Henry Waxman and Edward Markey have negotiated with their fellow House Democrats and predictably they all decided to tax fossil fuels and then spend that money as fast as it comes in. So the threat of climate change isn't going to harnessed used to close the massive budget deficit.
Here’s today’s news from the Congressional Budget Office on the recently passed Waxman-Markey legislation: It’s a big tax and spend bill. For the years 2010-2019 the tax increase is $872.8 billion. Ka-ching! (For the record, that’s pretty close [we’re talking government work here] to the $885 billion revenue estimate that Heritage calculated through 2019.)
The CBO estimates the spending increases in the bill add up to $863.8 billion. Wow! It didn’t take long to spend that money. The outlays amount to 98.9 percent of the expected revenue. More startling, perhaps, is that the bill authorizes expenditures of $875.2 billion. That is, they have authorized spending 100.3 percent of the amount taken in. Some of that spending is delayed, perhaps, so that there is no increase in the deficit up to 2019 from Waxman-Markey, but maybe later.
It isn't enough that the bill raises almost a trillion dollars in taxes. Oh no. It has to raise spending by even more. The Democrats could have used Global Warming as an excuse to fund their existing spending plans (which are already huge). But they are gluttons. There's no satisfying them.
We haven't had enough American industry go aboard yet. Uh uh. Still more to push off the shores. Big Oil knows it can use foreign refineries instead and avoid some of the taxes.
Under the Waxman-Markey climate bill that may be voted on today by the U.S. House, refiners would have to buy allowances for carbon dioxide spewed from their plants and from vehicles when motorists burn their fuel. Imports would need permits only for the latter, which ConocoPhillips Chief Executive Officer Jim Mulva said would create a competitive imbalance.
“It will lead to the opportunity for foreign sources to bring in transportation fuels at a lower cost, which will have an adverse impact to our industry, potential shutdown of refineries and investment and, ultimately, employment,” Mulva said in a June 16 interview in Detroit. Houston-based ConocoPhillips has the second-largest U.S. refining capacity.
With Peak Oil approaching the US refineries are going to get cut back with many closings anyhow. The oil taxes won't raise as much as the Democrats expect because less oil will get pumped and consumed. So their spending plans will make the deficit even bigger.
The corresponding Senate bill is a mixed bag. At least the Senate bill will start seismic surveys for some of the Outer Continental Shelf in areas now off-limits to drilling.
Oil and gas trade associations applauded the bill which emerged from the US Senate Energy and Natural Resources Committee on June 17 because it would open parts of the eastern Gulf of Mexico for leasing and development. But the measure contained several other elements which would directly affect the industry.
These included establishing a 30 million bbl refined products stockpile within the Strategic Petroleum Reserve; requiring an inventory of marine resources off the US coast, including seismic surveys on the Outer Continental Shelf; increasing federal guarantees for constructing a natural gas pipeline from Alaska to $30 billion; requiring Senate confirmation of nominees to be US Minerals Management Service director, and repealing offshore royalty and other incentives in the 2005 Energy Policy Act.
We need to get that OCS exploration (and Alaska National Wildlife Refuge - ANWR) exploration kicked off immediately because our available oil supply is going to start declining every year by 2016 at the outside.
Federal guarantees for a natural gas pipeline are a bad idea. The private sector should fund it if it is worth doing. I suspect that natural gas won't be needed for a while due to improvements (hydro-fracturing if anyone cares) that make the natural gas in shales accessible.
The National Association of Independent Colleges and Universities finds that educational costs at colleges and universities still keep going up faster than inflation.
June 29 (Bloomberg) -- Tuition and fees at private U.S. colleges and universities for the 2009-2010 school year will rise an average 4.3 percent, the lowest percentage increase in at least 37 years, according to a survey.
Never mind that the economy is flirting with deflation and we are in the worst economic downturn since the Great Depression. The education cartel is raising rates.
Hey, they've improved. Smallest increase since 1972-1973.
The 4.3 percent increase for 2009-10 is the smallest since 1972-73, when average tuition and fees at private institutions rose by the same rate. The increase is slightly higher than the 2008 Consumer Price Index of 3.8 percent. NAICU's figure is based on responses from 350 private, nonprofit colleges and universities.
What we need:
- Large scale high res video recording of course lectures. State governments should fund this activity at state universities. Get more enduring value from paying professor salaries.
- Make the videos downloadable and purchasable on DVD.
- Develop web-based standard practice tests so people can test their mastery of topics while sitting at home or anywhere else with an internet connection.
