Ted Auch

BOTE stands for Back-Of-The-Envelope and is a common phrase applied to macroscale or overly coarse calculations done kinda haphazardly. Well given this caveat I came across an article from The Telegraph (UK) titled “Detroit to Bulldoze Thousands of Homes in Fight for Survival”, which quoted the following statistic:

“Almost a third of the city’s 139 square miles is vacant or derelict, though its land area would comfortably fit Manhattan, San Francisco and Boston, cities with combined populations of three million.”

I thought it would interesting to apply some of my dissertation data to figuring out how much of Detroit’s CO2 footprint could potentially be offset if this land was reforested. So, here it goes step by step.

(33%*139 Sq Miles)=45.87 Sq Miles of vacant or derelict land

Convert to Hectares=45.87*259>11,880 Hectares

Hectares to Square Meters=11,880*10,000>118,803,229 Square Meters

Grams of Carbon per Square Meter Per Year (From my Thesis work we assume the average for Great Lakes forests is 10,849 g C m-2 yr-1)=118803229 Square Meters*10,849 g C yr-1>1,288,896,240,464 g C m-2 yr-1

Metric Tons Per Year=1,288,896,240,464 g C m-2 yr-1*0.000001>1,288,896 Metric Tons of C captured Per Year IF the 45.87 Sq Miles of vacant or derelict land was reforested!

NOW lets put this number in perspective relative to Detroit’s actual emissions.

If we assume Detroit’s population (For Now!) is 951,270 and residents of the city emit approximately 23.4 Tons of CO2 per person per year that comes out to 22,260,764.4 Tons of CO2 per year for the city of Detroit, which means……..

The figure calculated above for potential carbon captured by reforestation of vacant and derelict land (i.e., 1,288,896 Tons of CO2 per year) equals 5.80% of total city-wide emissions. This number while not jaw dropping is far from trivial and any efforts to implement such plans should be encouraged locally and nationally as 5.8% of anything at that scale adds up and would greatly increase the quality of life in Detroit. Similar projects are sprouting up in neighboring F lint, Michigan as well as places as far off as Chilibre, Panama. Likewise we have data on those areas as well and could do similar BOTEs in an effort to quantify the impact of reforestation, both above- and belowground.

We have an interesting love affair with shopping in this country and I thought it would be illustrative to quantify its influence on our land to capture carbon. First lets quickly look at how much we love shopping and how much our economy (and by association China, Japan, the EU, etc etc) depend on our insatiable appetite for stuff. It is true that we have come down off our Great Depression high of 83% Consumption as  a percent of GDP, but for the better part of the last 63 years we have maintained a relatively static 65% of GDP attributable to consumption.

However, this figure has risen substantially in the last 20 years from 62% in 1981 to 70.8% in 2009.

You might say well what does my local strip mall have to do with CO2? Well your local strip mall displaced some sort of native ecosystem that, up until the big trucks and earth-moving equipment came, was drawing down CO2 via photosynthesis and decomposition of biomass to produce soil carbon.

Well that has had a cumulative effect and I have attached a couple of graphs to demonstrate this phenomenon. Using Gross Leasable Area (GLA in sq feet) per person data back to 1990 we can calculate above- and belowground carbon displacement via shopping center expansion (Blue Line), which sums to about 218 Million Metric Tons between 1990 and 2009, which when subtracted from Total US CO2 Emissions gives us the inset in the figure below.

How you might ask does this relate in-terms of percentages? Well it turns out it is quite similar in magnitude to what I described for Detroit. If we assume - based on EIA assumptions - that Residential emissions is 6.65% of the story here in the US with respect to CO2 emissions than the above removal of native ecosystems for shopping centers translates to anywhere from 2.78 to 3.31% of Residential CO2 emissions across the entire US. However, if we had implemented the type of plain they are considering in Detroit across all fifty states beginning in 2005 we would have had the opportunity to “offset” 3.13% of our emissions per year as opposed to 2.85% between 1990 and 2004. You may say what is the big deal about 2.85 to 3.13%? Well when you consider we are measuring our fiscal and monetary peril here in the US with values like 3 to 12% of GDP and the fact that US GDP is expected to grow by 3.0% in 2010 v. 0.18, a decline of 1.83, and 2.53% in 2009, 2008, and 2007, respectively…Then the numbers I present here start to take on a whole new meaning. The harm inflicted by shopping centers - never mind the removal of capital and liquidity from local markets via large multinationals like Wal-Mart and Best Buy - is not just skin or in this case soil surface deep. It impacts the ability of communities and watersheds to withstand flooding, retain nutrients that would otherwise pollute reservoirs and aquifers, moderate temperature and moisture volatility, and propagate a sense of ownership among residents. The data back it up. Chalk another one up for BOTEs!

