What do we organize about?

We organize about what is important, and what we can effect positively.

My preference: social well-being. Individual/families/communities/regions/macro-regions.

As I’ve written previously, I’m a gadfly on two prominent modern socio-environmental concerns.

1. Global warming – My feeling is that it is obviously occurring, and human induced, but that there is literally nothing that I or even a globally consented movement can accomplish to eliminate the introduction of excessive carbons into the atmosphere currently, or in the time frame of even my children’s lifetimes. The most that we can do currently is assist in the response to its symptoms, to think ahead, to be of help.

2. Peak oil – My understanding is that current oil price hikes are entirely driven by a near-fully consumed supply chain for oil with bottlenecks in refining and transportation, and virtually no current limitations due to well-head supply relative to demand. In between 20 and 40 years, the wellhead supply limitations might periodically comprise a real bottleneck.

What is the solution to a problem that isn’t in fact relevant? Its not even a question.

And, if the focus of organizing efforts is misguided, then the solution to those stimuli will also be misguided. A difficult example for me is the advocacy of nuclear power by some environmentalists and intellectuals like Stewart Brand and colleagues. They conclude that carbon toxins in the atmosphere are a primary problem, and in putting their minds to solving the problems they come up with what they believe is the least-worst solution – nuclear power.

My own evolution of social-environmental consciousness included first as a late teenager a sense that we were spoiling our nest, that we had made a beautiful world into an ugly one. I joined utopian efforts (real ones) to make a better world. In an attempt to proceed to pragmatism, from a utopian fantasy approach (communes), I sought to learn skills and to articulate arguments against the status quo, to persuade others to participate in creating new institutions with a critical mass to sustain as institutions and systems.

It was ultimately not successful. The needs to continue in the rat race, with existing partially successful options, was a better individual choice than to invest in new principles of economy that were still gambles.

Then the concept of global warming came along. We had already concluded that the world was screwed up, but didn’t have a measurement, a scientifically authoritative declaration. I/we new that car emissions were horrid. The global warming thesis was a global phenomena, not just utopian. It required international policy decisions to implement solutions.

Global warming became the reasoning to support “the world as it is must change”.

I’ve come to feel that the thesis is of a religious nature. Individuals that would achieve a simple life by eating together, carpooling, sharing a large house for their own merits, have been asked to first reference global warming as a conditional credo, a prerequisite to eating together, carpooling, or sharing a house.

So, I prefer a different primary motivation for doing ecological good.

I believe that there are real goals in the world that require attention, summarized as the effort to improve social welfare within an ecology so social scales. (Person, family, community, region, macro-region)

The concentration of wealth in society is a real problem. It renders the marketplace less of a responsive mechanism for optimizing the utilization of scarce resources. It relies on the fancies of a few families to direct capital to provide for all of the “blood-flow” of the economy. As money chases after dependable profits, it tends to invest where services are already developed. The concentrated wealth system is structurally designed to neglect locales and communities where capital is needed. It devalues the contributions of nature to services that humans must benefit from in favor of human-created services, and thereby then devalues rural value addition and life.

The creation of increasing masses of unassimilable toxins in the environment is a real problem. There is no downstream ultimately. In many locales where toxic wastes have been “successfully” dumped, that is no longer feasible. In the oceans for example, toxins have circulated widely, and even in parts per million of some substances have hindered reproduction, caused species-wide dysfunctional mutations, disturbed the food chain, and created larger and larger pockets of dead zones at the mouths of major river systems particularly that affect regional ecologies and the people that rely on them.

We’ve used much of key materials and have not instituted the degree of recycling required to continue to benefit from the use of those materials. Such formerly common materials as copper and zinc, that are used WIDELY in our industrial society are now scarce.

We overconsume. We’ve depleted fisheries, land, water, forests.

We have high fixed costs of living, including high debt.

The solution to these problems resemble the solutions are also solutions to issues of global warming, but solutions to global warming are not solutions to these overarching social problems.

I suggest that we emphasize comprehensive social welfare as our rallying cry, with the spirit of “enough”. When we’re confident that we’ve achieved a critical human need, lets be content individually and socially with enough, and move on.

By “comprehensive social welfare”, I mean the measuring of a person’s/family’s/community’s/region’s well-being per one of the comprehensive assessments systems now “on the market”, and then committedly endeavoring to improve social welfare imaginatively and synergistically.

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Nukes

The word from Japan at this moment is that two nuclear plants have experienced at least partial melt downs, and exhausted some radioactive material into the atmosphere, though not the full blown toxic cloud that is possible in a complete meltdown (when radioactive groundwater under the plant boils and exhausts to the atmosphere, then blow with the wind).

Two other plants have experienced exposed fuel rods and are likely to at least partially melt down, and two other additional plants have experienced damage to fuel rods and could at least partially melt down.

The people in Japan are suffering, many dead (close to 10,000), many homeless, many scared. People downwind are scared.

There are many nukes built on fault lines. Many in Japan, one in California, one in Turkey, one in Taiwan.

