Naked Capitalism Link of the Day

Today's link: McMansions dead at last? The kind of homes we'll build in the future, at Slate:

The increase in demand for rental housing has reinvigorated the apartment market, and some new construction has begun. What if people get used to renting? Owning single-family houses represents a long-established tradition that the U.S. shares with many countries (Canada, Australia, the United Kingdom, Ireland, the Netherlands, Norway), but 10 years is long enough for traditions and behavior to change. It is likely that in the future multifamily housing will represent a larger share of the American housing market than the one-in-five new dwellings that has been the historic norm. What about single-family houses, which will still remain for many people the home of choice? There is some evidence that urban townhomes and infill housing are more popular, as rising gas prices increase the cost of commuting. Higher energy costs also affect heating and air conditioning, which may have the effect of discouraging homebuyers from purchasing large houses with soaring entryways and expansive family rooms. While the evidence is fragmentary—the current reduction in average new house sizes has more to do with the preponderance of first-time buyers than an overall shift in demand—it is clear that the long recessionary cold-shower will dampen the exuberance that characterized the boom years of 2000 to 2005. That will mean smaller houses closer together on smaller lots in inner suburbs, fewer McMansions, and fewer planned communities in the distant hinterland. An alternative scenario is that American optimism will prevail and it will be business as usual, as happened during the boom of the 1950s following the Great Depression, or during the period following the Energy Crisis of 1973, when car buyers, after a brief flirtation with Japanese compact cars, embraced minivans and SUVs. But I wouldn't count on it.

Development in the 1990s and 21st century was the worst thought-through waste of money in history.  As oil supply becomes tight, sprawling suburbs will be cursed by all.

Trying to Get to the Definition of Inflation

Robert's Stochastic thoughts (via Mark Thoma):

Most people in the USA use "inflation" to refer to increased prices and assume that inflation does not cause increased nominal wages. They will not be surprised by the graph. That's what they imagine when they say inflation is a problem. Most US adults would not object of told "inflation reduces the amount of goods workers can buy with their salaries." They hate inflation (considering 10% inflation by far the biggest problem for the USA in the 70s) exactly because they assume that price increases don't cause wage increases even in the long run.

Evidently the idea is that lower inflation (and they ask economists how to achieve it) means higher real wages and the same employment. Then in a sick twist the older New Keynesians (Fischer, Taylor, Gordon) argue that central banks are tempted to cause surprise inflation, since lower real wages are clearly desirable.

Most people who fear the inflation monster under their beds don't fear a wage price spiral, they don't hope for a wage price spiral. They think higher inflation means lower real wages forever which are not compensated by any benefit such as higher employment ever.

The debate is schizoid because economists and not totally ignorant policy makers accept the public view that inflation is hugely costly (assuming complete nominal wage rigidity) and also assume that high inflation is persistent and hard to eliminate because they know how nominal wages really respond to inflation.

At the moment this is all irrelevant (as you note) since core inflation is low, wage inflation is low and a higher relative price of petroleum really does reduce US aggregate real income. But the current insanity is made more likely by the general inflation insanity. Basically policy makers know that high gasoline prices make people vote against incumbents and they demand that Bernanke save them from the effects of increased Chinese demand for petroleum.

There is a lot of truth there.  The 70's inflation was driven by Nixon dropping the gold standard, along with the oil embargo and decreasing oil production in the U.S. (Texas reaching peak production) driving down the dollar and driving up oil costs.  This combined with automatic cost-of-living wage increases tied to the consumer price index to kick in, starting a wage-price spiral.  Today we have the weaker dollar and the higher oil prices, but we don't have the wage increases.  What wage increases we do have go directly to helath insurance companies.  With high unemployment, workers don't have leverage to push for wage increases, and must make do by cutting back.  Employers have enough trouble passing on raw material costs, let alone labor cost increases.  Our main hope would be to reduce consumption of energy, and bring down that dead load cost on our economy, but that means getting off of our fat asses and walking, biking or using public transit, and since suburbal sprawl has made that tremendously difficult, I don't think we'll be seeing much voluntary decrease in energy usage.