“Size is not the appropriate restriction,” said Senator Mark Warner, Democrat of Virginia and a member of the banking committee, who helped draft the regulatory bill. “The real question should be the level of inter-connectedness and the risk-taking we saw in the crisis of 2008.” Mr. Warner added, “The Dodd bill does provide ability for these banks to be broken up.”

So let me see if I have this straight Senator Warner your not concerned about the size of bangs with respect to Senator Kaufman and Senator Browns Safe Banking Act of 2010 - which would have limited the size of individual bank’s assets to 3% of GDP (6 Largest banks currently account for 63% of GDP) and the all important leverage factor to 16 to 1 (It had risen to 30 & 40 to 1 at places like Bear Sterns and Lehman) -  but you want to minimize inter-connectedness?

Well let me ask you a simple question: If you go to a family reunion and their are only 6 Warner’s - or whatever your mother’s maiden name was - at the shindig are you more or less likely to be “inter-connected” with those individuals than if that reunion instead included 100 of your nearest and dearest relatives?

See this is classic talking out of both sides of your mouth. As Stephen Roach likes to say you can’t have both decoupling and globalization at the same time. Pick your Poisson Senator Warner: Inter-connectedness or TBTF?

Ever heard of the Gini Coefficient? Yeah I thought not who has and frankly who cares? Well in reading Stephen Roach’s “Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization” I came across this measure of income dispersion within and across economies of all shapes and sizes. When I went to the US Bureau of Labor Statistics looking for a historical record of US Gini coefficients I was disappointed (but not surprised) to see a very disturbing trend developing.

First let me note that the Gini Coefficient is a decimal between Zero and One (The Grey Between Binary!), with One being absolute inequality (i.e. The Rich Have Everything) and Zero being completely equitable distribution of income across any given economy.

What I saw when I plotted the Bureau of Labor’s data was a sharply upward trending slope from left (1967) to the present (2007). At the current trend we will have a Gini Coefficient of 0.537 in 2025, 0.652 in 2075, 0.767 in 2125, and 0.939 in 2200. That is unless the world ends. OR H1N1 kills us all. This should disturb those on the left and the right equally, because believe you me the folks benefiting from this trajectory have no religion or aspirations for any type of greener planet, rather they are driven by Financial Weapons of Mass Destruction and really big yachts. This points towards a New America, which when we think about income equality or meritocracy we see that it is becoming more and more a Zero Sum Game or what what 18th/19th Century British economist David Ricardo called Comparative Advantage (See Below). Although in this instance we are talking about intra-country or -region income disparities.

Comparative Advantage (According to the US Bureau of Labor Statistics): When one nation’s opportunity cost of producing an item is less than another nation’s opportunity cost of producing that item. A good or service with which a nation has the largest absolute advantage (or smallest absolute disadvantage) is the item for which they have a comparative advantage.

I think that this trend and the data it describes to are two more examples of why across-the-board capitalism does not work. Do aspects of capitalism work? OF COURSE no one (not least of which me!!) is saying differently, but to assume that any “-ISM” in its entirety is suitable for an entire country or across the board is foolish, arrogant, dangerous, and short-sighted. BEWARE OF THE -ISM PEOPLE!!!

Lets briefly put this trend and Gini in some perspective. First it is worth noting where the US sits globally with respect to Gini. As you can see below we (US in Red) are somewhere in the middle of the 153 global average of 0.409±0.103. Some of the esteemed nations with a more equitable distribution of wealth include Russia, Myanmar (That’s Right Myanmar!), Cuba, and Saudi Arabia. Our neighbors on the Gini scale include Irag, Petro States like Iran and Nigeria, not exactly paragons of freedom. Given the projections I calculated above we will join nations like Zimbabwe (Hint: You know the nation with inflation >1 quadrillion %) by 2025, systemically corrupt nations like Sierra Leone, Equatorial Guinea, and Namibia in 2075, AND…..Drumroll Please…………..We will be off the current distribution by 2125 at a Gini of 0.767. Not bad huh? So with all the huffing and puffing from the right about our dept and deficit climbing as a % of GDP I think it is worth paying credence to this much maligned index, given its current value and projected trend. Sure we need to consume less and save more, but the fact is that many in this country are under the impression that “Compared with people in other rich countries, Americans tend to accept relatively high levels of income inequality because they believe they may move up over time. The evidence is that America does offer opportunity; but not nearly as much as its citizens believe.”

