Ted Auch

How bout them apples!

I love it when 1+1 = 3

This figure comes from the truly noble work of Charles Duhigg at The Times. He has been grinding away at the data and the latest piece in this series “Rulings Restrict Clean Water Act, Foiling E.P.A.” can be found here http://projects.nytimes.com/toxic-waters along with the articles in the series. I wonder what the math will add up to given the recent Citizens United Supreme Court ruling. This whole mess centers on the use or deletion of the word ‘navigable’ when referring to those bodies of water that are or are not under the EPA’s purview. Anyway what we are seeing here is a full-frontal assault on all laws pertaining to common decency with respect to “natural resources”. When the rivers turn red we will have no one to blame but ourselves, because the solutions are out there and the data is sound, but the will is quiescent.

From The Economist January 14th 2010

“Liberal democratic governments can make all manner of blunders, but they are less likely to commit mass murder. Amartya Sen, a Nobel prize-winning economist, has famously argued that no country with a free press and fair elections has ever had a large famine. And research by those three CFR scholars found that poor autocracies were at least twice as likely as democracies to suffer an economic disaster (defined as a decline of 10% or more in GDP in a year). With no noisy legislatures or robust courts to hold things up, autocracies may be faster and bolder. They are also more accident-prone.”

I wonder how someone who states that “…no country with a free press and fair elections has ever had a large famine.” wins a Nobel in anything let alone theology…..I mean economics. This is the argument you attributed to the economist Amartya Sen. Does Mr. Sen and The Economist for that matter not understand the dangers associated with conflating causation and correlation? Large famines are largely functions of climate, external demand, and agricultural subsidies. Are they related to free press? Doubtful if there is a linear connection. Are they related to fair elections? Probably but this is a correlation that I would not get passed peer-review.

That is what California should do in putting forth their latest effort to curb their CO2 footprint (http://www.nytimes.com/2010/01/13/science/earth/13emissions.html?ref=todayspaper).

I commend California for taking an important and bold step to curb their CO2 footprint. However, it is worth noting their proposal is a duplicate of Washington Senator Maria Cantwell’s CLEAR Act (The Carbon Limits and Energy for America’s renewal). CLEAR would bill would cut national GHG emissions 20% and 83% below 2005 levels by 2020 and 2050, respectively. Seventy-five percent of refunds would be returned to the taxpayer and 25% to green energy technologies and infrastructure. The refunds would amount to $1,100 annually for a family of four according to Senator Cantwell’s calculations. We could make more money off emissions if we assumed a higher range, which Senator Cantwell’s office set at $7-21 per ton of C02 in 2012, with annual floor and ceiling increases of 5.5 an 6.5%, respectively. This seems like an idea that even those that don’t believe in climate change could support given the non-trivial contribution to their bottomline and those of us on the left will accept is an acceptable, albeit not ideal, first iteration.

It seems that we may be hitting the point the Romans and many others inevitably approached and violently surpasses. It is the point at which our cumulative GDP growth has flattened out while population growth continues to grow albeit at a mild rate.

To the right you see a graph of the ratio of Cumulative Annual US GDP to Population Growth from 1930 to 2008.

This ratio did not become positive until 1940 on the eve of WW II and spiked at the war’s conclusion in 1944-45. At this point this ratio began a steady decline to a low of 4.52 in 1963. While it experienced a bump between the 60s and late 90s it has remained relatively flat between 1950 and 2008 deviating very little from it’s ~60 yr average of 5.43.

