19 December 2008

Do what you say

My parents taught me that it is better to say up front that you are not going to do something than to promise to do it and then not follow through. I use this common anecdote in explaining America's refusal to ratify the Kyoto Treaty to Europeans who brag—all high and mighty—about their commitment to reducing greenhouse gases (and, of course, imply that we—as a country—are the boorish, inconsiderate roommate of this planet.)

I've been following this issue for a while, watching as it has been becoming more and more apparent that the “first world” signatories to this treaty would not be able to live up to their promises. It seems that the EU—led by Germany—have almost totally backed out of their commitment; their “actual reductions might be as trivial as 4%” reports The Wall Street Journal.

So it looks like, collectively, we are the “good son” after all; when ask to step up to an impossible task, we simply said “sorry, we can't do it.”

I suppose the rebuttal would be: “at least Europe tried to make a difference,” to which I would ask did American business, innovators, and local government not try?

26 August 2008

Oil Will NEVER Get Cheaper

The sting of higher fuel prices are probably nowhere more apparent than here in the southeast US where people drive more, earn less, and define themselves by the size of their pickup trucks and SUVs. Naturally, this distress has generated all kinds of strange theories on what’s causing these unprecedented fuel prices (actually, in constant dollar terms, we are only now returning to the elevated fuel costs of the 1970s.) Everyone from the lowly gas station attendant to Saudi oil sheik to the shadowy speculator have been a target of wrath from truck owners who have just spent $100 to fill up their tank. But what really is the cause of this increase?

The answer is simple: an unprecedented increase in global demand. Prior to the last decade, the demand for fuel—and for other resources such as metals—was more or less directly related to the economies of developed, western countries. What has changed now is that the rest of the (developing) world is catching up with us. Countries formerly behind the iron curtain and throughout much of Asia, Africa, Latin America have been held back economically for decades (by corrupt and/or incompetent governments, I would argue.) Now we are seeing economic (even if not political) liberalization across the board—you can nearly count the exceptions on one hand, and even in those countries, like Cuba and North Korea, micro-enterprises are starting to flourish. Why is this happening? Because even neo-communists like Hugo Chavez and Evo Morales recognize, at least to some extent, that freer markets are the key to economic prosperity—which, incidentally is why we shouldn’t worry so much about the leftist resurgence in South America.

The economic, regulatory, and even cultural barriers that had prevented progress over so much of the developing world have been lifting in the last two decades. This freedom, in turn, has resulted in upward mobility in the population of these countries as businesses grow and trade increases. As these people—who are the majority of the 6 billion of us here on this planet—move into a sort of middle-class (by world standards at least) they begin to demand the same kind of goods that we in the west have been used to for generations: richer food, comfortable housing with modern fixtures and appliances, and even motor vehicles. [update: see this article in February 12, 2009 The Economist]

Granted, this global “middle class” cannot be compared to America’s middle class in terms of conspicuous consumption and outright waste. In fact, nobody could reasonably expect any country, industrialized, “transitioning,” or developing, to ever approach the wasteful level of energy use of Americans. However, even if the rest of the world begins to use just one-fourth of the level of resources per capita of Americans, we are looking at an incredible amount of increase in demand for everything that is mined, manufactured, and grown.

Consider Tata Motors of India; its new $2500 “Nano” 4-seater is in the price range of this emerging, third-world middle class. This means that, theoretically, there could soon be a billion (or even billions of) new cars on this planet! Compare this to the millions of cars that are sold in the west, and you will see why I think that high fuel prices are here to stay; demand has exploded, and will continue to grow at an exponential rate—a rate that supply will have a hard time to match. I realize that fuel prices have dipped back down a little in the last few months (and SUV owners are breathing a little easier,) but I am talking long-term trends here. I have yet to see anyone demonstrate how global supply of fuel or any other natural resources—for that matter—can possibly rise as fast as worldwide demand is ramping up. [2016 Update] Do-oh, I guess that I didn't have any idea about fracking in in 2008

When you look at the potential (and likely) rise in global consumption of almost any resource now, it is downright scary! Furthermore, this surge has just begun; when it comes to gasoline, California alone still uses more gasoline than any other country beside the US (Wired article.) This year, China is poised to overtake this one state in gasoline usage, but certainly not the entire US. This is both an indictment of our (and especially California’s) car culture (China has 1.1 billion inhabitants compared to California’s 36 million,) and an alarming preview of how much more of this particular resource we will needed in the future.

