Thursday, March 31, 2011

Tea Party Sells Out, Support Evaporates

Fox News producers were scratching their heads today when 70 people turned out for a major Tea Party rally it had arranged to cover live. The attendance was such an embarrassment that the channel showed the caption “Awaiting Start of Tea Party Rally on Capitol Hill” even though the rally was already underway. Attendance might have been reduced by the cloudy weather, but still, if the Tea Party can only round up 70 people for a rally in Washington, on national television yet, then it isn’t much of a movement anymore. You compare those 70 to the hundreds of thousands who rallied against the Tea Party governor of Wisconsin over the last two months — in Madison, which is not exactly Washington, and in much worse weather than we saw today — and you can only figure the Tea Party has run out of bullets. You look at the Tea Party’s poll numbers, and they tell much the same story. The Tea Party movement is still viewed favorably by Republicans, but not by anyone else, and the Republican Party is a small group, just a few years away from disappearing at the rate they are going.

What happened? I believe you have to look at the links between the Tea Party and Wall Street, which provides most of its funding and strategy. This is the one thing that never made any sense about the Tea Party, when you consider the way it grew out of the anger over the Wall Street Bailout. These back-room deals have been getting more attention lately, especially in connection with the Wisconsin story, where it turns out the new governor’s biggest contributors were Wall Street speculators and one of the bailed-out banks. Look at these deals from the point of view of one of the more dedicated Tea Party organizers, still fuming over the trillion dollars wasted in the Wall Street Bailout. “You mean Wall Street is funding the movement against Wall Street? Doesn’t that mean we’re . . . pawns?”

Perhaps it was easier to pretend that the Wall Street money didn’t matter when there weren’t any elected officials from the Tea Party movement. Now that there are a few dozen Tea Party candidates in office, and their collective record out of the gate is one of bending over backward to send more of the country’s money to Wall Street, it’s obvious that the money does mean something.

Imagine yourself a Tea Party organizer, trying to get people for the rally. What would you say? “Come on out to the Mall on Thursday. We’ll show those Wall Street fat cats that — oh, never mind.”

Wednesday, March 30, 2011

Nuclear Power Is Financially Risky

The decision to decommission most, perhaps all, of the Fukushima Daiichi reactors, along with the reports that the evacuation of the city may be expanded and could be continued for months, almost certainly makes that nuclear power station a money-losing proposition for Japan over its lifetime. The real estate value of a city for a period of three months is a larger sum of money than we are used to calculating in connection with any business (though I am sure that someone will find a way to quantify this at the appropriate time), and this is only one component of the loss that the city of Fukushima faces currently. That is not to say that the evacuation is a mistake. Far from it — the costs of medical care, pain and suffering, and lost productivity that people would experience as the result of illnesses caused by remaining in a city with areas of radioactive fallout would be greater, and this is why there is some talk in Japan about expanding the evacuation zone.

The few nuclear power advocates who continue to say that the Fukushima disaster shows that nuclear power is not risky do not appear to be looking at the financial risks. When you have a technology that is not financially viable without subsidies in the first place, then add the possibility of complete failure that may occur at random at any point along the way, it presents the picture of a venture that can only be described as risky in the financial sense. Another risk I must continue to mention is the possibility of shutting down, perhaps even before a new reactor is able to start up, because of a future shortage of uranium. The remote chance of catastrophic damage adds an exclamation point to the risk involved. This balancing of the potential upside and downside risks is a view that potential investors must consider.

After the Three Mile Island disaster, the operator of that power station could not continue as a separate company. There is talk now that the operator of the Fukushima Daiichi power station may be bankrupted by the failure of that installation. What will become of that company? That is just the kind of uncertainty that business executives prefer to avoid — their own jobs and careers, after all, are at stake. After the failure at Fukushima Daiichi, it will he harder than before to persuade business executives to invest in the risks of nuclear power.

Tuesday, March 29, 2011

How Big Would Solar Be?

Is solar power too big a challenge for a country to take on? If we were to draw all our peak daytime electricity from solar power, how big would that be?

Certainly there are skeptics. I’ve heard it said that you could cover the entire United States with solar panels and still not produce enough electricity for the country.

Others have said that the United States could supply most of its peak energy demands with a $1 trillion investment in solar panels. A group in Congress is proposing a $1 trillion investment in nuclear power plants, so it’s fair to ask what we would get if we put the same money into solar panels.

To address this question, I decided to break it up into two questions:

  1. What would it take to provide one millionth of the United States’ peak electric supply using solar panels?
  2. Could this kind of installation be repeated one million times?

From Department of Energy data, the United States’ installed electric generating capacity is approximately 1 trillion watts. One millionth of this is 1 million watts, or 1 megawatt. A nominal 1-megawatt solar installation using solar panels available today would take up about 7000 square meters, or the roof of a typical big-box store. The going rate for this kind of solar panel is $2 per watt, so the cost of the solar panels would be $2 million if you bought the panels from your local wholesaler. Other electrical components, wire, and hardware would increase the cost of the installation to perhaps $3 million.

Investments on the scale of $3 million happen every day. To repeat that one million times would require, in theory, a $3 trillion investment. That’s a large price tag, but certainly possible. By way of comparison, the United States is expected to spend $3 trillion to import petroleum between 2011 and 2016, based on current prices.

The placement of the simple solar installation on the rooftop of a big-box retail building can’t be repeated one million times. There aren’t that many retail buildings. Yet it seems likely that enough suitable sites can be found. They don’t all have to be the same size, and they don’t all have to be buildings.

The total area of the United States is approximately 10 trillion square meters. About 1.6 percent of the country is paved. The area of pavement, then, is about 160 billion square meters, and much of that is parking lots. Virtually all large parking lots and the adjacent buildings are potential solar sites. Using current solar technology, we would need about 7 billion square meters of solar panels to provide an amount of electricity equal to the current total electric generating capacity of the United States. That’s an area equal to about 5 percent of the pavement in the country.

In short, we could supply the country with all the solar electricity it could use without venturing too far beyond commercial buildings and large parking lots, and we could do it, eventually, just by purchasing and installing the solar panels that the factories are already making. The cost, around $3 trillion, would be money well spent, especially right now. About half of the money would go to pay the wages of factory workers and construction workers, and there are plenty of workers idle in both skill groups.

As sunny as the solar scenario outlined above sounds, we can’t plan on getting all our electricity from solar in the near future.

  • Solar power provides only daytime electricity. Daytime electric capacity is the most important — two thirds of electricity is used during the day, and the peak demand for electricity is on summer afternoons when solar panels are at their best — but we also need nighttime power sources.
  • The existing factories can’t stamp out solar panels nearly as quickly as we could install them. A large-scale investment in solar capacity would start by adding to solar manufacturing capacity.
  • It works out better financially if we go slow and allow time for solar panel efficiency to improve.

Still, a large-scale investment in solar works out better than the status quo, even at current prices. Prices are expected to fall as panel efficiency and manufacturing efficiency improve, so it makes sense for a country like the United States to make solar power the centerpiece of its electric supply plans.

Monday, March 28, 2011

Nuclear Fading

Some observers thought the Sony BMG spyware scandal would be the end of the music CD. The record company admitted to planting spyware on millions of copies of hit music CDs and agreed to recall the affected CDs and pay damages to people whose computers were ruined. Music fans swore never to buy another CD.

And, yes, most of the record stores closed, but the music CD is still alive. It’s still a vital music format — a niche format, at this point, but still very important.

In a similar way, the Fukushima disaster is not the end of nuclear power. But it marks the beginning of the inevitable decline of current nuclear technology.

