The Energy Future is Here! (if we want it)

Wind Farm

Many of us hear about the problems we have facing our nation and the world when it comes to energy. We hear about the pollution; the large amounts of CO2 added to the atmosphere, the tons of mercury and sulfur dioxide released from burning coal. While some may contest the reasons for climate change, no one can deny the environmental hazards of oil spills and coal mining. On top of this, we are reminded of the world’s growing population. Hundreds of millions of people from China, India and Brazil are emerging out of poverty, all becoming Westernized consumers, which puts a further strain on our demand for energy.

            For generations we have been burning coal and drilling for oil to meet our energy demands. Much of our society is deeply rooted in these industries and the culture they have helped to create. Then come along these “scientists” that say we can make energy from wind and solar panels. A number of other technological ideas have presented themselves as well, some more feasible than others. These ideas many seem like something out of a sci-fi movie in the future. Imagine an entire world run off of renewable energy. Seems like a world that only Gene Rodenberry could give us on the big screen.

But this world is closer than you may think. We have the technology and everyday we are getting better and more efficient at creating energy from renewables.

This year, worldwide wind production has surpassed 250 gigawatts. In the U.S. we produce 49.8 gigawatts now from wind.  How much is this? In the U.S. we have about 490 coal-firing plants, each producing on average 667 megawatts. Coal plant So, our current energy produced by wind power in the U.S. is equivalent to about 73 coal plants. Wind power usage has grown about 25% in the past two years. If this trend were to continue consistently, in just 10 years wind power could replace all electricity that is currently produced by burning coal.

Denmark has the largest percentage of its energy powered by the wind. 28% of Denmark’s energy now comes from wind. China and India are the other 2 largest producers of wind energy.

            Then let us not forget solar power too. Germany is number 1 when it comes to using solar power. Germany gets 40% of its electrical energy from solar power now. Over 22 gigawatts, which is equivalent to about 20 nuclear power plants. After the Fukushima disaster, Germany put in place a plan that is well underway to close all their nuclear power plants by 2020. Spain gets 10% of their energy from the sun and Italy is a close second at 9%. Currently the U.S. makes 4.2 gigawatts from solar energy, which is the equivalent to

Blyth Solar

another six coal- burning power plants. Our use of solar is increasing as well. There currently are plans for other large-scale solar farms, which will add another 4 gigawatts in the next 2 years. In California, Governor Jerry Brown set a standard for 33% of California’s power demands to come from renewables. Factor in the rate of growth from solar power, between wind and solar, coal-burning plants could be a thing of the past in as little as 8 years.

While replacing coal is desirable for a number of reasons, the bigger issue on most people’s minds today is gas and oil. Especially their prices, what we pay at the pump and how rising oil prices also increases the price of all our consumer goods. Oil prices have risen for one reason. Demand! Not only our increasing demand from 320 million Americans, but add another 3 billion people from the growing economies of China, Brazil, India and others, and you have almost 10 times more people demanding oil than there were 10 years ago. This is a big problem as well.  There simply aren’t enough oil resources throughout the world to keep up with this growing demand. It’s a good thing too, because of all the added emissions that will be released from the exponential growth of oil use. So, what’s to be done?

            In the U.S. about 40% of our oil is used for electric power, 29% for transportation, 21% industrial and 10% is residential and other commercial use. First, imagine if we could eliminate the 40% used for electrical generation and replace it with wind and solar. Then there is the recent emergence of electric and hybrid vehicles. Yes, they are expensive now, but so were the VCR, home computer, cell phone and DVD player when they all first appeared on the market. Again, these things will get cheaper and more efficient as time moves on.

The biggest question is how fast will we make these technologies cheaper and more efficient? Will we support policies to further promote our clean energy future, or do we just want cheaper gasoline. The problem with just pursuing cheaper gasoline is that it will slow and prolong the growth of green energy. The recent advances in wind, solar and electric cars have been sped up in part because of the rising cost of oil and gasoline. Higher oil prices have pushed us to pursue and expand on these renewable technologies. If gas prices are lowered, our complacency operating under an unsustainable path of dirty fuels will continue.

