
Current
Commentary

August 2010:
..Cut payroll taxes
..No bailouts: transfer, adjust
..Let home prices fall
..Japan's 1900s deflation
July 2010:
..Cut or big deficits
..AZ Immigration law
..70 years of tax & spend
..Robbing tomorrow
..Cut the payroll tax!
May & June 2010:
..Inflation-free bailout?
..Ross Perot's lesson
..Looming tragedy
..Another bailout lie
..Costly IRS mandate
April 2010:
..Goldman fraud
..Ban financial derivatives
..Reform must-haves
..GM's mischaracterization
..5 years of unemployment
March 2010:
..Building with spoons
..Reforms = higher prices
February 2010:
..Eliminate public pensions
..How to raise $500 billion
..Deflation is natural
January 2010:
..Grab for your 401k/IRA
..City Hall protest
December 2009:
..TARP scam
..Federal pension myth
..Obama's commandeering
..Unemployment figures
November 2009:
..Gold: never below $1000
..Gold's newest price
October 2009:
..How to hurt companies
..Bailed-out banks' pay
..Gold's price rise
.
September 2009:
..Fed's mortgage impact
..Disagreeing w/ Bernanke
..50% tax bracket
August 2009:
..Cash for clunkers: BAD!
..Buffet on the dollar
July 2009:
..$1,000,000 for a slogan
..Financial sleight of hand
..A central planning failure
June 2009:
..Buy a home recently?
..Inflation, coming up
April 2009:
..Boos at a teaparty
..Gold price spreads
March 2009:
..Trillion-dollar lie
..$1T monetized debt
..Consumer prices up
..Interest rates up?
..What they don't tell you
February 2009:
..Pomp, but no substance
..Bet on inflation
January 2009:
..Stimulus package debt
..Monetary base doubles
..New Deal, or raw deal?
..Women & clothes
..Home prices in gold
December 2008:
..More money, less housing
..4% mortgage rates
..FREE MONEY!!!
..Gas prices
..Work for $1 a year?
..5 times Chrysler deal |
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Saturday, August 29, 2009Cash for Clunkers:
Wastes energy, hurts the economy
Before
delving into the lengthy guts of my argument (an argument
backed by numbers pulled from the USDOT, the EPA, the
Transportation Secretary, Energy and Ecology Magazine,
and the United Nations Scientific and Cultural
Organization), here's my common sense premise:
Destroying
useful stuff that still works is never a smart idea.
It takes energy to make a car, lots of energy. In
fact, making a car takes almost as much energy as the
car will consume in gas over its entire life.
Therefore, you can annualize that initial energy
investment into a figure that is approximately equal
to the amount of gas the car consumes each year.
Conclusion: For each year that you
squander that initial manufacturing energy investment
(destroy the car while it still works), you might as
well have turned the car on, left it in park, and
gotten zero mpg until burning through 586 gallons of
gas.
Here is the
analysis: First, the average fuel economy of the entire
US fleet of passenger vehicles is 20 mpg according to the
Environmental Protection Agency (EPA). The average miles
driven per year is 12,000, according to the EPA.
According to the Secretary of Transportation (in a letter
to U.S. Senators), the average fuel economy for the
"clunkers" in this program was 15.8 mpg. The
average fuel economy of the replacement cars was 25.4
mpg. With that information, we see that the average US
car uses 600 gallons of gas per year (GPY), the average
"clunker" used 779 GPY and the average new car
purchased as part of the "clunkers" program
uses 472 GPY -- for a savings of 307 GPY for every
"clunker" replaced with a new car.
Each gallon of gas contains approximately 10.5 million
joules (megajoules) of energy, or 10.5 MJ. Therefore, the
new cars save 3,223 MJ/year as compared to their
inefficient but loyal clunkers that now await an
execution by pouring a glue into the engine block. (Am I
the only one who develops a deep, irrational, emotional
connection with his cars?)
Manufacturing costs: It takes energy to
make a car. When you add it all up, it takes about 80,000
MJ to manufacture an average car. This is based on an
average weight of 1,000 KG, and the energy required to
make the primary materials as a share of total weight.