The decline of nuclear power was coming in about 8 years anyway, as uranium shortages will force partial shutdowns at nuclear power stations. With the post-Fukushima slowdown, the shortages may be delayed until 2035, but they are on the way eventually, even if no more nuclear power stations are built.

Nuclear power has never been cost-effective on its own merits. Electric utilities make a profit on nuclear power only because of funding from weapons programs. This year, the U.S. Department of Energy is preparing to set aside $36 billion for new nuclear capacity in the United States. At the same time, the price of uranium is artificially low because of the availability of military surplus uranium, which may last for another six years. Without these subsidies, no nuclear power station could be built.

New nuclear reactors will be built in the United States, just because the Department of Defense needs them for its nuclear weapons program. But the nuclear weapons manufacturers don’t need very many nuclear reactors. If they can arrange for one new reactor every four years, that will be enough. Don’t be surprised if some of these new reactors are built on, or adjacent to, military installations.

Even before the events at Fukushima, nuclear power was a high-risk, low-yield investment. The CEO of Exelon, which owns nuclear power plants, said as much in a conference call to investors last week. Even if you want “clean” electricity, he said, natural gas is a better investment right now.

It’s significant that there was no mention of solar. For peak-hour electric generation, which is really the reason why we add generating capacity, solar is already less expensive than nuclear. Some observers expect solar prices to fall by 20 percent between now and next year. It will not be a shock if the cost of solar electricity falls by a factor of 3 before any of this year’s nuclear reactors come online. If you’re an investor, which looks better: a solar installation that reaches its break-even point after about 6 years, or a nuclear installation that doesn’t start earning revenue for at least 9 years, and may never break even?

Cost, rather than the potential for disaster, is the main reason why the current generation of nuclear reactors is on the decline. The way the cycle of innovation usually goes, engineers won’t start designing the second generation of nuclear reactors until it’s obvious that the first generation is failing. (The nuclear industry divides current reactor designs into four generations, but they really all belong to the same generation by any objective point of view.) This is similar to the way we didn’t get clean-sounding audio cassettes and LPs until about 1986, when it became obvious that the CD was taking over the music market. Engineers tell me that a nuclear reactor could be made at least twice as efficient, and safer too, by making it physically larger. That kind of improvement might be enough to make nuclear power competitive again, but the design challenges won’t be taken seriously by the industry, I am afraid, until the current designs are pushed out of the marketplace.

Sunday, March 27, 2011

A Disaster, But Not Another Chernobyl

If you were going by the headlines, you might think the nuclear disaster in Japan was winding down by now — that the situation was starting to get better.

The best information we have, though, is that the reactors are no closer to being under control than they were a week ago. Outside attempts to measure the radioactive material being leaked into the atmosphere by the Fukushima Daiichi nuclear power station suggest that it is already similar to the total from the Chernobyl disaster, and that the rate of radioactive leaks is not slowing and may be increasing. Measures of the Pacific Ocean along the coast of Japan suggest that very large new leaks of radioactive material in water have occurred within the last few days. The highest level of radiation recorded at the power station itself happened just yesterday.

The radiation leaks of the last two days may be the price of progress. As workers attempt to wash out the accumulated sea salt from the reactors, they are also drawing out large amounts of nuclear materials embedded in the salt. Or, the new radiation reports could be telling us that more things in the reactors are breaking.

As with the Chernobyl disaster, measurable amounts of radioactive iodine will be circulating around the northern hemisphere for at least the next two weeks. The radioactive iodine has been measured in both North America and Europe, which means it has circled the globe already. The situation is not another Chernobyl, though, in that most of the radioactive material is falling into the Pacific Ocean. The radiation will do some harm there, we are not sure exactly what, but that will not create the same kind of alarm that we had with Chernobyl where much of the radioactive material was deposited in the city of Chernobyl, with significant amounts spreading across the densely populated areas of Europe.

Saturday, March 26, 2011

The Diabetes Belt Is the Bible Belt

Diabetes may be considered a national problem in the United States, but most of the cases occur in a small part of the country, which some researchers are referring to as the “diabetes belt.” In an earlier post I showed county-level maps that show where obesity and physical inactivity are concentrated, and diabetes is found in most of the same places. The use of the word "belt” is no accident, as it doesn’t take much digging to realize that the diabetes belt is essentially identical to the more famous “Bible belt.”

This geographical connection between the culture of aggressive Christianity and a dissolute lifestyle is not a recent insight. Analysts have been writing about it for years. Five years ago, long before I had touched on the subject, Blue is the New Green convincingly made the case that the 2004 “Blue States” are the more economically vital parts of the United States. Among other things, “Blue States” pay more in income taxes and effectively subsidize the “Red States.” The “Red States,” of course, are mostly the Bible belt states. Crime, obesity, infant mortality, and divorce are just some of the socioeconomic measures in which you can see a split between the Bible belt states and the rest of the United States.

Conservative writers have been writing about this too, mostly in an effort to dodge responsibility for the awful-looking state-level statistics. I believe this is the origin of the idea that obesity was especially concentrated in southern cities. I came across various analyses by politically conservative thinkers around 2003–2004 using maps to try to show that the various lifestyle problems of the Bible belt were caused by black people. This explanation might look credible when you only have state-level data, but when you get county-level data on the maps, the “blame the blacks” argument falls apart. The urban counties where black people are most easily found are doing better than the almost-all-white areas just two counties away, not just on the obesity map, but in many of the socioeconomic measures of success. This is not to say that black people are more prosperous than white people in the Bible belt — far from it — but the counties where black people live and work are more prosperous, and logically this must be in part due to the work that black people do.

What is the connection between the Bible and diabetes? So far, the connections are only speculation, but the simplest explanation I have seen has to do with emotions, specifically the outward-directed emotions of blame and anger. These are the emotions that figure prominently in the fire-and-brimstone religion of the Bible belt. The hormones associated with blame and anger are known to contribute to weight gain and interfere with sugar metabolism, two key factors in diabetes.

Blame and anger also get in the way of individual responsibility. You can‘t easily take charge of your own life while you’re busy pointing fingers. A dearth of individual responsibility may account for many of the troubling characteristics of the Bible belt. It would not be too surprising if obesity, sexually transmitted diseases, crime, low incomes, alcoholism, and energy inefficiency — to name some of the more obvious problems associated with the Bible belt — would occur more frequently in individuals who do not quite believe they are responsible for their own lives.

You won’t find much mention of the diabetes belt or its connection to the Bible belt in the mass media. It’s a difficult subject to discuss because it touches on some of the most bitter cultural divisions in the United States. It wouldn’t be responsible to critique a system of religious beliefs based on this kind of speculation; that is a matter more suited to individual introspection than public conversation. But the link between religion and lifestyle is a subject for further study. Just by going from state-level to county-level data, we have a much clearer view of the connections than we had five years ago. In another five years, with more discoveries and more detailed data, we may know enough to be able to guess specifically where things are going wrong.

Friday, March 25, 2011

This Week in Bank Failures

For a large bank, how large is too large?

A series of sober economic studies over the last few years have looked at this question to try to identify the point where the economies of scale in banking give way to the diseconomies of scale. Together they suggest that banks start to run into trouble when they become larger than about $25 billion or $50 billion in assets. My own experience suggests that it is when banks get to about $120 billion in assets that the quality of the operation really starts to decline. Other studies point to problems with banks that have a large relative size, controlling roughly more than a third of the banking market in a country, region, or large city. The higher cost of operating the extra-large bank means it’s hard to compete with other banks. They’ll tend to look for ways to trick their customers into paying higher fees — the “gotcha” approach to banking is mainly a function of the bank’s size. Worse, at least from a regulatory standpoint, the extra-large banks invariably take more risks in an attempt to keep up with their more efficient competitors. As a result, they are more likely to fail.

