Category Archives: Business

The wealth of nations in beer

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We generally compare the wealth of nations in dollars per capita, but this is a false comparison. You can not eat dollars, and even if dollars can be exchanged for products or other countries’ currencies with minimum cost, the same is not true for their products. A sack of rice in America costs more than in India; you can not easily buy it at the Indian price. Nonetheless we generally measure the wealth of a county as if all products cost the same everywhere. Based on this, we declare that the citizens of Lichtenstein are the richest on the planet, followed by Norway and Denmark. US citizens not far behind, vastly richer than the people of Africa who we picture living on pennies per day. But pennies in Africa buy more than pennies in America; wealth is spent locally, and things are expensive where people have money.

GDP for various countries in pints of beer per person per year in main city bar or restaurant

GDP for various countries in pints of beer per person per year in main city bar or restaurant

To correct for this local value of money effect, some economists modify consider the ratio of per-capita GDP by relation to the cost of a basket of goods. This is called purchasing power parity, or ppp. By this measure, American’s are not as much richer than Africans, but the problem remains that people don’t all buy the same basket of goods. The Economist magazine has thus suggested correcting ppp by choosing a single consumable, the MacDonald’s Big Mac, a standard product available world-wide. The Economist’s “Big Mac Index” is quite good in my opinion, but it could be better, and I decided to make it better by using beer instead of Big Macs.

It strikes me that typical Africans don’t eat Big Macs — the price is out of range. Meanwhile, in rich countries mostly it’s the poor who eat MacDonald’s (and Donald Trump). The advantage of using beer to measure the wealth of nations is it’s something most-everyone consumes across all social strata. A country is wealthy in terms of many pints of beer a person can buy based on his or her, per-capita GDP.

Shown at left is the top countries from a table I made by dividing the GDP per capita by the price of a pint (or half-liter) of local beer as served in a tavern or restaurant of the major city. Measured this way I find Lichtenstein is still the richest country on earth, now followed by Saudi Arabia and the Czech Republic. Norway is no longer among the richest countries — beer is expensive there, as is labor. The Czech Republic, normally considered a middle-to-poor country, is number 3 because of the low cost of its excellent beer. The US is several stages down, just below Denmark, and barely above Hungary and Kazakhstan. The socialist countries: Russia, Cuba, and Venezuela are as poor in beer as they are in dollars. Socialism distributes wealth without creating it.

Number of beers one can buy on a month's minimum wage in Europe

Number of beers one can buy on a month’s minimum wage in Europe, by Reddit:adilu.

By now you’re wondering about my use of per-capita GDP. Perhaps a better comparison — one where socialism looks better would involve the minimum wage. At right I show a map of Europe in terms of the number of beers one can buy per month based on 40 hour weeks at the minimum wage. Several countries are greyed out: Italy, Austria, Sweden, Finland, Lichtenstein, etc. These are mostly rich countries bu have no minimum wage. Based on the data, Belgium’s working classes are the best off, with Ireland and England not far behind. Germany’s workers look like they are doing well, but they don’t really have a minimum wage (the chart, by Reddit editor adieu assumes one based on a proposal). The United States’s minimum worker is poorer in beer (327/month) based on a minimum wage of $7.85 and an average cost of beer about $4/pint (bar + supermarket). He is richer than the French, Poles, Italians, Norwegians, Danes, Austrians and Swedes in beer, and better off than the Turks and Russians too. It’s clear that high minimum wages harm community wealth and job prospects. Though some at the bottom of the work scale are left dry at the bar.

Robert Buxbaum, July 18, 2018. I write these blogs to help me think. If you’d like to see more of the wealth of nations in beer, I’ll be happy to provide.

Trump, tariffs, and the national debt

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My previous post was about US foreign policy, Obama’s and Trumps. This one is about Trump’s domestic policy as I see it. The main thing I see, the pattern is that I think he’s trying to do is pay down the national debt while increasing employment. So far unemployment is down, but borrowing is not. I suspect that a major reason for the low unemployment is that Americans (particularly black Americans) are taking jobs that used to be held by Mexicans. As for US borrowing, it’s still bad. For his first budget, Trump, like all other recent politicians caved to the forces that favor borrow and spend than to pay back. In this century, only Wm. McKinley, Theodore Roosevelt, Taft, Harding, and Coolidge managed to pay down the national debt. But only one man, Andrew Jackson, managed to pay it off completely. Jackson’s picture hangs in the pride of place in the Trump white house, something that I find significant. I suspect that Trump’s tariffs and spats are intended to pay down the debt without raising unemployment, or weakening the military. Andrew Jackson is his idea of “Make America Great Again.”

All recent presidents have raised the national debt. Trump claims he will shrink it.

All recent presidents have raised the national debt. Trump data to April 20, 2018.

As the graph above shows, if Trump plan is to pay down the debt, he is not succeeding. Trump is overspending — at a somewhat slower rate than other recent presidents, but in 1 1/4 year he’s increased the debt by 6.3%, about $1220 B. He’s saved a few billion by reduced payments to the UN, and to the EU for climate studies, and he’s asking NATO to pay more for Europe’s defense, but he’ll have to do a lot more, and the rest of the world is already unhappy with him.

