Monday, June 30, 2008

Is Politics All About Money?

I got a surprising letter from John McCain today.

It was just two weeks ago that I wrote that money isn’t as important in politics as it used to be. Case in point: McCain, in some ways the most underfunded candidate in the primaries, came out the winner of the Republican primary season.

But in his letter to me (and if he sent this letter to me, I have to imagine he sent it to at least 50 million other American voters), McCain says that money is everything in politics.

McCain says he is desperately far behind in his campaign. He needs a minimum of $21.5 million in donations in July, he says. This is, he says, “a critical funding goal that I must meet to keep my campaign on track and get my message to the voters as we move into the next phase of the election cycle.” If he falls short, “the outcome of the election could well be determined” right then. Why, if he gets to the end of July with only $21,499,999, McCain might as well pull out of the race.

I am not about to send any money to McCain — or to any other candidate in a November election when it is only the beginning of July. But I do have a suggestion to offer.

Why not let the voters decide?

The way political strategists see it, McCain probably is right about being desperately behind. McCain cannot even pretend to be a liberal on the issues people care about, so he has little hope of matching the popular appeal of “one of the most liberal people sitting in the United States Senate today.” Four out of five political strategists would agree that McCain’s promise, repeated in the letter, never to pull U.S. forces out of Iraq probably does make it hard to get voters to pay attention to his views on the other, more important issues in the campaign. In a year when most voters are looking for massive change, it is hard to put together a winning strategy for a candidate who keeps promising more of the same.

But still, pulling out of the race at the end of July is not the answer. And it’s not the right way for a candidate to be thinking about an election.

Because the election is ultimately not decided by political strategists. It is decided by voters. And not in July, but in November.

And quite frankly, a three-page letter that mentions voters only twice while mentioning money 20 times, in almost every paragraph, might give some voters the impression that a candidate cares more about money than about voters. Ten times more.

McCain might want to think about that. It is possible to make the voters feel like they are just as important as the people who write the checks. Even a candidate who is “stuck in a ‘catch up’ mode, scrambling to find supporters, scraping together resources and playing defense” can make voters feel like they have a reason to vote. But a letter that says, “money, voters, money, money, money, money, money, money, money, money, money, money, money, money, money, money, money, money, money, money, voters . . . P.S. money,” doesn’t get it done.

Sunday, June 29, 2008

Response to Oxfam’s Shocking Report

Two days after I wrote about the difficulties of converting fuel crops to food, Oxfam International issued an inexplicable report effectively asking for a halt to biofuel production, but offering no solutions or even sympathy for the global crisis their recommendations would cause if fully implemented.

If you have seen the Oxfam report, these are the key points in understanding why the cutback they recommend in biofuel would lead to widespread poverty and hunger:

  • Fuel is necessary for growing most crops. High fuel prices this year have already led many farmers to cut back on the number of fields they plant and in some cases to abandon farming entirely. If fuel production is cut further, this would lead to fuel prices that are higher still, potentially forcing millions of farmers to stop farming. Oxfam’s report offers no alternate source for the food that would be lost in this scenario, nor any alternate source of income for the farmers that would be affected.
  • Many of the crops and croplands used for biofuel are not suitable for food use. In addition, in the best case, biofuel is made from waste products that have no alternate use. Oxfam’s recommendations could result in the loss of the energy made from many of these materials, with no compensating benefit.
  • The increase in energy prices (including fertilizer) is virtually the entire reason for the sudden increase in the price of food. Oxfam’s own report concedes that total food production is rising at least as fast as biofuel production, so the implication that a decline in food production is to blame for high food prices is entirely spurious. For some food items, energy costs account for most of the final cost of the food. Food prices cannot be brought down worldwide by policies that drive energy prices higher.
  • The spot food shortages that have made headlines in the last year were localized and short-lived, reflecting (so far) not a global shortfall of food production, but distribution problems and market manipulations including hoarding that could easily have been created by corporate interests or speculators for their own financial gain. An actual global shortfall in food production would lead to shortages across whole regions for entire seasons. Problems caused by market manipulations cannot be solved by more market manipulations. By contrast, the increase in energy costs is caused quite simply by a shortfall in global production of energy when compared to the rising demand for energy. It can be solved only by an increase in energy production combined with efficiencies in energy use.
  • The energy conservation methods Oxfam advocates are important but do not serve as a substitute for fuel. Right now, the world needs both fuel and energy conservation.
  • Ethanol is not the dangerous acid that Oxfam’s report implies. On balance, ethanol is safer to store and transport than gasoline.
  • Biofuel is not the novelty or gimmick that Oxfam is suggesting. It could supply all the world’s liquid fuel needs eventually if there are enormous improvements in energy efficiency and if new sources of energy, such as solar and wind, can be added on a large scale. The fossil fuel we have relied upon for the past century will mostly run out this century, but biofuel can continue. It would be the height of folly to procrastinate on the early work toward what is likely to be a critical source of energy for the world just a generation or two from now.