Based on this, in the United States, banking customers ought to be cautious about doing business with the 39 largest bank holding companies. These are the banks that will try the hardest to trick you into paying fees you don’t want to pay. If you want to protect your bank accounts, Move Your Money has resources to support the move from the extra-large banks to community banks and credit unions.

They are also the banks that are most likely to fail as a result of taking risks with their assets. Economists and regulators have been discussing possible changes in regulations to deter the largest banks from the reckless behavior that comes naturally to a bank of that size. In the United States this is primarily a question for the Fed, which regulates bank holding companies, and the FDIC, which liquidates the largest bank holding companies when they fail.

There are also issues for credit rating agencies to consider. Credit ratings don’t take into account the greater risks that large banks take, and as a result, the largest banks have higher credit ratings than they deserve. Of course, if the largest banks were properly rated for their credit risk, that would increase their operating costs and put more pressure on them to take even more risks.

An Illinois bank failed tonight. State regulators closed The Bank of Commerce, with one location in Wood Dale, Illinois. It had $160 million in deposits. Advantage National Bank Group is assuming the deposits and purchasing the assets.

Thursday, March 24, 2011

Texas Cuts 600,000 Jobs

Some of the job cuts that state and local governments arguably should have been making over the last three years as their tax bases eroded will hit with full force this year. I hope the story in other states will not be as severe as Texas, where the proposed budget will result in 600,000 job cuts, according to state government estimates. This estimate includes only jobs funded directly or indirectly by state spending. It does not count people who are no longer able to work after government services, such as transportation, are taken away, nor does it count the jobs lost at businesses where revenue falls because customers become unemployed. Texas is a big state, but not big enough to absorb the loss of 600,000 jobs. If you consider the follow-on effects of the cuts, the state’s unemployment rate could easily go above 15 percent and approach depression territory. It is only a proposed budget at this point, but the state has few options, and the governor and legislative leaders have already ruled out tax increases.

Texas may be an extreme case, but similar cuts will be happening all over the country and in more than half of the world’s wealthiest countries as various degrees of budget austerity go into effect. The austerity budgets will add to the stress of already stressed labor markets.

But if you think governments can just keep on spending the money, Portugal provides a cautionary tale. The country was downgraded today after legislators rejected budget cuts that would have withheld food and housing from some of the country’s poorest citizens. The downgrade means that Portugal will be spending more money than before on interest payments and will have to find even bigger spending cuts when the new legislature convenes in two months.

Wednesday, March 23, 2011

Radioactive Water: Hydrogen Is Not the Problem

There is more concern than usual about radioactive water as authorities in Japan try to figure out how much radioactive contamination there is in water supplies and waterways from the ongoing nuclear disaster there. One of the latest reports is that Tokyo water is not necessarily safe to drink. The discussion of radioactive water is confusing to people, though. It is not the water itself that is the problem, but contaminants that may be in the water.

The main reason this is confusing is that most people know it is possible for hydrogen to be radioactive. Water is an oxide of hydrogen, so it is possible for a water molecule to be radioactive. However, the common hydrogen-1 isotope is not radioactive, nor is the hydrogen-2 isotope (deuterium) that occurs in large quantities in a nuclear reactor. It is only the hydrogen-3 isotope (tritium) that is radioactive. Tritium, though, occurs only in small amounts. A nuclear reactor and its cooling water contain less than 1 kilogram of tritium. A typical rain cloud, by contrast, contains 1 billion kilograms of water, enough to dilute tritium to the legal standards for drinking water. Further, water containing tritium doesn’t stay in the body for long, less than a month, so if you were to ingest water containing tritium, it wouldn’t create a long-term radiation exposure.

That doesn’t mean there isn’t a concern about rain water from a radioactive leak. The concern is not about the water itself, but about heavy radioactive contaminants, mostly metal oxides. Some of these form molecules in body tissues, including bones, staying there and releasing radiation inside the body for the rest of a person’s lifetime. It is especially important to avoid inhaling these metals in dust, and this is the main reason authorities have been urging people near Fukushima to stay inside when possible. Dust generally is absorbed by rainfall and may find its way into the water supply, and this is the main reason for the concern about the possibility of radioactive water following the release of nuclear materials into the air at Fukushima.

In the short term, radioactive iodine is also a concern. Iodine-131 is produced in very large amounts in a nuclear reactor, dissolves readily in water, sticks to body tissues if ingested, and produces damaging internal radiation for about a month. With a half-life of 8 days, only about 1/30 of the radioactive iodine remains a month later. The elevated levels of iodine found in some crops and drinking water supplies in Japan will be a concern for the next few weeks if it is verified to be iodine-131, and it could point to a longer-term problem with radioactive metals.

Tuesday, March 22, 2011

Measuring Firefox 4 as an Investment

Firefox 4 is out, and among its other improvements, it is noticeably faster than before. It’s no exaggeration to say that the speed increase, when compared to Firefox 3, could save the casual web user one minute per day. As of this writing, the new version had already been downloaded by 3.3 million users. If these early adopters save 1 minute a day, that’s a productivity improvement of 55,000 hours per day, which is a little like adding an extra city of people to the Internet. By the end of the year, the boost from Firefox 4 will easily have saved its users 1 billion hours.

It is fair to look at Firefox 4 as a community service project, since it is predominantly the work of volunteer programmers and testers. If you evaluate Firefox 4 this way, it is a highly efficient investment. I have to imagine it took a fraction of a billion hours, perhaps just 1 or 2 million, to put Firefox 4 together, so the effort is paying itself back, by this one improvement alone, in a matter of days.

In the money-oriented, capitalistic culture of the United States, it can seem strange to evaluate the efficiency of a product that’s given away free and created mostly by unpaid volunteers. Money can’t be used as the measure, yet volunteers need to have a way to assess the value of their efforts. It is the highly efficient investments that create the biggest changes in the world, and Firefox 4 shows that not all of these world-changing investments are made with money.

Monday, March 21, 2011

Digital Living vs. Housing

I recently started on the work of rebuilding my web pages. As I was going through the current elements of my web site, I stopped to look at this picture. On my “home” page, it serves as a heavily filtered photo of my house.

In reality, the house in the photo isn’t my house. It’s just a photo I picked to represent the idea of my house. If you knew me personally, you could easily imagine that I lived in an old mill house on a pond with a spillway. That’s part of the reason I picked this house — it fits my personal image better than a photo of my actual house would.

As I redesign my web site, I may keep this picture, or I may pick a different one. But what I won’t do is use a photo of my actual house, which is on a hill that doesn’t permit any favorable camera angles.

Photos and 3-D models are easier than ever. Actual houses are still difficult. This means you can be seen with your dream house while actually living somewhere more practical.

I remember noticing this possibility years ago while watching MTV Cribs. Some of the houses featured in the show, I began to suspect, were flipped — they were purchased and decorated just in time for the TV show, then sold less than a year later. The rock star owners really did live in the houses, but not necessarily for very long. Television aside, flipping is one of the reasons rock stars move so often. The fact that a rock star lived in a house can boost the house’s market value. If the house was purchased well, it can be sold for a small profit. The buyer is buying a story along with the real estate, and doesn’t have to tell everyone that the star lived there only for a few months.

Now that social networking has become an electronic art form, anyone can have a fantasy digital lifestyle, and tens of millions of people do, finding ways to look far more glamorous on-screen than they are in real life.

I believe this trend is not just a curiosity. If your friends see your fantasy life more often than they see your real life, it is no longer so important to buy the real stuff. A house was once the most important status symbol you could have, but if your status is updated minute-by-minute online, the house is no longer so important in identifying who you are.

