Monday, September 13

Fixing The Economy: Imported Oil

Throwing Away MoneyHow much oil do we import? Would you believe that we import approximately 10,000,000 barrels per day of oil? That's according to the EIA. Guess how much money that costs. At $75 per barrel this represents $750,000,000 per day. That's $273,750,000,000 per year. Perhaps we can just round it to $275 billion...

I don't know about you but I can't help wondering about how many domestic jobs that type of expenditure could support. For example, what if we stopped sending some amount of that money overseas and used it to provide incentives to promote use of domestic alternative energy sources? What if our cars were all hybrid vehicles? What if all that money was spent on domestic products, that our citizens were being paid wages to produce and service, instead of overseas to our friends?

I know. We can't simply stop using imported oil overnight. We also can't replace all of our oil usage with alternative energy supplies. I do know that. However, if we as consumers were spending much of this money on goods and services made right here there would be a lot more jobs. So, how can we at least start moving in this direction?

From time to time there are policy steps that might help. We have regulations that provide for the fuel economy of consumer vehicles. More efficient vehicles provide for more economic activity with less money being sent overseas due to imported oil. We've also provided some money for research activities. We may even subsidize the creation of ethanol.

However, I think we are leaving a lot of things off the table. Perhaps it's because our culture is geared towards all-or-nothing thinking.

Why don't we create our cities in a way that reduces the amount of transportation required on a daily basis? Doing this would involve putting a lot of effort into zoning regulations such that consumers would often be able to live closer to the places they work and play.

Why don't we provide serious alternatives to driving a car to work every day? Time and time again we hear about public transportation but nobody wants to ride on it. Make it timely and efficient. Keep it clean and safe. Then, make it difficult or expensive to find parking. Watch more people start using public transit.

Even better, give people the ability to walk, roller blade or ride bicycles. We often see a paltry bike lane or two and then deride the fact that hardly anybody uses it. If you want to seriously promote bicycle use, or other modes of exercise as transportation, you have to do much better than that. You need to provide a safe and clean place for people to change into and out of their work clothes. You have to provide a safe and secure place for people to put their gear. You have to create efficient routes that allow people to bypass traffic obstacles and dangerous traffic areas.

I can hear the skepticism. Who's going to do this? I guess that means you aren't willing to talk to your local politicians and ask them to focus on these long term issues? Perhaps we can do this via an incentive policy also. For example, states are already given incentives to set speed limits within a certain range. It would certainly be possible to offer increased payments to states or communities based on increased levels of public or human powered transportation.

Another interesting idea is the Pickens Plan. The idea here is that we replace some foreign oil use with domestic natural gas. It's not hard to replace gasoline with natural gas. It simply requires vehicles to be modified. A good place to start would be with the trucking industry. Something like this can be done with government legislation. I know, many people dislike government action in the markets -- however, if all trucking companies face the same regulations they will continue to compete with a new level playing field. For more information go read the Pickens Plans for yourself.

Big changes can come about from making things possible, convenient, or financially attractive.

For example, if you were sure you could sell excess electrical power back to the local utility, would it help you consider private wind generation? Overnight your small inexpensive wind turbine could generate and store enough electricity to provide hot water for your morning showers. Excess electricity, if any, would be sent through the grid and reduce your monthly utility bill. Of course, this doesn't seem to have much to do with imported oil... or does it? A home generator would be a great way to charge a hybrid car.

So, with good ideas this easy to generate, I have to wonder why we haven't really made much progress over the last decade or more. Is it politics? Is it lobbyists? Is it propaganda from big oil companies? Is it simple apathy? I don't know what it is but I do know we'd be a lot better off today if anybody were taking this seriously a decade ago.

Imported oil costs us $275 billion a year in direct costs. We'd better take it seriously.

Sunday, September 5

Fixing The Economy: Incentives

The Economy's Bumpy RideWe all know the economy is broken in some way. We only have to look at the jobless claims numbers to see that. The bigger question is why?

While there are plenty of theories around, some reasonable and some not, I've got my own and I'm not afraid to share it with you. Don't worry, this isn't going to be political in nature.

So, what's wrong? To put it simply our incentives are out of control. We provide incentives to decision makers that have them take actions that are against our own best interest.

This issue is present at all layers of decision making. Perhaps most striking is the level of payment made to the titans of business and finance. They are given incentive to take massive risk, generate short term gains, and then cash out before the inevitable negative consequences of such risks can come home to roost.

You've heard of the financial crisis, right? Guess who is paying for this mis-incentive? Yeah. You, me and everyone else.

Another area that is related to politics, but not directly political itself, is the process of lobbying. Our officials are given incentive to take actions based on the financial interests of individuals instead of the good of the public. If it was any other way these lobbying firms would not have to spend so much money. It wouldn't take so much convincing if the requests really were good public policy.

Anyhow, before I venture into the political realm, let's talk about fixing things as I originally promised.

In terms of the financial crisis one of the issues that is discussed is the fact that big business is finding it easy to raise cash and they are then sitting on it. So, they have wheelbarrows of cash ready and waiting but they aren't using it -- they aren't buying things and using them to generate jobs.

So, since my premise is that we have the wrong incentives, how can we change this? What about providing a tax break for companies that make capital investments within our borders? You know -- invest in plant, property and equipment and get a large tax break.

I know, the dreaded tax break. How can we afford tax breaks? Well, if we were to have large companies starting new projects then we would be hiring people to manufacture and assemble the items purchased. As long as this is the case we would find that the tax breaks are less costly than not creating quality jobs for our friends and neighbors.

However, it's also important that we don't sit around giving tax breaks to companies when the costs are not balanced by their effect on unemployment. We should scale the breaks back over time. They could be decreased by some percentage annually (e.g. 20% each year for 5 years) or they could be directly related to the national unemployment rate.

The idea is to give incentives to big business, those that have the money, to put it to productive use and create jobs. It's the lack of jobs and the lack of consumer confidence that is holding back the economy. So, we need to give the right incentives to decision makers so that they will change their individual actions and together help fix it.

Individually, we can also help. Yes, really.

How many of us are so anxious to get out of the grocery store with our goods that we'll use the self-serve checkout machines? Well, great, but you do realize you are helping the store fire it's cashiers? I'm not suggesting we all sacrifice conveniences but during tough times we may want to think carefully about our own habits and look for ways to make decisions that support local jobs.

If we can find ways to align our actions with our own long term well being, perhaps represented by low unemployment rates and economic stability, then we'll all be much better off. This applies to both the largest economic players as well as each of us individually.


As part of his emerging program to jolt the economic recovery from its stall, President Obama will call this week for allowing businesses to deduct from their taxes through 2011 the full value of new equipment purchase, from computers to utility generators, to increase demand for goods and create jobs.

The upfront deduction would allow businesses of all sizes to keep more money now and would give large corporations, many of which are sitting on cash because of uncertainty about the economy, an incentive to spend and invest.

Courtesy CNBC dated 07-Sep-2010

Well, now it looks like my idea will sink or swim in the light of public scrutiny. While I did originally outline these thoughts on CNBC's comment system over the last couple weeks I didn't really think the Pres was listening! ;)

Note: Image above lifted from this post on the QiRanger Adventures blog.