Heating Costs Affect Different Places to Different Degrees

From Forbes, I found an article that digs into the regional differences of home heating economics. It’s the kind of analysis that economists use to forecast the effects of energy price changes on regional employment rates and other measures of economic performance, but the Forbes story attempts to explain it in non-technical, journalistic terms:

What It Will Cost to Heat Your Home

It is mainly the northeastern states where oil is heavily used for home heating, and it is here that rising oil prices will force us to adjust our heating strategies in the near future. Other energy prices could go up too, but oil is likely to go up first and fastest.

The obvious answer is to have everyone who uses oil switch to natural gas and electricity. Maybe that’s too obvious, because there could be a shortages if everyone switched at once. Ultimately, we need to use less energy for heat, which basically means better insulation, and find new sources of energy that we can deliver to homes for this purpose.

Real Hurricane Damage

Surfside Beach, Texas, has electricity again.

The sewer system is “still up and down.” And water? That will come later. They won’t be able to repair many of the leaks until more storm debris is moved.

Surfside Beach was well away from the center of Hurricane Ike as it made landfall near Galveston, Texas. On the right side of the storm, whole towns were effectively leveled by the 4-meter storm surge. Houston is finally back in school, but still watching to see which of its businesses will be able to reopen.

I wrote yesterday about the importance of the real economy and how the financial crisis could lead us to overlook things that are more important. The hurricane damage that is still being repaired in Houston, along most of the Texas and Louisiana coasts, at least as far inland as Missouri, and also along most of the length of Cuba, is an example of the real economy at risk.

The Federal government basically blew off the hard-hit greater Houston area, providing only the most minimal assistance for its hurricane disaster recovery as it sought to save its money to bail out Wall Street. That was almost a month ago. Now as Washington obsesses over a few small businesses that allegedly may have short-term layoffs because they ran out of money and can’t get short-term loans, the unemployment statistics are starting to pile up from Texas on north. It seems safe to say that more than a million people are or were temporarily unable to work because workplaces were not ready to operate. Sometimes all they are really waiting for is electricity.

The U.S. government has spent, I believe, over a billion dollars on recovery efforts from Hurricane Ike, and more for Hurricane Gustav before it. That is a lot of money. But it pales in comparison to the $3 trillion it has sunk into financial markets in the past three weeks — apparently over $1 trillion yesterday alone. All that money is being put out there to get the economy moving again. But one of the most powerful ways to get the economy moving again is to clear debris from roads and restore electricity so that people can go back to work and back to school. It matters how quickly that happens, and it would take a lot less than a trillion dollars to speed up the recovery by a matter of weeks.

The President claims to be a resident of Texas, but his recent misplaced priorities show that his real home is on Wall Street. Ultimately, the U.S. economy does not live and die by what happens on Wall Street. In the meantime, we still do not know how many people died when Hurricane Ike hit the Texas coast.

You Can’t Eat Credit Default Swaps

There is a problem with the way we measure economic activity.

We include products of actual value, such as food that restaurants cook and serve to customers, right alongside products of only theoretical value, such as food that restaurants cook and throw away unserved.

Some of the “products” we count are so very abstract, they could be completely empty of any value, and we wouldn’t be able to tell. This is especially true in deals between one public corporation and another in which no tangible product is exchanged. Many of these deals serve mainly to make each company’s financial statements show more profit or less risk than is actually present.

These abstractions threaten to crowd out the things we are really trying to create — food, drinking water, housing, clothing, transportation, and the other real products that go together to form what in financial circles is called the real economy. The real economy contains the things that really matter in the end. Abstractions are valuable only to the extent that they support the real economy. Eventually, you have to take out some of your money (an abstraction) and use it to buy food (something you really need). As my mother warned me when I set out to make my fortune on Wall Street, you can’t eat credit default swaps.

The abstract economy has become so much bigger than the real economy that it is no longer possible to measure economic progress using economic aggregates. GDP, the oft-cited measure of national income, can go up even as the real economy shrinks. Financial measures of wealth can go up while material wealth declines. Anecdotes are more powerful than economic statistics if you want to know how well the economy is treating people.

How about you? Are you focusing too much on statistics and abstractions and losing track of what you really want?

Forget your salary and bank account for a moment and consider this: How easily are you getting the things you really want? Stop worrying about health “coverage” and answer this: How is your actual health? Instead of checking the latest count of your online “friends” — how happy are you?

This kind of check is good anytime, but it is especially important when the economy around you has been affected by a bubble, such as the currently declining credit bubble. In economic theory we assume that values can be represented by amounts of money, but that assumption fails us when a bubble exaggerates the value of something. You can avoid or escape the influence of a bubble by looking at what is actually important to you.