I wouldn’t care to guess how far the digital living trend can go before it starts to reverse, but I haven’t seen any indication of it slowing down anytime soon. This has implications for the sales of real stuff, especially houses. It is just one more reason why demand for housing may not bounce back anytime soon.

Sunday, March 20, 2011

Wash It Off: Avoiding Radioactive Materials by Cleaning

I am old enough to vaguely remember what a fallout shelter sign looked like. The techniques the United States government suggested for avoiding the dangers of radiation half a century ago were obviously misplaced. It is easy to laugh at the “duck and cover” jingle, but that technique — stay low and protect your face from radiation — is no more erroneous today than the idea of a fallout shelter. Both techniques are intended to help avoid radiation burns, but they may not be of any help in avoiding the kinds of radiation that most of us have a chance of encountering, and surviving, in the event of a disaster.

The most immediate techniques are the most familiar and obvious. The surest protection from any localized release of radiation is distance. If you are one kilometer away from a radiation source, the intensity of radiation is one millionth of the intensity you would find if the radiation source were an arm’s length away. You reduce the radiation exposure by 99 percent just by taking the first few steps away.

A radiation leak can send heavy particles long distances on the air, and the best techniques for protecting yourself from radioactive particles are the same techniques you might use with dust and dirt. Recent radiation stories from Japan tell of people washing the bottoms of their shoes; washing their clothes; taking showers; keeping building and car windows closed; wearing dust masks. People are staying indoors when they can, but indoors does not mean underground. Radiation resulting from from the uranium naturally present in soil and rocks in much of the world may make ambient radiation levels in the basement of a building higher than the radiation levels above ground or even outdoors.

The “wash it off” approach to radioactive contamination probably strikes some people as a joke. To people conditioned to fear radioactive particles in even the smallest amounts, it’s hard to change the “you might die” reaction to “wash it off.” But the “wash it off” response is more constructive for the amounts of radioactive materials that the largest numbers of people are likely to come in contact with in a disaster.

Saturday, March 19, 2011

Using Nuclear Fear

It was Thursday, St. Patrick’s Day, at 6:00 p.m. There was boiling water on the stove and I was starting to prepare supper. But as I pulled the green spaghetti (green from spinach, rather than cabbage) out of the box to put in the pot, I paused. The spaghetti was cylindrical in shape, and its lengthwise movement as I pulled it out of the box reminded me of the movement of nuclear fuel rods.

If anything like this has happened to you this week, it’s a sign that the nuclear accident in Japan is getting inside your head. Different people are having different reactions to the news. Some are succeeding in blocking it out of their awareness, even forgetting what country it is happening in. Others are immobilized by the suspense of the situation, heartsick, losing sleep, obsessively watching the news, reading every report, and imagining the best- and worst-case scenarios for what might happen. And then there are a lot of people in between, somewhat bothered by the problem and maybe not realizing how distracted we are.

First of all, it’s important to recognize that it’s not weird to be affected by something happening elsewhere in the world. It is one world, after all. The earthquake that started everything was so powerful that seismologists tell us the ground shook detectably everywhere in the world. Nuclear power is almost everywhere in the industrial world. Everyone knows someone who knows someone in Japan. We are all part of what’s going on. It’s also true that the fear associated with an unfolding disaster doesn’t have to be harmful. You can make constructive use of the fear.

For anyone who is immobilized or continually worried about the nuclear situation, I can recommend a new meditation by Rooted in the Infinite author Rebbie Straubing. It’s a simple meditation alignment exercise that can help keep a nuclear meltdown from turning into an emotional meltdown:

“Energy Antidote to Fear Prompted by Watching the News about Japan’s Nuclear Disaster”

If anyone’s worries are focused more on the tsunami than the nuclear accident, Rebbie has a meditation exercise for that too:

“Energy Antidote to Fear Prompted by Watching Videos of Japan’s Tsunami”

If you are basically just bugged by the nuclear accident, recognize that part of this is the frustration of not being able to do anything to fix the broken reactors. Not being able to do anything about a situation will tend to make you feel helpless and weak. You can make yourself feel more powerful by taking action in connection with the problem. The important thing to realize is that the action doesn’t have to be so directly connected to the crux of the problem. It works just as well to take action where the problem connects to your own life. And chances are, there is a lot you can do. These are some suggestions to get you started:

  • Plot your evacuation route. Find the three nuclear reactors closest to your location, and select a driving route away from each one. Pick a route that doesn’t lead you straight through a city from which large numbers of people would also be evacuating. If you live within 20 kilometers of a nuclear power station, find your officially recommended evacuation route.
  • Reconsider your energy use. Nuclear power provides one tenth of the electricity in large industrial countries partly because we use so much electricity, and even more of other forms of energy that may be interchangeable with electricity. Nuclear power plants can operate under less pressure, or they can be replaced faster, if we find ways to use less energy in our daily lives. I’m talking about steps like replacing CRT video displays, e-mailing documents instead of printing them, planning and consolidating errands, public transportation, walking, and so on all the way up to eating less meat, high-efficiency LED lighting, home energy audits, and electric cars. There are many capable blogs that cover just this one issue.
  • Study geography. Where is Japan, anyway? Where is Fukushima? Where do the winds blow after they cross Japan? How wide is the Pacific Ocean? Where are the active fault lines along the Ring of Fire that circles the Pacific?
  • Connect to the world. If you have to keep reading about the nuclear accident, read reports and reactions from many different countries. Use online language tools to translate some of them. You may be surprised to find the same four or five points of view represented in almost every country and language.
  • Clean house. If you came in contact with radioactive particles, the most important thing you could do to protect yourself is remove the particles. This is done with ordinary cleaning techniques. If you’ve been postponing the tasks of dusting and vacuuming, tell yourself that you’re practicing for a nuclear event as you get all the dust and lint out of the house. Wear a dust mask if you have one. Clean the bottoms of your shoes. Then take a shower and wash your clothes.
  • Go swimming. The most abundant material in nuclear power is plain, ordinary water. The problems with the reactors at Fukushima will ultimately be solved with water. Go swimming and notice the physical properties of the water as you splash around.

The only way it can seem there is nothing you can do is if you are looking very narrowly at a particular problem. Take a slightly broader view, and there are a million things you can do. By putting yourself into action, you’ll feel better about yourself and you’ll have a more constructive view of the problem that’s bugging you.

Friday, March 18, 2011

This Week in Bank Failures

M&I Bank is at risk of failing before its foreign buyout goes through. That’s because the bank was the largest supporter of the campaign of Wisconsin’s new governor, Scott Walker, who recently and very controversially suspended the constitution in order to pass a union-busting bill. Wisconsin banks are not allowed to make political contributions directly, but bank executives sent a bundled donation to the campaign to make sure the contributions could be attributed to the bank. But this strategy of trying to buy government policies that are more favorable to the bank than to its customers seems to be backfiring. With unions and union members withdrawing their funds and picketers urging all customers to follow suit, there is a run on the bank, which has prompted branches to close early on some days. It is estimated that the unions themselves are owners of 10 percent of the bank’s deposits, and union members and sympathizers (such as family members) probably account for another 20 percent of deposits, more than enough to force the bank to close its doors permanently if it were all withdrawn. M&I Bank is one of the zombie banks that received a TARP bailout to no avail. It probably should have been closed by regulators last year, and surely would have been by now if it did not have an agreement to be bought out.

One Wisconsin lawmaker complained yesterday that the police were not properly protecting the bank from protesters, but the bank and police have disputed that account, and there are no reports of protesters threatening bank customers or workers.

The FDIC continues to file lawsuits against bank executives it believes helped to cause bank failures. The latest complaint was filed against three WaMu executives, claiming that the executives ignored warnings from the bank’s risk managers that the bank’s future was being put in jeopardy. The three executives were paid billions of dollars while the bank was collapsing.