- Proctored standardized tests that you pay to take that let you get credit for knowledge in a subject without having to apply and enroll in a college.
This won't work for every course. But it'll work for most science, engineering, math, economics, and business undergrad courses. People who want to learn an economically valuable skill will be able to do so at low cost, at their own rate, with no transportation costs, and without disrupting their work day. They'll even be able to choose among many people teaching the same topic and therefore view a higher average level of lecture quality than they'd get from taking courses at a single college or university.
Automation of education cuts costs, improves quality, increases convenience, and increases availability.
In the United States the cost of higher education has been rising faster than the rate of inflation for decades. Turns out the United States spends almost twice the percentage of GDP on higher education than the average among OECD countries (basically the developed economies).
Among the OECD countries reporting data in 2005, the countries that spent the highest percentage of their GDP on total education expenditures were Iceland (8.0 percent), Denmark (7.4 percent), Korea (7.2 percent), and the United States (7.1 percent). Looking at education expenditures by level, the United States spent 3.8 percent of its GDP on elementary and secondary education, which was the same as the average for all OECD countries reporting data. Compared with the percentage of GDP that the United States spent on elementary and secondary education, 12 countries spent a higher percentage, 13 countries spent a lower percentage, and 2 countries spent the same percentage. Iceland spent the highest percentage (5.4 percent) of its GDP on elementary and secondary education. At the postsecondary level, 2.9 percent of the GDP of the United States was spent on education; this amount was higher than the OECD average of 1.5 percent and higher than that of any other OECD country reporting data.
That's a lot of waste we can ill afford. In education we have the potential to cut costs, raise quality, increase convenience, and increase accessibility all at the same time. Let me repeat what we need:
- Large scale high res video recording of course lectures. State governments should fund this activity at state universities. Get more enduring value from paying professor salaries.
- Make the videos downloadable and purchasable on DVD.
- Develop web-based standard practice tests so people can test their mastery of topics while sitting at home or anywhere else with an internet connection.
- Proctored standardized tests that you pay to take that let you get credit for knowledge in a subject without having to apply and enroll in a college.
The average college lecture is way worse than the best college lecture on any given topic. If many courses that cover the same topic were video recorded then we could choose among dozens of lecturers for the same course and we could rate them just like we rate books and gadgets on Amazon. So we could get much higher quality instruction. We could learn at our own pace. We could crame huge amounts of learning into a week or two off from work. We could watch lectures on a laptop while riding a train or subway. We could watch lectures on the beach or on a mountain top. We could test our abilities in a large range of subjects.
For a very small portion of what governments now spend on education far more automated means of delivery and testing could be made widely available for cheap.
Steve Kopits of energy business analysts Douglas-Westwood argues that energy price surges cause many of our economic recessions. Watch out for oil prices that take oil's cost above 4% of GDP. That's around $80 per barrel. Does that mean we are close to a double dip recession?
In the last 37 years, the US has suffered six recessions. From the beginning, oil played a central role. As the period opened in 1972, Saudi Arabia was selling oil for about US$2.50/bbl – or about $13.50 in today’s prices. Oil had seen a decade of unprecedented growth. The US and Western Europe were finishing the process of motorization of their societies, and demand had soared from just over 20 MMbbl/d in 1960, to more than 50 MMbbl/d by 1972. At the same time, US oil production had peaked in 1970 and had begun to decline. The time was ripe for a shift of power to the up-and-coming OPEC producers, and it was not long in coming.
The price level at which oil hits 4% of GDP depends on how big is the GDP, how much oil we are using, and the price of oil. Our oil demand peaked in 2007. We are a few million barrels a day below that peak now. On the other hand, our economy is smaller too. When oil production starts shrinking after world oil production peaks will the economy contract as fast as oil production declines? Probably not. But it is not clear to me what percentage of the GDP we'll use per 1% of oil lost to declining production.
The US economy has tended to grow well when oil consumption expenditures were less than 2% of GDP. In the early 1970s, for example, oil ranged from 1% to 2% of GDP. By contrast, from 1973 through 1978, oil consumption’s share of the economy peaked as high as 6.3%, never fell below 4%, and averaged 5.3% of GDP. In other words, oil expenditures represented a drag of about 3% of the economy throughout the period.
He say once the economy goes above 4% of GDP going to energy it will go into a recession. Then it can't readjust oil consumption downward by an amount equal to more than 0.8% of GDP per year. I'm unclear on what he means by this point. So if the economy is spending 6% on GDP and prices stay even the economy can cut consumption down far enough to lower oil consumption costs to 5.2% of GDP? It is not clear.
