Monday, August 04, 2008

$1,000 Rebate Plus New Taxes or $1,000 Lower Gas Bill?

The energy debate is an economic debate. A large number of environmental extremist want the price of energy to stay high because high prices are the way "to save the planet from Global Warming". The extremist recognize that the only way the American people will go along with massive subsidies for windmill and ethanol farms, paid out to political friends, is if they are sold on impending doom. There are both republican and democratic "feeders". The strategy is akin to flooding the top floor of a 50 story building and then fighting to keep the water from flowing to lower floors. Water will find the tiniest of holes to flood through until at least one of them, in response to pressure, becomes a big hole.

Extremist have blocked the construction of nuclear power and the results have included the burning of trillions of tons of dirty coal and a windmill subsidy boondoggle. Rich people are being paid $350,000 to build million dollar wind mills. The rich builders get to keep the million dollar windmills in exchange for investments of only $650,000. To add insult and additional injury, the people then must pay a 1.9 cent subsidy for the energy plus full price for the electricity produced. It sounds a bit like going to a proctologist for a root canal. To win the votes of the extremist, politicians have blocked drilling for oil in many parts of the US. The results have included an annual importation of oil that has reached 700 Billion Dollars, a $.46 per gallon wasteful subsidy of corn oil, and extremely high food prices.

Sunday, Al Gore appeared on Meet the Press to lobby for more, more, more. Al called for a dramatic, virtually impossible and extremely costly response. Al is good at choosing his words. While talking about alternative energy, he never used the word nuclear. Even with nuclear thrown-in, there is no way to do what Al wants to do in 10 years. He, his friends and republicans such as T. Boone would certainly go to the bank off of the attempt.

Obama has started this week with an advertisement about energy. A couple of days ago, Obama finally started his energy flip-flop. He is now in favor of some off shore drilling and he is in favor of releasing oil from our SPR. He says he is willing to place hard sanctions on Iran to prevent nuclear power but then he is willing to give up an ace in the hole for a short term gain! His support for drilling is all talk and no hat. He supports drilling in a few areas provided his buddies in the wind business get paid off. To help hold that water on the 50th floor, he goes on to offer $1,000 rebates to the middle class, to pass out billions of windmill and ethanol subsidies and, for good measure, he would spend a few trillion on his health care plan.

$1,000 REBATES -- HOW?

If we are going to annually give out $1,000 tax rebates, where do we get the money? One way would be to allow the supply of energy to increase. We could save much more than $1,000 per person through lower transportation, heating and air conditioning costs. We could save even more per person by increasing the supply of health care.

Last week, Blue Cross -- Blue Shield of Minnesota agreed to eliminate the copay for health care clinic visits! This is a remarkable development because Blue Cross -- Blue Shield is a "doctor owned" health care insurance company. Over the past several years, the growth of health care clinics has been dramatic, despite fierce resistance by some Medical Societies. Many people in many states have found that they can get timely care while saving money and time at clinics staffed by nurse practitioners. Nurse Practitioners, as highly trained professionals, are specialist. They can efficiently treat common ailments and can give provide routine "maintenance" for diseases such as high blood pressure and diabetes. By handling the routine and referring to doctors offices as appropriate, they provide a screening service that is good for the patients and the doctors. Because care is so much more readily available for more hours per day, many a child who went untreated before is now routinely seen. In the work place, there has been a rebirth of the company clinic. Here again, the minor ailment can be treated for a tiny fraction of the former cost.

Health care inflation has slowed and the future potential savings on medical care is huge. Similar savings are being realized in education. Home schooled children are taking a big chunk out of education budgets across the country. A growing amount of home school lessons are low cost, computer delivered lessons. Parents are also specializing to assist one another.

The "hot" issue of the moment is energy. Obama's response to high oil prices is to add taxes to the oil companies. When is enough, enough? Exxon will pay more income tax this year than half of all Americans combined! The shareholders of Exxon, who include the majority of all people who own retirement accounts, should not be forced to pay more than 50% of profits in taxes. Besides, an increase on domestic taxes would only increase importation and drive gasoline prices higher.