Thursday, March 17, 2011

A Lesson From Ireland: Cutting the Banks Loose

In keeping with the tradition of St. Patrick’s Day, I turn my attention to Ireland today. It is striking to see how much Ireland’s international financial standing has been bolstered by the change of party in the recent election. The vultures are no longer circling waiting for the Emerald Isle to tip over and the emeralds to come loose. Rather, the consensus is that, absent any large mistakes ahead, Ireland is inexorably on the comeback trail.

It is not really that one party is that much better than another. The problem in Ireland was that the previous ruling party had a political commitment to save the banks. The new ruling coalition has no such agenda and can easily let all the banks in the country fail, if it comes to that, setting up a replacement bank that could conduct the country’s financial transactions.

There is a lesson in this for the United States — not that the United States needs to replace the Republicans and Democrats with other political parties that aren’t tainted with the Wall Street Bailout, though that might help, but that Congress needs to take action to renounce any possibility of a save-the-banks strategy. This could include reinstating the Glass-Steagall Act, closing some loopholes in deposit insurance, and requiring greater transparency in derivatives trading and in banks’ dealings with investment funds. These are steps that would largely prevent the current web of secret arrangements between banks and speculators that allow the risk of speculation to be transferred to the banking system.

Such a move might sound unlikely at a time when Republicans are pushing to create new loopholes for Wall Street. Yet shortly, they may have no choice but to go along with it. The government’s implied guarantees of the financial system are as good as liabilities as far as the international financial community is concerned, so they make the country vulnerable to the same kind of financial squeeze that Ireland faced under its previous administration. And just as Ireland put itself on solid financial ground again by asserting its willingness to cut the banks loose, the United States may soon be forced to do the same thing.

Wednesday, March 16, 2011

Where Nuclear Waste Is Stored

In the wake of the nuclear waste fires at Fukushima, many people are learning for the first time where the nuclear waste is. It should be obvious enough, since there are no nuclear waste disposal facilities in operation, but it’s something the nuclear power industry doesn’t really like to talk about, since no one (in the United States, anyway), seems to have an answer for nuclear waste.

I worked on the economics of nuclear waste during the Reagan/Bush years. The U.S. Department of Energy in those years was so staunchly pro-nuclear that their “base” case, the lowest scenario for the nuclear power industry they allowed us to consider in our nuclear waste analysis, was that all the nuclear reactors that were planned as of 1980 would go on line as scheduled, while no new nuclear power stations were started. The more likely scenarios, as the Department of Energy saw it, was that nuclear electric capacity would double or triple by 2000. The reality, as we knew at the time but could not say in our reports, fell well short of the base case. Nearly every project fell behind schedule, and some were suspended or abandoned.

The U.S. government ultimately has responsibility for disposal of nuclear waste, but has been taking custody of it at an extremely slow pace, only to the extent that it is useful to the military. It has been collecting token fees supposedly to cover the costs of nuclear waste disposal, but the amounts collected are so low that it still does not have the money to open its first disposal site — and even then, there will be no money to pay for processing the nuclear waste for safe storage.

Nuclear waste has to be, at a minimum, encased in glass or ceramics to permanently isolate it from the air, transported in small sturdy containers (plans so far call for oil drums, which makes sense to me), placed underground (probably in a former uranium mine), and surrounded with an inert material such as clay that will absorb radiation and prevent the movement of air for about 100,000 years. We have the technology to do all this — in fact, it could all be done with pre-industrial technology — but we lack the will to spend the money. The government has been waiting around hoping someone will come up with a cheaper way, but at this late date, there is no reason to hold on to that hope. The hesitation is understandable, though. The costs could amount to as much as one fourth of all the revenue from nuclear electricity over the past half century, and the government will have to pay for it, as it has not been collecting nearly enough money from the electric utilities to cover the costs, and the electric companies at this point are unable to pay for such an enormous project.

In the meantime, nuclear waste is stored at every nuclear power station. It is essentially the same story in every country with nuclear power.

The fires that have broken out in at least one nuclear waste pool at Fukushima show that this is not really the right answer. The nuclear waste there has released high levels of radioactivity forcing workers to evacuate the plant for hours at a time and interfering with their efforts to get the plant itself under control.

Most nuclear waste has to be stored on-site for several years, but then we should be encasing it in glass to isolate it from the air and transporting it to a secure military facility away from population centers for temporary storage in an underground building. This will cost a fortune, but as we have now seen, it could save lives in the event of a disaster striking a nuclear power station.

Tuesday, March 15, 2011

“Experts” Stoking Nuclear Fears

There was an accident at an oil refinery. A series of equipment failures led, eventually, to several explosions and a fire. There were dozens of injuries as workers struggled to bring everything under control. Police had to evacuate the neighborhood. In the middle of all this, many scientists and petrochemical engineers appear on television and in the most public forums they can find. The ongoing disaster is proof, they say, of how safe petroleum really is as an energy source.

No. Obviously, that never happened. No one who works with oil will ever tell you flatly that oil is safe. People who work in a refinery or anywhere there are large amounts of oil are aware of the potential dangers every minute they are there. Rather, the above sequence of events is what is happening right now in the nuclear power industry. I am particularly dismayed to see nuclear scientists exploiting an ongoing disaster to promote their industry.

The nuclear specialists who are so publicly promoting nuclear power have a valid point: people’s fears about radiation leaks from nuclear power stations are sometimes exaggerated. But this is the wrong time to make that point. You cannot brag about safety on a day when people are dying, even if the deaths are not your fault.

It does not help that the public cannot easily separate the legitimate statements on behalf of the nuclear industry from the fake documents that have widely circulated in blogs and e-mail, with more than a few reputable bloggers taken in, claiming to assess the situation at Fukushima. No one has been able to say who really wrote these fake documents, but what is clear is that the authors believe in nuclear safety as a matter of religion or duty rather than science or engineering. Some assert, for example, that it is physically impossible for heavy particles of nuclear material to escape from a reactor core. It is all too easy for people to imagine that this false sense of security is shared by some of the managers of nuclear power stations.

Returning to the more responsible experts who have been heard from, it is still a mistake for them to imply even the slightest criticism of those who are afraid at this point. It must be remembered that we are in the middle of an ongoing disaster with thousands of dead bodies already recovered and so many people missing that it is impossible to get an meaningful estimate of the numbers. It is human nature to be frightened at a time like this. Meanwhile, workers are rushing around a nuclear plant, trying to keep things under control, and running for cover when things blow up. That would be frightening to see even if it were happening at a cookie factory. An entire city has had to be evacuated, and among them, thousands have gone without food for a couple of days. That is no minor inconvenience. Nor is the cost to their customers worldwide, from products that cannot be delivered, a small matter. After the crisis is over, we can ask accountants to add up the numbers and compare the value of the nuclear-generated electricity to the costs of the current evacuation. We can hardly do that now. Anyone who would speak on behalf of the nuclear industry today should be very careful to avoid belittling the efforts and sacrifices of the people most directly affected in Fukushima. Looking or sounding irritated at the inconvenience of the situation while sitting comfortably in a chair, at a time when people are dying and in danger, can easily come across as heartless — and heartless people speaking on behalf of those in positions of power is something people legitimately can fear.

Monday, March 14, 2011

Shifting Energy Policy After Nuclear Accident

The MarketWatch headline this morning summed it up well enough: “Winter for Nuclear Industry” (later shortened to “Nuclear Winter”). Elsewhere, stories tell of a new caution about nuclear power after a combination of earthquake, tsunami, and power outage damaged reactors in Fukushima, Japan, enough to lead to explosions and minor releases of radioactive particles.

