Sunday, March 07, 2010

Part 4: A Course of Action...

Part 4: A course of action
by Gordon RingoenMarch 05, 2010

Last of four parts

There are no silver bullets to solve our looming energy crisis, resource depletion, and environmental pollution. But, there are surely better courses of action. Major problems are not solved, but we can create an environment whereby solutions evolve. The following 12-step program is a beginning to keep us on course as the most prosperous nation in the world.

1.Disabuse the bankrupt economic theories that neglect the importance and limitations of our resources, environment, and quality of life while lionizing economic growth.

The continued devotion to outdated and discredited economic theories result in situations like the reported advice former Fed Chairman Alan Greenspan gave to U.S Treasury Secretary Tim Geithner that the government should simply buy houses and then bulldoze them to solve the housing crisis.

2.Throw out the notion that "free markets" will solve our energy and environmental problems.

Businesses have neither the interest nor resources. Market participants are motivated by short-term profits, which are their mandate, not in solving societal problems. I hate to break the Adam Smith myth that there is actually no "invisible hand" that works for the good of all as long as everyone only looks out for their self-interest. The actions necessary to deal with these monumental issues must come, dare I say it, from good government.

3.Students must demand that they be taught economics that deal with the real world and that can be substantiated with actual data and analysis.

They must resist theories that serve special interests, political, and economic doctrine. Students must lead, because the self-serving, symbiotic relationship that exists between academia, government, and business will resist any approach that threatens their controlling position. In other words, don’t expect Bernanke or Mankiw to propose a revolutionary, real-world view of economics.

4.Young adults must demand and force good government.

The younger generations have the most to gain and the least to lose by replacing our dysfunctional Congress and state legislators. They also have the energy and power to effect the change.

In addition to Congress, the largest and most prosperous states of California and New York are virtually paralyzed by weak and partisan politics. A Republic, such as ours, is totally dependent on sober, intelligent lawmakers who will devote a portion of their life in public service for the good of the populace and to serve national interests. Those lawmakers that are slaves to special interests, religious and political doctrine, and dogma must be given their walking papers regardless of party.

It is instructive that two of the most thoughtful legislators contributing to intelligent political discourse are Ron Paul and Bernie Sanders. Though they are at the opposite ends of the political spectrum, they both have fresh and informative views because they are independent thinkers and neither party nor political dogma dictates their views.

In addition, we need political leaders that are intelligent. When long time political pundit, Seymour Hirsh, was asked the difference between members of Congress today and 50 years ago, he said, "Their IQ is 35 points lower today!" The issues we face today are complex and we need leaders that have intelligence, aptitude and the work ethic to deal with them.

5.Demand the fundamental democratic principle of majority rule is re-established.

Do away with the self-imposed 60-vote filibuster process in the Senate. In the 1960s, filibuster entered into an average of six pieces of legislation per year. Last year, there were 120. This has essentially brought the legislative process to glacial speed while totally distorting the legislation itself. The filibuster makes us suffer from the tyranny of the minority as we have seen in the so-called "Health Care" bill.

And, overturn the two-thirds vote requirement for tax increases that have paralyzed the governance of California. California can only pass a budget that is filled with so much fiction that makes it essentially useless as a financial plan. California will go broke without major constitutional changes and its repercussions will be felt throughout our economy.

6.Stop the influence of business and other special interest groups in elections and legislation.

Corporations are not citizens and therefore must not be able to use their unlimited media and financial resources to mold the government to suit their pecuniary interests. Business lobbyists have no interest in the public good or the national interest, only in the financial advantage or doctrine of their employers. There are currently 10 times as many lobbyists in Washington as there are legislators. The financial industry alone spent $336 million lobbying Congress in the first nine month of 2009. Hundreds of millions of dollars were spent by the drug and insurance interests to sculpt the "Health Care" legislation to their advantage or to kill it entirely. We have all suffered loss because of their success.

The recent Supreme Court decision which allows unlimited corporate financing of federal offices may destroy the concept of government of the people, by the people, and for the people.

7.Demand that all energy production, including food (the source of our energy) disclose the EROEI, resource cost, and environmental impact.