Another way of looking at this “Economic Ceiling” is from an agricultural perspective. I have plotted the Yield to Nitrogen (N) Applied ratio for Corn here in the US from 1943-2007. On the Primary Y- and X-Axis the relationship for the raw data is shown, while the Secondary Y- and X-Axis depicts the relationship on a log scale. We see two things here: 1) the shape of the relationship is dependent on how the data is presented and 2) the raw data demonstrates quite conclusively that we have reached a similar asymptote to that described above for our economy relative to population growth. This is a disturbing trend given our over reliance on corn here in the US. GMOs and fertilizer technology will only be able to do so much in fighting this apparent biological inertia. The rest of the quagmire will require a new paradigm if it is to be fixed. That should include a gradual transition to a more diverse produce and dry goods food economy in keeping the the proselytizing of Michael Pollan. However, alot of this will involve tough medicine, which should start with decreasing national obesity from it’s current rate of 33% to 15% or what it was in 1980. This may sound quixotic but really it is a necessity and weening ourselves off our addiction to High Fructose Corn Syrup would probably put a 5-7% dent in our national obesity on it’s own.

It is high time we start to seriously discuss the idea that Eugene Fama’s “Efficient Market Hypothesis”, Adam Smith’s “Invisible Hand”, and Milton Friedman’s “Shock Doctrine” are a thing of the past designed solely to benefit the top 0.1-0.5% of the G20, G8, or OECD. We must turn our attention to what I will call an Asymptotic Economic Hypothesis or the Steady State Economy (http://www.steadystate.org/) acknowledging the ubiquitous influence of Keynes’s “Animal Spirits” and the fact that nothing grows forever.

It would be absolutely acceptable if we didn’t shift towards an economy with strict ceiling and floor constraints BUT if we do our children will be very mad at us!

Michael Lynch makes some compelling points in his recent piece on ‘Peak Oil’ in the NYT (http://www.nytimes.com/2009/08/25/opinion/25lynch.html?ref=todayspaper), but he calls on one very important fallacy commonly invoked by the Big Oil:  Rate-Of-Discovery Is Not A Concern!

He states that “easy oil” is gone is “vague and irrelevant”. If you replaced the word oil with coal a majority of geologists would agree with the contention that “easy coal” is indeed gone. If it isn’t than why are we resorting to horrific, both from a health and ecological perspective, techniques such as mountain-top-removal and strip mining of thousand of Appalachian and Northern Plains hectares? The answer is that the industry is desperate and the same curse will strike Exxon, Conoco, etc. Recent advocacy for hydraulic fracturing of the Marcellus Shale is a prime indicator of such desperation and presents similar concerns for human health and our fisheries here in the Northeast.

The fuzzy logic Mr. Lynch refers to is actually his estimate that their are 2 trillion barrels of “recoverable” oil. According to who? BP and the EIA estimated 1.26 and 1.32 trillion barrels, respectively. This amounts to anywhere from 30 to 43 years of oil depending on whether we do what we did in 2008 curbing consumption by 1.1 billion barrels or we reach the commonly held projection of 43.1 billion barrels by 2030. I think it is time for another Malaise Speech. Obama….Obama….!

The Dow Jones Industrial Average (DJIA) a group of 30 companies that are supposedly an adequate proxy of Capitalism’s Temperature is under a great deal of flux. Recently we saw the removal of Citi and GM replaced by Travelers Corp. and Cisco Systems. GM had been on the Big Board for 83yrs, with only General Electric (November 1907) having a longer tenure. General Motors was one of “…the original 12-company Dow index created by Charles H. Dow in 1896. (GE has been in and out of the index three times.)” All the more reason to be disturbed given that Citi only joined the club in 1997 only to merge with Travelers, which was later spun off in 2002 (http://blogs.wsj.com/marketbeat/2009/06/08/gm-citi-officially-get-boot-from-dow-industrials-at-bell/). This comes on the heals of AIG’s removal from the DJIA in September (http://www.nytimes.com/2009/06/02/business/02dow.html?ref=business). Oh yeah and the other shoe has yet to drop given that Bank of America, which only joined the DJIA in February of 2008.

It used to be that the S & P 500 a more holistic index was well correlated with the DJIA and was approximately 12% of the DJIA.

As both have expanded in volume we see the ability of the DJIA to account for the S & P’s variability remains at 99% when plotting the annual relationship from 1950 to 2009.

