Category Archives: Economics

The Finance Crisis

Explained, by Iowahawk:

I know what you’re saying — “who invited the fat chick to the Twister party?” Certainly, all of us (with the possible exception of Randy) wish she wasn’t here. But it’s important to remember that fat chicks are often an important source of party supplies, and we must take the good with the bad. In the same way, Fannie Mae supplies the critical financial weed and beer to keep our national economic party going.

The numbers are complex, but let me boil it down for the economic layperson. Fannie Mae is a government company type thing that has a large pile of money, which I will call “A”. The first thing it does is create $20 million bonuses for high performance executives like Franklin Raines, James Johnson and Jamie Gorelick, which I will call “B.” Next, it allocates an amount “C” to lobbyists to make sure important Congressmen always get a thoughtful holiday card from Fannie Mae. After subtracting B and C from A, they are left with D, which is lent to homebuyers. These homebuyers then pay back the amount E, which, when subtracted from D, leaves F, the amount Congress has to come up with. In order to keep this important financial system humming along at peak efficiency, it is necessary that you, the taxpayer, are F’ed.

RTWT, and save the Dave!

Good Move

The president has lifted the executive order banning offshore drilling.

This puts Congress in a political fix. He’s calling on them to lift the Congressional ban now, but that would require Congressional action. They can simply ignore it (though at their political peril). The neat thing is that they can’t ignore the issue forever. There is a default position not to their liking. It will expire at the end of September anyway (as it does every fiscal year) and will have to be renewed with a Congressional vote. Usually, this is uncontroversial, but not this year. We’ll see if they’re willing to do it.

Energy Versus Space?

Jeff Foust wonders if new government energy initiatives will crowd out space budgets.

Maybe. His piece reminds me of an idea I’ve had for an essay on why energy independence isn’t like landing a man on the moon.

In fact, I had a related comment over at Space Politics this morning, in response to a comment from someone named…Someone…that cost-plus contracts are a proven means of success in space:

I know alt.spacers see cost-plus as some sort of ultimate evil. But recognize its been successful in the past, from the Saturn V to the Pegasus. And the X-33 would likely have been finished and test flown if NASA had used its traditional cost-plus approach instead of the fixed price model they used. If NASA had funded the X-33/VentureStar under the same procurement model as the Shuttle it would be flying today.

To which I responded:

But recognize its been successful in the past, from the Saturn V to the Pegasus.

Only if by “successful,” you mean it eventually results in very expensive working hardware. Not to mention that Pegasus was not developed on a cost-plus contract.

And the X-33 would likely have been finished and test flown if NASA had used its traditional cost-plus approach instead of the fixed price model they used.

Perhaps. At a cost to the taxpayer of billions. And probably a radically different vehicle than the one originally proposed.

If NASA had funded the X-33/VentureStar under the same procurement model as the Shuttle it would be flying today.

Perhaps. And likely just as big an economic disaster (and perhaps safety one as well) as the Shuttle.

We don’t like that form of procurement because historically, in terms of affordable access to space, it has repeatedly been proven not to work.

Anyway, I do need to write that essay. We’re not going to get energy independence from government crash programs (though prizes may be useful).

Economic Idiocy

The Dems are finally starting to come to their senses about energy production, but not quite:

One idea floated by Reid would require that whatever oil is drilled in newly opened areas would need to be sold in the United States.

This is pure, unadulterated economic ignorance. Senator Reid, go to the board and write one hundred times, “OIL IS FUNGIBLE.” WTF difference does it make where the oil is sold? The important thing is to get it on the market. If we are pulling new oil off the north slope, it might make sense to ship it to Japan, improving our balance of trade with them, and relieving them of the cost of shipping it all the way from the Persian Gulf. It might in fact make sense to simply ship new oil from the Gulf of Mexico to Gulf refineries, but that should be a market decision, not an arbitrary and idiotic political one. “Energy independence” is an economic myth.