Many US economists — Keynesians – are not happy with him for another reason. They claim that debt is good, and that borrowing increases employment. As proof they note that FDR borrowed and spent heavily though the 1930s,and we got out of the depression. Other economists point out that it took longer in the US to get out of the depression than in many other countries. More recently, under Jimmy Carter, deficit spending created a combination of high inflation and high unemployment, “stagflation,” suggesting that Keynes should be modified to “Neo Keynesians” who claim you can overspend if you don’t outspend the GDP growth rate. Sorry to say, even in these terms, Obama and GW Bush overspent badly, as did Reagan before them (see graph below). Obama raised the debt from 65% of the GDP to its current 105%, and GW Bush raised it from 50% of GDP to 65%. This borrowing did not increase employment, or raise the standard of living for most Americans, though several at the top became fabulously wealthy. As Alan Greenspan noted, “If national borrowing was a path to wealth, Zimbabwe would be the richest country on earth.” I’m more of a hard money man, as Greenspan was, inclined to think that a balanced budget is good, and that tariffs are good too.

Ratio of US government debt to GDP

Ratio of US government debt to GDP

As of June 1, 2018, Trump has imposed ~20% tariffs on five items: wood, steel, aluminum, washing machines, and solar panels. Combined, these items constitute 4.1% of our imports, $130 B/ year. Taxed at 20%, the US will collect $25 B/year. it’s a step, but I suspect that Trump knows that, if tariffs are to wipe out all of our deficit, he’ll have to impose a lot more, about 40% on all of our imports ($3,100 B/year). Trump may yet do this, and may yet cut spending, and put a lot more America to work. My sense is that this is his aim.

The next step in the Trump MAGA plan involves adding another $35B to the list of items being taxed; that’s about 1.1% of US imports (5.2% total). In response, our trade-partners have complained to the press and to the world court, and have imposed their own tariffs — so far on about $100 B of US products, mostly food items, like bourbon and cheese, chosen to hit Republicans in politically – sensitive states: Tennessee and Wisconsin. Canada now taxes US cheese at over 100%. It’s an effort to embarrass Trump and get Democrats elected in 2018. If these tactics don’t work, Trump will impose another round, e.g. on foreign-made cars and motorcycles. I’d also expect him to cut NATO funding unilaterally, too, as a counter-slap to the EU.

US unemployment by race

US unemployment by race, data to May 2018.

Speaking of Keynesian economists, Nobel Laureate economist, Paul Krugman of the New York Times has been predicting severe job losses, and a permanent stock collapse since 2016, and especially following Trump’s election. Virtually every week he announces that the end is near, and every month the economy looks better. But he’s not deterred, and neither are most economists. In a survey of nearly 100 economists by Reuters, 80% said that Trump’s policies will hurt the U.S. economy, and the rest said there would be little or no effect.[1] . So far it looks like they are all wrong. Unemployment is at record lows, particularly for African-Americans (see chart above); we’re adding new jobs at the rate of 200,000 new jobs per month, nearly 0.8% of the population per year. Inflation is a modest 2.3%, GDP growth is excellent, at 3.2% (or an incredible 4.5%). All we need now is a sensible immigration policy plus some healthcare reform, a modified social security tax, and for the economy to stay this way for another 5-10 years. It’s unlikely, but that’s the plan.

Robert Buxbaum, July 5, 2018. I’d hoped to see the employment and deficit numbers for June by now, but it’s not out. I’ve also argued that free trade is half right, as there is a benefit to workers, And there is a certain greatness that comes from paying your bills. Today, the EU offered to lower some auto tariffs if Trump does not move forward.

Most traffic deaths are from driving too slow

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About 40,100 Americans lose their lives to traffic accidents every year. About 10,000 of these losses involve alcohol, and about the same number involve pedestrians, but far more people have their lives sucked away by waiting in traffic, IMHO. Hours are spent staring at a light, hoping it will change, or slowly plodding between destinations with their minds near blank. This slow loss of life is as real as the accidental type, but less dramatic.

Consider that Americans drive about 3.2 trillion miles each year. I’ll assume an average speed of 30 mph (the average speed registered on my car is 29 mph). Considering only the drivers of these vehicles, I calculate 133 billion man-hours of driving per year; that’s 15.2 million man-years or 217,000 man-lifetimes. If people were to drive a little faster, perhaps 10% faster, some 22,000 man lifetimes would be saved per year in time wasted. The simple change of raising the maximum highway speed to 80 mph from 70, I’d expect, would save half this, maybe 10,000 lifetimes. There would likely be some more accidental deaths, but not more accidents. Tiredness is a big part of highway accidents, as is highway congestion. Faster speeds decreases both, decreasing the number of accidents, but one expects there will be an increase in the deadliness of the accidents.

Highway deaths for the years before and after Nov. 1995. Most states raised speeds, but some left them unchanged.

Highway deaths for the years before and after speed limit were relaxed in Nov. 1995. At that time most states raised their speed limits, but some did not, leaving them at 65 rural, 55 urban; a few states were not included in this study because they made minor changes.