  • India will conduct an engineering study to see how its reactors might fare in a similar emergency. (The Times of India)
  • Switzerland has suspended licensing for nuclear facilities as it conducts an engineering study, and there is a call for a similar study across the European Union. (Irish Examiner)
  • U.S. politicians are calling for a safety study before any new reactors are put online or built. (CBS News)
  • Analysts think the pro-nuclear CDU party in Germany will lose the upcoming elections because of declining support for nuclear power among voters. (CNBC; Speigel)

It is hard to fund a nuclear power station in the best of times, so it’s likely that many of the stations currently seeking funding or in the early stages of construction will be halted. This is a good thing for several reasons, most fundamentally because there isn’t enough uranium in the world to supply the nuclear power stations currently operating for as long as they could last. Based on mining industry estimates, we will use up all the uranium we can find around 2110, but shortages will develop as soon as 2020 if the nuclear power industry is expanded as currently planned.

A slowdown in nuclear power requires a speedup in energy conservation measures and sustainable forms of energy generation. The United States has made that a lower priority because of the state of the economy, but the uncertainty over energy is one of the key reasons why an economic recovery is so slow to take hold.

Sunday, March 13, 2011

Insurers Sell Stocks After Japan Quake

As I write this, the stock market has just opened again in Japan, and it opened down more than 5 percent. In the United States, CNBC is reporting a wave of selling of blue-chip stocks, which will send the Dow Jones Industrial average down sharply when the markets open in the morning.

Financial stocks were down on Friday in the United States, but stocks were not down much, as the extent of the damage in Japan didn’t immediately sink in on Wall Street. On Friday people were comparing the 2011 Sendai earthquake and tsunami to Hurricane Katrina, partly because in the United States, we were mostly hearing the reports from Tokyo, which was far removed from the most serious damage. We saw more video over the weekend and heard reports of towns wiped away, survivors searching for water, and the prime minister declaring the situation the worst crisis in Japan in almost a lifetime.

It makes sense that financial stocks would decline after a large-scale disaster — insurance companies have new claims to pay and banks may be holding loans that can’t be repaid — but why a selling wave in blue-chip stocks? The first part of the answer is the insurance companies. Insurance companies may hold money for years between collecting premiums and paying claims, and some of that money is in stocks, with an emphasis on stable, predictable companies that will be more likely to maintain their value over a period of a few years. Now insurance companies will be needing cash to pay claims for people who died and buildings and equipment destroyed, so they’ll have to sell some of their stocks. They may want to sell quickly in this case, because there was already a worry that the U.S. stock market was at its peak for the year. If the wave of selling makes other investors nervous, that could lead to more than one day of declines in stocks.

There are other reasons why U.S. stocks should decline after a disaster in Japan. Japan is one of the richest countries in the world, but people there won’t be in a position to buy quite so much for the next five years or so as they focus on rebuilding. Another reason, perhaps the main reason this week, is a sort of battle fatigue on Wall Street as the news this year has brought stories of one extraordinary event after another, including more than a year’s worth of disasters in the last two months. Psychologically, at some point, “We can’t get a break, can we?” goes from being a complaint to an assumption. When that happens, all durable institutions look more risky and less valuable than they did before.

Saturday, March 12, 2011

Big Disaster and a Nuclear Emergency in Japan

The scale of the disaster in Japan is hard to pick up from the news. The word “quake” may be slightly larger in a printed newspaper headline, but the estimated magnitude of 9.1 would make it not just a big quake, but the fourth most powerful earthquake ever observed. Combined with the resulting tsunami, which caused damage as far away as San Francisco but wiped away ports and coastal villages in Japan, it is likely the most damaging event in Japan’s history. With aftershocks continuing, the tsunami risk in Japan is not over yet.

In the middle of this natural disaster, the government’s stated top priority has been to stabilize two damaged nuclear power stations in Fukushima. The more serious problems are at the Fukushima Daiichi plant, which shut down properly when the earthquake hit but then was damaged by the tsunami, causing the loss of cooling at one reactor. A day later, after the available emergency power in the cooling system was exhausted and the reactor overheated, an explosion destroyed the reactor’s containment building. Officials say it will take at least one more day to bring the reactor under control. The situation contains the potential for a catastrophic nuclear event if other problems occur before that can be accomplished, for example, if there is a particularly large aftershock that causes further damage.

All nuclear power plants are designed to stand up to earthquakes, flooding, and other disasters, and Japan is more cautious than most countries in the operation of its nuclear plants. Therefore, the number of failures that occurred following the Japan earthquake is likely to give the nuclear industry worldwide a reason to reconsider the safety of current nuclear power plants and ones under construction. It is easy to say now that it is especially important to take steps to avoid a nuclear emergency that might occur in the middle of a natural disaster, when local authorities have the least ability to respond. But when nuclear plants have to be shut down or delayed for engineering changes, this puts more pressure on oil as an energy source, making it that much more likely that oil prices will go higher than they are now.

Friday, March 11, 2011

This Week in Bank Failures

A huddle in Europe this weekend may decide the fate of Ireland and Portugal. Ireland, in desperate financial shape after bailing out its banks, is looking for a lower interest rate on its European bailout package, though it may come away with no more than vague commitments about future action. Portugal is not in any serious financial trouble at this point, but other European countries are worried about it. More specifically, European leaders are worried about what may happen to most of the countries in Europe if bond traders succeed in putting the screws to Portugal.

In the United States, two small banks failed tonight. First National Bank of Davis, in Oklahoma, and Legacy Bank in Wisconsin had one location each. The deposits and assets were transferred to nearby banks, and the offices will remain open. With these closings, there have been 25 bank failures so far this year.

Thursday, March 10, 2011

Two Discoveries in LED Lighting

Why can’t LEDs be made with the same lithographic techniques that produce microprocessors? It turns out the stumbling block isn’t the lithography, but the substrate. Microprocessors are built on silicon, a material that engineers have long since learned how to produce on a large scale. LEDs typically are made by putting gallium nitride on a base of sapphire or silicon carbide, materials are much harder to produce consistently. To work around this, LEDs are manufactured almost one at a time. But that may be changing in 2013. Bridgelux, an engineering company working on LED manufacturing technology, says it has a way to grow gallium nitride on 8-inch silicon wafers, nearly the same kind that are used to manufacture microprocessors. With this invention, it should be possible to manufacture LEDs at microprocessor factories, on the same equipment. This means LEDs can be made hundreds at a time, like microprocessors, resulting in lower manufacturing costs.

Bridgelux says the energy efficiency of its new LEDs is about the same as that of current LED room lighting, and it hopes to make incremental improvements over the nest two years to keep up with the industry as it brings its first products to market. That will be a race against time, as dozens of other companies are creating their own advances in LED manufacturing, resulting in prices that fall every year.

It is a safe bet that at least a few of the LED breakthroughs we’ve been reading about will, probably in 2012 rather than 2013, bring us LED room lighting at prices similar to those those of current compact fluorescent lighting, but with 3 times the energy efficiency and a choice of colors. When that happens, or perhaps sooner, LED will become the dominant room lighting technology, and we’ll finally be able to retire fluorescent lighting.

LED lighting may be coming sooner than that, as soon as this summer, to a supermarket or restaurant near you. Why? Besides the long-term cost savings of LED lighting, researchers have found that LED lights make food look better. Consumers even say food tastes better when they eat it under LED lights, when compared to the greenish fluorescent lighting currently used in almost all commercial buildings. In a restaurant, it’s an investment of about $15 per table at current prices to replace fluorescent table lights with LEDs. It’s an investment that pays for itself in less than 5 years with reduced electric use anyway. If it also provides customers with a better experience of the food, and a small fraction of customers spend more as a result, the improved lighting could pay for itself in a matter of a month or two, so I don’t think restaurants that can spare the cash will delay too long in making the upgrade.