What is being proposed?

Everyone is looking for a silver bullet to solve this problem. There is a widespread assumption that some breakthrough is on the horizon that will save us from having to face difficult choices, and—on the fringes—there are those that think technologies are being purposely suppressed by incumbent energy companies and even governments. Whether we are talking about ethanol, bio-diesel, hydrogen fuel cells, electric cars, solar panels, or wind power, what is consistently overlooked—or perhaps omitted—are the facts regarding the lead-time for these technologies, the energy debt they require, and the simple physics that prevent some from ever becoming an effective solution.

Regardless of how revolutionary a new energy source or method of using energy more efficiently may be, it is practically impossible for such an invention to ease our energy crunch this year, or next, or even 4 years from now. Assuming you’ve invented a widget that would make all current cars twice as efficient, and it is so simple that it requires no further research and development; it would still take years to manufacture, distribute, and install this device. (Incidentally, I trust that you already know that ALL after-market gas-saving devices out here are total scams, the only way they can work is by placebo effect—you may subconsciously drive more carefully after installing one of these devices.)

Likewise, if solar panels finally crossed that magical tipping point of economic feasibility, we simply couldn’t make them fast enough to supply our energy needs because the very manufacture, transportation, and installation of these “energy saviors” would require several times more energy than they produce in a year—not to mention the all the aluminum, steel, copper, glass, silicon, and various other esoteric (and often toxic) materials used to produce solar panels. The same goes for wind power, despite this article’s assertion that offshore wind farms could produce all of America’s current electric needs, neither the article nor any of the comments below it address the energy and natural resource requirement of such a enormous project. Please don’t misunderstand me, I am not against alternative energy; I think it’s a shame that America lags Europe in this respect—places like Germany and Denmark already produce a significant percentage of their electricity by wind and solar. All that I’m saying is that this can’t happen overnight. [Update 6-Sept-08] Just found this article that show how urban wind turbines are actually bad for the environment!

Hydrogen is being touted as the ultimate in alternative fuels for vehicles, since its only emission is water vapor. However, free hydrogen does not exist on earth; it only occurs in compounds with other elements: namely with oxygen, to form water; and with carbon to form various hydrocarbons. In order to isolate hydrogen from these compounds you have to use more energy than the hydrogen can ever produce, regardless of whether it is used in a combustion engine, fuel cell, or an entirely new, revolutionary technology. These are the laws of physics that simply can’t be broken (see this article.) Therefore, all hydrogen can ever be is a method of energy storage—just like a battery. This, in turn, would require even more clean electrical power generation than mentioned in the previous scenario in order to be a truly environmentally-friendly solution.

What can’t we do?

Obviously we cannot prevent the third world from developing. I use the word “cannot” in every sense of the word; it is nearly impossible to stop the “invisible hand” of the free market from expanding these economies, certainly any coercive action to keep the third world in its previously underdeveloped state would be unthinkably immoral, and even requiring—or just encouraging—policies that would mitigate the impacts that we have experienced in our development over the last century, seem incredibly hypocritical to third world populations that now want to “test out their new wheels!” In other words, I think we have no moral authority to prevent the third world from following the path we have already taken regardless of the economic and environmental outcomes.

What needs to be done?

Depending on your background and political biases, you likely lean towards either conservation or further development of existing supplies. Certainly everyone is for developing alternative energy sources—well except for those that feel their homes or properties will be directly or indirectly effected (interesting nutcases against wind turbines.) However, I think it is obvious that we need to do all of the above. Despite the manifestly evident need for conservation, no politician is going to propose this, since it reeks of weakness (remember Jimmy Carter’s “sweater speech”?) Thankfully, the market will take care of this…which brings me to my next point.

What will happen?

What will happen is that the market self-corrects. Naturally, as the demand for something increases, the price does as well—thereby tempering the demand while, at the same time, encouraging greater production of said resource and its substitutes (alternative energy in our case.) This is why it is so important that our leaders do nothing to distort the market. McCain and Clinton’s proposed gas tax holiday was just such a bone-headed idea: it would have softened the very necessary market signals that tell us, as consumers, to reign in our consumption and producers (including alternative energy upstarts) to ramp up production, exploration, research, and development. Likewise, incentives to produce ethanol from corn, which is horribly inefficient, has proven to be a boondoggle that nobody but Iowa corn growers benefit from.

