The Skeptical Optimist

How I'll meet my carbon budget

In recent months, I've made some time-saving investments in new, innovative technologies.  Yesterday, it hit me that I'd better start thinking about my carbon budget—because as it turns out, those time-saving inventions I bought have significantly affected the amount of CO2 I emit into the atmosphere. 

Time: a fixed resource I try to conserve
One of the few resources that will never increase in supply (in our lifetimes) is the number of hours in a day.  That's why I'm like a lot of other people in two respects: (1) I'll avoid or replace things that cost me too much time, even if they cost less money; and (2) I'll buy things that save me enough time, even if they cost extra money.  [And in this country, I get to define "too much" and "enough," respectively.] 

For example, one of my least favorite tasks around the household is the process of changing light bulbs, which have a nasty habit of burning out at the least convenient times—especially the 100-watt bulbs in the ceilings.  Those old-technology bulbs (incandescent) typically lasted me about six months; so, with about sixteen or twenty of them, it seemed like I was getting the ladder out to change a bulb every two weeks or so.  What a pain. 

Then I noticed a new-technology bulb showing up in large quantities in all the stores; a bulb that lasts six years instead of six months.  I immediately bought a shopping cart full and installed them that evening.  That was seven months ago, and since then I haven't had the ladder out even once to change a bulb.  What a time-saving technology.  Out with the old, in with the new. 

The car I bought just last week is a more recent example.  Because I hadn't been in a hurry, I took my time over a period of seven months analyzing which car I'd buy.  You name the car: I analyzed it and probably test-drove it.  Which car did I settle on?  You probably guessed it: among the cars that were big enough and quiet enough for me, I chose the one that saved me the most time. 

To me, one of the nuisances of driving a car is the periodic interruption of having to stop and fill up the tank, and the personal time required to do that each time.  Sure, pay-at-the-pump was a good time-saving innovation twenty years ago, but—just as I'd rather not have to drag the ladder out to change a light bulb—I'd just as soon not have to stop at all to refuel my car.  Unfortunately, there aren't any of those cars for sale yet, so I picked the one that cut in half the number of times per year I have to stop to refuel.  It's big enough, fast enough in the traffic I'm usually in, definitely quiet enough, and it doubles the miles-per-tank I used to get.  It's a Camry Hybrid.  What a time-saving technology.  Out with the old, in with the new. 

Oops, I almost forgot my carbon budget
As I pondered my time-saving light bulbs (CFLs) and my time-saving automobile (hybrid), I realized that, all of a sudden this year, I've effected a significant change in the amount of carbon my lifestyle is emitting into the atmosphere.  So I decided to use some of my time savings to investigate my carbon budget.  This article was one of the more definitive ones I found; it says the average American emits 20 tons of carbon dioxide each year.  Sorry; tonnes. 

So, I made some quick mental calculations, starting with the assumptions that (a) I used to be an average emitter, and (b) everybody needs to improve on that average in order to meet our personal carbon budgets.  My new time-saving technologies have coincidentally changed my own carbon emission rate; but even though my carbon budget is lower than what I had been emitting, I ended up overshooting my budget by a whole bunch of CO2.  Fortunately, it didn't take me long at all to think of a convenient way to fix my carbon-budget problem.  It's sitting right out there on my back patio: my natural-gas grill. 

I figure a daily four-hour burn ought to get me back up to my personal budget, don't you?   

I wonder if there's some kind of timed control someone could install for me—similar to the way a lawn sprinkler system works—so I could program it to burn from, say, 1am to 5am?  An auto on-off system for my gas grill would be a real time-saver on the way to meeting my carbon budget. 

Isn't new technology wonderful?

The tax system debate, part 2: Senator Ron Wyden's proposal

My first article on this subject used the single-rate flat tax as an example of why there's a stalemate on Capitol Hill that, by default, continues to saddle us with our current 1.4-million word-and-growing tax code.  (It boils down to partisan politics, unsurprisingly.)  Few experts disagree that simplifying the tax code would be one of the best things the federal government could do for our economy.  In spite of that, few politicians support the idea enough to do something substantive about tax simplification, because getting something done would definitely involve conceding some things to the other side.  Can't have that, can we?

Nonetheless, I'll keep plugging away at the economic argument.  Last time, we saw how a single rate flat tax, in conjunction with the current payroll tax structure, creates a bubble in the effective tax rate, leaving the middle-income taxpayers with the highest effective rate of all.  One fix for that, as we saw, would be to reform FICA, the taxation side of the social security system, by lowering the rate and lifting the cap.  That would turn social security benefits from a system based on one's so-called contributions into a system that redistributes FICA taxes from higher income workers to middle and lower income workers—and that could be an insurmountable political problem.  (For example, here's one possible bumpersticker: "Social Security was never meant to be a welfare system"; think how much negative emotion that would stir up.)