Wednesday, March 9, 2011

Obesity, Inactivity, and Diabetes by County

New county-level data released by the Centers for Disease Control and Prevention (CDC) sheds new light on obesity in the United States. To begin with, the old notion that obesity is mainly a problem of southern cities can be laid to rest. You can see on the county-level map that a pattern of obesity in a state often bypasses major metropolitan areas.

You can also see that counties with the highest levels of obesity can be found far to the north, particularly in the foothills west of the Appalachian Mountains.

Anyone who imagines that obesity is mainly about food should compare the first map, which shows obesity rates, with the second, which shows rates of physical inactivity. In each map, the higher rates are shown in darker colors.

There is a broad similarity between the two maps; it is the same areas that have high incidences of physical inactivity and obesity. The strong association between obesity and physical inactivity offers hope to anyone trying to lose weight by becoming physically active. Food is an important aspect of obesity, but when you compare the two maps, you can see that it’s not just about the food.

Obesity has dire consequences for health, and those consequences may include diabetes. The third map shows the prevalence of diabetes by county. This is actually the main thing the CDC is studying with the county-level data, because of the enormous financial and human costs of diabetes. You can see, again, a strong similarity among the maps. The rates of diabetes are much lower than those of obesity, yet the diabetes map and the obesity map line up with surprising precision in most areas.

This does not mean that obesity is the cause of diabetes; it is not as simple as that. Causality works both ways here: obesity can cause diabetes, and diabetes can contribute to obesity. More fundamentally, though, scientists say that both obesity and diabetes are diseases of inflammation; they can mostly be avoided by avoiding the lifestyle patterns of inflammation.

This is true too with physical inactivity. Inflammation makes moving around hurt more, especially in the joints, and this can deter physical activity. But if you can get yourself started, physical activity can help reduce and eventually overcome inflammation. Physical activity may burn off some of the excess body fat — that’s what the fitness experts are always emphasizing — but the more important effect is the way exercise reduces the pattern of inflammation that causes obesity.

The CDC suggests that physical activity may also prevent diabetes. Physical inactivity is not really the cause of diabetes, but there are enough stories to suggest that people who have diabetes can hope to cure themselves by maintaining normal body fat levels and activity levels.

Obesity is lower in areas of higher elevation, and here, it appears that is not the elevation itself that protects against obesity, but the hills. Walking up and down hills is somehow a strong deterrent to obesity. This may be just because it builds strength in the leg muscles, which are the largest muscle groups in the body. I have speculated that skiing may be a factor in preventing obesity. Downhill skiing, of course, also depends on the presence of hills and builds impressive leg and core muscles. Of course, you can develop muscles anywhere with the right exercises; you don’t have to look around for hills if there are none immediately around you.

Looking at these county-level maps is an exercise in epidemiology, a field of science that looks at the connections between health conditions and places. The skeptics who doubt the power of epidemiology to pinpoint health information that matters would do well to look at this set of three maps.

Tuesday, March 8, 2011

Don’t Fear the Budget

Austerity budgets are coming to the United States this year. The government funding situation is certain to be a mess however it comes out, with millions of jobs lost if fiscal propriety is fully restored to the federal and state budgets, the risk of state or national bankruptcy if fiscal problems are ignored. There will be millions of job losses in the most optimistic scenarios, potentially 25 million if an impasse shuts the federal government down for an extended period. The biggest job cuts will be the corporate workers laid off when businesses get skittish about the economy, either because of the weaker economy after government cutbacks, or because of uncertainty created by government gridlock.

As scary as this sounds to a lot of politicians and observers, the budget is so controversial precisely because most of the budget decisions this year are no-win propositions. Given the state of the economy, there is no right answer. That also means that the various alternative on the table, including shutdowns like the one the governor of Wisconsin is talking about, won’t be a calamity either. It isn’t going to topple the economy if budgets are off by a few billion dollars here or there, or if whole agencies and departments stop operating for a few months or a year. If there are large layoffs at some of the big corporations, it’s just a case of the old guard stepping aside to make way for the businesses that will make up the new economy.

I don’t want to dismiss the pain caused by the cuts in government services, but I don’t want to exaggerate those either. It’s easy to bemoan teacher layoffs and hospital closings, but we mustn’t pretend we’re pulling the plug on a fully functional educational system or a highly successful health care system. If half a million students are forced to get their high school education from books and the Internet, some won’t learn much — but many students remember next to nothing of what they learn in high school as it is. It is a similar story with other government services that we consider essential. The businesses that provide our essential infrastructure are not much better.

Against this highly conflicted economic backdrop, I defy anyone to say with confidence what’s really best when it comes to a government budget. Even a government shutdown might very well be the right course of action depending on the political situation. No one should fear the broad economic consequences of the austerity budget that may come out of Washington over the summer, or of the shutdown that may occur there if politicians cannot agree.

If there is anything to fear, it is the state of the economy. The drama in Washington and the state capitals merely speaks to the government’s inability to do much of anything about it. Perhaps the government hasn’t been trying very hard to fix the problems in the economy, and its measures so far, such as the Wall Street bailout, may have done more harm than good. But the federal government has been virtually broke since 2005. There isn’t much it can do to help the economy, no matter how hard it tries. Some people say the government should just shut down and let the economy fix itself, but the truth is, that wouldn’t accomplish anything either.

It’s asking too much at this point for a government budget to fix the economy. That’s not what’s at stake. When budget questions come up, we have to just take our best guess — then return our attention to the things that actually have the potential to fix something.

Monday, March 7, 2011

Like It’s 2007 Again

A curious question came over the cable on CNBC this morning: “Are you spending like it’s 2007 again?”

The question reflects a hope that consumer spending will lead an economic recovery in the United States. And it lends itself to two main answers: “What?! Are you kidding?” and “Um, well, now that you mention it, maybe so.”

The suggestion of spending at 2007 levels is preposterous, of course, in households where the last four years have brought a new sense of fiscal sobriety along with a reduction in income from work. That is probably a little more than half of U.S. households. For those of us in this category, even though our income may someday return to 2007 levels, it will never be 2007 again.

In other households, income has kept up with inflation, or nearly so, and there hasn’t been such a scare as to change people’s attitudes about money and spending. But even here, the social context of spending has changed. Far from the prior peer pressure to borrow and spend beyond one’s means, there is now social pressure to master money and ditch the credit cards. And so, if people are spending like it’s 2007 again, they recognize this as a mistake that they would like to correct if they can manage it.

Of course, there are also households that have much higher incomes now than four years ago, mainly as people successfully made the transition from students to working professionals. It is to be expected that these households would be spending more than before; but all other households, in aggregate, are spending less.

Consumer spending edged up in January, but only because of higher fuel prices. With prices for oil, gasoline, natural gas, and electricity expected to increase over the next six months, and food prices increasing as a consequence, this will show up as an increase in consumer spending, but the increase will likely mask a decrease in spending on consumer goods other than food and energy.

Sunday, March 6, 2011

Two Encouraging Trends

1. I’ve been seeing increased weekend traffic at retail since the middle of February. Shoppers are not exactly rushing to go home with bargains, but they are not just window-shipping either. The increased shopping activity is a sign of a sense of equilibrium among U.S. consumers.

2. There are anecdotes of more employers creating positions without filling them, so that the number of vacant positions is starting to resemble what you would see in a normal economy. Employers have vacancies because they are holding out, looking for workers with extra qualifications, or hoping to hire workers at 30 percent less than the going rate, or not going to the trouble of actively recruiting for the positions. Vacant positions are important in creating a foundation for economic expansion. If these businesses see their needs and funding increase, they could fill the vacant positions quickly by offering higher salaries, trying harder to recruit workers, or budgeting more for worker training for the workers they hire.