A counter to this expectation comes from the German Autobahn, the fastest highway in the world with sections that have no speed limit. German safety records show that there are far fewer accidents per km on the Autobahn, and that the fatality rate per km is about 1/3 that on other stretches of highway. This is about 1/2 the rate on US highways (see safety comparison). For a more conservative comparison, we could turn to the US experience of 1995. Before November 1995, the US federal government limited urban highway speeds to 55 mph, with 65 mph allowed only on rural stretches. When these limits were removed, several states left the speed limits in place, but many others raised their urban speed limits to 65 mph, and raised rural limits to 70 mph. Some western states went further and raised rural speed limits to 75 mph. The effect of these changes is seen on the graph above, copied from the Traffic Operations safety laboratory report. Depending on how you analyze the data, there was either a 2% jump (institute of highway safety) in highway deaths or perhaps a 5% jump. These numbers translate to a 3 or 6% jump because the states that did not raise speeds saw a 1% drop in death rates. Based on a 6% increase, I’d expect higher highway speed limits would cost some 2400 additional lives. To me, even this seems worthwhile when balanced against 10,000 lives lost to the life-sucking destruction of slow driving.

Texas has begun raising speed limits. Texans seem happy.

Texas has begun raising speed limits. So far, Texans seem happy.

There are several new technologies that could reduce automotive deaths at high speeds. One thought is to only allow high-speed driving for people who pass a high-speed test, or only for certified cars with passengers who are wearing a 5-point harness, or only on roads. More relevant to my opinion is only on roads with adequate walk-paths — many deaths involve pedestrians. Yet another thought; auto-driving cars (with hydrogen power?). Computer-aided drivers can have split second reaction times, and can be fitted with infra-red “eyes” that see through fog, or sense the motion of a warm object (pedestrian) behind an obstruction. The ability of computer systems to use this data is limited currently, but it is sure to improve.

I thought some math might be in order. The automotive current that is carried by a highway, cars/hour, can be shown to equal to the speed of the average vehicle multiplied by the number of lanes divided by the average distance between vehicles. C = v L/ d.

At low congestion, the average driving speed, v remains constant as cars enter and leave the highway. Adding cars only affects the average distance between cars, d. At some point, around rush hour, so many vehicles enter the highway that d shrinks to a distance where drivers become uncomfortable; that’s about d = 3 car lengths, I’d guess. People begin to slow down, and pretty soon you get a traffic jam — a slow-moving parking lot where you get less flow with more vehicles. This jam will last for the entirety of rush hour. One of the nice things about auto-drive cars is that they don’t get nervous, even at 2 car lengths or less at 70 mph. The computer is confident that it will brake as soon as the car in front of it brakes, maintaining a safe speed and distance where people will not. This is a big safety advantage for all vehicles on the road.

I should mention that automobile death rates vary widely between different states (see here), and even more widely between different countries. Here is some data. If you think some country’s drivers are crazy, you should know that many of the countries with bad reputations (Italy, Ireland… ) have highway death rates that are lower than ours. In other countries, in Africa and the mid-east death rates per car or mile driven are 10x, 100x, or 1000x higher than in the US. The countries have few cars and lots of people who walk down the road drunk or stoned. Related to this, I’ve noticed that old people are not bad drivers, but they drive on narrow country roads where people walk and accidents are common.

Robert Buxbaum, June 6, 2018.

Al Jazeera, a multi billion-dollar influence buyer

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Given the hand-wringing over the $300,000 spent by Russia to influence the 2016 US election, I thought it worthwhile to point out that Qatar spent roughly 2.5 billion on influence, mostly through Qatar’s news agency, Al Jazeera. Qatar is a Shiite (Shia) Moslem Emirate solely ruled by a Sunni Emir (king). Here’s a joke to help distinguish Sunni from Shia. It is also the 4th largest exporter of natural gas in the world behind Russia, Norway, and Canada. It’s a solid supporter of leftist political causes from anti-climate change to Hamas and Al Qaeda/ ISIS, and it is the host for the FIFA world cup of soccer, 2022. For more about Qatar and the logic of its behavior, see the American Foreign Policy Analysis. Interesting in general, but I’d like to focus on influence buying.

FILE - In this Aug. 20, 2013 file photo, Al Jazeera America editorial newsroom staff prepare for their first broadcast in New York. Shannon High-Bassalik former head of Al Jazeera America’s documentary unit has sued the news network, claiming it is biased against non-Arabs in stories that it produces and how it treats employees. (AP Photo/Bebeto Matthews, File)

Al Jazeera America prepares for its first broadcast from New York, August, 2013. AP Photo/Bebeto Matthews.

The Emir of Qatar is the sole owner of Al Jazeera, a news organization, that he uses as profit-losing, influence machine. It allowed him to support leftist politicians who he believes to be pro-Arab, pro-Muslim Brotherhood, anti-Israel, and anti-American. In Europe he pursues pro-immigration, anti-fracking policies. In conservative, Islamic countries, like Saudi Arabia, Egypt, and Iran, he’s used Al Jazeera to supported free elections to unseat the king, Shah, or military president. Al Jazeera uniformly portrays Qatar and its emir well, helping it get rights to host the FIFA world cup. No other country gets anywhere near such uniform, positive support.

A bit of history: Al Jazeera began operations in Doha, the capital of Qatar in 1996, as an antidote to Saudi Arabia’s arabic-language news outlet, MBC (Mid-East Broadcast Company, now called Al Arabia). By 2003, Al Jazeera was broadcasting in Europe in various EU languages, and had an english language version broadcast out of London, Al Jazeera-English. It is available in the US via cable TV, Channels 100, 200, and 300. In 2013, the Emir of Qatar expanded Al Jazeera directly to the US, paying 1/2 billion dollars for an Emmy-winning, non-profitable, cable news company “Current TV”, partially owned by Al Gore. “Current TV” operated out of San Francisco with a left-leaning, pro-environment message and a modest audience. Their shows include The War Room with Jennifer Granholm (Jennifer is the ex-governor of Michigan), Talking Liberally, The Stephanie Miller Show, and  Viewpoint with Eliot Spitzer. The Emir added a news headquarters in New York and gave it a new name: Al Jazeera America, or AJAM. The old Current TV was retained as AJ+, a video arm. Over the next 5 years the emir spent 2 billion dollars setting up 12 news bureaus in the US with instructions that there was no need for profit, but only for “influence”. It is arguable how much influence he got, but it is clear he didn’t make any profit.