He says the US economy needs to avoid 3 conditions in order to avoid an oil-caused recession.
1. Crude oil expenditures should not exceed 4% of GDP.
2. Oil prices should not increase by more than 50% year-on-year.
3. Oil price increases should not be so great that a potential demand adjustment should have to reach 0.8% of GDP on an annual basis, as shedding demand at this rate has generally been associated with recession.
This report reinforces my belief that we can't avoid an extended and deep economic downturn more akin to a Depression. Once Peak Oil hits and world production starts declining by 3-4-5% per year I see no way to avoid a continual oil shock with sustained prices larger than these numbers. Our decline in consumption over the last 2 years is nothing compared to what's coming. The US economy and that of most other nations will enter into an economic contraction that will continue for years.
You can also read the report as a PDF.
Update: What I worry about: eventual collapse. Parasitism keeps building up. The system can't get enough resources to feed all the burdens placed on it.
Pimco (really big bond manager) managing director Bill Gross says we are at risk of total federal government debt rising to 100% of GDP.
To zero in on the U.S. of A., its annual deficit of nearly $1.5 trillion is 10% of GDP alone, a number never approached since the 1930s Depression. While policymakers, including the President and Treasury Secretary Geithner, assure voters and financial markets alike that such a path is unsustainable and that a return to fiscal conservatism is just around the recovery’s corner, it is hard to comprehend exactly how that more balanced rabbit can be pulled out of Washington’s hat. Private sector deleveraging, reregulation and reduced consumption all argue for a real growth rate in the U.S. that requires a government checkbook for years to come just to keep its head above the 1% required to stabilize unemployment. Five more years of those 10% of GDP deficits will quickly raise America’s debt to GDP level to over 100%, a level that the rating services – and more importantly the markets – recognize as a point of no return. At 100% debt to GDP, the interest on the debt might amount to 5% or 6% of annual output alone, and it quickly compounds as the interest upon interest becomes as heavy as those “sixteen tons” in Tennessee Ernie Ford’s famous song of a West Virginia coal miner. “You load sixteen tons and whattaya get? Another day older and deeper in debt.”
The claim by the Obama Administration for an eventual return to fiscal probity is based on their assumption of a healthy recovery from the recession. They expect this recovery to kick in by the end of 2009 or thereabouts. But suppose the recession goes deeper than the Administration projects (it already has) and suppose recovery is slow for years (and Bill Gross expects a slow recovery - see below). Then what happens to the US federal budget? Spending goes up but revenue doesn't. It is as simple as that. So the deficit and accumulated debt go up even faster.
Gross says America's demographics with an aging population mean the problem is even bigger. I'll see him an aging population problem and raise him a declining skills population due to low skilled immigration. America's workforce in the future will be less capable and a smaller percentage of the total population. That spells declining living standards before we even begin to account for Peak Oil.
The current annual deficit of $1.5 trillion does not even address the “pig in the python,” baby boomer, demographic squeeze on resources that looms straight ahead. Private think tanks such as The Blackstone Group and even studies by government agencies, such as the Congressional Budget Office, promise that Federal spending for Social Security, Medicare, and Medicaid will collectively increase by 6% of GDP over the next 20 years, leading to even larger deficits unless taxes are increased proportionately. Collectively these three programs represent an approximate $40 trillion liability that will have to be paid. If not, you can add that present value figure to the current $10 trillion deficit and reach a 300% of GDP figure – a number that resembles Latin American economies such as Argentina and Brazil over the past century.
Gross says funding the US government debt is going to become difficult. He expects higher interest rates. Now's not the time to buy a long term bond.
So the rather conservative U.S. government debt ratio shown in Table 1 will likely be anything but in less than a decade’s time. The immediate question is who is going to buy all of this debt? Estimates suggest gross Treasury issuance of up to $3 trillion this calendar year and net offerings close to $2 trillion – almost four times last year’s supply. Prior to 2009, it was enough to count on the recycling of the U.S. trade/current account deficit to fund Treasury borrowing requirements. Now, however, with that amount approximating only $500 billion, it is obvious that the Chinese and other surplus nations cannot fund the deficit even if they were fully on board – which they are not.
Consumer spending is not going to ride to the rescue. Consumers are trying to cut back on their debt loads.
Although personal spending increased slightly last month, the saving rate climbed to its highest level in 15 years as consumers tried to build a buffer against the threat of job losses and more economic hardships.