Oxfam’s work on the distribution side of the food crisis is admirable, and I hope its bizarre recommendations about biofuel are merely the thinking of advocates who are too close to their work on food to notice the bigger picture of how food is created. Quite simply, there is nothing to be gained by driving large numbers of farmers out of work and into poverty, and I think by focusing on the food and ignoring the needs of farmers, Oxfam has made recommendations that could dramatically worsen the crisis they are working so hard to solve.

Saturday, June 28, 2008

Electricity or Oil?

Which is less expensive for home heating: oil or electricity?

I buy home heating oil by the gallon, but what I really want from it is heat, which is measured in megajoules (MJ). According to Wikipedia, a gallon of home heating oil contains 138,500 British thermal units (BTU) of energy, which is 146 MJ.

I buy electricity in kilowatt hours (kWh). A kilowatt hour is exactly 3.6 MJ.

With that, I have a way to compare prices.

It is hard to buy heating oil at this time of year, but diesel is almost the same thing. Today’s price for diesel in Pennsylvania, excluding highway taxes, is $4.403 per gallon. That is 3.02 cents per megajoule. My “high efficiency” oil furnace is estimated to operate at 83 percent efficiency, so I pay 3.64 cents per megajoule of heat.

On my latest electric statement, I paid 16.2 cents per kilowatt hour. That is 4.5 cents per megajoule. Electricity, when measured and used this way, is 100 percent efficient; only the tiniest amount of energy is lost in the wires that connect the electric meter to the house. So I really get a megajoule of heat for my 4.5 cents of electricity.

To recap: oil, 3.64¢/MJ; electricity, 4.5¢/MJ. Oil still has an advantage, but the advantage is so slight that installing, or even repairing, an oil heater at this point would not be a sensible investment.

As oil prices go up, we reach a point at which oil heat costs as much as electric heat. Beyond that point, we save money by switching over from oil to electricity. In my scenario, with 83 percent efficiency for oil, we reach that point when the price per gallon of oil is 33.7 times the price per kilowatt hour of electricity. If the local price of electricity does not change first, the switchover point is a heating oil price of $5.454. That doesn’t seem so far away; in fact, it’s lower than the $6.00 price I think I ought to be planning for. When my oil tank runs dry, I am not sure I will want to refill it.

Planning for Home Heating

Do I want to spend $4,000 to heat my home next winter?

It sounds like a crazy question only because I never spent that much before. But my home has an oil furnace, and home heating oil, which is essentially a kind of diesel, costs more than it ever has. It was distressing to pay $3 a gallon for home heating oil last winter. But diesel prices are near $5 a gallon now, and home heating oil prices in midwinter have historically been higher than summer diesel prices.

And oil prices seem to be trending upward. So I have to guess that home heating oil may cost $6 a gallon next winter. At that price, if I simply fill up my oil tank and set my thermostat to room temperature, I’ll pay at least $4,000 for home heating over the course of the heating season.


I have options, of course. I don’t particularly have to heat my home at night. I could rebuild the inside of the exterior walls of my house, replacing the token insulation that was put in in the 1970s with a proper polyethylene wrap and heavy-duty insulation. That and some other fixes could cut my home’s heating profile by about half. I can use electricity for heat. I could put in a word-burning stove. I could drive to someplace warmer for two weeks in the middle of winter.