Close to home, Vermont Yankee (13 miles from my home) is built on a minor fault line. Indian Point in Westchester similarly. These are old and relatively fragile plants. Three days after it went into shutdown, the Maine Yankee plant was hit by a small earthquake.

A few years ago, Stewart Brand surprised the world by declaring his advocacy for nuclear power as a means to avoid global warming. It seemed like a good idea at the time.

Close to home, Vermont Yankee is in the process of requesting an extension of its operating license that would otherwise expire in 2012. The plant is old, has received many citations for immaterial and material violations of safety standards, including more than a few published releases of radioactive material from the plant.

Vermont state representatives largely oppose the reliscensing of the plant, however the nuclear regulatory agency has tentatively authorized the license extension and Entergy, the company that owns Vermont Yankee has threatened to sue the state if they interfere.

I think of the relicensing of the Vermont Yankee plant as similar to the mortgage market “meltdown”. Each year, the likelihood of accidents increase, but the payout to towns  remains at best constant. The odds of the sure thing of some jobs and subsidized property taxes weighs against the increasing likelihood of accident (incidental or devastating).

The risks are ignored. Then we either make it out clean and the plant is later successfully decommissioned, or there is an accident at some point between now and 2042.

In spite of a very negative economic impact report submitted by Entergy to the state, in support of their relicensing request, State legislators regard the economic, social and environmental risks associated with an aging and less than confidently managed plant, as more compelling than the fears of economic collapse in Brattleboro and surrounds should the plant close.

In the economic feasibility report, Entergy more or less acknowledged that they had not sufficiently funded the required decommissioning fund, even though incorporated into regulated rates paid by Vermont ratepayers.

Opponents of the plant cite the economic impact of decommissioned plants in Rowe, MA and southern Maine, as indications of the likely consequences of shutting down the plant. In both cases, the locales experienced temporary downturn (from their former highly subsidized status), but revived slightly, and to a higher standard of living and continuing property tax subsidies than in neighboring towns.

The promise of cheap oil is past. The promise of cheap natural gas is past. The promise of cheap hydro remains. The promise of cheap wind generated electricity remains (though limited to areas with consistent wind). The promise of cheap nuclear power is likely now past. The risks are too great.

The only promise remaining that we can act on, is of energy conservation, radical energy conservation. Rather than shooting for 10% reduction in the consumption of fuels used for space heating, we should be making capital improvements to buildings that realize 80% reduction. Similarly in our transportation models.

Our current $3.45/gallon gas is cheap. If the economy continues to grow, in three years it could easily be $7.00/gallon, and that due entirely to supply/demand limitations before the impacts of peak oil affect limitations at the wellhead.

Maybe now we’ll get serious about it. Its not nuclear science after all.

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The Economic Necessity of Regionalism

In economic thought, those that advocate for free markets often speak in terms of the “rational actor”. That presumes that those purchasers with disbursable assets consider their personal or strategic needs and analyze and rationally choose their best option (delaying purchase, or choice of product/service/supplier). And, it assumes that providers of goods and service, analyze their options and rationally choose their optimal strategies.

There are many real life qualifications to that assumption, of free and rational actors. One is that there are fewer and fewer individuals with net disbursable wealth. MANY are under water currently, insolvent.

Options must be comparable to decide. Some organizations and individuals include multiple considerations in their rational decisions more than others. Most still include single criteria, prospective cash flow, money.

The components of economic decisions are changing.

In the modern world, there are many factors that make choosing “sustainable” options the rational one, both for individual decisions and for public policy to facilitate. There is finite physical land, requiring land use planning. There are finite phyiscal limits to key materials, compelling an emphasis on recycling over consumption. There are finite physical limits to the environment’s ability to assimilate toxins, compelling emphasis on reducing the introduction of toxins into the biosphere.

One variable factor that currently promises to affect supplier decisions (siting of manufacturing and distribution) and consumer decisions, is the price of oil and all fossil fuels. With the degree of agricultural land that is used for methanol derived from corn and sugar cane, the price of corn and then all grains is also now directly tied, on the demand side, to the price of oil.

For any product that is transported, the cost of getting that product to the end user, considering the whole value/supply chain, firms will need to consider the siting of manufacturing and distributing centers more intently. The cost of transportation may become so severe, especially for bulky products, that the global industrial value/supply chain may experience severe pressures and actual competition from decentrally sited manufacturing and distribution over the current trend of centralization of manufacturing and distribution.

My area of experience is in the food industry. I worked as a financial controller for a cereal manufacturer for 9 years. The cost of materials for our products was between 40 and 50% of our total costs. Labor 15%, equipment  5%, supporting organizational overhead and marketing, 25%, profit 5%. (Really rough numbers).

Materials were grain, sweeteners, oils, nuts/fruit. Grain is a particularly bulky product. No grain originates in east, maybe a small amount of corn. Most grains require relatively dry conditions (wheat, oats). Grain land specialized for mix of rain patterns and large expanses of land suitable for “industrial” agriculture. Corn requires moderate moisture. Rice requires a great deal.