However, if we hone in on 1997 to the present, the point at which futures - universally acknowledged as precursors to the toxic instruments we all now know and love (ie CDOs and CDSs) - began to be publicly traded (See “The day the signal died!”, May 18,2009) we see that while the S & P remains 12% of the DJIA the latter now only accounts for 82% of the former, which means the signal:noise ratio has essentially declined by 17% in 12 years. This roughly translates to an increase of 1.38% year over year.

While on the surface this value appears trivial it gains import when compared to annual Global GDP in the last ten years, which has hovered around 3.04-3.97% per year or more locally here in the US 5.02% per year between 1999-2008. In other words US and Global macro- and micro-economic markets are embedded with variance factors equal to 27.5 and  39.3% of US and Global GDP, respectively.

So, if the developed world continues to grow at a rate of 2.46% per year and the Dow Jones/S & P 500 decoupling continues to propagate we will see noise accounting for 52-56% of actual statistics, which even for the non-statistician has to be unsettling. What we are seeing is a decoupling of High & Low Finance, To Big To Fail & To Small To Matter, and a shift from an onus on Goods to Services here in America and the developed world. We are also seeing that once robust predictors of corporate growth are being usurped by associated noise. As we see goods being replaced with services and bank assets climbing as a % of GDP, which presumably will result in higher fractions of the DJIA being allocated to financial services, it can safely be assumed the days of a 99% DJIA Vs S & P relationship are safely in the rear view mirror. Consider for a minute the fact that US commerical bank assets stand at 70% of GDP a whopping $9.69 trillion, which doesn’t speak at all to the proliferation of hedge funds ($1.6 trillion, 12% of GDP),  investment banks OR for that matter the graying of the line(s) between commerical and investment entities following Senator Phil Gramm (R-TX) and Representatives Jim Leach (R-IA) and Thomas J. Bliley’s (R-VA) gift to the folks on Wall Street in 1999 (http://www.nytimes.com/1999/11/05/business/congress-passes-wide-ranging-bill-easing-bank-laws.html?scp=4&sq=Gramm-Leach-Bliley%20Act%20November%201999&st=cse; http://topics.nytimes.com/top/news/business/series/the_reckoning/index.html).

This basically means that in the past if investment banks sneezed commercial banks would be there with chicken soup and offer to drive them to the emergency room. Now however if those same investment bankers sneeze commercial banks (i.e. US) will most assuredly catch a cold. Not sure if 1500mg of Vitamin C will help though! Some might say we should look towards or European brothers and sisters. Well think again! Swiss bank assets equal 6.8 times GDP and the banks of the once robust Celtic Tiger were as of late 2008 approximately 9.5 times Ireland’s GDP (http://www.nytimes.com/2009/03/05/business/worldbusiness/05swiss.html?scp=1&sq=Ireland%20Switzerland%20GDP&st=cse). Scary thought I know and a long way out most certainly, but inconceivable I doubt it!

Are there ways to reverse this inertia? Of course there are but it will require engineers of capitalism and society as a whole to embrace the “Scorched Earth” principal. We need look no further than the field of ecology for examples of how this principal has done wonders for certain ecosystems, most notably the native grasslands the US and Russia, the savannahs of South America and Africa, and the pinelands of the Southeastern US. It has been shown quite conclusively at this point that these systems require periodic fire and subsequently reset to a vigorous stages of early succession. However, fire can be grouped into 2 broad categories: i) infrequent, intense, and spatially expansive or ii) frequent, mild, and spatially discrete or patchy. The former tend to not only reset biological clocks but also hinder initial succession, while the latter simply tidy up the joint a little.

The economic analog would the S & P requiring category 2 and the DJIA category 1. Many will be hurt under either scenario, but the long-term health of our economy and more importantly (to some!) capitalism hinges on successful implementation of a Scorched Earth paradigm along with political discipline in the face of irrational rhetoric reflecting the irrational exuberance we all languished in during the good times. It seems at least qualitatively that macro-economic forces de facto subject the S & P to mild and infrequent resets, however, it also seems these same forces are determined to protect those in the DJIA from a category 1 type of disturbance. The results will be a complete divergence of the two indices and the apparent creation of 2 sets of rules. This type of contrived and against-the-grain muscling will blow up in the faces of all it’s proponents, including the politicians that champion(ed) it.