The Case For Human Ingenuity

Niels Jensen says oil is not a good long-term investment:

There are essentially three reasons why I think oil prices will go through a rather dramatic correction over the next several years:

1. Many investors who, in recent years, have added commodities to their portfolios as a hedge will ultimately be disappointed by the lack of diversification this asset class offers;
2. Governments and regulatory authorities, both in Europe and the United States, have effectively declared war on commodity speculators, and the area will become subject to a lot more scrutiny and regulation in the years to come;
3. A number of new alternative energy forms are in much more advanced development than many investors realise and will, over the next 3-5 years, become serious alternatives to oil, particularly as far as transportation is concerned.

He goes on to mention the Volkswagen XL1:

Earlier this year, at the Qatar Motor Show, Volkswagen unveiled a remarkable new car called the XL1 (see pictures here and more details about the car  here), which is expected to go into limited production as early as 2013. The car runs on a 0.8 litre hybrid engine (combined TDI engine and lithium battery) capable of carrying two people at a top speed of 160 km/h (100 mph).

The XL1 can drive an astonishing 110 km/l (313 mpg) and emits only 24 g/km of CO₂ in the process. As an added bonus, the car can do up to 35 km (22 miles) in battery mode, i.e. with zero carbon emissions. A lightweight body of only 795 kg partly explains the impressive performance. The car has been 13 years in the making and is by far the most fuel efficient car the world has seen to date.

I think there are tremendous opportunities to improve fuel efficiency, but that way too many people believe that there isn't a limit to the amount of oil we can consume.  I would think that diesel-electric cars with electric motors replacing a mechanical transmission could improve efficiency, and that there should be smaller, essentially one-person vehicles to replace larger cars which generally only carry one person.  Unfortunately, not very many people realize how much we actually spend each year on vehicles, fuel, insurance and maintenance.  I estimated at least $3000 per vehicle per year, and probably more.  That is a lot of scratch. 

Limited Resources

Ryan Avent looks at the commodity price boom and the rapid development in emerging markets, and comes away with this observation:

The ADB is saying that 3 billion Asians could reach European income levels by 2050, on top of the billion affluent Europeans and North Americans, not to mention the contemporary ranks of rich Latin Americans and Africans.
I don't think it's impossible to imagine a world in which four times as many people enjoy rich-world living standards as is currently the case. But for it to be possible, humanity must either start discovering and exploiting new earthlike planets, or come up with revolutionary new ways to increase terrestrial supplies of critical resources, or dramatically decrease the resource-intensity of wealth. The mechanism that will encourage one or some (or, I suppose, all) of these developments is high resource prices. And until those developments materialise, high prices will act, instead, to check growth. Or so it seems to me.

Dramatically decrease the resource-intensity of wealth.  In other words, the world must make improvements in standard-of-living without being as wasteful as America has.  Our first step has to be increasing efficiency in transportation and electrical distribution, as both are tremendously wasteful.  If we don't, our standard-of-living will decrease dramatically.

Oil Prices - Speculation, Supply and Demand or Both

Ezra Klein discusses James Hamilton's report on the price run-up in 2007-2008:

Traditionally, Hamilton says, Saudi Arabia, the world’s largest producer of oil, would smooth out spikes in demand. But around 2007, Saudi Arabia stopped. They left oil in the ground, assuming they could sell it for more later. Hamilton calls this “the beginning of a new era for oil pricing dynamics: without the Saudis’ willingness or ability to adjust production to smooth out price changes, any disturbance to supply or demand will have a much larger effect on prices than in earlier periods.” Greenstone agrees with Hamilton, and says that this can hardly be overstated. Saudi Arabia is the one player with the power to really do what people think speculators do: take enormous amounts of potential oil off the market because they think they can get a better deal later.
But that was 2007-2008. Is Saudi Arabia part of the story now? It appears so. Not only did they slash production in March, but they’re freaking everybody out by offering accounts of their production volume that don’t make any sense.
On the demand side, China — and other developing nations, but mostly China — is the 800-pound gorilla in the room. “China was a net exporter of petroleum up through 1992, and its imports were still only 800,000 barrels a day in 1998,” writes Hamilton. “By 2007, however, China’s net petroleum imports were estimated to be 3.7 mbd, making it the world’s third-largest importer and a dominant factor in world markets.”
Here’s what Hamilton argues happened in 2007-2008: Everyone knew that the world was demanding more oil, but they had made two assumptions that turned out to be mistakes. First, they thought that higher prices would lead to a lot less oil use in rich countries, which would allow what oil we did have to stretch further. Economists call this ”elasticity,” and oil turns out to have a lot less of it than we thought. Second, they thought we — or, more specifically, Saudi Arabia — would be able/willing to increase production much more dramatically than proved to be the case. But they weren’t. So supply held relatively steady even as demand shot up and demand held relatively steady even as prices shot up.
So what ended the 2007-2008 oil crisis? A global recession more sever than anything we’d experienced since the early 20th century. But now the same factors are reasserting themselves. Demand from both developed and developing countries has returned. Saudi Arabia is tapping the brakes. Now add in turmoil in the Middle East. Now look at the price of gasoline and note that demand isn’t falling.
“The key question you should be asking is the following,” says Hamilton. “Is the current price too high in the sense that the physical quantity being produced is greater than the physical quantity being consumed? If yes, then where is the difference going, and what mechanism accounts for that?” Left unsaid is the “if no.” But if no, then who is supposed to start using less oil in the coming years, and if the answer is no one, then how, absent recurrent recessions, are we supposed to make what oil we have go around at a price the global economy can handle?
On some level, speculation is an easy problem to handle. It’s a problem you can crack down on. The same can’t be said for China, Saudi Arabia or the world’s dependence on oil.

Naked Capitalism Link of the Day

Today's link: China Controls Our Food Supply, Barry Lynn interviewed by Dylan Ratigan:

Because of our obsession with efficiency over flexibility, our “lowest-price-above-all” philosophy over fair prices for producers, and our acceptance of a monopolistic commercial distribution structure, lots of essential products are now coming over seasons from a single foreign source.
That includes one critical preservative that is in nearly every food in America’s grocery stores, which China currently has a monopoly on.
The issue with getting critical products from one place is that, as we’ve seen over recent years, the world isn’t predictable.  Global disruptions — like an economic squabble with China, a massive political upheaval in the Middle East, or a natural disaster like the tsunami in Japan — have the capacity to topple the very fragile U.S. import structure.  The culprit? Our reliance on monopolistic, single-source production and distribution structure for things we need to survive, says Barry.
China currently has a production stranglehold over a critical chemical compound that helps keep food fresh — ascorbic acid.  We use this to preserve almost all the food that is on the store shelves.  It’s essential to keep food on America’s tables, and we don’t have any control over its production or distribution.
“It was first synthesized by an American scientist, it was first mass produced by an American company.  100% of our ascorbic acid or vitamin C now comes from China,” says Barry.  “In terms of pricing,  just about to the day that the Chinese finished capture and control over our supply of Vitamin C, ascorbic acid, they jacked up the price by 400%,” says Barry.

This doesn't seem to be a smart way of doing business.  As Yves notes, "First rare earths, now this."  Always striving for the cheapest has undermined our manufacturing base, now it is crucial supplies in which we are at others will.  Our oil dependence is also tremendously deleterious to our future.

Cutting Government Spending, Stupidly

From Stuart Staniford, via Gregor, cuts to the Energy Information Administration:

Here is the press release announcing the amount of savings:

Immediate Reductions in EIA's Energy Data and Analysis Programs Necessitated by FY 2011 Funding Cut

WASHINGTON, DC - The final fiscal year (FY) 2011 budget provides $95.4 million for the U.S. Energy Information Administration (EIA), a reduction of $15.2 million, or 14 percent, from the FY 2010 level.
"The lower FY 2011 funding level will require significant cuts in EIA's data, analysis, and forecasting activities," said EIA Administrator Richard Newell. "EIA had already taken a number of decisive steps in recent years to streamline operations and enhance overall efficiency, and we will continue to do so in order to minimize the impact of these cuts at a time when both policymaker and public interest in energy issues is high," he said.
EIA must act quickly to realize the necessary spending reductions during the present fiscal year, which is already more than half over. The changes in products and services identified below reflect initial steps to reduce the cost of EIA's program. Additional actions are being evaluated and may result in further adjustments to EIA's data and analysis activities in the near future.

