Energy

With all the concern about gas and oil, some people are starting to get enthusiastic about electric cars. Well, maybe electric cars are a great idea, but the real thing of interest is BTUs, whether they come from petroleum, coal, solar, wind, or rotting vegetation. You don’t hear much about BTU numbers, but I found some. The useful unit of measure is quadrillion BTUs. In 1970, the world consumed 300 quadrillion. In 2025, the prediction is 645 quadrillion. That’s more than a doubling of global energy consumption. The percentage consumed by the industrialized world is dropping - it will be less than half by 2025. The emerging economies will consume more energy than the mature economies.

Of course, this huge increase in energy consumption implies a huge increase in the well being of the billions who live in utter poverty today. Most of us underestimate how powerful the forces are that are pushing us in this direction. Billions who want better lives for themselves will not be denied.

Why Universal Health Care Is A Bad Idea

Mr. Kling makes the argument as succinctly as I’ve seen. The bottom line is that it won’t cost much less than what we have today and it will certainly slow down medical progress. So why, you might ask, do other countries have cheaper health care and better outcomes?

First, the outcomes are not better. The statistics about life expectancy et al don’t mean what you think they do. There’s more to life expectancy than health care. If you throw out the people who are murdered and die in traffic accidents in everybody’s numbers, the US life expectancy improves a lot.

So how do they deliver health care less expensively? Simple: long, long, long wait times. Remember the PM of Sweden having to wait a year for a hip replacement? In universal systems, people can die waiting to see a specialist. That certainly reduces costs!

UPDATE: Megan examines this in more depressing detail.

The Business of Gasoline

The economics of gasoline is simple: oil companies sell all the gasoline they have and not one drop more.

If people want more gasoline than the companies have, some one could end up getting no gasoline at all. Fortunately, capitalism is a self-correcting system. If people want more gasoline than exists, the companies raise the price. This causes some people to use less gas. Perhaps they car pool; perhaps they consolidate errands; perhaps they shop closer to home; perhaps they reduce their leisure driving; perhaps they buy a more fuel efficient car. The companies like high prices because that means high profits, and high profits mean the companies can invest in producing more gasoline. Supplying gasoline is their only reason to exist.

On the other hand, if people want less gasoline than the companies produce, the companies reduce the price. People like cheap gasoline because it makes life easier. Companies don’t like low prices because it means lower profits. But even lower profits are better than paying the cost of storing unsold gasoline and having even lower profits. So they sell the gasoline at whatever price it takes to move it all through the system.

This is why the price of gasoline bounces up and down so much. For example, if a refinery has to go off line for maintenance, there will be less gasoline for a while, and the price goes up. When the refinery restarts, the price goes down. If enough people start buying tiny high mileage cars, the price of gasoline goes down. There are millions of factors that cause the price of gasoline to change.

Even future actions can change today’s price. Your local station has to refill it’s holding tanks every week or so. If the station owner knows that gas will cost more next week, he will charge more today so that he can afford to refill his tanks next week. Even far off events will influence today’s prices: if everyone knows a refinery shuts down for maintenance next year, they also know the price will go up next year, so they increase the price a little today in order to replenish their supply in the future..

This reaction to supply and demand, including future supply and demand, extends all the way through the gasoline supply chain. Your local gas station, the local distributor, the pipeline operators, the refiners, the oil producers, and the oil drillers all react to supply and demand, present and future, in similar ways.

Gasoline pricing is simple in concept, but complicated in execution. There are millions of factors that, if everything were perfect, cause prices to fluctuate. Of course, everything isn’t perfect. Accidents happen; people make poor guesses; data is inaccurate; people make poor choices. Prices fluctuate even more because of incomplete knowledge and poor judgment. Gasoline pricing is a very messy and complicated business.

Some people haven’t had the time, willingness, or ability to understand how gasoline pricing works. They make up fictional stories to explain price changes: “big oil” did it, speculators did it, evil Arabs did it. This is much like ancient peoples explaining thunder and lightening as caused by “angry gods”. Such imaginings, based on ignorance, can lead to political actions that only make things worse.

That’s pretty much where we are today!

End of the World

The “end of the world” scenario is unlikely, but less unlikely than it was a short while ago. I’ve already headed in the direction Mr. Kling is thinking about: a highly diversified portfolio with a lot of exposure to foreign stocks. In addition, I have moderat exposure to foreign bonds and I’m now considering shorting the dollar. Ugh.

A Broader View of Fannie & Freddie

The amazing Arnold Kling has a great article on Fannie and Freddie, but he takes a few steps back and looks more at the big picture, exploring some very fundamental issues in the process.

Speculation 101

There’s a lot of noise on the line about speculation. Hopefully, most Econ 101 courses deal with speculation in discussing futures markets and demonstrate that speculation is a good thing. A lot of people must have slept through that chapter. If you’re not convinced, or uncertain, or a politician, you ought to read this nice short explanation of speculation.

Oh, Fannie! Oh, Freddie!

Read the ugly truth about Fannie Mae as seen from the trenches and another view from a more or less neutral bystander. The whole political reaction to “the housing crisis” is a hopeless mess which you and I will get to fund. It’s like having your pocket picked. Rich, poor, middle-class - we’re all going to be punched in the gut.

I suppose Democratic politicians have strong incentives to support this because it helps their friends, who in turn will help them with campaign donations and post-government service income: classic crony capitalism. Republicans seem to fear being painted as heartless and insensitive if they oppose it. This is true because the whole issue is complex and simply not interesting to most people, making it easy to demagogue.

In the end this may backfire: this is the kind of stuff that could push the economy into the crapper. Now if only there was a way to get the average person to understand what’s really going on….

Why The Fed Do What It Do

I love it when I find a clear article that takes the mystery out of the arcane. If the recent actions of the Fed leave you scratching your head, or the whole subject makes your eyes glaze over, don’t miss this article. It explains things from an Austrian School perspective without the semi-polemic tone that so many Austrian School economists use. I find that the Austrian perspective makes perfect sense

The Housing Bill

Arnold Kling reflects my thinking. This really stinks. We’re becoming a banana republic.

Slavery With A Fancy Name

My generation protested agains the Vietnam War, although I’ve always felt that the energy for the protests came not from the war itself, but from the draft. Conscription is simply a form of temporary slavery and there was, and is, a strong aversion to slavery in this country. The exception seems to be within a community of so-called “progressives” who want to restart conscription with a fancy name. The whole idea is flawed for many reasons, one of which is the diversion of people from working in the market to working for the government. (Isn’t government supposed to work for us rather than the other way around?) What a huge loss of productivity! I’m all for volunteerism, but slavery is never voluntary.