Despite what you might imagine would be the opinions of a petro-monarch, AJAM continues to back Gore’s anti-fracking message. I will speculate this is because he is against US gas because it competes with Qatari gas. AJAM also strongly supports the Muslim Brotherhood, Hamas, and ISIS. Perhaps that’s radical chic (radical sheik?). He’s against any authoritarian ruler that isn’t him.

Trump, his daughter, el Sisi, and the King of Saudi Arabia. No Emir of Qatar.

Trump, his daughter, Ibn-Said (king of Saudi Arabia) and el Sisi, (president of Egypt). Global control with no Emir.

Some notable controversies — I got these from Wikipedia –Ahmed Mansour, a prominent Al Jazeera anchor, is quoted saying that Egyptian president, el-Sisi was “a Jew carrying out an Israeli plot.” Faisal al-Qassim, another Al Jazeera presenter, hosted a segment on whether Syria’s Alawite (Shia) population deserved to be killed en-mass, and in 2014, the channel’s Iraqi affairs editor tweeted approvingly about the Islāmic State killing more than 1,500 air-force cadets in Tikrit, singling out those who were Shia and non-Muslim. Closer to home, they charged a half-dozen athletes with doping, including Peyton Manning, hero of the super bowl. In the end, Shannon High-Bassalik, former head of the documentary unit, also sued claiming bias against non-Arabs in stories and in how it treats employees.

Among Republicans, AJAM became to be known as “The Terror Network”, while they retained some good reputation on left. The Emir bought not only the network, but spent liberally on sympathetic experts, and on academic think tanks. Further, it seems that Al Jazeera writers had no fixed budget or expense limit. The Russians are nowhere near this generous.

In April of 2016, with the world cup coming to Qatar, and American oil reviving, the emir cut AJAM staff by 900 workers. Part of the decision may have been that it looked like he had the 2016 election in the bag. Al Jazeera English remains, still operating out of London, and AJ+, the old Current TV, still operating out of San Francisco. And then Donald Trump was elected 45th US president. AJ / AJ+ was shocked (as was I); and called for protests. Trump, in a publicized meeting with el-Sisi of Egypt (the Jewish Spy), and Salmon al-Saud, (above, 2017) issued a set of 13 demands including that the emir stop to support for Hamas and the Brotherhood, and that he shut Al Jazeera. The emir has not complied, and the world cup is still on for Qatar.

I should mention that the Emir and Putin work together on some things and oppose on others. They both support politicians who oppose oil and gas production while opposing each other on pipeline construction. Qatar backs the pan Arabian pipeline to Turkey, while Russia funds Assad and the PKK (Russia-friendly, Kurdish independents) to block such access. The Emir supports ISS, Hamas, and Turkish Kurds, I suspect, as a way to fight Russia. It’s Byzantine politics in both senses of the word. Given how much Qatar has spent buying influence with Clinton and Gore, I don’t understand why the FBI is so focussed on Trump and Russia.

Robert Buxbaum, May 29, 2018.

New Chinese emperor, will famine not follow

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For most of its 2300 year history, the Chinese empire has rattled between strong leaders who brought famine, and weak leaders who brought temporary reprieve. Mao, a strong leader, killed his associates plus over 100 million by his “great leap forward” famine. Since then, 30+ years, we’ve had some weaker leaders, semi-democracy, and some personal wealth, plus the occasional massacre, e.g. at Tiananmen square, and a growing demographic problem. And now a new strongman is establishing himself with hopes of solving China’s problems. I hope for the best, but fear the repeat of the worse parts of Chinese history.

Two weeks ago, Chairman Xi amended the Chinese constitution to make himself emperor for life, essentially. He’s already in charge of the government, the party, and the military. Yesterday (Tuesday), he consolidated his power further by replacing the head of the banks. The legal system is, in theory, is the last independent part of government, but there is hardly any legal system in the sense of a balance of power. If history is any guide, “Emperor” Xi will weaken the courts further before the year is out. He will also likely remove many or all of his close associates and relatives. It is not for nothing that Nero, Stalin, and Mao killed their relatives and friends — generally for “corruption” following a show trial.

China's Imperial past is never is quite out of sight. Picture from the Economist.

China’s past is never is quite out of sight. Picture from the Economist.

Xi might be different, but he faces a looming demographic problem that makes it likely he will follow the president of the stronger emperors. China’s growth was fueled in part by a one child policy. Left behind is an aging, rural population with no children to take care of the elderly. As top-down societies do not tolerate “useless workers,” I can expect a killing famine within the next 10 years. This would shed the rural burden while providing a warning to potential critics. “Burn the chicken to scare the monkey,” is a Chinese Imperial aphorism. Besides, who needs dirt farmers when we have modern machines.