Which would you rather have, a $1,000 tax rebate, $5 per gallon gasoline, purchased from Saudi Arabia, 12 cents per kilowatt electricity and a war in the middle east or $2 per gallon home grown gasoline and 6 cents per kilowatt electricity? That's not all. Obama's taxes on Exxon would be used to subsidize windmills but his $1,000 rebate would come at the expense of higher taxes on our most productive assets. The one saving grace in the past several years has been productivity growth. Obama is willing to tax achievers in order to "be fair". At least Al Gore would fund his program by decreasing the tax on work in exchange for increased taxes on energy.

A more important question: do you really want to continue to breath toxic poisons emitted from coal smokestacks? In addition to longer lives and better health, we can in effect offer more than a $1,000 rebate by converting our electricity production from dirty coal to clean nuclear. Millions of Americans have suffered from noxious fumes. Hundreds of thousands have died early deaths. The money we pay for cheap coal fired electricity does not include the electricity costs.

One of the ironies of coal electricity is that the coal plants emit substantial amounts of radiation, much more than nuclear plants. Of course, the sun is the biggest nuclear power plant in our solar system but we should not forget that the earth itself is a nuclear power plant. The hot molten core of the earth is heated by fission. Millions of Americans who are opposed to nuclear power just spent vacation time soaking up rays from the sun. We are all constantly bombarded by radiation.


Only a few weeks ago, the year over year price increase in oil hit 100%. It is now rolling over. It did not begin to roll over until the economic slowdown started to spread around the world. The US economy slumped about 6 months ahead of the European economy and about 12 months ahead of emerging growth economies. US vehicle sales have fallen to 1993 levels. The % decline is similar to what happened in 1996, when there was no recession, but oil price relief is needed. Congress is on vacation until after the conventions. On the other hand, the negotiations with Iran continue. Again, the water is going to find a way down. A good deal with Iran is more important than the ultimate agreement of congress to drill. This week, interest rate decisions in developed countries will give an indication if the fight against inflation is going to reverse and become a fight to battle off recession. With history as a guide, it is likely that central bankers will stay tight too long. With high rates around the globe, economies are going to continue to slow and the price of oil is going to fall.


Technology is showing up in all sorts of products. The common nail has been around for centuries but it has been improved. Bostich is selling many tons of hurricane/earthquake nails. The additional cost to build a house with these nails is about $15. These nails increase the resistance of a home by about 50%. I gathered this bit of information from the Next Big Future web site. How much would you guess the expenditure of $15 on nails would save in insurance premiums over 30 years?

Even so, these nails are only a very tiny addition to the innovations that are in progress. Another tiny addition was the deployment of the MQ-9 Reaper, drone aircraft, two weeks ago. Fighter planes can stay aloft over Iraq from a maximum of 3 to 6 hours. Reapers can stay aloft for 24 hours. The "pilots", stationed in Nevada, are not in harms way. Fighters will still be in the theater but the fuel savings are substantial. More importantly, lives are saved by the "persistent stare" from the sky. Reapers can drop 500 pound laser guided bombs.

Huge, but the dollar savings are nothing when compared to the savings being delivered by "cloud computers". If you have some money to invest, sprinkle it between IBM, Google and Amazon. These three are offering computer services at a fraction of the costs to operate a private IT department. Companies such as Oracle and Salesforce are also specialist that allow thousands of companies to focus on what they do best. Operators half way around the world can help maintain systems that run 24/7. Ricardo would be proud indeed.

Companies with and without their own servers are starting to learn the power and savings available though "social networks". Most of us think of MySpace and FaceBook as something for "kids" to play with. Companies such as GE bring the right resources to bear by using "professional networks". It is easy for a manager to solve a problem if he has a great data base to search. Identifying the right person for the job at hand becomes a matter of an "instant" search.


The US just deployed AFRICOM. The US is active in the peace process around the world. SARRC just agreed to fight terror by freezing the funds of sponsors. The action by SARRC is just one more demonstration of the success of new robust US Intelligence efforts. When terrorist are exposed to the light, the people of South Asia are more open to fighting terrorism than are Americans. This morning, India announced a 450 million dollar contribution to the war effort in Afghanistan. India has been the leader of the NAM (non-aligned movement). This contribution is another demonstration that Russia, America, the NAM and all but a very few countries are on the same side of fighting terrorism.

The good news is that the people of India will receive more than a $1,000 "rebate" from success in the war. India has suffered many more terrorist attacks than has the USA. The costs of terror are enormous; this truth is brought to mind every time we go through a court house or airport check point. We all owe it to one another to finish the job. Some years from now, we will be thankful for the peace that we enjoy.