Cutting statistical data for energy production in the U.S. and worldwide to save $15.2 million dollars?  That is absolutely stupid.  That works out to a nickel per person in the United States.  Maybe that wouldn't be an issue if we don't face very serious energy problems, but how about scraping around between the cushions of our couches and seeing if we can find a quarter or two.  But I'm sure that idiot blowhards like Rush Limbaugh don't think the government should know what the hell is going on in the world.  Rush and his ilk are enemies of humanity.

Naked Capitalism Link of the Day

Today's link: Inflation expectations my butt, at MacroBusiness:

But today’s inflation is not in labour or household items. It is in financial assets. Excess liquidity these days doesn’t suddenly appear in product prices and wage claims. It appears in securities markets and, until the irresistible warning of the GFC, housing markets.
In other words, inflation expectations are now operative in capital not labour markets.
I know some will argue that the FOMC watches Treasury markets for inflation expectations in capital. But how reliable is that when the market is dominated by the purchases of foreign governments whose goals are national interest not market related, as well as the FOMC itself? Members of the FOMC have themselves acknowledged the uselessnes of the measure.
The inflation of capital is important because it is one half of the new boom and bust growth cycle that has taken over the global economy (the flip side being the real and perceived shortages in various hard assets, that is, commodities).
If you want to get a gauge of future inflation, you need to be surveying the expectations of capital market traders, not labour market consumers. And if you did your survey after today’s FOMC meeting, expectations would be very high indeed.

In some ways, I think for the Fed that this is a feature, not a bug.  It seems to be the ultimate in trickle-down strategies, feed the stock markets and utilize that wealth effect to grow the economy.  That seemed to be the strategy in the '90's with the tech stock boom and after it popped in the real estate boom in the 'oughts.  Both ended in tears, and I'm afraid all this will too.  I can't decide if the Fed is hoping for inflation to ease the debt problems both in the private and public sectors, or what they want to do to address that.  I don't think causing bubbles to engage the wealth effect works in the long-run, and the potential of peak oil and possible food shortages causing price spikes in an already struggling economy is very disconcerting.  Regardless, we'll have some answers in the not too distant future.

QE2 and Commodities

Marshall Auerback on QE2, via Yves Smith:

Those who point to the success of QE2 make the following observations: In the US, growth accelerated after the implementation of QE2 from a 1.7% annualized pace in the second quarter to 2.6% in the third quarter and 3.1% in the fourth quarter. Inflation expectations ceased falling and began rising back to normal levels. Confidence rose. And the pace of hiring improved meaningfully. In both February and March, private firms added over 200,000 jobs. Since the Fed’s policy began, the unemployment rate has fallen a full percentage point.

But just because a rooster crows first thing in the morning doesn’t prove that this is what causes the sun to rise. These are two separate occurrences with no underlying causation. The very deficits now decried so loudly by the deficit hawks and ratings agencies are likely what engendered recovery, not QE2.

So what has QE2 actually achieved? Little in the way of positive impact, but much in terms of its deleterious impact by fomenting additional speculative activity, notably in the commodities complex — gas and food prices. Obviously, with other determinants of aggregate demand in question, commodity prices and the gasoline price in particular now matter. The price of gasoline is almost as high as it was at its brief peak in May-July 2008. In the past, increases in expenditures on gasoline could be managed by consumers because they had access to credit. That is certainly less true today. Rising fuel prices could tip the economy towards greater weakness. As it now stands, the U.S. economy has been growing around trend (2.7%) and the first quarter was probably below that. Tipping the economy towards weakness would bring growth way below the current optimistic above trend consensus.

Though it cannot be proved, in the minds of many the current wave of speculative and investment demands is tied to the Fed’s emergency measures of ZIRP and QE. Within the Fed itself, a number of inflation hawks have reflected this belief, notably Dallas Fed President Richard Fisher and former Kansas President Tom Hoenig. If so, this inadvertent adverse consequence of QE means that the Fed might be hoisted on its own petard.

QE2 is certainly part of the commodities run-up, but I'm afraid some real supply and demand issues are also involved, and if so, that indicates some serious problems down the road, especially when it comes to our addiction to oil and it's corollary, using food for fuel.  I also think he's right in saying the real problem is that society is too laden down with debt to take on new loans to expand businesses.  We're in a trap of our own making.