All of these options have pluses and minuses, but I know I can’t just do what I did last winter, not at the same price, anyway. That’s why I’m thinking about this now.

Friday, June 27, 2008

After the Stimulus Payments, Plan B

Consumer income, after taxes, was up 5.7 percent in May, according to statistics released today by the Commerce Department. The increase is the result of the economic stimulus payments made by the Internal Revenue Service; apparently about half of those payments were made in May. Consumer spending increased by 0.8 percent. That is only a sixth of the boost in income.

Gasoline prices were also up, 10 percent in May, and that came on top of a 10 percent increase in April. And so the initial consumer spending from the stimulus payments was entirely absorbed by higher energy prices. Consumers were spending more money, but not getting more. Many consumers set aside their stimulus payments for summer vacation spending. Here too they will be absorbed by higher fuel prices as people drive or fly to their vacation destinations. Gasoline prices are up about 3 percent in June, and oil prices hit a new record high this morning. Despite the stimulus payments, real consumer spending is falling.

Some of our people in Washington are saying, “Well, hey, if one round of stimulus payments didn’t work, let’s try a second one.” This sounds to me like my friends who want to take a second trip to Atlantic City because they lost money on their first trip. The federal government is not so rich that it can just throw money around. (Rather, it has the largest debt of any institution in history.) I have a better idea.

The two huge drags on the U.S. economy are energy imports and overseas military spending. Energy is more than half of all U.S. imports and growing rapidly as the price of oil goes up. The high level of imports is one of the biggest causes of the continuing decline of the U.S. dollar. Overseas military spending is also money lost to the U.S. economy, as most of the money stays in the region where we spend it. And this is not a trivial amount of money, but several percent of GDP, an amount similar to the growth in national income. In other words, we may be giving up the chance to grow economically as a country by spending so much money placing our military forces in other parts of the world.

So to stabilize the economy, I am proposing a substantial cut in overseas military spending, perhaps a reduction of 50 to 70 percent. We could bring home all the troops from Iraq, most from Kuwait and Qatar, and some others.

It costs much less to keep troops in the United States than in the more distant reaches of the world, and we wouldn’t need reservists on active duty, so there is money saved by bringing the troops home. We could spend most of that money on investments to reduce energy imports. A good way to start would be with projects to install high-efficiency lighting and rooftop solar panels in federal buildings. The federal government is the world’s biggest user of energy, so any plan to bring the country’s imports in balance with exports has to start with reducing the federal government’s energy bills.

I can already hear the critics saying that this plan is too small to solve the country’s economic problems. True enough. We would need to do more than this. But those stimulus payments didn’t really do anything.

Monday, June 23, 2008

Corn for Food? Not So Fast

There have been a number of people, primarily politicians in Europe, calling for a ban on biofuels until the global food crisis is solved. This is a very bad idea. It would be a disaster for at least these two reasons:

  1. Without fuel, farmers can’t grow most crops.
  2. Most of the materials that biofuels are made from are not suitable for use as food.

The best case for biodiesel is to make it from waste oil from restaurants. Up until three years ago, most of this oil was going into the trash. Much of it still is, and there is nothing to be gained by forcing restaurants to return to this practice.

Fuel is also made from crops, but as pretty as the crops might look, many of them are not suitable for use as food. This is especially a concern with North American corn. The most popular corn variety is not approved for use as food for humans. It contains stray proteins that could sicken a small fraction (around 1 percent, I think) of people who ate it and would occasionally kill someone.

Why are American and Canadian farmers growing so much corn that no one should eat? It’s not as crazy as it sounds.

You see, as much as we want to imagine that farmers are engaged in the noble task of growing food for all of us to eat, it’s not really true. The bulk of the U.S. corn crop and, as far I know, more than half of all crops worldwide go to feed animals. Sure, there are plenty of crops that are grown just for people to eat, but those crops are small. Even here in Pennsylvania, a prime apple growing state, there are more corn fields than apple orchards.

