Peak Oil. How We've Tied Economic Growth to Oil

The following collection of salient points regarding the energy crisis and Peak Oil were made by Charles Hall [Peak Oil: The End of Economic Growth?] a major authority on energy. He was the major force behind that great poster that I had added to this blog last week. Please read carefully each and every point that Dr. Hall makes. He is a national treasure of very important information that we need to become aware of.

1) We have constructed an entire civilization based on cheap oil (and gas), a finite resource.

2) Oil was and remains cheap (yes at $4 a gallon) because the energy return on energy invested (EROI--my thing) in getting it was very high and remains fairly high.

3) Nevertheless EROI is declining – this has many economic effects.

4) The EROI for any conceivable substitute to oil is far less than oil for the foreseeable future.

5) Hence there is no possible substitute, qualitatively and quantitatively, for oil.

6) We are using oil 4 to 5 times faster than we are finding it.

7) Therefore we are just using up our remaining oil reserves, faster or slower depending in part upon economic growth.

8) Increased drilling historically has NOT led to increased oil finding or production.

9) Food prices and availability, subprime mortgages and Wall Street are all tightly related to oil availability and price.

10) Discretionary income in the US is declining and is likely to virtually disappear in the future as more and more of the output of our society is dedicated to the dollars and energy that must be used to get the energy required to run the economy. We must plan for this.

11) Efficiency is important but over rated (long story). It is not a silver bullet.

12) Most oil exporting countries cannot lower prices much as their own population growth requires the oil revenues for public programs. The money does not go only for luxury.

13) All of these issues were laid out very clearly by geologists and ecologists more than 30 years ago but were suppressed by economists who believe too much in markets and technology. The world is finite, we must adjust accordingly.

Frivolty is in the Eye of the Beholder

Only the Necessities of Life

I have always found it sad and amusing at the same time that very few, if any, practice praxis. It seems that individual humans are endowed with an uncanny ability to ask others to abide by certain principles that they hold themselves to be exempt from. The sad thing about the above is that, more often than not, they do not realize the logical absurdity of their position.

These seminal contradictions are found across all fields and they span all regions. One of the most absurd positions is to be found among the practitioners of the new religion of environmentalism. Often the strongest advocates of the need to act in an ecofriendly way are the rich and the wealthy. They campaign for alternative clean energy, take a strong stand against industrial farming and demonstrate to prevent deforestation.

Each of the above is a noble goal in itself but the irony is that those who are the most vocal in their demands are often the largest abusers of what they want us to protect. Many of these advocates who favour a smaller footprint are the most extravagant consumers. They are more often than not the ones who take the ski trips to far away places, live in homes of over 5000 Sf, but with an expensive PV system on the roof, subscribe to every imaginable magazine and do their food shopping at WholeFoods.

The same phenomenon is to be observed among those who advocate high tariffs against imported goods. They are the jet set that drives the Benzes, Beemers in addition to the Lexuses and Infinitis. This is often the same crowd who is worried about the trade deficit and wants measures that would reduce the availability of Chinese made goods at Wal Mart as long as the availability of the $50,000.00 Patek Phillip watches , the $2,000.00 Gucci hand bags and the $500.00 Italian shoes is not reduced.

This disconnect between what we say that we want and what we do has become so widely spread as to not spare anyone. Infamous Judge Robert Bork [linked story] whose failed nomination to the Supreme Court preoccupied the nation for months has written, lectured and campaigned vigorously against frivolous suits brought up by individuals against corporations and other large institutions. What is unbelievable is that the same judge, Bork, slipped as he was leaving the dais at Yale University during one of his appearances and he promptly sued the University for negligence and for physical pain and psychological traumas. The same person who has campaigned tirelessly against frivolous law suits brought one himself asking for a million dollars in compensation. Ironically he denied, with a straight face, the contradiction when he was confronted with it.

I guess that frivolity is in the eye of the beholder.

Energy Consumption Story Told with Balloons

Editor's note: this post was provided by Ghassan Karam. Click on the picture to open it into a larger window and see the bigger picture...

Education Means Critical Thinking. Knowledge is Power.

The Millenial Generation May Produce a New Realignment in the US

It's been an interesting semester with lots of work in the end, as per usual, but now it's over. I had a good experience over all. I like teaching, and, I dare say, most of my students seem to enjoy my classes. I encourage critical thinking and thoughtful discussion--something of a rarity in colleges today. Accumulating information without putting it into proper context is good for passing exams but it doesn't necessarily promote an understanding. Connecting the dots is often a skill that's lacking among Americans but also among too many college students.

Of course, it's the subject matter that allows for such a conversation. My subject is Political Science so I talk about political theories, ideologies, the information (?!) media, American political institutions, etc. But, I'm a science fan too. I'm a scientist in that I accept the scientific way as the most powerful tool we have for knowledge! The scientific method is a specific process, a methodology, of analyzing evidence, forming theories that explain & predict, and always keeping the door open to revision--when better data or a theory are available.