Nassim Taleb on Oil Dependence

The author of The Black Swan gives an interview at the Wharton School (h/t Ritholtz):

Herring: Given your view on the fragility of Saudi Arabia, how should we think about making direct investments in Saudi Arabia, the supply of oil or military alliances?
Taleb: I think that an oil shock would be very good because we need to be trained to finally give up on these stupid cars. We have so many alternative sources, and people are too lazy. We need to enhance anti-fragility in this area. You can move from wild randomness into mild randomness by creating some. It is like hormesis: You give someone a little bit of poison and they get stronger. Economic life gets stronger not with bailouts, but with bankruptcies.
Evolution works not with bailouts -- there are no bailouts in nature -- but with competition and natural selection. So you need to have some stressors and to use stressors to strengthen the system. We have not been stressed enough about the oil crisis, and it has led to a horrible situation in which the U.S. government is playing a hypocritical role driven by humanitarian forces in Libya, but at the same time supporting the Saudi royal family, essentially one tribe running a place -- even giving its name to it. It is the most unstable place and the most backward of regimes in the world -- all in the name of oil security.
So you realize that you have some schizophrenia as far as how a lot of Western governments are behaving. So we need a little bit of oil shock....
Herring: It requires more than a shock, doesn't it? Because we have had those before.... In fact, the price of oil in real terms was even lower than just after the OPEC increase. So the motives for making substitutions just were not there.
Taleb: I see. But do you think that we will eventually wean ourselves from that nasty dark product from the ground?
Herring: One hopes. But it is hard to see how given the reality of the way we have built our society, with remote suburbs and interstate highways linking everything. We cannot make a very quick substitution out of the petroleum-based economy. But you are absolutely right. It has got to be faced.
Taleb: This is the fragility of having dependence on one source -- one product -- rather than more than one.... It is optimal to use oil visibly. But it is more dangerous. In my new book, I focus on optimization; almost 99 cases out of 100 optimizations make you vulnerable and fragile.
Herring: Yes. That's the darker side of Adam Smith's pin factory. You become more efficient by becoming more specialized, but you also become more vulnerable to some kinds of shocks.
Taleb: [When a company becomes] more specialized with things, and it works better, the numbers look better. But your hidden risks rise and rise. And then when you are faced with a problem, you don't know what to do about it, whereas in other cases you have more variations all the time. You have more fluctuations and, of course, you are a lot more robust.

He has a lot more to say on the economy and risk, options and a lot more.

The Subtracted Cities

Deborah Popper, via Mark Thoma and Richard Green:

Detroit stands as the ultimate expression of industrial depopulation. The Motor City offers traffic-free streets, burned-out skyscrapers, open-prairie neighborhoods, nesting pheasants, an ornate-trashed former railroad station, vast closed factories, and signs urging "Fists, Not Guns." A third of its 139 square miles lie vacant. In the 2010 census it lost a national-record-setting quarter of the people it had at the millennium: a huge dip not just to its people, but to anxious potential private- and public-sector investors.
Is Detroit an epic outlier, a spectacular aberration or is it a fractured finger pointing at a horrific future for other large shrinking cities? Cleveland lost 17 percent of its population in the census, Birmingham 13 percent, Buffalo 11 percent, and the special case of post-Katrina New Orleans 29 percent. The losses in such places and smaller ones like Braddock, Penn.; Cairo, Ill.; or Flint, Mich., go well beyond population. In every recent decade, houses, businesses, jobs, schools, entire neighborhoods -- and hope -- keep getting removed.
The subtractions have occurred without plan, intention or control of any sort and so pose daunting challenges. In contrast, population growth or stability is much more manageable and politically palatable. Subtraction is haphazard, volatile, unexpected, risky. No American city plan, zoning law or environmental regulation anticipates it. In principle, a city can buy a deserted house, store or factory and return it to use. Yet which use? If the city cannot find or decide on one, how long should the property stay idle before the city razes it? How prevalent must abandonment become before it demands systematic neighborhood or citywide solutions instead of lot-by-lot ones?
Subtracted cities can rely on no standard approaches. Such places have struggled for at least two generations, since the peak of the postwar consumer boom. Thousands of neighborhoods in hundreds of cities have lost their grip on the American dream. As a nation, we have little idea how to respond. The frustratingly slow national economic recovery only makes conditions worse by suggesting that they may become permanent.