Grains are bulky. A pound of wheat takes up a great deal more volume than a pound of steel. A pound of milled wheat takes up even more volume. A pound of milled oats for example, that in 2007 cost .16/pound for the oats themselves, cost .13/pound to transport. Unmilled grains are less bulky and can be economically transported by train, then milled decentrally and shipped their last bulky mile by truck.

The first shift will be a shift to utilization of trains over trucks for transport. At some point though, manufacturers will rationally shift to decentralized modular siting of manufacturing rather than central. The sourcing of original materials regionally will be impossible for food. The most that will happen with food is that the subsequent processing will be decentralized. Using grains as an example, wheat will still be grown in the northern midwest, but the milling and subsequent processing will occur closer to consumers.

Another demographic shift that is possible to occur is a population migration west, nearer to the source of grain, and now with the acknowledgement of the persistent winds throughout the midwest, to the source of inexpensive electricity.

Among consumers, the cost of gasoline will hopefully motivate employees to seek work closer to home. If manufacturers decentralize their manufacturing regionally, then there will be more work available regionally.

What happens if manufacturers and consumers do not shift to a regional focus?

Considering the analysis of four-fold multiplying factors adding up to wasteful fossil fuel usage (technology, utilization, population, siting), eliminating one prominent factor that has a great impact on average per capita fossil fuel consumption (siting), will greatly hinder society’s progress towards the 80% reduction in fossil fuel consumption necessary for climate stability (at least free from our intervention), and reducing total social costs of products/services.

The first consequence is decline in the cumulative net worth in society, then borrowing against homes, then potential widespread defaults on housing, credit card and trade debt. Same as a couple years ago.

In all cases, the cost of food will rise. The cost of home heating fuel will rise. The cost of electricity will rise. The cost of transportation fuel will rise. The cost of materials that require large inputs of energy will rise.

The savings rate will decline (further, how is that possible?).

Regionalism will ameliorate those cost increases somewhat. When it sinks in that the new cost structure is permanent, the shifts in siting of manufacturing, residence, land use policies, will start to occur. They will lag, even if firms are able to anticipate. And, as manufacturing or distribution siting takes years, if not decades, to implement, we’ll be behind the rational curve for a while.

Now is a good time to do a deep energy retrofit of one’s home. Contractors are not that busy, eager to do work even below rate. Materials costs are not as stressed as they will be shortly.

While the affect of fuel prices on transportation is significant, families tend to spend 2-3 times on home heating that they do on transportation. It is also a good time to buy down on the size of one’s home.  It is a good time to “buy down” in a car though as well.

Better that we anticipate.

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Reduce Fossil Fuel Consumption!!

1. Technology chosen

2. Utilization

3. Settlement design

4. Population

These are multiplying principles, significant and complete.

The two largest uses of fossil fuels in every society, are for space heating and transportation.

Using transportation as an example. If we:

1. Construct and choose technology that doubles the average fuel mileage of vehicles (private, public and commercial) then we will cut fossil fuel consumption by 50%. That includes the component of availability of technologies, and the choice to actually use them. Right now, average mileage of private cars is around 25 mpg. My internal combustion Toyota Yaris gets around 41 mpg in practice. 50 mpg is not out of reach.

2. Choose cooperative transit. That includes ride-sharing, mass transit modalities (from vanpools to commuter trains and subways) and it includes piggy-backed long haul trucking and/or train hauled modular containers delivered in smaller configurations on the “last mile” for public safety concerns. The average number of passengers in vehicles currently is around 1.2 per trip. (I think it is less, even less than 1.1). 2.5 per trip is not out of the question.

3. We live in sprawl. We work far from where we live. The average commute currently is in the range of 16+ miles/trip, and takes an average of 26 minutes. That could be halved by full employment policies applied in each locale, and greenbelt zoning.

The cumulative effect of doubling mileage per gallon, doubling the number of passengers/freight per trip, halving the distance traveled commuting and freight, would result in a net savings of 87.5% of fossil fuel consumed.

It provides a distinct framework for approaching the problem. One component is important, but far far less effective than moderate efforts on all fronts.

The downside is that social trends also go the other way. As the economy improves people still buy SUV’s (which have the multiplying effect of making small vehicles  less safe on the real road – reduced visibility, more extreme damage in accidents between an SUV and a sub-compact made of light composites).

People still enjoy the luxury of privacy in their trips.

And, we still build communities in sprawl, and in this recession people are willing to drive further and further in their commute to land a job.

If we reduce average gas mileage from 25 to 23 mpg, decrease the average number per trip from 1.2 to 1.1, and increase the average commute from 16 mi to 18 mi, we will increase fossil fuel consumption by 33%.

Those small changes accumulating.

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Oil Prices – What to Expect?

I watched a film yesterday, “Blind Spot”, published by the Media Education Foundation, on Peak Oil.

I’m more than familiar with the peak oil thesis, and it most often represents my thinking, that as a society we are utterly addicted to oil, and that the world is in a status of net depletion relative to oil which will not change.