So the final point that many on the way- and intermediate-right, along with countless centrists and Efficient-Market Hypothesis ideologues make is that this type of asymmetrical wealth distribution is a product of and promoter of competition. The idea that a rising tide lifts all boats with respect to consumption, investment, government spending, and export-import (ie GDP = C+I+G+(Exp-Imp)). However, if we look at GDP as a function of the Gini Index across the aforementioned 153 nations we see ZERO RELATIONSHIP! Let me say that again there is no relationship between an increasing Gini (ie, Rich Getting Richer!) and GDP growth. So, what are we to make of this? Well the answer is that The Great Decoupling with respect to income inequality has spread geographically and will prove insidious and along with an increasing redistribution of water rights another reason why bottom-up “concern” should and will grow. We’re not talking about astroturf revolution, but rather empirical and well-thought out multi-angle reform.

There is now very serious talk about a European Central Fund, which would largely be supported by the profligate ways of Eastern and Southern Europe.

I wonder how this EMF would be funded? Would it be as its supporters claim a function of a 1% tax on all money a given EU country has about the Maastricht Treaty Debt and Deficit to GDP requirements? How long would a country have to be above the 60 and 3% thresholds, respectively. I feel as though countries with stout track records would be given substantial temporal leashes while the PIIGS would be put on a spit and roasted within months and prayed upon by speculators. Look if you go ahead with this EMF and the Lisbon Treaty you are opening yourself up to a common currency aggregate that has no ceiling (i.e., a global currency). Talk about too big to fail! Or is it too interconnected to fail?

“The EMF could be run along similar governance lines to the IMF, by having a professional staff remote from direct political influence and a board with representatives from euro-area countries. Just as the existing fund does, the EMF would conduct regular and broad economic surveillance of member countries. But its main role would be to design, monitor and fund assistance programmes for euro-area countries in difficulties, just as the IMF does on a global scale.”

No way does the highlighted part of the above quote from The Economist article happen! We have reached a point as Steven Roach of Morgan Stanley noted in “Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization” where the line between fiscal policy, monetary policy, and politics is imperceptible. It is as if we are redressing the church v. state debate even though we know there is not such thing.

“Countries could, for instance, be charged an annual contribution of 1% of their “excess debt”, the difference between their actual level of public debt and the limit of 60% of GDP agreed on as one of the Maastricht criteria for euro entry. A similar charge could be levied on governments’ excess deficits, the amount exceeding the Maastricht limit of 3% of GDP. Under these parameters the EMF would have accumulated about €120 billion ($163 billion) over the past decade, enough to cover the likely costs of rescuing Greece. These levies are not so big that they make it impossible for offenders to get to grips with their finances. Under this scheme the Greek contribution to an EMF would have been 0.65% of GDP in 2009.”

Another canard. We are being guided by captains that would like to steer the ship towards a single global currency, which as I said would be the ultimate paradox given everyone’s fascination with Too Big To…..(Fill in the blank!).

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.

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!

This is a quote used more now than everything sans “Green Shoots” right now and it is purported to have been spoken by former Illinois Senator Everett Dirksen, although there is no question as to whether he ever said or wrote such words. Regardless of whether Mr. Dirksen did or did not construct this phase it seems an interesting thought given that the Obama administration is now discussing upping US food and agricultural aid to nations around the world to $5 billion annually.  Under the Bush administration this figure was about $2.3-2.7 billion. Now given the quote attributed to the late senator from Illinois this sum should ≈ real $$.

I and others contend that no where is this statement more false than with respect to international aid. Should we look to solve all the developing world’s problems, whether they be health or technology? Absolutely not these folks need to stand on their own 2 feet and it is time to clip their wings with respect to funding for weapons and war related infrastructure. However, the figures mentioned above account for 0.0181-0.0335% of our GDP ($14.93 Trillion FY 2008). At the ultra-macro level the US donates about 0.2-0.4% of GDP in toto (http://www.globalissues.org/article/35/us-and-foreign-aid-assistance#ForeignAidNumbersinChartsandGraphs).This is markedly less than the 0.7% of GDP agreed to by rich nations at the UN General Assembly……..in 1970! Yes it is true we donated $25 billion in 2008 as Official Development Assistance (ODA), which is ≥ Germany and the UK combined and realistically dwarfing every nation on an absolute scale. However, as any economist or pragmatic person would admit absolute values don’t say much, while relative figures say a ton.  The US ranks dead last among the 22 rich nations as a % of GDP. Pekka Hirvonen called this Stingy Samaritanism. The only nations that exceed the 0.7% target are Sweden, Luxembourg, Norway, Denmark, and the Netherlands (0.8-0.99% of GDP)……………..Damn Socialists!