As it now stands, we have practically no comprehensive information that allows us to determine the efficacy of the various alternative energy programs. Good data would provide the foundation for developing programs which make rational trade-offs between energy, environment, and the economy. Provide this information before we fund Ford and Tesla Motors.

8.Demand a comprehensive long-term, integrated plan for the country that takes into account, and makes trade-offs between energy, the economy, natural resources, and the environment.

As we have seen, ad-hoc legislation addressing energy, climate and economy singularly are doomed to failure because any effective legislation would result in costs "somewhere else." The "somewhere else" will defeat it. President George W. Bush illustrated the problem when he dismissed the Kyoto Treaty by saying, "it would be bad for the economy."

It is a fatuous argument that we have heard for 10 years that we cannot unilaterally move on energy efficiency and carbon pollution because China will not reciprocate. This is not a reason but rather an excuse to do nothing. China will never have meaningful "talks," agreements or other forms of blah, blah, and blah. They think like George Bush. To get China to move we must institute a carefully crafted "carbon tax" on Chinese imports that makes it more costly to pay the tax than to become efficient and non-polluting. To keep a level playing field, and clean up our industries, we must also put a "carbon tax" on our goods and services starting with transportation, utilities, and agriculture.

Let's look at how we might approach the triage between the environment, economy, and energy.

The deterioration of our environment, particularly "global warming," has gotten well-deserved attention but rather modest action. The discouraging thing about climate change is that our atmosphere will continue to warm, with its adverse consequences, regardless of what we do. The objective of reducing our emissions to the levels of 2000 is noble but does not solve any problems. It merely reduces the rate of global warming. As long as the burning of fossil fuels provides the lion-share of our energy, our atmosphere will continue to deteriorate. Without the development of new energy sources we will continue to use the available fossil fuels until they are gone.

Although, the slowing of emissions is important, it must be determined at what cost. It is likely that the resources and political capital necessary to accomplish this limited objective might better be directed toward the development on non-polluting energy sources and increased energy that would allow us to combat the problems that will be caused by global warming. With increased low-cost energy we can create fresh water, increase food production, and protect our population centers from rising oceans.

The economic problem with concentrating on energy and the environment is that it overturns the economic status quo. In the long run if developing new sources of energy is successful, it will save the economy from collapse. In the short term it will put people back to work, but it will cost a lot.

The way to pay for the programs will have to come from elimination of our glaring inefficiencies. We need to have a health care system that costs less than 5% to administer, like Medicare, and eliminates the 30% drain from insurance companies. Drug costs can be cut through competitive pricing. Incentives for unnecessary testing and procedures must be eliminated.

The financial industry must be compensated at their value added contribution to the economy, which is less than 5% of GDP rather than its current elephantine share. Goldman Sachs, alone, charged the economy $45 billion in 2009 for its money conduit services.

We must redirect the costs and energies spent on frivolous defense systems and insure that we do not enter into un-necessary wars.

We must provide incentives to work and not retire. The government must not pay people to stop working at 62, or even worse, workers in their forties, as is the case in some government jobs.

In addition to the restructuring of our economy, the costs need to be primarily paid by those with high incomes. That is where the money is. It will also lead to the elimination of other frivolous economic activity.

The priority is clearly to develop new energy sources. Environmental emphasis can mitigate some long-term economic problems but cannot generate the energy we need. The economic status quo will not materially improve our environment or create new energy. Only new sources of energy can solve our economic problems and gives us the resources necessary to mitigate the climate induced hardships.

9.The government must fund big physics R&D.

We do not have the solution to our energy needs and the deterioration to our environment. And, in no way, are we on the course to solving these problems.

It is absolutely necessary to develop new energy sources outside of the sun. We are already tapping the efficient sources and their availability is declining as the world’s demand for energy continues to increase.

The apparent non-sun source of energy is the energy stored in atoms. In effect, if we could harness nuclear fusion, we could generate virtually unlimited energy the same way the sun does. Since we do not have the force of gravity of the sun to enable the process we need to develop other techniques. To develop this capability may take up to 40 years and require huge resources spent on R&D. The government can only champion an effort of this magnitude.