The rational assertion of the peak oil thesis is that at some point soon, the price of oil will increase, and rapidly, driven by wellhead supply limitations.

I think that long-term price increase is a certainty, but that the pattern of oil price increases will not be a linear pattern driven by wellhead supply as much as other factors. For both responsible public policy makers and for opportunistic commodity speculators alike (and everyone in between), the price of oil is largely predictable.

The price is based on a few factors and recognitions about the oil supply chain. I am not an expert in oil pricing, and am only commenting on my own speculations based on what I do know.

The market price for a barrel of oil is very fungible. There are few market commodities that are as liquid with a ready market comprised of parties with very varying interests. The market is too large and there are too many sources of commodities at each stage in the supply chain to be cornered or functionally distorting the market except for some group psychology effects,  “everyone knows”.

It is also determined almost entirely by temporary changes in supply and demand within the existing supply chain pipeline (wellhead, pre-refining, crude transportation, refining, wholesale logistic delivery). Currently the constraints in the supply chain pipeline occur not at the wellhead, but further through the system, most likely in refining capacity. Wellhead drilling becomes the governing constraint only during periods of unnatural disruption to the supply chain, war or severe collusion.

Oil is an inelastic commodity, in the sense that changes to the capacity of the supply chain are not flexible. They require enormous capital investment, and take a decade to implement. As such, at the point that the supply chain becomes constrained, the price of oil increases dramatically and increasingly, disproportionate to the increase in demand.

So, the important question for all involved in the oil marketplace, is where that threshold of price inelasticity occurs.

The oil supply chain pipeline can function at a very high percentage of capacity before hitting that threshold. Most manufacturers of finished goods function profitably at much lower percentages of theoretical capacity. A firm that I was a financial executive operated profitably at 60% of productive capacity. At 80%, we could manage relatively easily and very profitably. At 90%, logistics for materials, labor and machine availability became difficult to manage.

Production systems like just-in-time rigorously adhered to, and rigorous preventative maintenance systems were required to ensure full available capacity.

In the oil supply pipeline, the norm of throughput is in the 90% range. During recessions (currently), the throughput drops to the high 80’s as a low. At the low 90’s % of potential capacity, the effect on prices is minimal. Somewhere around 93% of capacity of the oil supply chain pipeline, the threshold for price limitations kicks in.

With the growth of China and India in the marketplace, both responding to global productive demand (in their manufacturing spheres) and creating their own domestic demand (increase in home sizes, prevalance of autos) there is a continual upward pressure on that supply chain. Even at recession levels for western economy, the global utilization of the oil supply chain inches up.

When the recession eases, it is likely that that high level of pipeline capacity utilization will reach threshold levels. At 2% growth in GDP, oil prices are stable, not pressing capacity. At 4% probably starting to increase. At stable 4% growth for a as little as two to three years, the pressure on the supply chain, will stimulate the role of speculation in oil markets in addition to natural stresses on supply/demand, will press prices up and considerably.

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My initiation into the engineered life

I’ve had severe medical problems before and been the beneficiary of scientific advances in medical treatment. (I had a non-cancerous growth on my inner ear in 1996, called an “accoustic neuroma”, which required 11 hour surgery, and artistically sequenced immediate and subsequent recovery. It didn’t save my hearing though in one ear. That’s just gone now.)

This weekend I experienced compelling angina symptoms and spent the weekend in the hospital, culminating in the implant of a stent in an artery in my heart. It had gotten to a point of 85% blockage (which doesn’t fix itself).

I’ve been a vegetarian for 40 years, exercise vigorously. I’m overweight, but assumed that I was otherwise a very healthy person.

I assume that diet, exercise, good thinking, treating others and myself kindly would ensure my health. I assumed that my body healed itself (with my and others help), and that that was the role of the physician, to assist my body’s self-healing.

That attitude fit into my ecological view of all things, including work (a generalist financial consultant), home (well-insulated, but still “breathes”), everything.

I had a “deep ecological” form of ecological thinking, consistent with the romantic view that we are small in the scheme of things, that we respond more than we engineer. Individualistic, rural, American, ethical.

For me personally, I am now nearly certainly permanently on an engineered medication regimen. I take a drug that inhibits my white blood cells to attack foreign bodies in my bloodstream, or else the new stent that was placed would be attacked and create a new artificial blockage where the cholesterol plaque one used to be. And, I take an anti-clotting agent, that inhibits my body’s natural formation of clots that could otherwise break off from the area of the stent and cause a stroke.

The drugs do specific things. They are designed. And, the stent is co-designed to fit the specific combinations of interventions possible. My life is now artificially extended. I am now in the engineered zone of life, rather than the ecological.

And, I accept it. I am a beneficiary of it. The experience of lightly struggling for breath, my desire to live, was cellular, undeniable. My mellow, “I accept what occurs” didn’t compare to my body’s guttural desire to survive. I don’t reject medical interventions. I don’t reject the legitimacy of hospitals/doctors, as unnatural and vain as I understand the effort of life-extension to be. (My uncle lived 30 years longer than his father, a long time, but not forever.)