A better idea is a dual-rate flat (income) tax, in which the higher rate kicks in when the FICA tax rate drops off (currently at an income of $97,500).  That eliminates the regressivity that always draws out the class warfare arguments, and would avoid the political problem described above, by leaving the SS system's contributions-to-benefits relationship untouched (...SS would just "borrow" from the general fund when the time came).  Here's one scenario showing how the effective tax rate (red) would work out in a 15%/27% dual-rate flat income tax system:

But Senator Ron Wyden (Oregon Democrat) might have a better idea.  He's pushing a tax simplification plan dubbed the "Fair Flat Tax" in spite of long odds, and it's essentially a triple-rate flat tax.  It's similar in principle to the dual-rate tax described above, and it's a compromise between the six-rate rube goldberg system we have today versus the single-rate flat tax that keeps getting nowhere. George Will gave Wyden some important exposure in Newsweek recently.  If tax simplification has a chance, Senator Wyden might be on to something. 

You can read his key principles here; click on the following thumbnail:

...and there's more at this page on his website, including an example of the one-page tax form.   

I could quibble with a point or two in Wyden's proposal, but I won't; overall simplification of the tax code is growth-friendly, and I don't want to get in the way of that. 

I'm not sure I like the name he picked for it, though: "Fair Flat Tax Plan."  To Democrats, "flat" is a code word for "enriching the already rich"; to Republicans, "fair" is a code word for "creeping socialism."  Because of the name alone, a pessimist might conclude that Wyden's idea will be dead on arrival (...and two advantages pessimists have over optimists are that they are disappointed less frequently, and they are pleasantly surprised more frequently). 

Maybe so; but I'm holding out some hope on this one.  Wyden needs a co-sponsor on the Republican side, and he also needs more support from his own party.  I hope you write to your Senators and Representative, as I will.  Maybe we can light a fire under them. 

FQ.07.30: Favorite Quote for This Week

Baby, it’s never an insult to be called what somebody thinks is a bad name.  It just shows you how poor that person is.
—Atticus Finch (as told by Harper Lee)

GDP growth, Q2 2007

As everyone expected (except for a select crowd that's always hoping for bad news), real GDP growth for second quarter was 3.4% and trending upward.  Good riddance to the first quarter slowdown. 

Here are the monthly charts:

Not yet sure if these new growth rates, combined with the shrinking deficit, will cause the debt clock to start ticking backwards, but that should happen sometime in the next few months if not this time; I'll recalibrate it as soon as the end of July debt tally is available. 

I guess this new book is a must-read

Bill Clinton marked up this book (The Political Brain) last week, then gave the result to Hillary.  Not only that, but every other Democrat in the Senate has received a copy.  Because the author's consulting firm advises Democratic leaders and candidates, I bet lots of Republicans are reading it, too—for the same reason Patton read Rommel's book.  (Not sure if Libertarians care about the book's message that emotion matters and logic doesn't—because their track record suggests to me they'd rather be right than elected.) 

Anyway, not wanting to cede an advantage to the politicians, I ordered it from Amazon immediately after I read the review in The Week.  Here's an excerpt from that review: 

Late last month, every Democrat in the U.S. Senate received a copy of Drew Westen's new book.  By the following weekend, former President Bill Clinton had marked up a copy for his wife, Hillary.  "To say I think it's a very important book is an understatement," he announced.

The book's fundamental message is that voters base their decisions on the following, in this order: (1) feelings about the parties; (2) feelings about the candidates; and—if they haven't made up their mind after those two—(3) feelings about the candidates' policy positions.   

Feelings, feelings, feelings.  Even the third priority is feelings (and trust, or lack of trust) about somebody else's presumed analysis of policy options. 

Okay, I'll read the book too, even though my personal preference is understanding science, technology, and economics—where feelings seldom contribute to (and frequently get in the way of) the scientific method for seeking truth.  As Nobel laureate Richard P. Feynman famously said:

For a successful technology, reality must take precedence over public relations, for nature cannot be fooled. 

Technology is the offspring of science, and yes, I do prefer both of those to politics.  But science, I guess, includes "political science"—which Dr. Feynman must have been excluding when he said that, because political science is all about public relations.  So if I'm going to understand the so-called science of how politicians get themselves elected and reelected, I guess this book is a must-read. 

Wish me luck.

Twelve million minimum-wage workers are missing

Yesterday, the minimum wage increase took effect.  I figured I'd be reading the standard arguments from both sides in the mainstream media, but ran into a nontrivial snag.  First, here are the arguments I was expecting to see:

Lefties: "It helps millions of workers earn a living wage."
Righties: "It will force small businesses to cut back on employees."