The process is very important and much is invested in it. The process of finding and analyzing evidence and then puting it in order. The conclusion comes later. It is not the other way around it as many people seem to be doing. That is, they first form a "conclusion" which is something they like, and then they try to find any piece of supporting evidence to their thesis. Any contradictory evidence that falls outside their narrow frame (of mind) is discarded! Obviously, this is not an appropriate for knowing stuff; it may be good for escaping reality and/or feeling better for a while, but it is not a tool for learning.

I can't tell you how many times I had to explain--which is good, because at least we are talking about it--what a scientific theory is about. Such a theory is not a hunch, a guess, an opinion! The theory of evolution is perhaps controversial in the minds of the ignorant, but it is one of the strongest scientific theories we have. Modern genetics and technology have confirmed its tenets and have piled on more supporting data upon the tons of evidence we have from fossils, and other observations. Unfortunately, more Americans (US) believe in creation than evolution! In other words, more people believe that human beings were made in their present form rather recently than humanoids having evolved over hundreds of thousands of years! And, this in a society that has been at the forefront of technology, science, and freedom of information!

I like Richard Dawkins's explanation:
"We have two theories, A and B, both trying to explain the same phenomenon. Theory A fails in some particular. Theory B must be right, even if theory A is supported by loads of evidence and theory B is supported by no evidence at all...

Nevertheless, if you can find one phenomenon, call it X, for which, as far as you can see, theory A cannot provide an explanation, you therefore conclude theory B must be right....

What kind of logic is that?"

If you want to understand the physical world, logic is imperative. But, I think, you have to have some courage to face reality even it is unpleasant. You develop courage by having confidence in yourself and your ability to think & analyze. I believe good thinkers are leaders too. Hopefully, we teachers and the schools can facilitate such rational, creative thinking and by doing so to develop leaders. Those who don't know (either by choice or not) tend to be followers and more likely to be manipulated by the simplistic arguments of demagogues who want to be leaders of a flock of sheep.

Chickens of Environmental Skeptics have Come Home to Roost

For almost two decades environmental skeptics, those who believe that there is no problem that cannot be solved through the application of a healthy dose of unfettered markets and technological innovation, have never tired from gloating over the Ehrlich/Simon wager.

Paul Ehrlich the author of the Population Bomb and a staunch advocate that planet earth is overpopulated and that there are limits to growth had a wager with Julian Simon who was just the opposite. He believed that science and technology will always deliver and that there is no limit to the level and intensity of human activity.

Mr. Simon argued that if the bleak view held by Mr. Ehrlich is accurate then the prices of commodities will go up from the resulting scarcity. But he does not think that will happen because human ingenuity will find substitutes to prevent that from occurring. Ultimately they agreed to keep track of the prices of five commodities; tin, copper, chromium, nickel and tungsten; over a ten year period. That was agreed upon during 1980 and by 1990 all the prices were lower than 10 years ago even in nominal terms. Paul Ehrlich wrote a check to Mr. Simon and suggested another bet but Julian Simon turned down the offer.

As is often the case Mr. Ehrlich turned out to be correct in his pessimism but his mistake was in limiting the bet to ten years only. A recent recalculation of what has transpired over the past 28 years shows very clearly that the prices of each of the five commodities in question has increased , both in real and nominal terms significantly. So yes Julian Simon won the wager over the first ten years while the caution about excessive demand and limits to growth as advocated by Paul Ehrlich is the real winner.

Overconsumption began long time ago

Another illustration that demonstrates the prescience of Paul Ehrlich can be found in the recent study released by the University of London’s’ London School of Hygiene and Tropical Disease in which they calculate that obesity is a serious contributor to Climate Change because of the additional food that needs to be consumed, the energy needed to grow the food and the additional energy required to transport obese people. Again what the authors of that study seem to have conveniently neglected is he formula developed by Paul Ehrlich and used by most serious students of environmental degradation namely that the environmental impact is very much determined by our chosen lifestyles.

Instead of discovering the detrimental impact of SUV’s, incandescent light bulbs, air travel, large homes, diets, fashion, war (just to name a few) and now obesity one at a time Paul Ehrlich admonished us more than forty years ago that what is needed in order to avoid the ecological and environmental abyss is a radical change in our life styles and not one item at a time. Will we recognize the significance of the moral imperative to act and act now or are we going to wait one more time until it is too late to act.