I’m now permanently in the pharmaceuticals-consuming population, permanently dependent on past engineering and ongoing engineered maintenance.

There is a great, long-standing, and permanently continuing debate among any that regard ecological considerations as important, between the romantic back-to-nature theme and the engineered theme of identifying specific key toxic and risk factors and socially/ecologically managing them.

Managing them at each scale is an engineered approach, consistent with my initiation into medical engineered life.

Using space heating as an example. The motives for energy conservation in one’s home or commercial space include most prominently economic factors, but also social ecological. The finite capacity of the planet to assimilate carbon in the atmosphere requires individual and social management (hence the effort to “price” carbon, as knotty as that application is) and the finite availability of carbon based fossil fuels, will raise the price of fossil fuels in the near and extended future.

If the descriptions of the level of stable long-term atmospheric carbon levels by ecologists are accurate, then even pricing carbon is unlikely to realize the reductions in atmospheric carbon that will ensure a stable climate. It will take other additional values and actions, beyond just the economical.

In conservation of space-heating costs/consumption, there are four tiers of commitment that are relevant.

1. Low-hanging fruit of weather stripping doors and windows, awnings, very basic air-sealing. (Maybe costing $500 and $50/year, saving maybe 15% of energy costs). A use of engineered materials, but not exactly an engineered system or engineered society.

2. Mid-range investments in conscientious air-sealing and insulation (but still allowing a house to exchange atmospheres at a level that naturally retains healthy internal air). (Maybe costing $5000 and $50/year, saving maybe 30% of energy costs). Again, use of engineered materials (including recycled and other ecological design), approaching an engineered system but not an engineered society.

3. Deep energy investments in super-insulation (12+ inches), very tight air-sealing (with insufficient exchanges atmospheres to naturally retain healthy internal air). (Maybe costing $50000, saving maybe 75% of energy costs). As the air quality (and indoor moisture) is greatly affected by the tight air-sealing, additional engineered features are necessary beyond just siting, shape and other natural design considerations. Atmospheres must be intentionally exhausted (and through heat exchangers to retain the warmth). Moisture paths for all conceivable moisture must be specifically designed. (Cooking, bathroom, even sweat from exercise). Much additional attention to indoor cleaning to remove dust and other toxins. Attention to what household chemicals, furnishings, paint, carpeting as they often exhaust very toxic gases.

4. Social engineering, mandated zero-energy buildings, in systems designed to optimize energy consumption (and likely ignore some other also permanent individual and social concerns)

An engineered life.

The dilemma of an engineered individual, social and institutional life is that it must identify specific design features, ALL of relevant ones and conclude a permanent balance and design solution. We haven’t done that well historically, if it is possible ever. We, like medicine, pick specific design features for specific outcomes, and exclude design features or system design features that are ignored. So, in the specific design effort to extend life, we design anti-clotting drugs. (I’m not rejecting it.) Even as the effort to extend life exerts population pressures, and financial pressures from extended retirements.

We co-create our social world. Anyone that says that they object to social engineering is fooling themselves. By every decision we/they make, they participate in creating the institutional norm by with OTHERS must live. Maybe we/they have never considered that we co-create our institutions, but it is fact, and responsibly acknowledged, rather than childishly ignored or denied.

So, how will we collaboratively or institutionally engineer? Who will decide? On what basis? Considering what time frame?

For those that advocate for non-governmental definition of design, liberty, the only way that can happen is by ethics, that masses voluntarily modify their definition of their self-interest to include affects on others including other species, current and for posterity.

Otherwise, we have primarily law, or a great deal of chaos. (Our political institutions are beyond human scale currently, so its really quite difficult to say that we have representative system.)

We don’t have a great deal of public discussion on really any social issue of import that I’m aware of. We have a great deal of politicking, but not a lot of thinking and talking, when that is really almost all of what we need.

In ways I want to reject the engineered life. I want to say that “I accept how long my body naturally can sustain”, but I don’t. I don’t want to be cold in my house either, nor financially stressed from high heating bills.

Its partially a question of meaning. What am I living for? (Tomorrow maybe).

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My prediction for economic “improvement”

It won’t come immediately, likely even soon.

There is still a downward drag on home values due to a still large inventory of unsold homes and many homes in foreclosure. There is still a bubble in business to business economy, money chasing after activity and profits. (Thats where the highest compensation is and that is what the investing world understands as “business”). Investors are still sitting on the sidelines as far as funding new enterprise, holding their cash until growth is a sure thing.

Structurally, the real world phenomena that Jeremy Rifkin outlined in the “End of Work” still exists, that the world just doesn’t require full employment anymore to meet social needs, or really anything close.

The enormous class differences that exist in the modern economy now fuel the bubble in business to business economy, and distract value addition to an “affluenza” economy.

And, society is only minimally addressing the real-world conundrum of high fossil fuel prices.