Peak Oil theorist Dave Cohen takes a look at the size of the decrease in oil consumption.
Oil demand strength can be viewed as following from economic conditions. However, due to its tight correlation with GDP, demand also serves as an indicator of those conditions. World oil demand is way down. Japan, where GDP shrank 15.2% in 2009:Q1, consumed 3.97 million barrels-per-day in April, down 1.02 million barrels compared with previous year. For the week ending May 22nd, demand in the United States was 18.292 million barrels-per-day, down 1.447 million barrels (-7.9%) compared with the same week in 2008. That’s almost 2 and a half million barrels-per-day right there, and I’ve only listed 2 countries.
According to Platts, China consumed 6.69 million barrels-per-day in the 2009:Q1, down 4.5% over the previous year. The lone “bright spot” was India, which was up 4.8% averaged over the entire year 2008-2009 ending March 31st (2.65 million barrels-per-day).
Note that the percentage decline for the US is larger than the percentage decline for China. India's consumption is still growing in spite of the world recession. The size of the US consumption decline is a lot bigger than I'd expected. That was a May figure. In June the consumption decline continues.
Fuel consumption fell 5.5 percent to 17.9 million barrels a day last week, the biggest drop since January, the report showed. Daily gasoline demand declined 2.4 percent, to 9.13 million barrels.
Look at these numbers in a larger context. US per capita oil consumption peaked in 2004. The reduction in per capita consumption so far probably takes us about a third of the way back to 1950 level of per capita oil consumption. We'll get back to 1950 eventually. Though some of us will be driving electric cars when we arrive. US total oil consumption peaked in 2007. My guess: due to Peak Oil we will probably never revisit that peak. If James Hamilton is right to argue that the oil price run-up was an economic shock and major cause of our current recession then it looks like the US economy does not have the buying power needed to push up our oil consumption any higher than it reached in 2007.
US peak per capita oil consumption comes before world oil production peaks for a few reasons. Exporters are using oil of their oil internally. Asian demand grows and drives up prices, basically competing American buyers out of the market. Also, US population growth means additional residents and citizens compete with existing ones. So your own oil consumption takes a bigger hit than world production declines would lead you to expect.
Rahm Emanuel says the votes aren't there to pass an immigration amnesty. I would not think so. The US unemployment rate is probably over 10% and likely to hit 11% or maybe even 12%.
Just hours before President Obama hosted lawmakers for a discussion on immigration at the White House, Chief of Staff Rahm Emanuel conceded that Obama and his allies on Capitol Hill do not have the votes to pass a comprehensive reform bill.
"If the votes were there, you wouldn't need to have the meeting. You could go to a roll call," Emanuel told reporters during an hour-long breakfast.
Obama hopes conditions in 2010 will make immigration amnesty possible. But I'm predicting a jobless economic recovery next year.
But "after all the demagoguery, we've got a responsible set of leaders who want to get things done" for a possible immigration compromise next year, Obama said. He singled out former foe John McCain (R-Ariz.) as an ally.
Why do I expect a jobless recovery (and therefore continued deep opposition to immigration amnesty)? See the San Francisco Federal Reserve Bank's report Jobless Recovery Redux? and also Calculated Risk points out that unemployment continued to rise for 15 months after the end of the 1990 recession and 19 months after the 2001 recession with weak jobs growth even after the latter 19 month period. Plus, Peak Oil is hitting.
Senator McCain insists any immigration deal have strong union-busting measures. I'm sure the large anti-union wing of the Democratic Party will agree.
"I can't support any proposal that doesn't have a legal temporary worker program and I would expect the president of the United States to put his influence on the unions in order to change their position," McCain said.
The biggest reason for this opposition to more low skilled immigration: the deepening recession. States can't afford the poor people they already have and the states are slashing budgets for health care, education, even jails and police. The unemployed and those who (quite rationally) fear unemployment do not want more competition for a limited supply of jobs.
Obama clearly wants to expand the lower class.
"I'm committed to passing comprehensive immigration reform as president of the United States," Mr. Obama said at the Esperanza National Hispanic Prayer Breakfast in Washington. "The American people believe in immigration."
Pressed on the issue at a briefing today, House Speaker Nancy Pelosi said that “the plan has always been for the Senate to go first.”
The Senate passed immigration reform in 2006, but efforts bogged down in 2007 and 2008. House Democrats, who all face voters every two years, want to be assured that a plan can pass the Senate, before taking what is for many a tough vote.