The globalisation of our economy is resulting in more nuanced and noisy data. Simply bailing out the To Big at the expense of the To Small will only exacerbate the problem. As it stands we are choosing cosmetic over structural/functional surgery. I for one would much rather look under the hood than take the word of the salesman wouldn’t you?

Let me get this straight if an energy source is finite and came into being over a geologic scale it is fair to pay less as we deplete it but if it is ubiquitous and markedly easier to access we should pay more? That doesn’t make sense to me I mean don’t we have to pay an order of magnitude more for a Ferrari then we do a Tato Nano? Furthermore don’t we pay equally disparate fees for handcrafted furniture, jewelry, or pastries then we do stuff at Ikea or a Hostess Cupcake? Now that makes sense but the initial example makes absolutely none and needs to be dealt with here in the US ASAP. What makes us so special that we were at the height of the oil bubble paying $3.37 and folks in Britain, Italy, and France between $8.06 and $8.33 a gallon?

Are we owed this discount and if so why? Everyone knows by now that we consume ~ 25% of the world’s energy. Additionally, each of us is responsible for 15.1-23.6 tons of CO2 per year ranging from a low of 7.2 in the nation’s capital to 123 Tons of CO2 per year in Wyoming, with nearly 20% of this coming from transportation related needs.

It is true that China and India are emitting a lot with rough respective totals of 7,150 and 1,210 Tons of CO2 annually.

However the latter on a per capita basis pale in comparison with 5.5 and 1.1 tons per capita CO2 annually.

All these trends roughly, although not as well as you might think, with prosperity as is evidence in the graph to the right.

You may say you’re just a self-hating American and I would respond only when I/we deserve it and only when we arrogantly disavow logic and certain norms accepted the world over, because for some systemic and at this point cancerous reason we feel entitled.

Did you know that those statistics I mentioned earlier include a 12% gas tax for us and >55% for the Euros?

They get it and the reason they get it is that they have been forced to work with their neighbors, both locally and within the union to offset their many years of insensitive and short-sighted practices. Again some will retort that the US will do the same in good time and I would note that Churchill’s notion that Americans always do the right thing once we tried everything else is not an option at this point.
Any politician worth his or her backbone would have left the price of fuel where it was last summer or maybe even kept raising it! Yeah I know political suicide and boy would I feel really bad for any politician who really told the American people what they really needed to hear. Wait one such politician did his name was Jimmy Carter and the moment was his now famous and probably in his mind infamous “Malaise Speech”. The former president sounded much like a parent would when trying to curb the mindset of a spoiled child. Only in Mr. Carter’s case the dog was too old, had no interest in new tricks, and would bite the hand of anyone who said otherwise. This is an example of a prescient politician who paid the ultimate price for his honesty. Aren’t we always looking for honest politicians? The answer is no we just portend that is what we want when really we desire someone who looks just as good on his ranch as he does on an aircraft carrier, at a barbecue, or on a basketball court. We want a Big Brother who will demand that our needs as a nation are met, whether that comes at the expense of other nations, plants, animals, or fish so long as the price of gas plummets the masses will be pacified. The challenge of reversing this inertia has been gleefully passed from our erstwhile “leader” to Barack Obama, who in my opinion is the smartest man ever to hold this office and truly understands the concerns of this country irrespective of tax bracket. However, the jury is still out as to whether he will have the conviction and long-term vision to shower us with the tough love we as a nation so rightfully deserve. My confidence in this occurring is in the words of Gen. David Patreus “fragile and reversible”. This cynicism could easily be transformed into elation if President Obama conveyed to the American people that the only tool they have to stabilize oil prices is driving less and that they need to come to the realization that the laws of supply and demand and matter conservation dictate that anytime demand exceeds supply the consumer pays the ultimate price, whether we like it or not. This is not so much a matter of national security as it is a question of what if anything we want to leave for future generations. Rome is burning folks and all we’re worried about is how much the arsonist is paying to commit the crime.