Lazy beds (feannagan) use only half the soil are for planting. The English experts were sure this was inefficient and land-wasting. Plowing was imposed on Ireland, and famine followed

“Lazy beds” of potatoes were used in Ireland for a century until experts forced their abandonment in the mid 1800s. The experts saw the beds, and the Irish as lazy, inefficient, and land-wasting. Famine followed.

Currently about 40% of the country is rural, about 560 million people spread out over a country the size of Canada or the US. The rest, 60% or 830 million, live concentrated in a few cities. The cities are rich, industrial, and young. The countryside is old, agricultural and poor, salaries are about 1/3 those of the cities. The countryside holds about 2/3 of those over 65, about 100 million elderly with no social safety net. The demographic imbalance is likely to become worse — a lot worse — within the next decade.

What is likely to happen, I fear, is that the party leaders — all of whom live in the cities — will decide that the countryside is full of non-productive, uneducated whiners. They will demand that more food should be produced, and will help them achieve this by misguided science and severe punishments. Mao’s experts, like Stalin’s and Queen Victoria’s, demanded unachievable quotas and academic-based advice that neither the leaders nor the academics had ever tried to make work. Mao’s experts told peasants to kill the birds that were stealing their grain. It worked for a while until the insects multiplied. As for the quotas, the party took grain as if the quotas were being met. If the peasants starved, they starved.

I expect that China’s experts will propose machine-based modern agriculture, perhaps imported from the US or Israel: Whatever is in style at the time. The expert attitude exists everywhere to this day, and the results are always the same. See potato famine picture above. When the famine comes, the old will request food and healthcare, but the city leaders will provide none, or just opioids as they did to ailing Elvis. When the complaining stops the doctor is happy.

China's population pyramid as of 2016. Notice the bulge of 40-55 year olds.

China’s population pyramid as of 2016. Notice the bulge of 40-55 year olds. Note too that there are millions more males (blue) than females (pink).

In single leader societies, newspapers do not report bad news. Rather, they like to show happy, well-fed peasants singing the leaders’ praise. When there’s a riot too big to ignore, rioters are presented as lazy malcontents and counter-revolutionaries. Sympathizers are sent to work in the fields. American academia will sing the praises of the autocratic leader, or will be silent. We never see the peasants, but often see the experts. And we live in a society where newspapers report only the bad, and where we only believe when there pictures. No pictures, no story. As with Stalin’s Gulags, Mao’s famine, or North Korea today, there are likely to be few pictures released to the press. Eventually, a census will reveal that tens of million aged have vanished, and we’ll have to guess where they went.

I can expect China to continue its military buildup over the next decade. The military will be necessary to put down riots, and keep young men occupied, and to protect China from foreign intervention. China will especially need to protect its ill-gotten, new oil-assets. Oil is needed if China is to replace its farmers with machines. It will be a challenge for a wise American leader to avoid being drawn into war with China, while protecting some of our interests: Taiwan, Hong Kong, etc. As with Theodore Roosevelt, he should offer support and non-biassed mediation. Is Trump up to this?  Hu Knows?

Robert Buxbaum, March 21, 2018. The above might be Xi-nephobia, Then again, this just in: Chairman Xi announces that Taiwan will face punishment if it attempts to break free. Doesn’t sound good.

Beyond oil lies … more oil + price volatility

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One of many best selling books by Kenneth Deffeyes

One of many best-selling books by Kenneth Deffeyes

While I was at Princeton, one of the most popular courses was geology 101 taught by Dr. Kenneth S. Deffeyes. It was a sort of “Rocks for Jocks,” but had an unusual bite since Dr. Deffeyes focussed particularly on the geology of oil. Deffeyes had an impressive understanding of oil and oil production, and one outcome of this impressive understanding was his certainty that US oil production had peaked in 1970, and that world oil was about to run out too. The prediction that US oil production had peaked was not original to him. It was called Hubbert’s peak after King Hubbert who correctly predicted (rationalized?) the date, but published it only in 1971. What Deffeyes added to Hubbard’s analysis was a simplified mathematical justification and a new prediction: that world oil production would peak in the 1980s, or 2000, and then run out fast. By 2005, the peak date was fixed to November 24, of the same year: Thanksgiving day 2005 ± 3 weeks.

As with any prediction of global doom, I was skeptical, but generally trusted the experts, and virtually every experts was on board to predict gloom in the near future. A British group, The Institute for Peak Oil picked 2007 for the oil to run out, and the several movies expanded the theme, e.g. Mad Max. I was convinced enough to direct my PhD research to nuclear fusion engineering. Fusion being presented as the essential salvation for our civilization to survive beyond 2050 years or so. I’m happy to report that the dire prediction of his mathematics did not come to pass, at least not yet. To quote Yogi Berra, “In theory, theory is just like reality.” Still I think it’s worthwhile to review the mathematical thinking for what went wrong, and see if some value might be retained from the rubble.

proof of peak oilDeffeyes’s Maltheisan proof went like this: take a year-by year history of the rate of production, P and divide this by the amount of oil known to be recoverable in that year, Q. Plot this P/Q data against Q, and you find the data follows a reasonably straight line: P/Q = b-mQ. This occurs between 1962 and 1983, or between 1983 and 2005. Fro whichever straight line you pick, m and b are positive. Once you find values for m and b that you trust, you can rearrange the equation to read,

P = -mQ2+ bQ

You the calculate the peak of production from this as the point where dP/dQ = 0. With a little calculus you’ll see this occurs at Q = b/2m, or at P/Q = b/2. This is the half-way point on the P/Q vs Q line. If you extrapolate the line to zero production, P=0, you predict a total possible oil production, QT = b/m. According to this model this is always double the total Q discovered by the peak. In 1983, QT was calculated to be 1 trillion barrels. By May of 2005, again predicted to be a peak year, QT had grown to two trillion barrels.