The other option is to introduce a dizzying array of counter-balancing regulations, taxes, and subsidies: laws and incentives to force individual and industrial consumers to conserve artificially inexpensive resources plus incentives and outright subsidies to producers to increase production and develop new sources despite a price that is too low to make an economic case for such investments. These prohibitions and inducements would, of course, be gamed by all sides despite legions of bureaucrats to administer it all!

I have been planning to write and publish the post for some months now. What has happened in those intervening months seems to counter my thesis that fuel prices will remain high indefinitely. The reason that fuel prices have fallen (slightly) this summer is that demand has slumped—bringing about the concept of a “staycation” for instance, and production has risen—Canadian oil sands are now economically feasible for example. However, as I’ve said before, this is a temporary dip; the pent-up demand for fuel and other resources in the developing world will only continue to rise, negating the effect of all our conservation efforts. Furthermore, the higher cost producers require to maintain new sources such as marginal oil wells or oil sands means that we can never get back to the prices of the previous decades unless worldwide demand commensurately shrinks to that time as well, idling these more expensive resources. (Interesting CNN article about this)

We simply need to get it through our thick skulls that energy will never again be as cheap as it used to be. The recent rise in fuel prices is not an anomaly that will quickly pass; oil (and other natural resources) are indeed scarce enough to demand these prices (not to mention yet unknown cost of environmental impacts of using said resources.) We now need to reorganize our lives and communities to deal with this new reality. Ever the optimist, I actually think that—for the most part—we are learning this. For example, even the gearheads at Motor Trend are admiring compact, fuel efficient European cars.

[Update – March 2009] With gas still under $2/gallon, and no sight of a serious economic recovery in the near future (necessary for demand to rise,) one might think that I would want to retract this post. However, I stand by everything I have written here last year. I am confident that, in the long-term, I will be vindicated in saying this is just a temporary dip in the price of fuel. No one knows how long this recession will last, and even after a recovery there will be a surplus of oil that has been cached all around the world during this period of low demand. Never the less, I challenge anyone to claim the following is bad advice: “Do not allow your local car dealer to convince you that now is a good time to buy a gas-guzzling SUV or truck because gas prices are going to stay low. Within the service life of any new vehicle you buy now (let’s say around 5 years,) gas will rise back up to the $4-$5 per gallon range.”

[2016 Update] OK, I give up. I was wrong. Largely as a result of the fracking revolution, America suddenly has more oil than it needs. However, I still would not buy an SUV; regulatory pressure and long-suppressed uptick in resource demands from the developing world still loom in our future.

17 July 2008

You can’t sing that, it’s my song!

I suppose the story is the same between young siblings and/or cousins in families across the world: a mother teaches her son or daughter a song, and the child takes ownership of the song to such an extent that you eventually hear something to the effect of: “You can’t sing that song, it’s my song!” when an older sibling (or cousin, or even uncle) provokes the little one by daring to sing his or her song.

It’s all very cute for small children, but we wouldn’t expect to see this kind of childish behavior among adults, and especially in the NGO world where everything is supposedly for the greater benefit of mankind. So it was with great interest that I read these recent articles about the explosion in commercial microfinance (positive and negative ) in BusinessWeek.

Microlending (a.k.a. micro-loans) have been the bailiwick of non-governmental development organizations (NGOs); I would goes so far as to say they have been the single, most effective use of these organizations’ funds. Their funding, which can come from a number of public and private sources, is given with the explicit or implicit stipulation that they will be used to help needy people of the underdeveloped world. Prior to Muhammad Yunus’s revolutionary idea of making tiny—by our standards—loans to poverty-stricken entrepreneurs in the developing world, development funds were generally either given to the governments of these developing countries, or used by the in-country aid agencies.

Of course, direct payments to a 3rd world government or its associates does about as much good to the suffering people of in their country as wiring the money directly into their leaders’ personal bank accounts, because that is where most of it ends up anyway. Assuming this is an unfairly harsh characterization, at the very least and by virtue of the underdeveloped state of their economy, the policies put in place by these governments (of course it is always the previous regime’s fault) demonstrate that, collectively, the government is horribly incompetent—therefore, a direct payment is throwing good money after bad.