Lets just quickly contrast this with Defense spending, which was 4.7% of GDP last year and has a 45yr average of 5.3% ($702-792 billion annually) (http://www.heritage.org/research/features/budgetchartbook/obama-budget-would-return-defense-spending-to-pre-911-levels.aspx). So, why don’t we just take 0.4% of defense and transfer it to international aid. This would still leave 3.73-4.33% of GDP for making tons of bombs, guns, missiles, tanks, etc. allowing us to continue to engage in mismanaged, ill-conceived, spineless, and pointless wars. How can you argue with that Bush, Cheney, et al?

Further folks like Peter Orzag the Director of President Obama’s Office of Management and Budget has noted that if we don’t get healthcare under control it will mushroom from 5% in 1960 to 20% of GDP sometime between 2020 and 2040. If we were to actually shear some of the fat from this beast we could give more generously, but that might actually require a national healthcare option that would apparantly run private industry out of business. However, this is hard to reconcile given that most in the private sector feel the US government would do a horrible job if they got in the business of healthcare. If this is so than what’s the problem?

We have a TRUE Axis of Evil in this country  Defense, Banks, and Healthcare/Big Pharmaceutical. Cutting these folks down to size even if that meant a 5-10% decrease in their nefarious profits, would permit the US government to cut taxes for Joe the Plumber (ie The Common Man and Woman!) and permit more giving to those around the world in desperate need of real aid. Not food in boxes or finished product but rather the tools and knowledge to make their own stuff and feed themselves by themselves.

I must admit rather reluctantly that I did a rough calculation of how much I gave in aid/donations last year and it came out to approximately 1-2% of my income. That is a figure that I really don’t know how to square with others as the data for individual households in this country is scant with respect to charitable donations.

So, it seems to me that a billion here, a billion there does not equal real money when it comes to international aid. This country owes it to the world to stop exporting so much defense related technology and get going on the stuff that makes countries function in the interim. That includes alternative NRG, agriculture, smart-growth, etc. and the myriad skill-sets they need to stop relying on external aid. Its the least we could do.

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?

It appears that the Obama administration is going to hand over the reigns of their Public Private Investment Program (PPIP) to the money manager BlackRock, which is on the surface awfully similar to handing over the security responsibilities in Iraq and Afghanistan to a private contractor. Wait that did happen and boy has it turned out swimmingly (http://www.thenation.com/doc/20060828/scahill; http://www.thenation.com/doc/20070528/scahill) with the outsourcing approved by the Bush administration and lucrative contracts given to companies like Blackwater, Triple Canopy, and KBR (ie Kellogg Brown and Root a subsidiary of Halliburton). If the actions of Blackwater in Baghdad’s Nisour Square in September of 2007 are any indication of what happens when the government privatizes crucial responsibilities we had better get ready to duck! (http://www.nytimes.com/2007/09/21/world/middleeast/21blackwater.html?scp=2&sq=Blackwater%20Nisour&st=cse).

Privatization is increasingly the trend with the federal government and it is exactly the remedy for what ales Grover Nordquist & Co. vis á vis describe in their “Starve the Beast” complex (becker_2001_starve-the-beast-article1; bartlett-2007_starve-the-beast1; http://www.nytimes.com/2003/09/14/magazine/the-tax-cut-con.html?scp=1&sq=Tax%20cut%20con&st=cse), which simply states we should gradually or suddenly reduce all taxes, which would force the Federal Government to shrink. This will be the case if the the debt to GDP ratio in the U.S. continues it’s dramatic upward trajectory from 58% at the start of the Bush administration to a historical high of 70% last year. Yeah I know fiscal conservatives will argue that big government = big deficits and that is the downfall of democracies. Well not according to none other than Dicky Cheney who in meeting with the administration’s economic team in 2002 stated “Reagan proved deficits don’t matter,” WAIT Cheney said that? The Dick Cheney? The same Dick Cheney who Mr. Nordquist presumably idolizes? Yep. Yep. And Yep! Turns out he was talking about short-term impact according to William A. Niskanen then of Reagan’s Council of Economic Advisers and now at the Cato Institute (http://www.washingtonpost.com/ac2/wp-dyn/A26402-2004Jun8). Of course we should have know that it was short-term, why would any neocon think about the long-term health of anything let alone the federal government? If we privatize our tax dollars via Blackrock-like partnerships as Mr. Geithner’s PPIP is suggesting than we de-insentivize the private companies responsibility. Our indebtedness to China will go up while the folks at Blackrock and PIMCO will get off scot free. Classic heads I win Tails You Lose scenario!