Tax-free Hedge Funds... But Only for the Big Schools Like Harvard

This is a very interesting article posted on the American Scene blog. It raises some important questions about the non-for-profit organizations, that, even though the don't give dividents to shareholders, they do provide excellent benefits to those involved. As we all know, many not-for-profit institutions are money makers. But, if we are to re-examine the taxation policies, we shouldn't just limit ourselves only to secular institutions.... (if you catch my drift)

Is Harvard Just a Tax-Free Hedge Fund?
According to the Wall Street Journal, Massachusetts legislators are studying a plan to levy a 2.5% annual tax on the portion of college endowments that exceed $1 billion. The high-wage union workforce with lifetime employment contracts and restrictive work rules tenured faculty is not amused.

Harvard’s official response is pretty funny:
Kevin Casey, a spokesman for Harvard, said the proposal would hurt Massachusetts and colleges because it would damage “stable bedrock institutions” that have helped shield the region from the worst of the economic slowdown.

But why isn’t this statement true of, say, Akamai, Biogen and Raytheon?
I’ve purposely picked companies with close ties to MIT and Harvard, because one could argue that universities create spin-offs that ultimately create corporate profits to be taxed. But large tech companies do the same; many successful companies are in the fourth or fifth generation of this process. Should Fairchild Semiconductor be free of paying corporate income tax because employees left to create Intel, or should this tax benefit revert to AT&T because a group of employees left Bell Labs to start Fairchild?

Which brings to mind another obvious question: why do endowed universities get tax breaks that other corporations don’t get in the first place?

Consider Harvard.
It claims to be in the business of serving humanity through the creation and dissemination of knowledge, but Biogen claims to “transform scientific discoveries into advances in human healthcare”. That sounds pretty good, too. If you think of Harvard as a corporation, it had an income statement in FY 2007 with about $2.2 billion of revenues (tuition, sponsored research contracts, and so on) and about $3.2 billion of expenses, and therefore had to move about $1 billion from the endowment to make up the difference in order to run at basically break-even. In other words, it’s a big institution, but hey, it doesn’t make any money and has to survive on the kindness of donors, even if these donations are channeled through an endowment.
But this isn’t quite the whole picture.

The overall Harvard corporation gets to make money through investment returns on its endowment (or, more precisely, the General Investment Account, which currently includes about $6 billion of investable assets in operational accounts in addition to the $34 billion endowment) that doesn’t get reported as revenue. Last year, Harvard made more than $7 billion of tax-free investment income.

So if you just think about how much cash went into the shoebox and how much came out of it, a more accurate accounting for Harvard for FY 2007 would, in rough numbers, be a lot more like the following:

Receipts = $2 billion of operating revenue + $7.3 billion of investment income + $0.6 billion of gifts to the endowment = ~$10 billion.
Operating costs = ~$3 billion.
Profit = $10 billion – $3 billion = ~$7 billion.

This explains why Harvard’s net assets increased about $7 billion in 2007, from about $35 billion to about $42 billion.Viewed purely in terms of economics, Harvard is really a $40 billion tax-free hedge fund with a very large marketing and PR arm called Harvard University that has the job of raising the investment capital and protecting the fund’s preferential tax treatment.
The trick is that this hedge fund can’t remit earnings to investors, and has to keep them in the company’s account, renaming these retained earnings as an “endowment”. So how do the insiders extract value from this business? One way is by giving themselves cushy jobs that pay a ton of dough. Those who manage Harvard’s money are well-paid.

The prior investment head, Jack Meyer, left after criticism of a compensation plan that paid some investment management professionals more than $35 million each in a single year. In spite of this, investment professionals often leave the Harvard Management Company because they can make yet more money as partners in private equity groups or hedge funds. Of course, the qualification of running Harvard’s pool of assets can be leveraged to get exactly such jobs – those who do this are called “Crimson Puppies” – while in the meantime enjoying a somewhat more relaxed work-life balance, and not having to do the hard work of actually raising the fund.

The worker bees in the marketing department (i.e., the faculty) are also quite well-paid. The average Harvard professor now has a salary of about $185,000 per year. Professors in the right disciplines, such as business, can reportedly double their salaries through outside consulting and other income sources. In 1980, the salary of a Harvard professor was about 5.5 times the average US per capita income; today, $185,000 is about 7 times the average national per capita income, and can often be leveraged into much higher actual annual compensation.

When tax-advantaged non-profits start to accumulate billions of dollars of cash through investment gains, and the insiders seem to be doing very well, it creates legitimate pressure for some legal changes. There is a broad range of alternatives: capital gains taxes on investment income, directly taxing the endowment, placing limitations on employee compensation, and forcing the distribution of a fixed percentage of the endowment are all obvious choices. Sanctimonious talk about “the mission of the university” is not likely to stop this; unfortunately, giving lots of money to Democratic politicians very well might.

Why do horses run?

The worlds' most dangerous man according to the NYT is Pete Singer the philosophyer at Princeton. He is the author of "Animal Liberation" the book that has had a tremendous impact on the way humans view animals. The easiest way to gauge the impact of this book is to remember that it was instrumental in the creation of PETA.