 Abandoning urban centers and increasing suburban sprawl will look pretty foolish if we hit peak oil.  The sadly beautiful ruins in Detroit are frustrating.

Michigan Central Depot in Detroit.  Photo from Forgotten Detroit.

Suburban Growth and Peak Oil = Serious Economic Problems

Yglesias:

Everywhere you look, the short-term price elasticity of demand for gasoline is low. People basically own the cars they own, they live where they live, and they work where they work. So when gas prices get more expensive, spending on gasoline booms. With households credit-constrained, that means huge cutbacks in spending on things that aren’t gasoline. That becomes a huge hit to aggregate demand, and a big drag on our economy.
But while gasoline consumption isn’t very price sensitive in the short-run, longer term factors about taxation, housing policy and transportation policy play a big role in this process. In Europe, a smaller share of the population drives to work. And they drive lighter, more fuel efficient cars. And they commute shorter distances. Consequently, their economy is less vulnerable to this kind of shock. The only real security for America in the long-run is that kind of transformation to an economy less driven by the assumption that gasoline will always and forever be cheap.

If oil production levels off and starts to decline, our 60 year investment in a suburban "American Dream" will become an anchor around our necks.  Continued sprawl development, doesn't look very wise right now, peak production or not.  If we do see peak oil, I bet we'll get a lot more exercise in the future.

Saudi Spare Oil Capacity

Stuart Staniford:

The sharp fall in OPEC output suggests that Saudi Arabia did little or nothing to compensate for the loss of Libyan output. So, as so often, we are left to wonder what the 3.2mb/d of supposed Saudi spare capacity really means if it's nowhere to be seen whenever the world actually needs it. It's sort of the unicorn of the oil world - the horn keeps getting longer in the telling, but we've never actually seen one.

World Economy Facing Peak Oil?

The Economist looks at the new IMF World Economic Outlook:

The most disconcerting part of the IMF analysis is its estimate of the potential impact of declining oil output on world GDP under different output scenarios. In the benchmark case, growth in oil output drops by one percentage point a year and real world GDP two decades from now is about 3 percentage points below where it otherwise would have been. In America, the drop is closer to 4 percentage points. Given greater substitution away from oil, the gap over two decades is closer to 1 percentage point for both the world and the American economy.

But the IMF also considers a more pessimistic scenario in which the annual hit to growth in oil output is 3.8 percentage points. In that case, real world GDP could wind up 10 percentage points below its but-for level. In America, the projected gap is more like 13 percentage points.
That's a serious risk to consider. The dynamics in this market are pretty straightforward: oil is mostly used for transportation, and the key to limiting the impact of increased scarcity is improving the extent to which consumers can substitute away from oil use.
We know what that's likely to entail—greater efficiency, greater reliance on electric transport, greater use (potentially) of biofuels and other petrol alternatives, reduced driving and greater use of transit and other travel alternatives. Some of these shifts can be better facilitated with the aid of public investment. There's no question that substitution would be accelerated by a steady increase in tax rates on oil and petrol. Conveniently, those revenues could be used to fund necessary investments in alternatives.
It's not really that tricky a policy mix. Unfortunately, the attitude in Washington is, for the moment, one of tax aversion, combined with an enthusiasm for cuts in public investments and an embrace of the idea that new drilling can make a meaningful dent in America's appetite for oil imports. That amounts to a big gamble with America's economic future.

Obama vs. Ryan

Andrew Sullivan quotes from the news that Obama will be releasing his own budget plan soon, focusing on raising taxes on the rich and making smaller changes to Medicare and education programs, and follows with this analysis:

And so Obama starts off this critical part of his first term by appearing to be above the fray and yet committed to compromise. Via Biden, he calls the GOP's bluff, draws a line in spending cuts for 2011, and exposes the draconian spending reductions that the GOP's no tax increase pledge requires. He comes back with a bid to tax millionaires, offers spending cuts that would be far more sophisticated and targeted away from investment than the GOP, and pledges to put his own proposals forward as early as this week.
Of course, for a blogger like me, you face a choice. Simply trust the guy and spin for him, or voice skepticism, outrage and disappointment and get played along with the GOP. But, of course, I don't mind getting played. Because I want this president to succeed - and such success requires root-and-branch spending and tax reform.
He seems to be getting there - in that highly unsatisfying but politically shrewd way of his. So now we will have the Ryan plan and the Obama plan. Guess which one independent voters will like more?