To help encourage and advance these renewable energy sources, various tax credits have been given. As we argue about our current budget deficit, are these tax credits that encourage market growth for renewables in danger? Over the past few years the Department of Energy has initiated programs that give grants to developers of renewable energy for further R&D, all which has helped make these technologies even more efficient and cheaper. In addition the Obama administration has doubled the fuel efficiency of cars to 54.5 MPG by 2025, again in an effort to reduce demand and make driving more cost efficient.

The technology is here. All around the world countries are employing green energy and energy efficient technologies at a staggering rate. Walking in the streets of Beijing, hundreds of old diesel motorbikes are now replaced by electric bikes. We’ve developed numerous other energy saving appliances such as water heaters and air-conditioners. Again, the technology is here. It’s in our hands. Do we continue to expand our energy security, while promoting a cleaner environment by making use of resources that are unlimited and free for the entire world? Or do we look for the cheap way out, continuing to pollute, continuing to fight over locations for fossil fuels, all which carry other large expenses. Cheaper gas and coal may be easy in the short term, but result in heavy extraneous costs in the long term. It is just that we can’t continue this path forever and we all know it. We will eventually have to change our ways. Do we change now or later? We can and are doing it now, creating jobs along the way.  One of the big questions in the coming election is how much of an effort are we going to put forth towards our future. Are we going to lead the way for the world, or will we let China and India lead in these technologies? They already have a head start on us, but we are in a perfect position to catch up and surpass them all.

energy debate

Education; “An Economic Necessity”

failing grade

 

Education and Immigration. In our world of politics the parties of the left and right have been arguing over education and immigration policy.   Republicans on the right, while using rhetoric on the importance of education, have spoken against the need for further funding in this area and for increases in immigrant visas. For education, the recent budget proposal by Paul Ryan asked for a 30% cut in federal spending on education.

The majority of education funding in America comes from state taxes. However over the past 10 years, states have severely cut budgets across the board for all types of funding. Over the past 3 years, 34 states have cut funding for K-12 education and 43 states have cut funding for colleges and universities. For a full understanding to the severity of these cuts look at the report from the Center on Budget and Policy Priorities. http://www.cbpp.org/cms/index.cfm?fa=view&id=1214

The federal allotment towards education gives states some help but mostly goes to fund loans and scholarships for higher education.

So we need to cut spending?  According to the Ryan budget he wants to cut education spending by 30%.  Kind of confusing since Mitt has stated in his last debate that he wouldn’t cut education at all. Even though Obama has increased education spending at the federal level, state budgets that make up the majority of education expenditures have been falling drastically.

So how much does the U.S. government (federal, state and local) spend on education? This chart lists the figures that various countries spend on education as a percentage of edu_spendingGDP per capita in 2009.  Primary education is typically K-8th grades. Secondary is 9th through 12 grades and Tertiary is advanced schooling such as college, university and other advanced vocational studies. Out of all these developed countries, the United States is the only one that spends less on Tertiary education.  How much less?  On average all these other countries spend 12 percentage points more on tertiary education than their secondary education. We in the U.S. spend 5.8% less on our higher education.

OECD test scores

Lets compare the above spending chart with this chart of OECD test scores in Math, Science and Reading. All the countries here that spent more on tertiary education have scored higher in all three categories of reading, math and sciences. The only exception being Iceland and Norway, which scored slightly lower than the U.S. in science.

It is clear we have a problem with a failing education system.  Many would like to blame our teachers. Attracting competent teachers is definitely part of the equation and great steps are being made to ensure better competency in our teachers. A recent article in the New York Times points out measures of improvement in our evaluation of teachers.

http://www.nytimes.com/2012/10/16/education/seeking-aid-more-districts-change-teacher-evaluations.html

But can we rely on reforms to teacher evaluation as the sole reason for our declining scores in education?  Are the charts above compelling enough that we need to be spending more on education, especially higher education.