I suppose Deffayes might have suspected there was a mistake somewhere in the calculation from the way that QT had doubled, but he did not. See him lecture here in May 2005; he predicts war, famine, and pestilence, with no real chance of salvation. It’s a depressing conclusion, confidently presented by someone enamored of his own theories. In retrospect, I’d say he did not realize that he was over-enamored of his own theory, and blind to the possibility that the P/Q vs Q line might curve upward, have a positive second derivative.

Aside from his theory of peak oil, Deffayes also had a theory of oil price, one that was not all that popular. It’s not presented in the YouTube video, nor in his popular books, but it’s one that I still find valuable, and plausibly true. Deffeyes claimed the wildly varying prices of the time were the result of an inherent quay imbalance between a varying supply and an inelastic demand. If this was the cause, we’d expect the price jumps of oil up and down will match the way the wait-line at a barber shop gets longer and shorter. Assume supply varies because discoveries came in random packets, while demand rises steadily, and it all makes sense. After each new discovery, price is seen to fall. It then rises slowly till the next discovery. Price is seen as a symptom of supply unpredictability rather than a useful corrective to supply needs. This view is the opposite of Adam Smith, but I think he’s not wrong, at least in the short term with a necessary commodity like oil.

Academics accepted the peak oil prediction, I suspect, in part because it supported a Marxian remedy. If oil was running out and the market was broken, then our only recourse was government management of energy production and use. By the late 70s, Jimmy Carter told us to turn our thermostats to 65. This went with price controls, gas rationing, and a 55 mph speed limit, and a strong message of population management – birth control. We were running out of energy, we were told because we had too many people and they (we) were using too much. America’s grown days were behind us, and only the best and the brightest could be trusted to manage our decline into the abyss. I half believed these scary predictions, in part because everyone did, and in part because they made my research at Princeton particularly important. The Science fiction of the day told tales of bold energy leaders, and I was ready to step up and lead, or so I thought.

By 2009 Dr. Deffayes was being regarded as chicken little as world oil production continued to expand.

By 2009 Dr. Deffayes was being regarded as chicken little as world oil production continued to expand.

I’m happy to report that none of the dire predictions of the 70’s to 90s came to pass. Some of my colleagues became world leaders, the rest because stock brokers with their own private planes and SUVs. As of my writing in 2018, world oil production has been rising, and even King Hubbert’s original prediction of US production has been overturned. Deffayes’s reputation suffered for a few years, then politicians moved on to other dire dangers that require world-class management. Among the major dangers of today, school shootings, Ebola, and Al Gore’s claim that the ice caps will melt by 2014, flooding New York. Sooner or later, one of these predictions will come true, but the lesson I take is that it’s hard to predict change accurately.

Just when you thought US oil had beed depleted for good, production began rising. It's now higher than the 1970 peak.

Just when you thought US oil was depleted, production began rising. We now produce more than in 1970.

Much of the new oil production you’ll see on the chart above comes from tar-sands, oil the Deffeyes  considered unrecoverable, even while it was being recovered. We also  discovered new ways to extract leftover oil, and got better at using nuclear electricity and natural gas. In the long run, I expect nuclear electricity and hydrogen will replace oil. Trees have a value, as does solar. As for nuclear fusion, it has not turned out practical. See my analysis of why.

Robert Buxbaum, March 15, 2018. Happy Ides of March, a most republican holiday.

Hydrogen powered trucks and busses

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With all the attention on electric cars, I figure that we’re either at the dawn of electric propulsion or of electric propulsion hype. Elon Musk’s Tesla motor car company stock is now valued at $59 B, more than GM or Ford despite the company having massive losses and few cars. It’s a valuation that, I suspect, hangs on the future of autonomous vehicles, a future whose form is uncertain. In this space, I suspect that hydrogen-battery hybrids make more sense than batteries alone, and that the first large-impact uses will be trucks and busses — vehicles that go long distance on highways.

Factory floor, hydrogen fueling station for plug-power forklifts. Plug FCs reached their 10 millionth refueling this January.

Factory floor, hydrogen fueling station for fuel cell forklifts. This company’s fuel cells have had over 10 million refuelings so far.

Currently there are only two brands of autonomous vehicle available for sale in the US: the Cadillac CT6, a gasoline hybrid, and the Tesla, a pure battery vehicle. Neither work well except on highways because there are fewer on-highway driver-issues. Currently, the CT6 allows you to take your hands off the wheel — see review here. This, to me, is a big deal: it’s the only real point of autonomous control, and if one can only do this on the highway, that’s still great. Highway driving gets tiring after the first hundred miles or so, and any relief is welcome. With Tesla cars, you can never take your hand off the wheel or the car stops.