The lefty argument showed up in the first article I read (at CNN Money).  Here's an excerpt:

About 13 million workers, or 10 percent of the nation's work force, will benefit from an increase in the minimum wage, the labor-backed Economic Policy Institute said. Of those 13 million, 5.6 million would be directly affected, while 7.4 million low-wage workers will see the spillover effect on their wages.

Before checking for articles delivering the righties' counterargument, I went to the US Census Bureau's Statistical Abstract to check the numbers.  I found table 634, "Workers Paid Hourly Rates" (see the last table on the list at this page), and could only find 479,000 workers who made the minimum wage in 2005.  That's 12,500,000 fewer workers than the lefties' are saying will benefit from the minimum wage hike.  (Note that 1.4 million workers were making less than minimum wage; because many jobs are exempted from the minimum, I'm presuming those workers would continue to be unaffected by a minimum wage increase.) 

Here's a chart showing the percentage of workers making minimum wage (blue) and below minimum wage (red) going back several years.

If 13 million workers will benefit from the minimum wage, 12.5 million of them seem to be missing.  I'm not finished analyzing this yet, so if anyone has a clue for me, please post a link.  I tried to go to the website of the Economic Policy Institute to figure out what I was overlooking, but their site was down.  [Here's the error message I kept getting; click to enlarge:]


In any case, if I can believe the Statistical Abstract, more than 99% of hourly-paid workers are unaffected by a hike in the minimum wage.  Is it possible that the minimum wage debate is 1% substance, 99% political positioning? 

"OBIC stymies OPEC": Why not?

After finishing two quick reads on energy policy (this paper and this book), it struck me that our current penchant for China bashing—lucrative as it is for populist politicians and ideologues—might not be our nation's best tactic for securing our grandkids' future well-being.  Maybe there's a wiser way. 

I'm sure you're familiar with most of the fear-mongering about China.  They are communists.  They are Asians.  They have a trade surplus with us.  They supposedly import jobs from us.  They will soon be creating one-third of California's air pollution, out of reach of our laws.  They've been practicing how to knock satellites out of the sky.  They own too much of our debt, and they might dump it.  They are destined to be our formidable opponents in some kind of future war, cold or hot.  And—most infuriating to some of us—they spent the entire summer of 2006 beating and torturing Jack Bauer. 

If you've been paying attention to this blog, you know I haven't been so quick to jump on the China-bashing bandwagon.  China's growth is the result of a shift towards economic capitalism; the resultant growing wealth for China's people will reinforce that shift, if not speed it up.  We should be welcoming that, not fearing it.  China's economic growth means a growing market for our goods and services, and it probably also implies that an internal learning curve is in store for its political system.

The populist innuendo that China is and should be our enemy, even if it is arguable, ignores Chinese general Sun-tzu's's advice: "Keep your friends close, and your enemies closer."  Why should a new Cold War with China be inevitable (...or worse, a hot one)?  Why can't we think of the opposite possibility as an additional alternative?

Consider a few established facts and near-certainties:
• Economic growth (wealth creation) conquers poverty.
• Growth in economic output requires growth in energy input.
• China's economy is growing, and will continue to grow.
• Chinese, like almost all human beings, consider the automobile a "personal freedom machine."
• Worldwide demand for personal freedom machines will continue to grow.
• Today, liquid fuel refined from petroleum has a near-monopoly on personal transportation energy. 
• The USA and China will be the world's largest consumers of (and competitors for) the world's oil supply into the foreseeable future—in the absence of a paradigm shift for personal transportation energy.

That last bullet point is the reason why so many are worried about the future of our relationship with China.  But I'm more concerned with the next-to-last bullet point—our economies' dependence on petroleum.  Although the Cato paper (link in first sentence above) makes a good case that much of today's worry about oil is greatly exaggerated, it also warns that the two big, unarguable threats are (1) single-nation hegemony (Iran?) over the Middle East oil reserves, or (2) unfriendly overthrow of the Saudi Arabian government.  We'd be in deep trouble if either of those two scenarios came about. 

For that reason, as I've said before, our top priority should be for science and technology to break the petroleum monopoly on personal transportation energy.  [Just as the Stone Age didn't end because we ran out of stones, the OPEC age doesn't have to end because we ran out of oil].  A technological breakthrough that made oil unnecessary for personal transportation energy would not only be good for us, it would be good for China, too.  It would enable both economies to grow as fast as their respective politicians would allow, with little need for conflict over the supply of an obsolete resource (oil). 

Today, OPEC sits on most of the world's oil reserves, and (by my guess) relishes the thought of a bidding war, or even a hot war, between China and the USA over oil supplies.  I don't like much at all about that scenario.  I bet China doesn't like it, either. 

In fact, I bet the USA, China, Japan, and a few other key nations could speed up the advent of a technological paradigm shift—one that obsoletes petroleum as feedstock for automobile fuel—by figuring out a way to work together on it, instead of spending resources working against each other militarily and in the oil market.  I bet such an organization, as it was cooperating to develop that breakthrough, could even wield some oil-buying leverage against the OPEC cartel in the meantime, don't you? 