So, the downward pressures of sustained unemployment and slightly increasing foreclosure rates keep the economy stagnant. Banks are still exposed to a second or third downward wave of revaluations of mortgage debt (now partially transferred to the federal government, taxpayers). Most large banks have improved their financial health, largely due to their investment sides realizing consistent 45% return from the trough 15 months ago, so there are unlikely to be many large bank bankruptcies coming even as a result of the prospective additional mortgage write-offs.

But, what we have now is likely to remain the same for a couple years, assuming there is not a war in the middle east or a disastrous oil spill or something like it. (Have you noticed that the oil spill has really not had an enormous general economic affect, just localized to Texas, Louisiana, Alabama, Mississippi, Florida Gulf coast?)

What will change the economy and particularly theemployment situation is when baby boomers begin to retire in larger numbers than infusion of new employees. Those born in 1946 are 64 now. I’d give it another 5 years, before any significant affect of baby boom retirement is felt. (It is being felt profoundly in certain professions like education, in which baby boom teachers are retiring in droves.)

Waves of retirement conflict with the conventional wisdom on employment. That is that the conventional wisdom is that economic growth precedes decreases in unemployment. With retirements, unemployment will decrease before the economic restores. (There’s a countervailing pattern though resulting from Americans abysmal saving rate. That is that in order to retire MANY older people will have to work longer than anticipated and longer than desired.)

When unemployment begins to sag (2013-4 I expect, maybe slightly sooner), the general economy will revive as well. That is the time when inflation will likely reappear, as wages will increase dramatically, and if there is revived economic activity and more demand for oil, the consumption of fossil fuels will likely cause an astonishing increase in the price. Fossil fuels will likely remain an inelastic supply, meaning that for each unit increase in demand for fossil fuels, prices will increase more than proportionally to the long-term trend. The only remedy for that is reduced demand and/or options for replacement. Neither of those are occurring seriously, and given the length of time needed to make capital changes in the economy, it won’t happen before the next demand wave hits.

So, my “prediction” is economic stagnation for two to three years. (Who knows how that will affect politics. 2012?) At which point employment and breadth of purchasing power among young adults will improve, but it will be accompanied by inflationary pressures in the economy as a whole, and particularly in increases in the cost of oil.

There are many businesses exposed to oil price increases, most notably those with large space heating requirements and large transportation requirements. Trucking, large warehouses. (Space heating costs will be the more important component.)

For individuals, the space heating costs will also be the most pronounced and the most debilitating, especially in northern climates where economies are depressed currently, and fuel costs are a higher proportion of the costs of living in homes. (In a $500,000 1800 sq ft home, the costs of heating are 8% of total living costs currently. In a $200,000 1800 sq ft home, the costs of heating are 15% of total living costs.)

Transportation costs may be considered variable. People can drive relatively less. Space heating costs are fixed. People can accommodate keeping their thermostats 3 or even 5 degrees cooler than they would like, but to save half of the fuel consumed in a year requires reducing heating levels by 8 – 10 degrees. Not deaths, but discomfort.

Its coming. Its predictable. Even the timing is relatively predictable.

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Thoughts on the Oil Spill

The oil spill is big news. A gamut of “drill-baby-drill” advocates have oil on their faces.

Its real. The standards for offshore shelf drilling will increase dramatically throughout the globe, and particularly in the US.

To the extent that standards and costs then increase globally, including affects on drilling in on-shore but environmentally sensitive areas, the long-term supply for oil supply will change.

The existing fields will become more prominent, some more difficult to drill/recover land based fields will become more prominent.

But, most importantly, the need for conservation, especially in capital projects, will increase as the long-term cost of fossil fuels is likely to increase.

We won’t see it today or tomorrow. But anyone that is thinking of any building improvements or new construction can expect an additional 5% cost of oil from their estimates last week.

How come its not in the press? Its good that the New York Times is talking about the environmental impact, but why is it not suggesting the need for radical conservation efforts in building and transportation use for example?

There are three multiplying effects of consumption/enterprise/policy decisions:

1. Technology applied – Buildings that means air-sealing, insulation and if you get really tight – subsequent venting of toxins, water vapor, and heat exchange. For transportation that means the cheap availability of high mileage vehicles.

2. Utilization – Buildings – Energy usage increases with surface area. Stand-alone ranches are the worst. Any utilization of shared walls, or any strategy that reduces exposed surface area saves energy. Big city apartments consume less energy per square foot, than rural hip quaint stand alone homes.

Transportation – Ride sharing, mass transit, that yeild 2.5 average riders per trip, consume 1/2 of the energy as those that put 1.25 riders per trip (current average).

3. Settlement patterns – Not much affect on buildings, except noted as utilization savings. For transportation, regional economy and designing villages/towns/cities for full employment and regional sourcing of materials and labor, result in less transportation done to accomplish the same productive activities. If the distance of the average commute reduced from 18 to 9 miles, that would save an additional 50%.