This is the same thing the economy in the aggregate must do to recover from the credit bubble. It is harder for the whole economy to do, though, because the usual aggregate measures of economic success, such as GDP, can be especially misleading around a bubble. That’s why it is sometimes hard to identify the public policy moves that will get the economy going again.

What’s Hot and What’s Not as the Credit Bubble Bursts

The collapse of the credit bubble will reshape the United States’ economic landscape. Here’s a quick rundown of some of the things that are on the way up — and on the way down.

Hot	Not
Tourism. It costs less than ever for foreigners to spend a week or two visiting the United States.	World travel. If you only have U.S. dollars to spend, it will be hard to visit most countries.
Fitness. People are taking more responsibility for keeping themselves healthy, knowing that if they fail, there may be nowhere to turn.	Health care. Prices for drugs, surgery, and even diagnostic tests are rising so quickly that soon they will be mostly beyond the reach of most potential medical consumers — and beyond the scope of most health coverage.
D.I.Y. When all else fails, if you want something done, you still have the option of doing it yourself.	Financial arrangements. Loans, insurance, and retirement savings aren’t as reliable as they used to be.
India, South America, Australia, New Zealand. Areas that largely avoided the global problems of the last five years will have a chance to take on more leadership roles.	United States, Europe, China. Closer to the center of the financial troubles, people will spend a significant part of their attention adjusting to new ways of doing things.
Food, transportation. People will make the essentials of life and work a higher priority, even as prices go up.	Climate control, clothing, furniture, equipment, haircuts, television, formal education. There is already a massive slowdown in non-essentials as businesses and consumers try to make their budgets work in a low-credit world.
Retail. When it costs more to drive, consumers make fewer visits to stores — and that means fewer impulse purchases.	Online music, movies, and games. People who don’t have extra money to spend suddenly won’t mind the hit-or-miss quality of free online entertainment.

The Buenos Aires Perspective

I couldn’t visit Buenos Aires myself in time to write today’s blog entry, so I read Janelle B’s account of her recent visit there and looked over her tourist photos. Even without seeing it in person, there is no mistaking that Buenos Aires is a happening, cosmopolitan city with a rich culture and history.

Why do I care about what is going on in Buenos Aires? It’s a way of not taking the United States’ looming banking and currency crisis too seriously. Yesterday’s political meltdown in Washington does mean the U.S. economy is in big trouble. After that large-scale blunder by political leaders, there is probably no stopping the collapse of a segment of the U.S. banking system and a crisis of the U.S. dollar in the coming year, or the difficulties that will spread across the U.S. economy. But it is not the end of the world.

Buenos Aires proves that. Buenos Aires was the focal point of a banking collapse just 7 years ago. It was a difficult time, but people got through it:

It took a while, but it all worked out in the end. Although many of the details are different, the fundamental problem was identical to the situation now facing the United States. The Argentine government had no cash and the foreign currency reserves were not capable of providing sufficient liquidity.

That is from “How Argentina Survived Its Banking Collapse,” written yesterday by Guy Bennett on the streets of Buenos Aires. The United States does not have much of a history of crises in banking and currency, so U.S. readers would do well to read Guy’s entire account of the Buenos Aires experience of its crisis and its perspective on the Wall Street crisis. You’ll understand why the Wall Street crisis is not the top headline all over the world. And the thought you come away with, I hope, is that if Argentina can do it, Americans can do it too.

Politically, there is no undoing yesterday’s mistake in Washington. After a week of running around Washington in a panic saying, “We have to do something,” politicians will not easily have a change of heart and say, “Whoops! Looks like we shouldn’t have done that.” There is little hope of leadership of any kind coming from Washington as the resulting economic turmoil spreads from one sector of the economy to the next. After blowing a trillion dollars gambling on Wall Street, Washington has nothing left. Washington cannot rescue us. We will have to rescue them.

I suppose today is a good day to be angry at Washington for putting this crisis together and dumping it on us. By Monday morning, though, we have to get over it, because there is so much we need to do. The top priorities:

• Do everything you can to make sure you are healthy and able to work.
• If you have money, don’t keep it all in one bank, and don’t procrastinate on buying things you know you will need to survive.
• Make sure you are getting along with your friends and family. Get everyone’s contact information on paper. Having it in your telephone or on your computer may not be enough.
• Do simple fixes to save energy. This is especially urgent if you live in a cold climate and have to heat your home to survive.
• Develop basic skills that make you more self-sufficient, especially cooking. If you never walk anywhere, even though you could, build up your walking until you can comfortably walk at least two miles.
• Get things done. Don’t let the word “depression” make you feel depressed. Don’t let the word “hyperinflation” make you hyper either, and don’t let the prospect of a “currency collapse” make you feel like collapsing in the nearest chair. This is a time for action.