Pete Singer is essentially a utilitarian philosopher who argues that we have a moral obligation to reduce pain and increase happiness. This fundamental principle led him to oppose , in the strongest way, the idea that animals are to be raised in order to be slaughtered for human consumption. It is also important to make it very clear that , to the est of my knowledge, his argument for animal liberation does not rest on any intrinsic rights of the animals but instead is based on the fact that we do not have the right to make any living creature suffer if it is within our power to avoid that suffering. As a result Mr. Singer would sanction slaughtering animals if that can be accomplished without causing pain to the animal.

All of the above rushed through my mind during the Kentucky Derby last Saturday. I will be the first to admit that I know nothing about horses and why they run but it seems to me that horses are trained to run and endure pain for the sake of our entertainment? My very simple question then is the following: Do we have the right to subject any animal to pain and possibly death as long as we enjoy the spectacle? Maybe it is time to reevaluate the cruel use of animals in any capacity that is designed to entertain humans by forcing the animals to endure pain. Maybe it is time to declare horse racing an illegal activity just like cock fighting. Should animals perform for our pleasure? It is time to enlarge the circle of animal liberation as to encompass all human activities that impact animal welfare whether that be laboratories, slaughter houses, circus cages or horse races just to name a few.

editor's note: more information about horses:PBS/Nature

What the US Government Should Do: Take Care of its Own People First

By Amanda Tejada [POL 301D-Spring 2008]

The Business of a Superpower

I remember that day; the chaos, the suffering, and the fear that gave birth to admirable responses. They hit us where it hurt, in the capital of the world and killed thousands of people. Nevertheless, it was not all bad, I mean, not all the consequences. The terrible attacks on the World Trade Center and the Pentagon established the beginning of new power relations between the government and the people.

The efforts to protect the ideals on which the nation was founded upon were disintegrated as the plans of government officials began to deviate from those American rights--life, liberty and the pursuit of happiness. Moreover, citizens' calls for defending those rights were often met with disdain by White House officials, including the Supreme Court-appointed president. These officials who resisted to deliver reasonable answers on people's concerns regarding civil liberties. The war on terror became the war of terror, as Americans feared that their problems were overlooked by the Bush administration.

However, now that the country's next step lie in the outcome of the upcoming presidential elections, Americans are looking for political leaders to stop solving problems for other people outside the country and deliver policies that are more focused on domestic issues, such as hunger and poverty.

The US government has tried to reach out to dozens of countries, helping them alleviate poverty and hunger. However, the same government is neglecting to feed it own citizens. With the status as the world’s superpower, the United States holds the highest rank in childhood poverty amongst all members of the Organization for Economic Cooperation and Development (OECD)--with an estimated amount of twelve million American children [Scherrer, 2001].

In addition, there are roughly “35.5 million people [living] in households considered to be food-insecure” within our borders. Given this, it does not take a genius to realize that there is something wrong. American officials need to take action in their country before trying to feed everyone else.

However, the problem of hunger and poverty in the country is commonly dismissed in the midst of superpower business. In fact, there are some that argue against the importance of such issues, claiming that there are plans already addressing these matters and that there is no need to constantly create new policies. Yet, the problem with this view is that it fails to identify those policies supposedly dealing with this domestic crisis.

On the other hand, in order to raise awareness, the United Nations’ Economic and Social Commission for Asia and the Pacific (ESCAP), under the Universal Declaration of Human Rights, calls for all civil societies to provide comprehensive policy to deal with poverty and hunger. But, how can we develop a better understanding of the problem and form appropriate policies? Further, good policy to solve a problem often requires funds, but if there are no funds to make practical solutions possible,then what do we do?

For this, I think, it is important begin to at least implement the plans that already exist. The government needs to take the system of “Food Stamps, Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and the National School Lunch and School Breakfast programs” and expand them. There are many Americans who have fallen through the safety net. Our government needs to find those people, or to make essential services available to them.

The federal government has set the poverty level at $19,350 for a family of four--which is not much. The average wealth has gone up but the median income has stagnated. There is a need for the better distribution of our resources.

Recognizing the importance of education for the improvement of the problem of poverty and hunger, one can not forget to ask political leaders to take a look at the plan set forth by the Millennium Development Goal (MDG). The eradication of “extreme Hunger and Poverty” is not about handing out money to the poor, rather it is about creating opportunities for improvement.

Today, 33.3 percent of the youth in the US are facing dramatic situations resulting from unemployment. Therefore, there needs to be a way create opportunities out of this unfortunate reality. The Presidential elections may bring great changes to the country; hopefully new policies to meet the needs of the American people. We need leaders that will address the issues of our concerns. The issues of poverty and hunger are very important and we should start solving this problem starting with out own poor first.