Why is education such an important component? President Obama has called increased funding for education an “economic necessity”, and it is.

In my book I make reference to a study by the U.S. Manufacturing Institute in early 2012 that estimates 600,000 jobs are available in the U.S. but unable to be filled because of a lack of qualified workers.

When we think of outsourcing jobs, we typically think of outsourcing low-skilled jobs that anyone can do in countries with cheap labor markets. This has been mostly true from the start of expanded outsourcing in the 1980s. Defendants of outsourcing have always used such arguments in support of these practices:

“Moving low-skilled, low paying jobs overseas, increases higher skilled jobs among our own work force.”

This may have been true at one point, but it no longer holds any meaning. Companies are outsourcing high skilled, higher paying jobs as well now. Jobs such as Data Analysts, Computer Programmers, Engineers, Drafters, Financial and Accounting positions, is just the tip of the iceberg in a long list of jobs moving overseas. Goldman Sachs recently announced it was moving 1,000 jobs to Singapore. You think they are hiring low-wage, low-skilled people in Singapore to do their Market Analysis? Look again above at what Singapore spends on education compared to us and look at Singapore’s OECD test results.

Just about every major U.S. company or firm has high-skilled, high-paid employees abroad. Everyone from GE to Alcoa to IBM, together employ hundreds of thousands of high skilled workers around the globe. None of this is done because of cheap labor. It has to do more with where the skilled people are. They are increasingly not in the U.S.

Our immigration system doesn’t help much either. We limit the number of H1B visas to 65 thousand per year. On the surface, people have argued that we shouldn’t allow more foreign workers to come to the U.S. cause it takes away American jobs. My first response would be, “Foreigners are taking our jobs anyway, whether we allow them to work in the U.S. or not.” The other point I would make is that many of these foreigners with H1B visas stay in the U.S. and start businesses. A study from the Kaufmann Center estimates that between 1995-2005(the tech boom) 52% of Silicon Valley start-up companies were started by immigrants on H1B visas. Silicon Valley and the tech boom isn’t the only phenomena where we have benefited from attracting foreign talent. Our entire economic history has been drastically improved from the contributions of foreign talent. (And I don’t just mean back in the late 1800s and early 1900s when we had huge waves of immigrants.) Thousands of today’s companies are the result of immigrant ingenuity.

Alexander Gram Bell was from Scotland; William Boeing was from Germany, as well as Albert Einstein. William Procter and James Gamble of Proctor and Gamble are English and Irish immigrants. More recent foreign contributors are those such as Sergey Brin, who cofounded Google. Sergey was also a H1B immigrant who went to the University of Maryland.  Then there’s Pierre Omindyar who started eBay, both Fortune 500 companies. And the list goes on and on.

Either way, between immigration and our own education system, America is experiencing a severe “brain drain”. We aren’t attracting enough foreign talent, nor are we doing enough to educate our own.  Whether it is immigration or education, we can look at our history and our current policies as compared to the rest of the world. When we do this, we should gain a clear direction in which to follow if we are to ensure our economic prosperity.

When Promises and the Math Don’t Add Up.

The first presidential debate just held in Colorado had President Obama going head to head for the first time with Mitt Romney. Most accept and believe Romney was the clear winner of this debate.  After the debate was over, fact checkers went into high speed, working on the various figures thrown out by the two contestants.

Romney seemed to win in part because he told the American people things they wanted to hear, whether their was any basis for them or not. Obama however seemed to get too bogged down in the grim details of the situation our nation faces.

Of all the great things Romney promised, he said he would balance the budget. At the same time he said he wouldn’t raise any new taxes. In fact he proposed lowering taxes and closing loopholes, but doing so in a manner that remained revenue neutral. This means the government wouldn’t get any additional money. Obama agreed with closing loopholes and being able to lower the corporate tax rate, but stands by the idea that we still have to raise some more revenue from somewhere. (He said preferably from the wealthy. Those who are able to afford it.)