The affects multiply. If average mileage descreases by 1/2, and average passengers per trip decrease by 1/2, and if average distance per trip increases by 2, then we will consume 8 times as much energy on transportation as currently.

On the other hand, if average mileage doubles, and average passengers per trip doubles, and if average distance per trip halves, we’ll consume 1/8 of current.

And, with our decisions and polices, we could see that 64 fold swing, literally that huge.

We’ve got to learn, not ignore.

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Again – Simplify

Every description of sustainability that I’ve heard includes some element of “live and let live”, translated into “live with a smaller ecological footprint”.

In the business world, if you look at annual reports of the largest publicly traded corporations, nearly all dedicate some portion of their reports to proving that they are good corporate citizens, that they walk lightly on the planet, or at least as lightly as is possible in their field. BP, Alcoa, GE, Google, Cisco.

As a new business school faculty, and somewhat as a new “scholar”, I’ve been struck by the hoped for congruence of sustainability and profitability, that the most profitable approach at delivering a good or service from concept to design to manufacture to delivery to service is to be the least wasteful (including the least wasteful to others and to nature).

At the same time, I observe that FEW organizations and few individuals accomplish or even seek simplicity, contentment with enough.

Our fixed costs of living are too high, and we continue at that. Some is beyond our control. The high cost of housing is a disaster for the young. In most locales, the prevailing salaries and wages paid don’t provide enough income to support mortgages required.

The bubble in housing prices remains. To those that own, increasing housing prices are their primary financial investment for retirement. They need housing prices to increase. The norm of highly leveraged mortgages remains, and leaves the S & L type banking world and securitized mortgage investment banking world still very vulnerable, more than vulnerable.

Food costs are still inflationary, prices also still buffered by a large component of their “value” resulting from speculative money chasing commodities in addition to functional money.

People at least can simplify their food needs. Even buying organic and fair trade, it is possible to spend really a small amount on food by using food staples that one prepares themselves, rather than packaged convenient foods. It is possible to garden, to sprout.

But, if you only shop at grocery stores, 90% of the shelfspace is dedicated to relatively highly processed, highly packaged, highly branded foods.

Transportation is an odd one. There are VERY FEW options for simple vehicles in the US. There is very little ride-sharing, and outside of a few metropolitan areas, very insufficient mass transit. Sprawl compels auto use. Verticle competition for eye lines in traffic motivates big auto use. For those with means, driving small vehicles is thought of as dangerous, not a virtue.

So, on cars, families with annual incomes of $50,000/year may spend $10,000/year on transportation, and $8,000 of that to own the vehicles (financing, insurance, taxes).

I’ve organized a few frugal economy discussions in my hometown. Everyone that comes believes in saving. But, going around a circle of 20 people at one occassion, when asked “what are you saving for?”, a quarter stated “for a better car”. OK, its a personal choice.

The tragedy though is that few entrepreneurs have formed proposals for businesses that succeed by achieving savings in miles driven. The transportation business models are still based on growth, growth of number of cars sold, growth in size and profit margins of cars sold.

Not “demand-side management”.

It is a business opportunity, but involves cultural shifts of common attitudes towards cars. For an innovative car rental operation, there is market opportunity for a “break-out”.

And, finally energy remains expensive. Even if the majority of the costs of housing and of transportation are ownership costs, the operating costs of gasoline and other fuels and energy sources, are very expensive.

The interesting characteristic of gasoline prices in particular, is that it is information that individuals confront daily (even walking). Changes in ownership costs of a vehicle is seen at most once a month in a car payment and as a fixed cost is understood as “there is nothing I can do about that”. But, operating costs are seen daily, and effects thinking if not behavior so much.

Simplifying happens by plan, by design,  not by reaction. High gasoline prices might stimulate a person to purchase an energy efficient car, a capital investment. Or, better yet, the recognition of high ownership costs of vehicles, might stimulate a person to car-share in a neighborhood perhaps. Or, by moderate capital investments in own’s home, significant energy savings (80%) are possible.

The art of a real sustainability advocate, a real simplicity advocate, is to structure paths by which the capital investments are possible.

Currently, to make energy improvements on a home requires funds that are nearly always subordinate to other mortgages, even though the energy mortgages actually generate the income to pay for them, while first and second mortgages are paid for relative to the ups and downs of market prices. Its an additional obstacle to the decision to adopt energy efficiency. (Tax credits can’t support it forever.)

Either homeowners take all of the risk and are entitled to all of the benefit, or innovative financial entrepreneurs can define mortgages or externally funded paths in which homeowners take only some of the risk, but then are entitled to only some of the benefit.

“Demand side management”.

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I’m a Gadfly on Climate Change

I had two experiences yesterday touching directly and indirectly on the global warming/climate change discussion. I’ve been an advocate of the preventative and responsive solution for/to global warming (and peak oil) for decades, but am not an advocate for either of the reasons.

The over-arching reality is that climate change is natural, necessary, real, unavoidable. The truthful conclusions of the scientific concensus on the effects of increased carbon in the atmosphere miss the point socially and economically.