Even though I didn't share Sullivan's admiration for the "courage" of Paul Ryan's budget plan, I do agree with him here.  Obama appears to have gotten rolled on every issue since the November elections, giving in to the Republicans on the Bush tax cuts, on payroll tax cuts and on the recent 2011 budget negotiations/hostage crisis.  But he let Paul Ryan roll out his absolutely awful, Bizarro World Robin Hood (screw the poor and give to the rich) 2012 budget last week, sat back while all the sociopaths in D.C. talked about how bold it was, let the analysts dig into the numbers and find out it doesn't add up, then he'll roll out his own plan with valid numbers and a return to Clinton-era tax rates.  This will once again show the President as much more reasonable than the Republicans, even though most of the people in Western Ohio will believe it shows how ignorant he is.  You'll get that.  It will help the president with more reasonable people in the more-populated areas, which is where it counts.

Yet I have my reservations about the future.

A lot of people will point to the late 90's and say that the we'll return to some golden economic era.  I disagree.  I think the 90's, like all "prosperity" we've seen since the end of the Carter presidency, was fueled by borrowed money and productivity gains from the integration of technology, along with lower oil prices after the end of the embargo.  Since the tech bubble burst and China roared back from the 1998 Asian crisis, we have seen the limitations of our ability to sustain economic growth, especially with the addition of the "War on Terror" and actual wars in Iraq and Afghanistan, and a partial war now in Libya.  We've positioned ourselves into a spot where we will face a real decrease in standard of living, barring a technological miracle.  Yet, we still can't prepare ourselves for actual sacrifice.  Obama will most likely take a step in the right direction, but it still won't be large enough.  The nice thing is that it actually is in the right direction.  Republicans, meanwhile, always direct us the wrong way.

We as a people face some stark choices.  We can start making some real sacrifices, or we can slowly (or much faster if we choose to follow the Republicans) march closer and closer to the precipice.  At this point in our public conscience, Jimmy Carter is looked on as a failure as President.  But as we face the challenges ahead of us, we will need to follow many of his recommendations from his "Malaise Speech," becoming more energy-efficient, more humble, and making some real sacrifices.  If these efforts were made when he recommended them, we would be a lot better off now. 

Instead, we avoided facing a more sustainable energy future, and made grave choices which will make things even more difficult.  The vast number of buildings constructed since 1980 have produced unprecedented sprawl, much greater dependence on automobile travel, much larger homes which we heat and cool, vast amounts of debt, and tremendous poverty and crime which we abandoned in our inner cities.

Now we face energy and climate challenges, enormous debt problems, a struggling economy, and have no real way to easily go forward to address them.  Along with that, we've fostered and developed an every man for himself attitude which will make addressing these problems even tougher.  The policy choices made since 1980 have weakened and indebted the middle class, built up resentments amongst the lower 80% of the income distribution, and enriched and strengthened those at the top. 

The size of the challenges we face will require that all people make some sacrifices, but those who have the most will have to give the most.  Unfortunately, they don't see it that way, and they have spent the last 30 years strengthening themselves at the expense of everyone else.  To peacefully convince them to participate in the sacrifice will take unity among everyone else, yet in the last 30 years, the people in charge have sown tremendous dissension and disunity amongst the lower and middle classes.  It is time to unite, face our real challenges and move forward.  It will be painful, but it will lead to real rewards.  Look in the mirror, ask yourself what you can do, and get involved.  It is not too late, but it is close.