A good name for such a partnership might be "Oil Buying and Importing Countries" — OBIC, for short.  Picture an "OBIC stymies OPEC" headline in the NYT and WSJ someday soon.  Intriguing, isn't it? 

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End note:
A lot of new things are happening in the automobile energy arena.  The book Energy Future by Bill Paul (see link at top of article) is a broad-based status report on all the various alternatives in play today, and touches on the geopolitical high points, too.  The Cato paper is a good perspective on the economics and geopolitics of oil.  Both were written very recently; I recommend reading them if you're interested in the energy sector of our economy.  I'll summarize it in the near future.

FQ.07.29: Favorite Quote for This Week

Alexander Hamilton wanted to be sure our [Revolutionary] war debt was the beginning, not the end, of our borrowing history.  Realizing that the country could use borrowed money for an emergency or a project that it otherwise could not afford, he immediately established our good credit... This ability to borrow came in rather handy when President Jefferson [in 1803] received an offer he could not possibly refuse.
—Elaine Schwartz, Econ 101½

Interest Rates and the Dollar, July 2007

The dollar will supposedly collapse sometime soon, according to the bears.  That's hogwash, according to the bulls.  Both sides have plausible arguments (...and, by the way, getting to hear both sides of the argument on any given question is the main reason I like to catch Larry Kudlow's CNBC show, Kudlow & Company, whenever time permits—about twice a week; I can't remember the last time he didn't have both viewpoints represented by an expert on the topic at hand). 

I still refuse to get into the game of predicting interest rates or the forex value of the dollar, so I'll just continue to keep a close eye on the indicators, and be content with my role as net judge at a ping pong match.  (If I ever get good at predicting either of those, I'll shut this blog down and start trading futures.)

Anyway, a weaker dollar should in theory translate into higher long term interest rates, and so should higher inflation.  But inflation is staying level at around 2.5% according to most measures; interest rates are moving sideways to slightly up; and although the trade-weighted dollar index is falling, it's still much higher than in previous decades.  In short, dollar doomsday isn't on the radar yet. 

Here are the updated charts; click to enlarge.

How to replenish the social security trust fund in six years, painlessly

As the election season approaches, I'm detecting an increased decibel level in the rhetoric about the social security trust fund.  We raided it.  It's bankrupt.  There's nothing in there for our grandchildren except a bunch of IOUs.  In other words, it's SSDD (same stuff, different day).  No surprise, though, because trust fund sob story still seems to score political points.  [Feel free to replace "stuff" with the word of your choice.]

In this election season, I would personally prefer to hear the scarce time for issues debates devoted to topics of substance instead of wasted on meaningless malarkey about intragovernmental trust funds, so I decided to take another run at this topic.  Rather than trying to explain again why it's malarkey, I thought it would be better this time to propose a quick fix.  In that light, here's a little-known fact:

Believe it or not, our legislators on Capitol Hill have it within their power to replenish the social security trust fund in six short years—and here's the best part—with absolutely no effect on anybody.  That's right: nobody's taxes will increase, nobody's social security check will decrease, and the trust fund will be 100% paid back by the general fund at the end of that time, or maybe even before.  All it will take is a brief, four-point law that expires six years after it takes effect. 

First, a brief diversion in the form of a mini-brain-teaser.  Examine the cash flow diagram below; can you spot any difference in the net effect of scenario 1 versus scenario 2?  [Hint: the correct answer is "No."]

Good.  I presume your three representatives on Capitol Hill could also get that answer correct(?).  In any case, now click on the thumbnail below to reveal the key to those scenarios:

Note that cash inflows equal cash outflows.  That's important. 

Now for the magic-wand law.  The six-year trust fund fix is described in the blue thumbnail below.  Click on it to read how simple it will be to completely replenish the trust fund, painlessly. 

With this law in place, the general fund would pay back the trust fund at a rate of more than 600 billion per year.  At that rate, six years would make the trust fund whole again—and we wouldn't have to waste any more national debate time on the financially phony topic of the "trust fund raid."  (Conveniently, if the trust fund ever got out of whack again, we could reinstate the law for as long as necessary to accomplish the two-pronged goals of keeping the general fund out of debt to the trust fund, and getting the doom-peddling politicians to shut up about it and talk about something substantive—such as how to grow the economy.)

Comments are open, of course.  I was in a hurry when I wrote the new law's wording, so let me know if you spot any flaws, and how you'd fix them.  (I would, however, like to keep it short enough to fit on a postcard.)

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End note:
As Bob has probably detected already, my tongue is firmly planted in my cheek.  Although this truly would balance the intragovernmental funds, the chances are zero that our politicians would consider it.  Maybe this little exercise would turn on a few light bulbs, however.