There are more farm animals than people in the world. And while people generally try to live a balanced life, farm animals are routinely stuffed with food so that they’ll grow to as much as twice their natural weight. So farm animals eat more than people do.

There is something wrong when politicians blame the food crisis on biofuel, which uses around 1 percent of crops worldwide, when half the crops are being fed to animals. It’s a deception, and I want to know who is paying off these politicians to get them to divert attention from the real issues. If we want to have food for people, the simple answer is to feed farm animals a little less so that there is more left over for people to eat.

Consumers effectively control how many farm animals there are by how much they buy of animal products, especially meat and milk. The food crisis could be solved in the short run by eating less meat and drinking less milk — and not necessarily a lot less. Argentina, in the past, promoted the idea of going without meat one day a week. The country wanted more meat to export to solve its currency crisis. The same level of action now could free up enough food to avert the spot shortages that otherwise are likely to return to various points around the world later this year.

But why wait for Argentina to do something? If you want to take action on an individual level, consider one of the following:

  • switch from cappuccino to coffee
  • give up meat at breakfast, six days a week
  • drink water instead of milkshakes
  • if you eat steak at restaurants, order the smaller size
  • if you are always getting pizza, order it without sausage or extra cheese
  • give up smoking (tobacco is another crop that can’t easily be used for food)

The things you do to cut back on meat and milk will also save you money, all the more so now that the high price of corn is driving up milk and meat prices yet again. The higher prices might persuade you to make a different choice anyway — and that’s the way free markets are supposed to work.

And those corn crops that people can’t eat? This year’s crops have already been planted, but the rising prices for food-quality corn might well persuade more farmers to plant corn for food next year.

Thursday, June 19, 2008

Political Winners and Losers

In the aftermath of the primary season, I am struck by the rewards that come from backing a winner and the price that is paid for backing a loser. It’s not just a matter of taking sides, but of how emphatically and publicly you do it.

  • MoveOn gained respect by endorsing Obama early, the result of an unexpectedly lopsided vote by group members. Just last fall, reporters and politicians routinely dismissed MoveOn as a fringe group. They will probably not risk repeating that characterization now. A group that picked the nominee before the rest of the country did may be able to make other decisions.
  • The old guard of the women’s movement seems to have been defeated right alongside Clinton. The campaign highlighted the generation gap within the movement as women under 30 felt puzzled, then excluded, by the actions of the over-60 contingent. (There is a gap in between; not many women from the Reagan era, with its “every woman for herself” approach, identify with the women’s movement.) Women’s-group leaders, in turn, were stunned and sometimes openly angry that the younger members of their groups would pass up a chance to vote for a woman in order to vote for their own political interests and ideals. By so emphatically supporting a candidate simply because of her sex, rather than the candidates whose positions on the issues offered a better future for women, and then losing, it is fair to say that the old guard has forfeited the right to lead the women’s movement.
  • Political money does not have the cachet it had before. The big-money candidates, Romney and Clinton, raised eyebrows with the way they soared past all prior fund-raising records, yet failed to break through at the ballot box. Another candidate, Giuliani, proved to be a remarkable fundraiser, but was virtually a no-show on election day, while the winner, McCain, was the one whose campaign went broke. Before this election, it seemed that anyone who could raise enough money could effectively buy an election. You couldn’t follow the money to pick a winner this time.
  • Political polling has made a comeback. After six disastrous years in which they couldn’t seem to get anything right, political polls came close enough in this primary season. Until things change, if the polls say you’re losing, you have reason to worry.
  • It looks like the oil industry can still pull strings. It backed McCain and went on to fight off two proposals for new taxes on oil.
  • Howard Dean looks good as the champion of the 50-state strategy that Obama used. The traditional big-state strategy looks like a loser — Clinton used it and won the big states, but the other states didn’t fall into line.

I’d like to think economists are winners for beating back the Clinton attack. If a candidate makes an attack on economists the centerpiece of her campaign for three days, at the exact time it goes into a tailspin, everyone has to wonder if economists maybe do still have some clout.