Our government funding of big physics R&D has been astonishingly effective in the past and can be in the future as well. Even today, we can take pride in the scientific research and education in two of the most esteemed science oriented universities in the world, MIT and Caltech, which are predominately federally funded.

Nuclear fusion is only one example, but potentially the most rewarding, of big physics R&D that must be implemented now.

10.Increase the support of and demands on higher education.

We still have the finest college and universities in the world but they are not meeting the challenges facing us. Even the finest, like the University of California, are deteriorating because of funding cuts.

Increased emphasis on the sciences is a must. We must attract the brightest and best to sciences through grants and scholarships while providing first-rate education. There must be a long-term commitment to science and R&D to assure students will have professional opportunities throughout their careers. We must increase the incentives and opportunities so that we are training our own citizens instead of 50% foreigners, which is now the case.

There are even more fundamental changes needed in the nontechnical fields of study such as liberal arts, general studies, economics and business. Fifty years ago, a full-time student in these fields of study would typically attend about 20 one-hour classes over five days in a typical week. They would spend one or more hours, per class hour, in out of class study. The result was a 40 plus hours per week in higher education. If the student did not take a full load or did not get passing grades (students were actually flunked), they would be expelled. Men would lose their deferment and would soon get a "Greetings" from their draft board.

Today, in most large universities, classes are only held four days a week. A typical full-load would be 12 classes resulting in about 11 hours of classroom time. Surveys indicate that students spend a total of only 20-25 hours per week in classroom and studies.

It is ironic that college students spend so little time in education while top high schools require much more than 40 hours per week. In my experience, students in non-sciences, from rigorous high school curriculums, find college much less challenging. Upon graduation, if the student is fortunate enough to get further training by their employer, they will typically be required to spend much more than 40 hours per week in their training.

In any event, if educators justify 11 hours a week in class and 20-25 hours of total commitment as optimum, then they are underutilizing their facilities. With so little going on, they could easily double their enrollments by simply expanding their hours of operation.

As a rule of thumb, a tenured professor spends about half time in research. This may be worthwhile, but the research should be published on the Internet so everyone can benefit from the insights or realize that they are paying for academic trivia. It is absurd that research papers are published in non-descript publications that are only available to a narrow slice of academia.

Classes should be open. With few exceptions, if there are empty seats, students or other interested parties should be allowed to sit in. In my limited experience with open classroom, I have had siblings, parents, grandparents, and friends of students attend, in addition to members of the administration, other professors and just the curious. Without exception, guests have enhanced the classroom experience.

Many more classes need be put on the Internet to broaden the education experience. "Physics for Future Presidents," an introductory class taught at Cal-Berkeley is a marvelous example. All lectures are broadcast on the Internet. They are followed by thousands of people around the world. Try it, and you will agree.

Finally, in areas such as economics and business, bring in people outside of academia with actual experience and success in the real economy to participate in the education of young people. It would be unthinkable to have professors of medicine with no clinical experience. The very best in medicine are to be found in our medical schools. In our military schools, soldiers who have actually been in combat teach tactics. Yet, in business and economics it is not unusual to find professor who have spent decades in academia with no meaningful experience in the real economy. Recently, I met the head of the marketing department at a major university that had been in academia continuously for 43 years. It makes you question the credentials of a leader without experience or real world discipline.

In summary, getting back to increasing our understanding of real world economics, we need to demand more of students, we must open up academia to the light of day by publishing research, opening classes, and bringing in outside experts with actual experience to substantiate or refute academic theories. This is how we break the economic nonsense perpetuated by the likes of Greenspan, Bernanke, and Mankiw and their academic acolytes in our leading colleges and universities.

11.Raise Taxes.

Yes, raise taxes! The ambitious programs to rebuild our infrastructure, emphasize education, develop environmentally friendly technologies, and most importantly developing new sources of energy which will put people back to work will take a large chunk of our production. It would be a shame to embark on such a program paid for by debt, deficits and other financial chimera whose inevitable collapse would unnecessarily destroy our economy.