On the other extreme, you can send in your own people to administer the disbursement of these funds, but regardless of how idealistic they are, if they are intelligent, competent and successful, they will need to be properly compensated and will require a nice home with western amenities, an office with air conditioning, and a Land Rover to negotiate the poor roads. Besides eating away a good portion of the funding—ultimately intended for the suffering population you are trying to help—this also causes a certain amount of resentment from local staff and the population in general.

Regardless of which method you choose, you will only be able to help a small number of individuals or businesses in any particular country. This is the simple reality of the situation: the need is great, but your budget is limited—even if you have the backing of someone like USAID (the US government) or UNDP (the UN.) This, in turn, creates “islands” of development aid. While these “islands” usually have a geographic characteristic (concentrated around the capital and other major cities) it more accurately describes the network of people that are “in” the development community; in other words, those that get the help do so because they know people, know how to fill out a grant application, etc. Those that are outside of this “island” have little chance of getting any help (either monetary or technical), and again this is regardless of the idealistic and egalitarian intent the program may have been set up with—this is just how it work; some get seconds before equally deserving entities get anything.

Returning to the topic of microfinance, this is generally a wonderfully effective use of development funds. The purpose of each loan is to create or expand the business of a desperately under-served entrepreneur/small businessman—giving them something, even if only a subsistence job, where before was absolutely nothing. In effect, each loan is a direct, targeted (albeit very small) aid package to an individual, family, or small business that would otherwise have no access to capital due to a total lack of credit history, collateral, or any other traditional way to demonstrate creditworthiness. Incredibly, micro-loans—as they’ve been administered—have a surprisingly high repayment rate. This means that as loans are paid back (and with interest) this money can be lent out again and again—eventually benefiting many more people than any other development program could do with the same amount of money. Microlending has deservedly become popular throughout the development community; even the smallest NGOs and religious organizations are getting into the game. Since you are already on the Internet, you can even surf on over to kiva.org and make you own micro-loan!

Naturally, financial institutions have woken up to this lucrative market, and entered the mix. Now some in the NGO world, especially Mr. Yunus, are crying “foul!” However, in practice, the high ideals of people who say that we should not make money from the poor in this way are simply limiting the opportunities of a vast population who are simply not “connected” enough to be one of the few, lucky ones who gets a loan from an NGO. Regardless of their intent—in my mind at least—they come out looking like the child who says, “you can’t sing my song” or, worse the hood who says, “hey, that’s my turf!” The whole purpose of micro-finance is to provide capital to previously underserved populations; now that traditional players are doing so, Mr. Yunus and the rest of the NGO community should pat itself on the back for making a real, effective change in the world instead of worrying about their own turf.

Granted, part of their complaint is that these for-profit entities charge too much interest, but as more commercial players enter the market, the interest rate will naturally settle to a level commensurate with the risk of such loans. We know from basic economics that the riskier an investment, the higher interest (or other form return) that will be expected. This risk/reward curve gets a little discontinuous at the extreme where defaults are very common, but let’s remember that even the slimiest payday lender is providing credit to someone who has no other alternatives.

Likewise, I am concerned about the Mexican big-box retailers mentioned in this article that are marketing the western “have it now, pay later” lifestyle that may cause more harm than good to these desperately poor people; but who am I to say that only I and my fellow middle-income earners of the world should be allowed to have these modern conveniences? In this regard, concerns about payday/title loan sharks in the US and questionable lenders in the developing world both result in a very paternalistic view of the “great unwashed masses” of the world—which I am willing to concede is sometimes warranted, but doesn’t have a place in discussions of a free market.

Déjà vu

This issue reminds me of a very similar complaint last year from Nicholas Negroponte of the One Laptop Per Child project. (WSJ article) He was whining that Intel, Microsoft, HP, et al were chipping away at his non-profit’s business after he and his brilliant team from MIT developed the versatile and inexpensive (although never quite reaching the promised $100 price point) XO computer for underprivileged children across the world. Again, he should have simply declared victory—these huge incumbent companies are now making low-cost computers to fill a previously underserved market: the developing world. Instead he questioned their motivations—namely that they were just temporarily lowering their prices to get the developing world hooked on the WinTel platform (instead of his open-source platform.)