Friday, March 4, 2011

This Week in Bank Failures

Bank-bailout political parties fared very poorly in elections in Ireland and the United Kingdom. It wasn’t the bank bailouts themselves that voters so disagreed with, but the political inconsistencies between the bailouts and the drastic cuts in public service that came at the same time. U.K. voters have also been questioning the propriety of billions of pounds in unofficial tax breaks for banks and bank owners since last year.

A credit union failed today. Wisconsin Heights Credit Union had less than $1 million in assets when it was liquidated. Membership accounts have been transferred to CoVantage Credit Union.

Thursday, March 3, 2011

Comparing U.S. Obesity to Canada

A new report released today by the Centers for Disease Control, “Adult Obesity Prevalence in Canada and the United States,” finds that obesity is more than one third higher in the United States than in Canada.

This conclusion probably surprises no one, given the way “U.S.” and “big” are rapidly becoming synonyms. But is this really a difference between two countries, or is it more of a regional difference, based on regional characteristics such as culture and climate? One way to consider this question is to compare provinces and states along the U.S.-Canada border. I looked specifically at the parts of the border where there are border towns, and compared the Canadian provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, and New Brunswick to the U.S. states of Washington, Montana, North Dakota, Minnesota, Michigan, New York, Vermont, and Maine. Restricting the comparison to the border states and provinces did not change it much. Comparing only the border states and provinces, obesity is still nearly one third higher in the United States than in Canada. The differences you find when you cross the border are more important than the regional differences within either country. That tells you that culinary traditions, which have considerable variation between cities and regions in the United States and Canada, but do not differ quite so much between the two countries, probably are not to blame for recent obesity trends.

There are also ethnic differences between the populations of the two countries, and these matter when it comes to obesity statistics. The study considered ethnic differences, but found that they did not account for much of the difference between the two countries. Comparing only the majority “non-Hispanic white” groups in the two countries, it still found a obesity rate that was nearly one third higher in the United States.

My guess is that the differences are mostly the result of national differences in food regulation, distribution, and advertising. If I had to look for causes, I would probably start by looking for ways to measure the way people view food advertising messages on television.

Obesity is increasing in most of the world, so one way to compare obesity rates is by comparing time periods. Other studies have done this, and one found that obesity rates in Canada are similar to obesity rates in the United States from 18 years earlier.

Wednesday, March 2, 2011

IPad 2’s Audio Power in Context

It was the demonstration of GarageBand on the iPad 2 that put Apple’s new tablet computer in context for me.

The ability to record eight channels of audio puts the new iPad in the same class as the 2002 Power Mac G4 that I bought in 2004 and took out of service just two months ago. But the iPad costs 1/5 as much, weighs 1/20 as much, and uses, I’m guessing, about 1/20 as much electric power. These are two products issued by the same company nine years apart, so it’s a valid way to measure how far we’ve come in computer technology over the last nine years.

The ability of the iPad to record pro audio will, I believe, change the way recordings are made, making music production even less dependent on the recording studio than it was already. There are already plenty of inexpensive devices that let you record audio remotely. The difference the iPad 2 will make, I believe, is the ability to add bits and pieces to a song that’s under production wherever you happen to meet musicians, without the need to plan ahead. Traditionally, if you play a song you’re working on for a musician and they have an idea for something to add to it, you would have to arrange an appointment for them at a recording studio. These days, I suppose, you might arrange for them to e-mail a track to you. That’s impressive enough, but if you have the iPad 2 along, you can record the new track right then and there without having to make arrangements to do it later. This is just one example of the way technology can make work more spontaneous and less dependent on institutional structure.

Restaurants Raising Prices

Some of the large restaurant chains have announced that they have “successfully” raised their prices since December — that is, they raised prices, and customers are still buying. Others, including McDonald’s, have plans to phase in price increases a few items at a time over the course of the year. A few economists and analysts are pointing to these stories and talking about the return of pricing power. Restaurants and retailers will be able to raise prices without driving their customers away this year, they say. But are restaurants actually getting away with price increases? It is too soon to say.

Since 2009, it has been very hard to sell consumers anything at a new higher price. Customers look at the products and their higher prices but mostly don’t buy, retailers have been reporting. When a 15 percent price increase can create a 75 decrease in sales volume, retailers have been extremely reluctant to raise the price of any prominent product. This is what it means to not have pricing power. This is why most restaurants have prices that are the same as they were in 2007, or just 10 percent higher, even though the restaurants’ food costs have gone up more than 20 percent.

With food prices expected to increase another 10 percent this year, especially for high-profile ingredients like meat, bread, cheese, and coffee, restaurants will probably have to raise prices. They can hope that with consumers becoming more optimistic, their customers will just pay the higher prices. My expectation, though, is that restaurant customers will adjust to higher prices by going to those restaurants less often. Higher gasoline prices will also keep customers at home more often. In my opinion, most restaurants will do better to decrease portion sizes again than to try to raise prices.

There is a reason to be skeptical about a report of a successful restaurant menu price increase coming just a few months after the price increase went into effect. Only about 1 in 500 customers will actually walk out of a restaurant because of a 10 percent price increase. Customers may visit the restaurant several more times before they eventually say, “Gee, this place is pretty expensive, isn’t it?” And then, a restaurant that people had visited regularly may become one that they go to only every few years.

When a group of people are picking a restaurant to go to, the slightest disinclination from anyone in the group can be enough to send the group elsewhere. It doesn’t take a complete sentence to rule out a restaurant that’s been suggested. People may not even consciously realize that they’ve stopped going to a restaurant until a year or two has gone by. As one example of this effect, there is a restaurant I went to late in 2009, and I noticed that they had switched to a lower grade of salad dressing and no longer included rolls in the salad bar. I think about the restaurant 18 months later, and I say, “Gee, I never did go back, did I?” When people are loyal customers, though, they may go back to a restaurant several more times before they realize, with some regret, that their favorite restaurant isn’t so great anymore.

People who visit a restaurant once every two months consider themselves regular customers. You can see how there can be such a delayed reaction to changes at a restaurant. If a restaurant raises prices and sees only a slight decline in traffic a month or two later, that is too soon to consider the price increase a success.

Looking at the restaurant business this year, I am more concerned about gasoline prices than food prices. The stiff resistance to gasoline prices that hit around $4.15 per gallon in 2008 may hit quicker this year, perhaps when prices approach $3.80 per gallon, as they surely will before we get to the summer driving season. At some point, the higher gasoline prices will get consumers to stay home much more often, perhaps reducing their retail trips by 10 to 15 percent. Customers won’t even see the prices on the restaurant menu if the price of gasoline keeps them at home. But if they spend an extra $2 in fuel to get to a restaurant only to arrive and find that the restaurant is also charging them $3 more than before, it’s a double whammy that makes each of the price increases more visible than it would be by itself.

There is another point to consider, and that is the switch from credit cards to debit cards for shopping. This has made upscale consumers, who are the ones more likely to go to restaurants, more price-sensitive. One of the strangest trends in retail late in 2010 was the influx of millionaires eating at McDonald’s, which the restaurant chain says accounted for most of its U.S. traffic growth last year. The story, according to CNNMoney, is that wealthy consumers are saving up to buy things like Jimmy Choos. That implies, of course, that they’re not just taking their credit card and going to the mall to go shopping. When you are saving up for something, it makes you more conscious of all prices, including restaurant prices. Even without price increases, I believe this will be the year when the comment, “We should eat at home a little more often,” starts to turn into a reality for many consumers. Restaurants will have to increase some prices, and that may make the change happen a little faster.