fruits of interdependent civilization are truly wonderful.

The manufacture of pencils is the subject of a classic treatise on the complex beauty of society naturally organizing in creating the wealth we enjoy though the power of bottom up self-organization of free markets empowered by people making voluntary self interested transactions.  “I, Pencil” the 1958 essay by Leonard E. Read is hard to beat.

Hopefully we can figure out how to remain a free and civilized society. It would really suck to have to make our own pencils.

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Filed under Best Stuff, Civilization, Fundamental Perspectives

Why Isn’t The American Job Market Recovering?

Jim Tankersley asks “What Really Happened to 15 Million Jobs?”.  After pouring over statistics, he seems at a complete loss to speculate on any real answers. It seems that like so many other Washington focused pundits, he really just doesn’t want to face the quite obvious answers. I felt compelled to contribute in the comments section:

If one can manufacturer anywhere in the world; communicate instantly to anywhere in the world; find plenty of skilled educated labor virtually anywhere in the world; and ship raw materials, components and finished products at low cost thanks to still very inexpensive energy prices – then there are some very fundamental questions to be asked.

Even if one is a very dedicated American patriot, does it make sense to expand in a location with oppressive zoning, building, environmental, labor, financial and other regulations; extremely high and unreasonable litigation exposures and risk; an assertive and active legislative and regulatory environment in which the rules of the game are constantly changing; increasingly intrusive direct government involvement in businesses and markets; massive and unsustainable public deficits, debt and unfunded liabilities; already high taxes inevitably moving higher; labor costs five or ten times higher than those in China or India; increasingly business hostile rhetoric from the dominant political party; decaying infrastructure; and a pervasive culture of entitlement?

It actually isn’t any surprise at all this country is losing jobs and companies worldwide are choosing to invest elsewhere, except perhaps to those who still believe the naive platitudes of the political “progressives” who are impeding any chance of reviving any actual progress.

The gross imbalances we have enjoyed relative to most of the world are unsustainable. Pretending otherwise is foolish.  Our living standards will move into balance with the rest of the world, as will our regulatory environment, legal environment and all the other factors that influence the real competitive advantages of  locating a business in one place over another. Its inevitable.

Its time to get real about making the US competitive again. It can be done through deliberate public policy decisions or much more slowly and unhappily through unstoppable global economic forces. Protectionism or militarism will only make matters worse.

Over at the Atantic, Arvay responded to my comments:

Dialing down our society to the conditions that make China’s labor so inexpensive — few environmental protection regs, massive poverty, child labor, company housing that’s more like a Stalag than a home — if that’s the future you want, I think you should brace yourself for the inevitable revolt here. Your economies will be nullified by the internal security measures necessary to protect the elite.

Pervasive culture of entitlement? You mean Social Security and medicare? Or the swollen Pentagon budget? Which would you sacrifice?

If American business can’t figure out how to make itself valuable to a broad range of the public, especially via job creation — we’ll need to find a different model. Oh, you’ll get your Chinese type government, but I think you’ll find the public executions of executives who fail or cheat to be a notable downside.

Be careful what you wish for.

Good thoughts. Here’s how I responded:

Arvay,

I did not suggest what I wish for. I suggested why businesses choose to locate jobs where they do.

What I wish for is a more common sense approach to government. We can have environmental protection without regulations being unnecessarily expensive, arbitrary, complicated and time consuming to comply with. We can have tort reform and a responsive legal justice without huge costs for participation in the system and outrageous rewards to lawyers for things like class action suits. We can scale back the role of government in selecting winners and losers in business. We can have rational financial regulation that protects Main Street and average citizens from the voracious “too big to fail” banks, offers real competition and opportunity for small banks in our financial system, and shuts down the huge institutions that caused our financial mess rather than continuing their ongoing bailouts and subsidies. We can have antipoverty programs that don’t engender a culture of dependency and an underground economy. We can create retirement systems that aren’t based on the exact same formulas used by Mr Ponzi and Mr Madoff for funding. We can create a medical payment system that protects people from catastrophic medical events but makes us all pay for regular, routine and minor medical care so there is some natural consumer driven price control built into the system. We can have a balanced budget amendment for the Federal Government so we are forced to pay for all the largess our Senators and Representatives bribe us with rather than burdening our children with unsustainable debts. We can reverse the growth of regulation that has crossed beyond the point of necessary and effective and in sum is making our society much less well off due the the cumulative impact and drag on our economy. We can start paying the real price of fossil fuels rather then continuing the subsidy of their waste. We can get the government out of the role of skewing the economy in favor of large corporate interests rather than competitive businesses. We can dramatically scale back the military, close at least 90% of our foreign military bases and end the hopeless wars we are engaged in. We can make citizens more responsible and accountable for our own decisions. We can scale back our government, deficits, debt, entitlements and taxes.

Not only can we do all those things, we have to if we want to be competitive in the global economy. As Tankersley pointed out in his article, labor costs are a small fraction of the cost of manufactured goods. And as middle classes grow in emerging markets, wage disparities are narrowing for the right reasons – their standards of living are improving. If labor were the only factor, the advantages of being close to America’s huge market and avoiding the risk of political backlash that is emerging in our country would outweigh the labor cost discrepancy. But there are far too many factors that are within our capacity to control that we are just doing wrong. For the most part, things have been moving in the wrong direction on policy matters for decades.

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Filed under Best Stuff, Economic Policy, Fundamental Perspectives, Politics

Imagining A Responsible Congress

In “A Congress that reasserts its power”, George Will clarifies how Congress has neglected its most fundamental responsibilities for decades. He suggests hope that the 112th Congress will restore the separation of powers and limited role of the federal government that is clearly defined in the Constitution, though long ignored in Congress.