The observation that the carbon levels in the atmosphere are higher than at any other observable time in ice and soil stratifying history is true. It is also likely true that that will result in some global warming, that will melt more of the planet’s glaciars than would otherwise occur.

But, relative to the enormous natural glaciation that has occurred historically and will nearly certainly again over the next 100,000 year cycle (probably starting to net increase in a few thousand years only) the human induced effects on global climate is paltry. The incremental difference of five or ten feet swing in ocean levels is a statistical blip compared to the cyclical 300 – 350 foot swing in ocean levels due to glaciation.

Our impact will be immaterial and short-lived.

Similarly, all the other expected consequences of human induced global warming, forced species migration and increased extinction rate, disease from changes in precipitation patterns, moderately more extreme storm activity are natural, necessary, real, unavoidable. 

In the scheme of things, the affects of human induced climate change is again relatively small.  (The rate of extinction of species is material in the scheme of things, but does not result from increased CO2 in the atmosphere, as much as restrictions to habitat.)

The other primary motivating “fact” that drives modern disaster theory is of “peak oil”. The thesis of peak oil is that the supply of oil and other fossil fuels on the planet are finite, which is a truth. Further, that the majority of existing oil, natural gas, and coal reserves have already been discovered, that there are no likely game changing discoveries coming, also nearly certainly true. Further, that the cost of drilling for existing oil and other fossil fuels is increasing, also true. Those facts add up to the conclusion that the consumption of oil now exceeds the rate of discovery, that we are in a state of net depletion, also true.

The faulty conclusion though is that peak oil (that we have already reached the point of net depletion) will be the driver of significant increases in fossil fuel prices, which will devastate the economy. Both elements of that conclusion are untrue, at least for the next 40 years or more.

The drivers of the price of oil are nearly entirely defined by short-term relations of demand to bottlenecks in the supply chain. Oil is a commodity with currently very few alternatives, so its price is considered inelastic. Oil based fuel products are unique for their high volatility and relative ease of transport. Those joint characteristics do not exist in any other current fuel/conversion source, not ethanol which is not as volatile as gasoline and cannot be refined to be as volatile as airplane fuel for example. Hydrogen is/can be highly volatile but is difficult to transport. For any socially necessary commodity that has few alternatives, minor changes in demand or disruptions of the supply chain will cause a large swing in price. Speculation in commodity futures, exacerbate already economic based price swings.

These are all short-term supply chain effects, with very minor effects caused by wellhead limitations.

Historically, in the US, the most that gasoline has cost at the pump near my home has been $4.50/gallon, just less than double the current stable price. Even if the price of gasoline double again to $9.00/gallon, it would unlikely cause a major shift in personal behavior or social well-being.

It would definitely cause hardship among those that that increase would be the last straw, either for transportation or home heating.

But, the reality is that gasoline costs are 15-20% of the costs of transportation for most. The cost to own, insure, tax vehicles (fixed ownership costs) are the lion’s share. We would all have to drive cars that retail for $5000 – 6000, for gasoline to be the largest expense.

There is significant increase recently in the demand for electricity, which will likely exacerbate as people move to use electric powered cars that are powered by the grid. And, that will cause a partial increase in demand for fuel. (That is a substitution of use from gasoline for private vehicles, to oil for electricity generation.)

But, no immanent giant price swings (excepting war), no immanent oil or ecological driven collapse in economy.

Peak oil is real in the long-term. Assuming that people will continue to transport, to communicate, to heat, to manufacture, there will be demands for energy, and in the life of capital investments (buildings, factories, energy generation, etc.), energy issues are critical.

The BIG concerns are social at a capital scale – Where and how settlement and land use is organized and controlled? And, individual – Where and how building internal climate and transportation needs are met?

In companies for whom I’ve worked, we often took a position of upgrading whenever a capital item needed major repair or reached its end of useful life. So, when a piece of equipment failed, we replaced it with a more functional and energy efficient one. As every piece of equipment or building fails or requires major improvement at some point, “if everyone did it”, that comprises an opportunity in the relevant time range to accomplish significant energy savings through capital improvements.

In the case of energy, “society” should both require and guarantee that every time a roof or siding is replaced, that the building add 4 inches of insulation. Or everytime an appliance breaks, that it be replaced by one that requires 1/2 of the energy of the prior.

We have to find a way that money is not a limiting factor in this regard, really at any scale – appliance, building, region even considering mass transit. Currently, MANY economically justifiable decisions to improve energy efficiency at rational decision points, are not being done for lack of access to capital for the purpose.

The redefinition of settlement patterns is a much bigger question, a necessary and difficult one. People dislike intervention. The personal disruption, loss of liberty as to where to live, and potential even social loss of invested capital, strikes most Americans as violations, un-American. We are the nation of rugged individualists, with liberty for all (dollar votes).

Somehow continuing addictions to oil, with the resulting enormous waste (with social consequences) while limiting future prospective owners’ options is considered more free.

Disaster is not imminent (yet).

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