Wednesday, June 18, 2008

Breakfast Is Key to Weight Loss

A new study reported today by BBC concluded that breakfast is the key to weight loss.

While there were multiple problems with the regimen being studied and the way the study was conducted, the results are impressive. Participants in the study group ate a high-carbohydrate, 600-calorie breakfast for 8 months and lost weight. The average participant went from about 200 pounds to about 160 pounds. The average 20 percent weight loss is substantial when compared to the 5 pounds of weight loss in a typical study regimen.

Scientists dubbed this approach the “big breakfast diet,” but they shouldn’t have. A 600-calorie breakfast is not exactly a big meal. But this study result expands the extent of the benefits of food energy at breakfast. Previous studies had established that there was a big difference between eating a small breakfast (around 150 calories, which could be a glass of orange juice and a piece of toast) and skipping breakfast. This new study suggests that the difference between a small breakfast and a normal-size breakfast is important when it comes to losing weight.

One likely explanation for this effect of breakfast is the food-craving theory of weight loss. A normal-size meal that contains normal level of carbohydrates typically reduces food cravings for the next 12 hours. So eating a normal breakfast could mean you won’t be quite so hungry at lunch and supper.

This result fits with my own experience. The only time I experienced rapid weight gain was when I was attending a college that couldn’t be bothered to open its cafeterias for breakfast. Eating a small breakfast or skipping it entirely, I put on about 20 pounds in about six months — then lost all the extra weight over the next summer vacation as I ate on a more normal schedule.

Some of the benefits of eating breakfast have been known for a long time. It makes you more alert and energetic all morning and helps maintain a normal sleep schedule. Now it can be said that eating breakfast can help you lose weight.

Saturday, June 14, 2008

Jeremy and the Secret Contract

The sound of my phone’s dance-floor ringtone jolted me out of my daydream. It was Jeremy calling.

“Hey, Rick, I got the job,” he said. But he didn’t sound like he was celebrating. In fact, he was whispering.

“You don’t sound very happy about it,” I said. “What’s wrong? Why are you whispering?”

“Well, there’s something I need to ask you about,” he said. “They want me to sign this contract, and in the contract, it says I can’t show the contract to anyone or tell anyone what it says. I’m not even sure they’ll let me keep a copy of it.”

Needless to say, I was alarmed. “You didn’t sign it, did you?”

“No,” he said. “I wanted to ask you want it meant first.”

“Jeremy,” I said, “you’ve been offered a secret contract. Never, ever, ever sign secret contracts. Legitimate businesses don’t use them.”

“Well, I know it’s a problem,” he whispered, “but it seems like a good job.”

“A good job?” I said. “What are you going to tell your mom?”

“Well, I guess I’ll tell her . . .”

“If you sign the contract, you can’t tell her anything. That’s what you told me the contract said. Does the contract say how much money you’ll be making and what kind of work you’ll be doing?”

“Yes, that’s the very first thing.”

“Then you can’t even tell her that! You can’t even tell her what you’re not allowed to tell her!”

“Oh — man, that’s weird.”

“She’s going to think you’re working for a drug dealer.”

“Sh–t! That’s not fair!”

“Well, how do you know this company isn’t dealing drugs, or smuggling, or something?”

“Um . . . um . . . well, they dress nice . . . I don’t know.”

“That’s the whole point. You don’t know. All businesses need some degree of secrecy in what they’re doing, but a business usually won’t make an entire contract secret unless there’s something about the way they’re doing business that’s flatly illegal.”


“Which means, if you work for them, you could go to jail. Or maybe they’re slave traders, and they’re going to ship you off to who knows where. Or if it turns out they’re in something deeper than it looks like, they might have to kill you.”


“The reason they want to keep the contract itself secret is so that if they’re doing something to abuse you, and you talk to anyone to try to get help, they can take you to court.”

“Holy f—! That’s terrible!”

“Are they watching you right now?”


“And you’re absolutely positive you didn’t sign anything?”

“No, I absolutely didn’t.”

“Then just walk out. Act like nothing’s wrong, and walk out the front door, and you’ll never have to talk to them again.”