The country is watching to see if this Congress has the seriousness of conviction to follow through on the rhetoric upon which they were elected.

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Another Solar Factory Shuttered

Another solar manufacturer closes up shop, shedding 800 “green jobs”.

It is indeed tough to compete with Chinese manufacturers, as the news report suggests. What wasn’t made clear is that even in situations like ARRA funded projects requiring solar panels made in America, Evergreen still couldn’t compete. Even with their high prices, Evergreen Solar has never turned a profit. The Boston Globe reports that Evergreen “since its founding in 1994 has run up a deficit of over $685 million.”

Perhaps less government funding would force companies to operate more efficiently and develop a more sustainable business culture.

There’s been some very good people at Evergreen. But perhaps it would be helpful, if along with hiring all the brilliant college professors, scientists and lobbyists, some of these over-hyped green technology firms hired some stars in fields like budgeting, production, procurement, sales, marketing, cost control and other basic business functions.

Just two months ago, another government funded solar company with inflated claims of superior technology shut the doors to one of its plants, facing market reality rather than the sunny rhetoric of government grant applications.

The clean energy sector would be better off it the government got out of the game of picking winners and losers and let at least some level of competitive market forces shape the growth and development of healthy businesses.

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Filed under Economic Policy, Energy Policy

Revisiting Health Care

David Brooks wrote an excellent summary of all the reasons the recently passed health care bill is inevitably going to fail to achieve its purported goals. He highlights the need for both parties in congress to provide realistic plans for addressing the out of control cost escalation in the health care system and thus in government entitlements and budgets.

The formula for reform promoted a year and a half ago by Whole Foods CEO John Mackey is still the most reasonable approach I have seen proposed.

The early failures of the new health care policy that Brooks points out, as well as the skyrocketing cost of the similar Massachusetts health care system, should be enough for any responsible politicians to want to seriously revisit the issue in a credible manner. Unfortunately politics always trumps good policy in Washington. So it will be a couple years before anything effective is done about health care costs. Meanwhile our new law will continue to make matters worse than they were in regards to costs, government budget impacts and distorting business decisions.

For anyone paying attention, there is a general rule that can be observed in the functioning of government. The longer, more complex, more ambitious and hard to understand a law or regulation is, the more likely its unintended consequences will lead to the opposite net impacts that its sponsors purported to achieve.

It is not clear that responsible grownups will rule in Washington any time soon. But the current symbolic efforts to repeal the health care fiasco passed last year are a good sign that at least some people in Congress are starting to realize that citizens expect realistic and responsible solutions from our government.

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Filed under Economic Policy, Health Care, Politics

Get The Energy Sector Off The Dole

In “Get The Energy Sector Off The Dole“, clean energy investor Jeffrey Leonard offers a great way to make renewable energy more competitive, reduce pollution and greenhouse gas emissions, and help restore our economy to some rationality and health with competitive markets.

The title says it all. Leonard suggests ending all direct subsidies, tax advantages, hidden subsidies in special regulatory treatments and other “externalized” subsidies for all energy industries. Its great stuff.

Some choice quotes:

Government statistics show that about 70 percent of all federal energy subsidies goes toward oil, natural gas, and coal. Fifteen percent goes to ethanol, the only renewable source of energy that consistently gets bipartisan support in Congress (think farm lobby and Iowa). Large hydro-power companies—TVA, Bonneville Power, and others—soak up another 10 percent. That leaves the greenest renewables—wind, solar, and geothermal—to subsist on the crumbs that are left.

None of these estimates account for continuing support to the nuclear industry, estimated to be about $1 to $2 billion, much of it to promote research and development efforts on new nuclear technologies and waste disposal methods. There are plenty of hidden subsidies, too. We place a cap on liability for accidents (like the BP oil spill). We offer the nuclear industry large loan guarantees. And, of course, we maintain an immense military embroiled in the Middle East and elsewhere as it tries to secure access to energy resources around the globe………..

We can waste money and distort the market by subsidizing all of these forms of energy. Or we can just call it quits on the waste. Disarm completely. Kill all the subsidies—yours and mine,,,,,,,,,,,.

So we find ourselves in a new political moment when for the first time it is possible to imagine an alliance of GOP libertarians, disaffected environmentalists, and budget hawks coming together for a grand deal that would sweep away sixty years of bad energy policy. Obama should seize the moment to bring this coalition together in support of a single objective: to eliminate all government subsidies and tax credits on production of all primary sources of energy.

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Filed under Best Stuff, Climate Policy, Economic Policy, Energy Policy, Environmentalism, Fundamental Perspectives, Politics

Pricing Energy

I’ve been thinking a lot lately about the price and value of energy. Generally I am a strong believer in the rationality and self correction of markets. But thinking about what we pay for energy in different forms, as measured in dollars per BTU, one sometimes has to wonder about how markets determine value.

In this article at the Oil & Gas Evaluation Report, I ran across a pretty amazing table (below).

The difference of values between natural gas and petroleum is pretty hard to explain on a $/MMBTU basis. Much harder to explain would be the difference in price between fuel  and beer. I know at least most beers taste better than fuel ethanol for instance, and the processes for getting that flavor is more complex than simple fermentation. But deep water oil drilling and petroleum refining aren’t cheap or easy either.

The amazing thing about these figures really is how little we play for energy. I wonder how long that can really last.

https://i0.wp.com/www.oilandgasevaluationreport.com/uploads/image/BTU.bmp

 

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Filed under Economic Policy, Energy Policy, Fundamental Perspectives