The reason why this % increases is not so much a function of government spending as many Adam Smith and Milton Friedman economists would have us believe but rather a result of increasingly smaller tax revenues. Again we are not talking about the regressive idea of increasing payroll taxes (ie poor folks suffering disproportionately) but rather the drastic cuts we have seen in income, inheritance, and capital gains taxes all of which lead Warren Buffett to conclude that his secretary hands over a greater % of her income than he does.

Now what does this all have to do with Blackrock? Well Blackrock just happens to be 47% owned by Bank of America and it seems that The Great Timmy Geithner has figured out a way to give Ken Lewis & Co. the $33.9 billion his bank will need to proceed according to Mr. Geithner oh so stressful “Stress Tests” (http://www.nytimes.com/interactive/2009/05/07/business/0507-bank-stress-test.html). He will do this not by directly handing over the capital to BofA but rather letting Blackrock’s oracle Laurence Fink invest it for him seeing as how Geithner and Mr. Fink are quit chummy back to the former’s days as the head of the NY Federal Reserve Bank (http://online.wsj.com/article/SB124269131342732625.html).

It is amazing how many people Timmo is friends with or has done favors for I feel like he is to the financial services industry what George Bush was to the Military Industrial Complex and Religious Right. Anyway you might ask well why doesn’t Geithner just give the money to BofA? Well besides the fact that they have already been given $45 billion and are 6% owned by Joe The Taxpayer (http://www.nytimes.com/2009/01/17/business/17bofa.html?scp=1&sq=Bank%20of%20America%20government%20aid%20total&st=cse) there is a little something called AIG, which really didn’t go well for the Feds.

In bailing out the giant insurer we found out in March that much of the money went towards foreign banks like Société Générale and Deutsche Bank ($12 billion each), Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), and the aforementioned BofA ($5.2 billion). This incident demonstrated the incestuous nature of the financial services industry, the power of Goldman Sachs, and that these companies operate with incredible degrees of hubris and impunity two characteristics not so coincidentally used to describe Blackwater (http://www.nytimes.com/2009/03/16/business/16rescue.html?dbk). We’ll see if the general public catches on to the hypocrisy of going in on an investment in toxic assets with a company almost half owned by BofA.

This type of blurring of the lines that should clearly separate the public and private sectors can be traced back to the repeal of the Glass-Steagall (1933) Act via Phil Gramm and Jim Leach’s Gramm-Leach Bliley Act of 1999. More importantly and much earlier the taxpayer was made the prime guarantor of all Savings & Loan (S&L) deposits, while allowing S&Ls to lend more aggresively (ie predatory lending) via the Garn-St. Germain Depository Institutions Act of 1982. These crucial laws had broad bi-partisan support. However, I would imagine if they were given to the public to vote on without the DC double-think and -speak we would have laughed them away outright.

As for Blackwater they were a result of a President and VP who were in bed with the Military Industrial Complex (On Steroids!) and the Oil Companies and why shouldn’t they be they stood to profit greatly upon returning to the private sector where much of their blind-holdings are undoubtedly in the $1.16 trillion industry.

Blackrock will likewise benefit greatly from only putting up 7cents for every dollar of investment, while we will invest 7cents and the FDIC will loan the remaining 85 as non-recourse loans to the banks, meaning if they aren’t happy with the way things are going they can just walk away. Wouldn’t it be nice if we could do that with student loans? This company has $1.3 trillion in assets or 9% of US GDP in 2008. You would think with all these assets and a 47% stake BofA could fund their own damn bailout? Unfortunately if you had such a crazy notion you would be dead wrong.

SO as I think we now know what Rahm Emanuel meant when he said “Never let a serious crisis go to waste!”. It essentially means, in DC parlance, that when a crisis comes down the shoot it is time to convince folks that preemptive war is good, torture is necessary, action without thought is patriotic, and…….. giving money to those that least deserve it is necessary to avoid Armageddon. Oh yeah what about privatization of our military and our tax dollars? Well you’ll thank us later! I think not and I think we have an administration now that is dangerously close to being changed rather than being the agent of change! Bush had his Blackwater scandal and I think if Obama ain’t careful he’ll have an equally if not greater hubbaloo with Blackrock.

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.