That battery cars compete, cost wise, I suspect, is only possible because the US government highly subsidizes the battery cost. Musk hides the true cost of the battery, I suspect, among the corporate losses. Without this subsidy, hydrogen – hybrid vehicles, I suspect, would be far cheaper than Tesla while providing better range, see my calculation here. Adding to the advantage of hybrids over our batteries, the charge time is much faster. This is very important for highway vehicles traveling any significant distance. While hydrogen fuel isn’t as cheap as gasoline, it’s becoming cheaper — now about double the price of gasoline on a per mile basis, and it’s far cheaper than batteries when the wear-and tear life of the batter is included. And unlike gasoline, hydrogen propulsion is pollution-free  and electric.

Electric propulsion seems better suited to driverless vehicles than gasoline propulsion because of how easy it is to control electricity. Gasoline vehicles can have odd acceleration issues, e.g. when the gasoline gets wet. And it’s not like there are no hydrogen fueling stations. Hydrogen, fuel-cell power has become a major competitor for fork-lifts, and has recently had its ten millionth refueling in that application. The same fueling stations that serve fork-lift users could serve the self-driving truck and bus market. For round the town use, hydrogen vehicles could use battery power along (plug-in hybrid mode). A vehicle of this sort could have very impressive performance. A Dutch company has begun to sell kits to convert Tesla model S autos to a plug-in hydrogen hybrid. The result boasts a 620 mile (1000 km) range instead of the normal 240 miles; see here. On the horizon, Hyundai has debuted the self-driving “Nexo” with a range of 370 miles. Self-driving Nexos were used to carry spectators between venues at the Pyongyang olympics. The Toyota Mirai (312 miles) and the Honda Clarity Fuel Cell (366 miles) can be expected to début with similar capabilities in the near future.

Cadillac CT6 with supercruise. An antonymous vehicle that you can buy today that allows you to take your hand off the wheel.

Cadillac CT6 with supercruise. An autonomous vehicle that you can buy today that allows you to take your hand off the wheel.

In the near-term, trucks and busses seem more suited to hydrogen than general-use cars because of the localization of hydrogen refueling, Southern California has some 36 public hydrogen refueling stations at last count, but that’s too few for most personal car users. Other states have even fewer spots; Michigan has only two where one can drive up and get hydrogen. A commercial trucking company can work around this if they go between fixed depots that may already have hydrogen dispensers, or can be fitted with dispensers. Ideally they use the same dispensers as the forklifts. If one needs extra range one can carry a “hydrogen Jerry can” or two — each jerry can providing an extra 20-30 miles of emergency range. I do not see electric vehicles working as well for trucks and busses because the charge times are too slow, the range is too modest, and the electric power need is too large. To charge a 100 kWhr battery in an hour requires an electric feed of over 100 kW, about as much as a typical mall. With a, more-typical 24kW (240 V at 100 Amps) service the fastest you can recharge would be 4 1/2 hours.

So why not stick to gasoline, as with the Cadillac? My first, simple answer is electric control simplicity. A secondary answer is the ability to use renewable power from wind, solar, and nuclear; there seems to be a push for renewable and electric or hydrogen vehicles make use of this power. Of these two, only hydrogen provides the long-range, fast fueling necessary to make self-driving trucks and busses worthwhile.

Robert Buxbaum March 12, 2018. My company, REB Research provides hydrogen purifiers and hydrogen generators.

Elvis Presley and the opioid epidemic

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For those who suspect that the medical profession may bear some responsibility for the opioid epidemic, I present a prescription written for Elvis Presley, August 1977. Like many middle age folks, he suffered from back pain and stress. And like most folks, he trusted the medical professionals to “do no harm” prescribing nothing with serious side effects. Clearly he was wrong.

Elis prescription, August 1977. Opioid city.

Elis prescription, August 1977. Opioid city.

The above prescription is a disaster, but you may think this is just an aberration. A crank doctor who hooked (literally) a celebrity patient, but not as aberrant as one might think. I worked for a pharmacist in the 1970s, and the vast majority of prescriptions we saw were for these sort of mood altering drugs. The pharmacist I worked for refused to service many of these customers, and even phoned the doctor to yell at him for one particular egregious case: a shivering skinny kid with a prescription for diet pills, but my employer was the aberration. All those prescriptions would be filled by someone, and a great number of people walked about in a haze because of it.

The popular Stones song, Mother’s Little Helper, would not have been so popular if it were not true to life. One might ask why it was true to life, as doctors might have prescribed less addicting drugs. I believe the reason is that doctors listened to advertising then, and now. They might have suggested marijuana for pain or depression — there was good evidence it worked — but there were no colorful brochures with smiling actors. The only positive advertising was for opioids, speed, and Valium and that was what was prescribed then and still today.

One of the most common drugs prescribed to kids these days is speed, marketed as “Ritalin.” It prevents daydreaming and motor-mouth behaviors; see my essay is ADHD a real disease?. I’m not saying that ADD kids aren’t annoying, or that folks don’t have back ached, but the current drugs are worse than marijuana as best I can tell. It would be nice to get non-high-inducing pot extract sold in pharmacies, in my opinion, and not in specialty stores (I trust pharmacists). AS things now stand the users have medical prescription cards, but the black sellers end up in jail..

Robert Buxbaum, January 25, 2018. Please excuse the rant. I ran for sewer commissioner, 2016, And as a side issue, I’d like to reduce the harsh “minimum” penalties for crimes of possession with intent to sell, while opening up sale to normal, druggist channels.