The increased taxes must be based on consumption, not on income. Free markets can work quickly and effectively in allocating resources if given nudges in the right direction. For example, instead of spending huge political energy and time dealing with mileage standards for automobiles while ignoring trucks, tractors, airplanes and ships, simply increase the price of oil to $200 per barrel. This could be done taking the market price of oil and adding taxes to bring the total price to $200. As the price of oil increases, taxes would be reduced to maintain the price at $200. All industries and consumers would adjust quickly by eliminating marginal uses and stimulate the development of more efficient machines.

California has been effective in penalizing heavy electricity consumption while protecting low usage, low-income households. I recently installed 5 amplifiers which I calculated costs $150 per month for electricity in standby mode. When in actual operation they use 9-10X the power consumption. If I would have researched it before I bought them, I may have thought of better alternatives. The effectiveness of the program is demonstrated by the fact that the average Californian uses, on average, 30% less than the rest of the country. The utilities are continually offering programs and education to cut power consumption. And, increases in California GDP require only 60% of the power used, on average, compared to the rest of the country.

Similarly, cap and trade could be an effective program in reducing emissions if administered effectively. Effectively administered is the key because this complicated program could be easily corrupted by special interests.

Ironically, the people most adamantly opposed to increased taxes are the ones that have the most to lose in a financial collapse and in an energy-short future. An energy failure takes no prisoners. There is no protection. Financial and material wealth is an empty sack in energy-less economy. But, long before an economy runs out of energy and their environment is destroyed, the hapless people at the bottom of the pyramid, who always feel shortages first, will overturn the society. As Jared Diamond has explained in his book, "Collapse," advanced societies fail quickly when their standard of living drops significantly because people begin turning on each other. Again, the CBS documentary "2100" shows how this might happen.

If the rich want to continue enjoying the fruits of their wealth and providing for their children and grandchildren they had best join the movement to developing new, efficient sources of energy while protecting our environment. They must pay for it with a portion of their wealth, which will disappear in any event, if we are not successful in husbanding our resources and environment while developing breakthrough new sources of energy.

12.Mobilize and activate the people who have a commitment to address the issues of energy, environment, and resources that we face.

Simply sending a few bucks, attending a rally and voting for Obama to achieve "change" simply doesn’t get the job done.

One of the most cynical political comments of recent history is: “Conservation may be a sign of personal virtue but it is not a sufficient basis for a sound, comprehensive energy policy.” – Dick Cheney, April 30, 2001

The most galling thing about this thought is that it is true. However, threatening and attacking oil-producing countries is also not a sound basis for energy policy.

We have been deluded into thinking that creaky, old, grandmas and grandpas, like my wife and me, when not hiding from "death panels," can actually make difference by driving a Prius, installing twisty light bulbs in out of the way places, and avoiding purchase of avocados from Chile. The reality is, though they make a difference, on the micro-level, they have virtually no impact on the macro level where the problem exists. Energy is such a value added commodity that it will always be used. If someone saves energy, it will merely provide the opportunity to light another sign in Las Vegas, fuel a plane to fly flowers from Peru, or power a yacht.

In any event, no amount of conservation can solve the problem. The overriding problem is upstream. We are rapidly running out of energy at the source. We must develop new efficient sources in quantity to meet our needs.

To effect meaningful change, the committed must work to solve the macro problems through education, economic policy, and most importantly, by replacing our dysfunctional political leaders starting with the elections in 2010.

We still have the opportunity to use our still significant resources, unequaled agriculture production, innovative and entrepreneurial aptitude, dominant financial position, military strength and demonstrated resiliency to lead the world in dealing with the issues of environment and resources. It will not happen on our current course, but we can change that course, through the committed efforts of the people who care.
The answer to our opening question that began this admittedly long series is that we are rich because we consume huge amounts of energy. If there are not new, abundant, and continued sources of energy, no one will be rich in the future.

Comments are welcome.
Gordon Ringoen, a retired investment adviser, is an entrepreneur and college professor who lives in San Francisco. He can be reached at

1 comment:

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