Wednesday, June 11, 2008

Corn Shortage Confirmed

With planting down before the season even started, it took a lot of optimism to imagine that the United States would deliver a full corn crop, and now it is safe to conclude that the crop will fall short. Mississippi valley flooding, combined with previous weather problems, led the U.S. Department of Agriculture to cut its estimates of corn crop yields this week, and with the falling supplies, the futures markets have bid up corn futures to record prices for five days in a row.

The corn shortage will drive up food prices, especially for meat and milk, and raises the prospect of the return of the spot grain shortages that have caused political turmoil around the world in the last year.

Wednesday, June 4, 2008

If You Can’t Afford College

In the current economic uncertainty, and with funding for student loans in doubt because of the credit squeeze, more students than usual are realizing that they may not be able to go to college in the fall. If you are one of them, though, you don’t have to let a lack of money derail your study plans. The truth is, you don’t need a college to study what you want to study. You can start studying on your own, and you can be as organized about it as you want to be.

The main advantage of a college is that they tell you what to study. If you can’t go to college, here are some of the things you can do to bring the college to you:

  1. Go to the college’s web site, read the curriculum, and take your best guess at what your first semester of courses would be if you were there. In this, you have an advantage over real college students: you don’t have to worry about classes filling up or two classes scheduled for the same time.
  2. Get and read the textbooks for those courses. Save money if you can by getting a previous edition of the textbook.
  3. Look for courseware — notes, suggested exercises, and sometimes even video lectures — online. These can come from any college — it doesn’t have to be the college you were thinking of attending.
  4. Since you won’t have the privilege of taking a multiple-choice test to find out how well you’ve learned the subjects you’re studying, you will have to write essays that summarize specific areas and issues in each subject. Make them a little longer and a little more careful and serious than the essays you wrote in high school. Read over your own essays, and if you don’t think they’re college-quality, do them over again.
  5. Do your best to keep up with the college calendar. Typically, that means finishing your first five courses around the middle of December. Hint: you don’t have to wait till September to get started.

It’s a challenge to stay motivated when you’re studying on your own. There is no denying that college has a big advantage in helping you stay focused on your studies. But if you can figure out the focus riddle, you can get most of the education you would want on your own. Looking at how much money you’re saving, around $200 a week just in tuition, might help keep you going.

The Internet has made self-study a viable alternative to college. For the first time, you don’t need to go to a university to get access to the world’s knowledge. Thousands of classic texts and even some new reference books are available online. When you have specific questions, you can look for answers in search engines and on sites that let you ask questions.

One reason to follow the college calendar is so that you’ll already be in the flow of things when your fortunes improve and you get the chance to go off to college. For you, it will just be the start of another semester of study. You’ll either be amazingly prepared for the courses you take, or ready to learn something new.

Monday, June 2, 2008

Explaining Oil Prices

Apparently there are still lots of people out there who think that oil prices are the result of a conspiracy, monopoly power, or bad public policy. They say if we could do something different, oil prices could go back down to where they were at the start of the decade.

There is a grain of truth in each of their theories. Years ago, a few gasoline stations got caught fixing prices. Opec originally got together in order to create monopoly power. Part of the high demand for oil comes from the tragically incompetent U.S. tax incentives for heavy trucks just four years ago. Speculators have driven up the price of oil at various points this year.

Yet none of this comes close to explaining a tenfold increase in the price of a basic commodity. There is no secret stash of oil that Opec or anyone else could open up in order to drive prices down. Energy efficiency has increased, so it is not the cause of oil price increases. Many of the same speculators that last month drove oil prices up have now driven oil prices down below natural market levels, but that will not last long either.

In the long run, there is no getting around the amount of oil that is involved. If the world wants to keep using this much oil, we are going to have to pay a lot, because no one at this point has a magical way to create oil.

I have a hard time explaining oil prices. Jeremy Siegel does a much better job of it in this interview from last week (along with Witold Henisz):

What’s Behind the Flare-ups in Oil Prices?

If you read this interview, and especially if you compare the various comments from readers, the one point you have to come away with is how much is unknown. The people who say they know what’s going on are the people who have their heads in the sand.