The breakdown is as follows, according to the UN
Scientific and Cultural Organization:
- Steel
makes up 50% of the weight of the car; it takes
15,000 MJ to make 500 KG of steel.
- Plastic
is light weight, but a HUGE amount of energy is
required to make an average of 70 KG per car,
worth 11,200 MJ.
- Glass:
recycled versus new makes a big difference, but
it averages out to 854 MJ.
- Iron: as
with glass, recycled versus from ore makes a
difference, but it approximates 3000 MJ
- Aluminum:
doing a weighted average based on recycling rates
for the difference between smelting from bauxite
(which takes enormous amounts of energy) and
recycling (which takes much less) takes 30,000 MJ
- TOTAL
MATERIALS ENERGY COST: 60,054 MJ
Then you have
to cast and assemble all of those materials using
approximately 20,000 MJ for a grand total of 80,054 MJ of
energy.
According to DOT, the average car lasts 13 years. This
annualizes to 6,158 MJ which is the energy equivalent of
586 gallons of gas/year. This means that every year of a
car's usable life that you prematurely snuff out wastes
the energy equivalent of 586 gallons of gas.
Back to some common sense: You can only drive one car at
a time. By participating in the program, a participant
does save an average of 307 gallons per year with the new
car, but he also squanders 586 gallons per year of
annualized capital energy investment by destroying his
old car. The only argument that the program could make
would be that it shifted consumer behavior into buying a
more fuel efficient car and that over the car's lifetime
the total annual fuel savings will exceed the initial
manufacturing investment loss. That is a point that is
impossible to prove or disprove. However, if the end goal
was to shift consumer purchases to more fuel efficient
cars, incentives that didn't involve destroying capital
goods would have been better for both the environment and
the economy.
As for the economy, a politician only considers the
immediate impact on a select group of people. If you
apply that attitude to the Clunkers program, it was a
huge success. However, an economist considers the long
term impact on everyone. And considering long term impact
on all, this program has consequences because there is no
free lunch. Men employed manufacturing cars that in the
absence of artificial government demand would be unwanted
could be doing something else that the economy actually
did want. Furthermore, with 10-16% unemployment
(depending on whether you ignore "discouraged"
workers), this program clearly helps only those who have
jobs, and specifically only those who have jobs that pay
higher than average -- since the average income of a new
car buyer is about 20% higher than the average income of
the average American.
Wednesday, August 19, 2009
Buffett: The
dollar's destiny lies with Congress
Warren Buffett finally hit the panic button in a NY
Times editorial today. Some alarming highlights of the
editorial:
- Congress is spending about twice what it is
taking in.
- That difference equals about 1.8 trillion dollars
a year.
- Even if the Chinese were to loan us $400 billion
a year (their estimated max) and Americans
pinched pennies, saved and loaned an addition 500
billion a year (their estimated max), that would
still leave a $900 billion shortfall every year.
Given that the rest of the world is not in a
position to loan us money, the printing presses
will fill the gap.
- Our $1.8 trillion annual deficit equals 13% of
the entire economy. Bad things happen when that
figure goes beyond 5%. Very bad things happen at
this level.
- The total, cumulative amount we owe (the debt) is
growing at 1% per month.
A fun fact not in his editorial:
The national debt is a giant adjustable rate mortgage
time bomb about to explode. The average maturity (length
of fixed rate) is about 3 years.
But sit down for this one:
OVER HALF THE DEBT IS FINANCED ON A 1 YEAR OR LESS FIXED
RATE TERM.
The math is possible because there are maturities that
reach 20 years; they just make up a minority of the total
debt. When rates start heading up (and the only chance
for the preservation of the dollar is if they do head
up), interest payments on the debt will increase
exponentially.
As we are Blitzkrieged on the multiple fronts of autos,
banking, health care, and cap and trade, we must not lose
sight of what the true cost of all this will be, even if
they do not raise our taxes. Debt monetization and the
resulting inflation is simply a backdoor, regressive
taxation that is used when central planners lack the
political will to raise front door taxes.
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