Dear People,

We love you very much and are proud of all of your accomplishments and amazing ability to empathize, care for, entertain, and defend each other in good times and bad. We both knew that when you came on the scene things would never be the same, but we also knew that there was a latent danger in imbuing you with a myriad of wonderful physical and mental attributes. Our worry was that you would not be able to contain yourselves and that in doing the aforementioned you would forget that as stewards you are required to do the same – sans the entertaining part – for this awe inspiring planet you have been given. Intelligence is a gift and a curse! It is obvious that you are not currently hearing our cries of anger and sadness. We are not eager to inflict wounds to our skin and the organisms that subsist on our bounty just so you get the picture, but will do so if it is the only way. We are left to wonder when you will realize that tapping every one of our veins for your fossil fuel needs without paying anything forward is neither sustainable nor respectful of those with whom you share this planet. We are writing this letter on behalf of all those in our terrestrial and aquatic ecosystems that can’t speak for themselves nor can they defend themselves when you really want something! This is also an effort to appeal to your parental sense and sensibility, because passing the baton on these issues is no longer feasible as you’re children’s investment in this effort to reverse our deleterious trajectory will be nullified if you don’t act immediately with purpose and altruism. Stop couching everything in terms of national security and gross domestic product. At this point we want you to internalize Carrying Capacity Vs. Exponential Growth, which in case you aren’t familiar with how they look graphically are two diametric concepts/forces. In good conscience we can only allow a certain number of you to live off this planet’s resources and beyond that carnage the likes of which we have never forced you to deal with will be the norm not the exception. Additionally, we ask that you aim to live simply so that others may simply live.

Our love and concern for your well-being is strong but when we gave you dominion over this planet we knew that someday we would have to shower you with some “tough love”. So, it is with much regret that we lay out how things will be from now on if you don’t decide change your role on this planet from one of fiefdom to that of cooperative participant in ensuring long-term health and happiness of all species great and small. We will no longer be able to feed you in a timely fashion and at all in some areas of the world. It will no longer be able to separate those of you that care from those that don’t and all will feel the wrath of our disappointment. Drought will be unpredictable, storm intensity and frequency will not adhere to any empirical norm, and we will leave you by the side of the road when you do indeed tap all of our lifeblood. These conditions will lead to upheaval on a scale not yet seen anywhere. Our cries have not been acknowledged and consequently yours will as well when you begin to choke on your gluttony. Why so harsh you may ask? We can only respond my noting that our please have been consistent and in a variety of forms, with some more subtle than others, but all meant to get you to listen. We ask what is it that was done to you that you have such contempt for your neighbors even those most like you the gorillas and chimpanzees that many of you feel need to be erased so as to not remind us of where we came from and others still look at those that do as apostate. You talk so often about wanting to go to heaven and not hell, well what about the here and now? What is so bad about this planet that you feel the continued need to bend it to your collective will? The non-human inhabitants of this planet can’t fight back against your guns and fishing trawlers and fences and sprawl. However we can and we will retaliate, because at the end of the day you can’t shoot down or bomb into submission a hurricane, snow storm, drought, or pandemic. So, we just want you to know while we are your biggest fans we can also very easily and with not much more provocation become your worst enemies.

Sincerely.

Mother Nature & Father Time

There is a bipartisan notion perpetuated by industry and many politicians – specifically those so utterly disconnected from their home states/districts true needs – that natural resource exploitation and large agricultural infrastructure is the key to job creation. Just a little hint before moving further if you hear this rhetoric spewing from a politician’s mouth inquire as to their primary donors. Anyway this is one of the biggest if not the biggest lies being sold the American public today and the data buttresses my argument quite robustly. Here it is in black and white when production increases whether it be in the coalmines of West Virginia or cornfields of Iowa what happens is a massive shift towards mechanization, with larger and larger combines or draglines, or Komatsu front-loaders.