And then, we have this:

Democrats also want any compromise plan to include investments in clean and renewable energies, a crackdown on oil speculators and proof that the oil and gas companies are fully utilizing land that is already leased for exploration.

What does a “crackdown on oil speculators” mean? It’s called a futures market, and a lot of people play. It serves a function of reducing risk for many in the industry. “Speculation” is simply a dirty word for “investment.” This new scheme where people can buy gasoline ahead of time at a fixed price? That’s speculation, folks.

And this:

“If they were showing in good faith that they were drilling on some of the 68 million acres they have now, it might change some of our attitudes,” said Sen. Claire McCaskill (D-Mo.).

So, in order to get access to leases with high potential, they have to waste their money drilling on leases with low potential? Brilliant.

The only way to change the attitudes of people like this is Economics 101. And I doubt if even that would help.

The View From Obamaland

Who dare call it fascism? Jeffrey Lord does:

…when faced with a disagreeable problem (in this case the lack of jobs) the answer for Obama always seems to get back to the manipulation of the political process to achieve the desired result.

Are Obamalanders uncomfortable with the free-market driven success of talk radio? Then they will “figure out ways to use the political process” to shut it down. In the case of talk radio, how else to explain the threatening Reid-Obama letter to Rush Limbaugh’s business partner? How else does one explain the attempt to retrieve the “Fairness Doctrine” from the dustbin of history? These are nothing more or less than the “use of the political process” to subvert someone else’s freedom. Period.

Are Obamaland followers hostile to oil? Do they hate SUVs? Do they think you have no right to heat or cool your own home beyond what they consider politically correct? Do they think you should pay $5 — or $6 or $7 or $8 or more — for gas at the pump to ensure you conform to the Obamaland world-view? Yes, they do think all of this and their Obamaland answer is inevitable. They will “use the political process” to stop drilling off shore in its tracks. So too with stopping the use of oil shale or ANWR or anything else that even hints at allowing average Americans their basic freedom to drive whatever vehicle wherever they damn well please whenever they damn well please. In Obamaland it is not only perfectly acceptable, it is gospel from the secular bible that they must use the political process to stop refineries from being built, to keep nuclear power plants from being built, to keep coal from being burned. Use the political process to forcibly mandate the temperature inside every single American home. As a matter of fact, why not just go all the way and nationalize the oil companies — this actually being suggested by Obamaland’s New York Congressman Maurice Hinchey.

He also has the full quote from Obama that I’d missed part of the first time around:

“We can’t drive our SUVs and, you know, eat as much as we want and keep our homes on, you know, 72 degrees at all times, whether we’re living in the desert or we’re living in the tundra, and then just expect every other country is going to say OK, you know, you guys go ahead keep on using 25 percent of the world’s energy, even though you only account for 3 percent of the population, and we’ll be fine. Don’t worry about us. That’s not leadership.”

This is economic idiocy. Why in the world would energy consumption be expected to correlate with population? Yes, we have much higher per-capita energy usage than much of the world (e.g., Africa). But we also produce much greater wealth per capita than much of the world, and much of that wealth goes to make the world wealthier, in many ways. The notion that we should only use energy in proportion to our population is economic ignorance of the first rank. In other words, it’s exactly what I would expect from a Democrat, and particularly Obama. Though to be fair, there are a lot of economically ignorant Republicans as well, including their current standard bearer, by his own admission. But unlike Obama, he at least admits it.

Who Says It’s Inelastic?

Has our oil consumption dropped to 2002 levels? We’ll see what effect it has on the economy. It has to be hurting tourism.

[Late morning update]

Paul Dietz mentions Bob Zubrin’s flex-fuel crusade in comments. It looks like both candidates may be on board with a mandate for this:

The really good news is that both Senators John McCain and Barak Obama have declared their support for the Open Fuel Standard that must be adopted to ensure that each of the roughly 17 million cars we buy in this country every year are Flexible Fuel Vehicles.