Naked Capitalism Link of the Day

Today there are two.  First, World's First Air Powered Car, at Cars New:

The Air Car, called the MiniCAT could cost around Rs. 3,50,000 ($ 8177) in India and would have a range of around 300 km between refuels.
The cost of a refill would be about Rs. 85 ($ 2).
The MiniCAT which is a simple, light urban car, with a tubular chassis that is glued not welded and a body of fiberglass powered by compressed air. Microcontrollers are used in every device in the car, so one tiny radio transmitter sends instructions to the lights, indicators etc.There are no keys - just an access card which can be read by the car from your pocket. According to the designers, it costs less than 50 rupees per 100Km (about a tenth that of a petrol car). Its mileage is about double that of the most advanced electric car (200 to 300 km or 10 hours of driving), a factor which makes a perfect choice in cities where the 80% of motorists drive at less than 60Km. The car has a top speed of 105 kmph. Refilling the car will, once the market develops, take place at adapted petrol stations to administer compressed air. In two or three minutes, and at a cost of approximately 100 rupees, the car will be ready to go another 200-300 kilometers. 

Second, Researchers Close in on Technology to Make Renewable Petroleum, at Science Daily:

Aditya Bhan and Lanny Schmidt, chemical engineering professors in the College of Science and Engineering, are turning the ketones into diesel fuel using catalytic technology they have developed. The ability to produce ketones opens the door to making petroleum-like hydrocarbon fuels using only bacteria, sunlight and carbon dioxide.
"There is enormous interest in using carbon dioxide to make hydrocarbon fuels," Wackett says. "CO₂ is the major greenhouse gas mediating global climate change, so removing it from the atmosphere is good for the environment. It's also free. And we can use the same infrastructure to process and transport this new hydrocarbon fuel that we use for fossil fuels."
The research is funded by a $2.2 million grant from the U.S. Department of Energy's Advanced Research Projects Agency-energy (ARPA-e) program, created to stimulate American leadership in renewable energy technology.
Wackett is principal investigator for the ARPA-e grant. His team of co-investigators includes Jeffrey Gralnick, assistant professor of microbiology and Marc von Keitz, chief technical officer of BioCee, as well as Bhan and Schmidt. They are the only group using a photosynthetic bacterium and a hydrocarbon-producing bacterium together to make hydrocarbons from carbon dioxide.

There are quite a few researchers trying to find ways to easily and cheaply make hydrocarbons, whether from algae, pig manure or bacteria.  I have a gut feeling that we'll start feeling the effects of peak oil prior to a cost-effective way of making new fuel.  I'd like to see us start to prepare for that.

Rural Counties and Subsidies

Monica Potts looks at farm subsidies and life in rural counties (via Mark Thoma):

  A 2008 USDA report found that over the previous year, the population of rural areas increased at a measly rate of 0.4 percent, compared with a growth in metro-area populations of 1.1 percent, and attributed the difference mostly to people moving into cities. Most rural counties actually saw a population decline. Unemployment has skyrocketed. Children in rural areas are more likely to live in poverty, more likely to die, and more likely to be held back a grade. Rural areas receive more government support in the form of farm subsidies and income support like Social Security, but that's largely due to their aging and more disabled populations. In general, rural communities receive less money per capita to support community services like law enforcement and higher education.
Klein notes that the U.S. Department of Agriculture has an office of Rural Development that supports small-time entrepreneurs and infrastructure development like broadband in rural areas, but spends most of his time arguing against farm subsidies. First, farm life and rural life aren't quite interchangeable, and the billions we spend to support farms, including the $8.3 billion in direct payments and crop insurance we call subsidies, no longer support the actual people who live in rural America. In fact, they support the big factory farms that have eroded the quality of rural life.

The fact of the matter is that while grain farmers have been doing extremely well the past few years, before that, things were tough.  I can remember several years in the late 90's when about half of all farm income was either LDP payments or crop insurance payouts.  Our area isn't too bad for maintaining smaller farms.  We (guys on the other side of the river) have some monkey dirt, where guys can farm small farms and get pretty good returns, and there are a lot of town jobs guys can hold down and farm on the side.  Once you get out west, though, if you aren't farming, there aren't too many other things to do.  Take a look at the census data, and rural counties are emptying out.  It is pretty depressing.  And if the trends continue with oil prices, and we see peak production, things will be worse.  People will be hard pressed to live in the middle of nowhere if gas costs $8 or $10 a gallon.