So Romney promised to balance the budget and not raise any taxes. He also said he wouldn’t cut Medicare, wouldn’t cut education and wouldn’t cut the military. So if he won’t raise taxes and won’t cut from any of our biggest expenditures, how does he plan on balancing the budget?  He did say he’d cut funding for PBS. Funding for PBS is hardly a large expense that would balance the budget.

What is Romney’s plan for balancing the budget if he won’t raise taxes or cut any big expenses?  His idea and that of his constituents is to focus on growing the economy. The increased jobs and wealth created would mean more revenue for the government without raising tax rates. And he is right. When you grow the economy and more people are working, the government is able to raise more revenue. This reasoning makes perfect sense.

However there is one big problem with this reasoning that the fact checkers and pundits have overlooked. The thing standing in Mitt’s way for this plan to work is MATH and history. This is where we need to get out our calculators.

Over yearly federal deficit is 1.5 trillion dollars. We spend 1.5 trillion dollars more than we take in from tax revenue. So for Mitt to balance the budget without raising taxes and without major cuts, he needs to raise 1.5 trillion dollars. He suggests doing this by growing the economy. So how much will the economy have to grow in order to raise 1.5 trillion? Under current tax rates, the government earns 16% of GDP in tax revenue. If keeping the same net tax rates, the economy will have to grow by 9.3 trillion dollars in order to raise 1.5 trillion in additional tax revenue. How much is 9.3 trillion? In order to increase our current GDP of 14 trillion by 9.3 trillion, GDP would have to grow consistently at 16% for the next four years. This has never happened anywhere in the world! Even China’s largest growth rate was only 14% just before the recession hit.

Ok, so we give Mitt eight years to balance the budget under this philosophy and GDP would need to grow 8% for eight years straight. Again, this has never happened! Our average growth over the past 50 years is around 4% and we’ve had one-year peak growth at 8.5% in 1966 and 1984. Never before have we grown 8% for more than a year straight.

So far this doesn’t seem anything close to a plausible path towards balancing the budget without raising tax rates or making drastic cuts.

Ok, so let’s say Mitt does decide to make a bunch of cuts and is able to cut 500 billion out of the federal budget. (500 billion is about 14% of the total federal budget).

If he cuts 500 billion, we still have a trillion dollar deficit. Again, without raising taxes, how much does the economy need to grow so that we can increase tax revenue by 1 trillion dollars? We would need to add 6.25 trillion dollars to our GDP. It’s not as bad as our previous example, but GDP would still have to grow 11% for 4 years straight to raise an additional 1 trillion in revenue. Again, if we give Mitt eight years to balance the budget with 500 billion cut from the yearly deficit, GDP would still need to grow 5.5% for eight years straight. This sounds a bit more possible, but again very unlikely. Even during the boom years of the 90s, GDP growth averaged at 3.5% and peaked at 7% twice.

Even in this liberal example, where we cut 14% of government spending and give Mitt eight years to balance the budget by growing the economy at 5.5% each year seems highly improbable.

So if Mitt promises not to cut Medicare, military or education, then there are only two other options left to balance the budget.

1-severly gut our government functions by cutting 40% of government                                     spending in other areas.

2-Raise tax rates.

I for one believe in the “balanced” approach Mr. Obama has so often mentioned. Some cuts and some tax increases. That is what balance means. A little of both. But how can there be balance when people in the GOP adamantly insists on no new revenue?

How Capitalistic Are We? A comparative look.

Why Social Capitalism? What does that mean?  First there is capitalism, which is the private ownership of the means of production and the creation of goods for profit. In theory, pure capitalism is free of all government interference. Then there are the ideas of socialism, where the government controls certain aspects of the economy.  So which economic system do we adhere to in the United States? We certainly are capitalists with private enterprise, but we also apply socialist practices with government controls and spending. Economists define our economic system as a “mixed economy”. Well, a mix of what? It’s a mix of capitalism and socialism, which is why I like to call it social capitalism.