Disclaimer: This is in no way an indictment of any organization that I have been associated with, rather it is a general observation of international development efforts that I've seen during my stint in this field and from my continued interest in this area since then.

25 June 2008

New material

I know I’ve said this before, but The Persistent Itch is back! I’ve missed having the recurring surge of creativity and intellectual stimulation required for coming up with a new posts for this blog. The following ideas have been bouncing around in my head for a while, and I am now committed to start writing posts beginning with these subject.
  • World Resource Allocation

  • Who is to blame for ever increasing fuel and food costs? Bush, OPEC, speculators? No, actually the proverbial “starving child in China” and others in the developing world are “at fault” for trying live the life we in the west are accustomed to—and therefore we can’t really blame them.

  • Islam’s Last Gasp

  • Terrorist training camps in Afghanistan, refugee unrest in and around Israel, Al-Qaeda in Iraq, the rise of Islamic parties in Egypt and Turkey, and even riots in France and England seem to point to a rising tide of Islamic extremism around the globe. However, I posit that this is actually fundamentalist Islam’s last gasp; an overwhelmingly young demographic in most predominantly Muslim countries are actually yearning for western products, music, and popular culture; those young people that are embracing extremist Islam are actually a tiny minority.

  • Fair Trade

  • Juan Valdez gets an extra fifty cents per bag of coffee, which is great, but if I have to pay an extra three dollar to give him this fifty cents, is is really worth it? I suspect that due to the less efficient supply chains of “sustainable, fair trade” companies, Juan gets a smaller percentage of my purchase price when I buy “fair trade.”

  • Local Food

  • For all the talk of “food miles,” I suspect that a carrot shipped 500 miles in a Wal-Mart tractor-trailer (that is packed to the roof) actually has a smaller “carbon footprint” than the carrot brought 50 miles into town by the friendly, local organic farmer in his pickup truck or box van.

  • Gift-o-marketing complex

  • Just as there may be sinister military/industrial complex convincing our leaders in the White House and Congress to buy, buy, buy expensive new weapon systems and associated goods & services, there is a very real and sinister force that is influencing (mostly) the women in our lives to buy and gift items to friends, family, and acquaintances for an ever-increasing number of holidays and special occasions. I would not be surprised that within the next generation these marketers will have convinced the women of America that it would be socially unacceptable to not exchange Arbor Day gifts among friends and family.

  • Personal investing strategies

  • They say to build wealth, start an investment account with as little as $500; while I understand the sentiment, I think it’s downright stupid with for someone with $5000 or more of credit card debt—which is most Americans.

  • Save by NOT buying at all!

  • While this concept is so obvious that I can’t imagine needing to expound on it, apparently a lot of you out there don’t understand that unless you really need/require something, in the long run you will be happier and more prosperous by delaying or even denying yourself the purchase of unnecessary goods—more of my minimalist philosophies.

On the computer front, I have a new laptop—with which I am writing this right now—the diminutive Asus eee series 900. It’s a great little computer that attracts attention wherever I go and does 90% of what I need it to do—all for just a little over $500! Despite its ultra-portable form-factor, I actually don’t drag it around with me most of the time because I have a computer in my pocket that let’s me surf the web, check my email, or jot down a note—the Apple iPhone. Thanks to Ziphone.org I didn’t have to sign up for the pricey AT&T data plan—especially since the EDGE (GPRS) data network is so slow it’s practically unusable.

Red Bank Hydro
After a nearly year-long lull in this project, the motor/generators were finally installed earlier this year, and as of 21 May 2008, we are officially making power! Unfortunately, this coincided with a drought period here in South Carolina, meaning we are only able to generate a fraction of this plants potential, and only during the peak hours of 12:00-22:00. I have been gradually designing and installing progressively more sophisticated controls; the next step is to install a water level transducer and program the PID functionality of the PLC to ride the level of the lake. YouTube video

As if blogging is not enough of a chore, I signed up for “Twitter” the micro-blogging (140 character maximum—for SMS) service. I did it only to secure http://twitter.com/froese but who knows, I might occasionally throw some status updates out there, so follow me if you have an account; in any case, I’m adding the feed to the right hand column here.