While the elites who have firm control of our national government look for ways to pass another immigration amnesty down at the state and local levels the tide is running in the opposition direction. The states have been moving toward tougher immigration law enforcement for years. Arizona has a law in its legislature that will criminalize illegal aliens.
And, if approved, Arizona would become the only state to criminalize the presence of illegal immigrants through an expansion of its trespassing law.
Utah has a new law going into effect that will require prove of legal residence in order to get a driver's license or state ID card. The lawyers who make a living off of illegal aliens ar e not happy about this law.
Utah's new immigration law, SB81, takes effect July 1. But several attorneys who belong to the American Immigration Lawyers Association say they're not waiting.
They plan to file a lawsuit later this week challenging various portions of the law.
"There are a number of provisions we think are unconstitutional," said Hakeem Ishola, one of the attorneys filing the suit.
The "Jobs Americans won't do" chestnut is wearing thin in this recession. Coloradans are taking farm worker jobs. Tennesseans are working the night shift in Tyson chicken processing plants. After Swift meat packing plants were raided for illegal aliens Americans in Mississippi lined up to replace them. When plants get raided to clean out the illegals salaries go up. The Democratic Party wants to drive salaries down. The Democratic Party serves the employers while pretending to represent the working class.
I admire the French for defending their own culture from a culture that is incompatible. If only America had a similar elite we'd be better off.
Paris - Leading Muslims and the media in France here have indicated general support of French president Nicolas Sarkozy's striking comments Monday that the burqa cover for Muslim women is "not welcome on French soil," though opinion is divided on whether the president's cultural stricture should be extended to an outright ban of the burqa for women.
On Tuesday, a diverse group of French lawmakers announced a six-month study to see if a ban is warranted on the black veil, known in the Gulf states as a niqab, and in northern Pakistan and Afghanistan as a burqa.
To the neocons who want me to believe the French are my enemies: to hell with you. Western nations would be a lot better off if they, like the French, treated their cultures as worth saving.
Someone tell the Jewish hawks in America to calm down about the Mousavi supporters in Iran.
Tel Aviv - If they were to follow the ancient proverb, "the enemy of my enemy is my friend," one would think Israelis would be rooting for Iranian opposition candidate Mir Hussein Mousavi and the hundreds of thousands of Iranian protesters who have challenged the re-election of President Mahmoud Ahmadinejad.
But even though Mr. Ahmadinejad has threatened the Jewish state with destruction, many officials and analysts here actually prefer the incumbent president because – short of the downfall of Iran's theocratic system of government – he'll be easier to isolate. Reformist leader Mr. Mousavi, by contrast, isn't expected to alter Iran's drive for nuclear power, but he would win international sympathy.
"Just because Mousavi is called a moderate or a reformist doesn't mean he's a nice guy. After all he was approved by the Islamic leadership," says Ephraim Inbar, director of the Begin Sadat Center at Bar Ilan University. "If we have Ahmadinejad, we know where we stand. If we have Mousavi we have a serpent with a nice image."
But the street protests make for great video that boosts ratings of cable TV news channels. Those street battlers can be portrayed as freedom fighters.
Is Mousavi wrong when he claims he was cheated out of a victory? Also, are secular moderates in Iran a small fraction of the total Iranian population? Quite possibly "yes" on the first question and definitely "yes" on the second question. Here's some more unconventional wisdom about Iran.
Shrinking Flint Michigan will pull in toward a city core in order to cut costs.
The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.
Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.
Concentrating cities in a smaller area reduces the costs of trash collection, street maintenance, police patrols, and other city services. Flint's economy has been in decline for decades. It needs to shrink to survive.
Detroit is in a similar situation.
In Detroit, shattered by the woes of the US car industry, there are already plans to split it into a collection of small urban centres separated from each other by countryside.
"The real question is not whether these cities shrink – we're all shrinking – but whether we let it happen in a destructive or sustainable way," said Mr Kildee. "Decline is a fact of life in Flint. Resisting it is like resisting gravity."
What some poor Michigan cities are going thru foreshadows what the country as a whole will go thru as Peak Oil hits. The economy will contract much more than it is contracting right now. The costs of road maintenance, trash collection, and other local government services will soar along with the costs of asphalt and vehicle fuel. Already Michigan counties are converting some roads from asphalt to gravel in order to save money.
The economy's decline is creating a crisis atmosphere where extreme options become thinkable.
State income-tax revenue fell 26% in the first four months of 2009 compared to the same period last year, according to a survey of states by the nonprofit Nelson A. Rockefeller Institute of Government.
The revenue decline could become even more severe as the year wears on.