While we can argue the exact definitions of each theory, one cannot deny that we have always employed some balance of both theories. The main question is what should that balance be? Most of our political arguments today are based on how much of each theory we should apply to our economy. Republicans believe we should apply more capitalistic practices and Democrats believe in applying more socialist ideals. While we can go on and on arguing about different policies, here I wanted to try and see how capitalistic or socialist America is compared to other countries.

largest economies

We can start by measuring how capitalist or socialist a country is by looking at how much of a country’s GDP is controlled by the government. In the following chart, I list the top 21 countries in the world with the largest economies. I also list each country’s total government spending as a percentage of their GDP.

In this table we see the U.S. is still the largest economy in the world followed by China, Japan, Germany, France, etc. all the way down to Saudi Arabia. In the United States our government spends 38.9% of our GDP. These figures account for all government spending: federal, state and local. (Current federal spending in the U.S. is about 25% of GDP)

We can see some countries spend a higher percentage than the U.S, and some spend a lower percentage. If we arrange this list in order of spending as a percentage of GDP, we can see that France spends the highest percentage at 52% of GDP.  Indonesia is the lowest at 19.2%. top spendersWhere does the U.S.  sit comparatively? We are right in the middle. Half of the world’s largest economies spend higher percentages than us and half spend less. So we certainly aren’t near any extreme when compared to the government spending of others. Is any of this information really useful?

Before we look deeper into what these numbers may mean, I would like to first make sure we are all on the same page with the same goal. I continue with the assumption that we are all looking to improve our country’s economy with the hopes of benefiting everyone in our country.  In our quest for balance we ask if we should we be leaning further towards conservative ideals with less government spending or should we lean more towards liberal ideals with increased government spending? If we are looking to improve our economy what can these numbers tell us?

First, out of the 177 nations for which there are records (there are 206 nations total), 55 governments spend a higher percentage of GDP than America does and 121 countries spend less. If we look at the world’s top 21 economies, 9 of them spend more and 11 spend less than the U.S. This means that 16% of all the governments that spend higher portions of GDP are among the top 21 economies. In converse only 9% of countries that spend a smaller percentage of GDP have made it into the top 21 economies.

However, the overall size of a country’s economy can be largely based on shear physical size and population, as opposed to just a government’s economic policies. In order to account for population we can take the same list of countries and organize them according to GDP per capita. GDP per capita or PPP is a country’s GDP divided by the population. This gives a more accurate representation of how wealthy a country is, relative to its size and population.

GDP per capitaIf you look at this table, you’ll notice that the U.S. is only number 7 in terms of GDP per capita. The countries not on this list whose PPP is higher than that of the largest world economies are all tiny countries. Qatar, Brunei and Singapore are all countries with a higher PPP because of thier small populations that have emense oil resources or other strategic resources.

What else can we see when looking at GDP per capita for the top 21 economies? The United States still has the highest GDP per capita among the world’s biggest economies. India comes in last because its GDP is divided among a large population.

If we do some math we can see that those countries who’s governments spent higher percentages of GDP have an average GDP per capita of $32,585. Of those economies that spent a smaller share of GDP, their PPP is only $22,211, about $10,000 less per person.  If we look further we can see that out of the top ten on this list, seven countries spend more than the U.S. and only three spend less. The reverse is also true for the bottom 10 on the list. Of the bottom 10, only two countries spent higher percentages of GDP and eight of them spent less than America.

Now, government spending is only one factor that can affect economic growth.  There’s certainly other comparisons to look at, such as overall debt, areas or sectors that money is spent on, tax rates, investment policies and strategies, all of which I hope to examine in future articles.

But here, when we simply look at the top world economies, there is an undeniable trend. Those who have spent higher percentages of GDP than the U.S. are about 4 times more likely to have higher GDP than those who spend a smaller percentage compared to the U.S.

Again this isn’t a 100% conclusive cause and effect relationship. There are many other factors to consider, but government spending is a big factor, which shouldn’t be overlooked or denied.