The latter able to move tons of earth or overburden allowing relatively uninhibited access to the coal seam, which by the way are increasingly smaller and smaller requiring less laborious methods or more dangerous exploration of deeper seams. This is evidenced in the exponential growth in surface mining throughout the US a method that requires markedly less labor then its underground alternative. Thus, if you look at the debate in simple output:input ratio terms, with # employed as the input, you will see an inverse relationship developing quite rapidly in recent times, which is to say that large multi-nationals like Massey Energy were extracting 5,087,150.3 short tons per thousand works in 1985 and managed to nearly triple this ratio (~290.2%) to 14,762,463.5 short tons per thousand works. Keep in mind the fact that total coal extraction in the US has only increased by 129.6% since 1985.

How you ask would one go about counteracting this 160% profit disparity? Well you can start by purchasing larger and large equipment, vast swaths of land, breaking the systemic will of the UMW of America, and insuring that crimes against labor like the recent tragedies in Utah and West Virginia go virtually unpunished. If you own the hearts and minds of people like the governor of West Virginia, Senators Byrd and Rockefeller and McConnell, and the supreme courts of many coal producing states you don’t need carrots and frankly you don’t really have much need for sticks either.
If you buy that the above ratio is a valid measure of workplace efficiency and by association a primary driver behind the decline in jobs related to natural resource exploitation and agricultural production then let’s apply it to the farm sector specifically corn to see if it still holds up. The answer is as you could probably guess by my tone is that it does indeed and is slightly more robust in this instance. It turns out that if you look at data associated with corn production in the US at five year intervals since 1910 you will see that that the total number of farms and workers are currently 66.1 and 78.2% of what they were at the turn of the century, while production and output:input have increased by 347.6 and 1,595.4%, respectively.

This suggests that one of two things is occurring, either we are getting better at how we manage our agricultural lands vis à vis chemical fertilizers, pesticides, etc and crop-rotation or our current farmers are on steroids, which I am not ruling out but would hope is not the case.
This is a marked increase in “efficiency” by any standard begging the question: Why not get more from less? The answer is of course that there is no surficially viable reason, but more to the point portending that more coal mining brings more jobs when you know the exact opposite to be true is quite the bait and switch wouldn’t you say?
It is true that neither underground nor surface mining is great but it is underground mining, while extremely dangerous and liable to create vast stability problems down the road, that has traditionally been the engine employing much of Appalachia. This method imbued a greater sense of community and unification that was/is anathema to the coal companies and their strike breakers so vividly depicted in “Harlan County KY”. Much of the debate around “clean coal”, which if you ask anyone from Appalachia is a complete whitewashing, centers around jobs as does the research and production of biofuels and it is true that if done right these industries do create jobs. The fact is that since 1949 when much of the high grade anthracite-type coal was still available surface-mining accounted for 25.3% of all mined coal in the US whereas today it accounts for nearly 70% or 794,263,579 short tons. Furthermore, anthracite coal extraction has declined from 8.9 to 0.14% of all coal extracted in the US during the same period, with a parallel decline in jobs from a high 1,737,000 miners in 1985 to 776,000 in 2007.
So, what we have are two lies being pushed down the throats of Appalachia and America writ large: 1) exploitation of our mountains and arable lands is a perpetual large-scale benefit to the job market and 2) that clean coal and biofuels will benefit the environment, Appalachia, and industry. According to Judy Bond of Coal River Mountain Watch “Even if you could get rose petals to come out of the smokestacks, coal is filthy and will never be clean as long as mountains and communities are blasted and streams and communities are poisoned…The entire cycle of coal must be examined. We in Appalachia are blasted by over 3 1/2 million pounds of explosives daily and are similar to a “banana republic”. The coal industry is allowed to simply kill us slowly with toxic waste.” So, in plain English folks the only ones benefitting are John D. Rockefeller, WV Supreme Court Justice Brent D. Benjamin, and the pious head of Massey Energy Corporation Don L. Blankenship.