Bitcoin risks, uses, and bubble

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Bitcoin prices over the last 3 years

Bitcoin prices over the last 3 years

As I write this, the price of a single bitcoin is approximately $11,100 yesterday, up some 2000% in the last 6 months. The rise rate suggests it is a financial bubble. Or maybe it’s not: just a very risky investment suited for inclusion in a regularly balanced portfolio. These are two competing views of bitcoin, and there are two ways to distinguish between them. One is on the basis of technical analysis — does this fast rise look like a bubble (Yes!), and the other is to accept that bitcoin has a fundamental value, one I’ll calculate that below. In either case, the price rise is so fast that it is very difficult to conclude that the rise is not majorly driven by speculation: the belief that someone else will pay more later. The history of many bubbles suggests that all bubbles burst sooner or later, and that everyone holding the item loses when it does. The only winners are the brokers and the last investors who get out just before the burst. The speculator thinks that’s going to be him, while the investor uses rebalancing to get some of benefit and fun, without having to know exactly when to get out.

That bitcoin is a bubble may be seen by comparing the price three years ago. At that point it was $380 and dropping. A year later, it was $360 and rising. One can compare the price rise of the past 2-3 years with that for some famous bubbles and see that bitcoin has risen 30 times approximately, an increase that is on a path to beat them all except, perhaps, the tulip bubble of 1622.

A comparison between Bitcoin prices, and those of tulips, 1929 stocks, and other speculative bubbles; multiple of original price vs year from peak.

A comparison between Bitcoin prices, and those of tulips, 1929 stocks, and other speculative bubbles; multiple of original price vs year from peak.

That its price looks like a bubble is not to deny that bitcoin has a fundamental value. Bitcoin is nearly un-counterfeit-able, and its ownership is nearly untraceable. These are interesting properties that make bitcoin valuable mostly for illegal activity. To calculate the fundamental value of a bitcoin, it is only necessary to know the total value of bitcoin business transactions and the “speed of money.” As a first guess, lets say that all the transactions are illegal and add up to the equivalent of the GDP of Michigan, $400 billion/year. The value of a single bitcoin would be this number divided by the number of bitcoin in circulation, 15,000,000 currently, and by the “speed of money,” the number of business transactions per year per coin. I’ll take this to be 3 per year. It turns out there are 5 bitcoin transactions total per year per coin, but 2/5 of that, I’ll assume, are investment transactions. Based on this, a single bitcoin should be worth about $8890, slightly below its current valuation. The gross speed number, 5/year, includes bitcoin transactions that are investments and never traded for goods, and those actively being used in smuggling, drug-deals, etc.

If the bitcoin trade will grow to $600 billion year in a year with no other change, the price rise of a single coin would surpass that of Dutch tulip bulbs except that more coins are bing minted, and that the speed is increasing. If you assume that coin use will reach $1,600 billion/year, the GDP of Texas in the semi-near future, before the Feds jump in, the fundamental value of a coin should grow no higher than $44,000 or so. There are several problems for bitcoin investors who are betting on this. One is that the Feds are unlikely to tolerate so large an unregulated, illegal economy. Another is that bitcoin transactions are not likely to go totally legal. It is very hard (near impossible) to connect a bitcoin to its owner. This is a plus for someone trying to deal in drugs or trying hide profits from the IRS (or his spouse), but a legal merchant will want the protection of courts of law. For this, he or she needs to demonstrate ownership of the item being traded, and that is not available with bitcoin. The lack of a solid, legitimate business need suggests to me that the FBI will likely sweep in sooner or later, and that the value of a coin will never reach $44,000.

Yet another problem for those wishing to invest in bitcoin is the existence of more bitcoins (undiscovered, or un-mined so far) and the existence of other cryptocurrencies with the same general qualities: Litecoin (LTC), Ethereum (ETH), and Zcash (ZEC) as examples. The existence of these coins increases the divisor one should use when calculating the value of a bitcoin. The total number of bitcoins is capped at 21,000,000, that is 6,000,000 coins more than known today. Assuming more use and more acceptance, the speed (turnovers per year) is likely to increase to four or five, similar to that of other currencies. Let’s assume that the bitcoin will control 1 trillion dollars per year of a $1.6 trillion/year illegal market. One can now calculate the maximum long term target price of a bitcoin by dividing $1 trillion/year by the number of bitcoins, 21,000,000, and by the speed of commercial use, 4.5/year. This suggests a maximum fundamental value of $10,582 per coin. This is just about the current price. Let the investment buyer beware.

For an amusing, though not helpful read into the price: here are Bill Gates, Warren Buffet, Charlie Munger, and Noam Chomsky discussing Bitcoin.

Robert Buxbaum, December 3, 2017.

Why Warren Buffett pays 0% social security tax

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Social Security is billed along with Medicare (health care for the poor) as an anti-flat tax called FICA where middle class workers pay 7.65 -15.3%, and rich people pay essentially 0%. The reason that Warren Buffet and other rich people pay 0%, on a percentage basis, far less than their secretaries, is that there is a FICA cap of $127,200 currently, and he earns far more than $127,200. Buffett’s secretaries pays 7.65%, or which 6% approximately is social-security payment, and the rest Medicare. Buffett’s company then matches the 7.65% — a situation that applies to virtually every employee in the US.

A self employed person though, a gardener say, pays both the employee and employer portion or 15.3%. The same $127,200 cap applies, but since few gardeners make more than this amount, they are likely to pay 15.3% on all earnings, with no deductions. FICA really socks the poor and middle class, and barely touches a rich man like Buffett. This is the tax-inequality that most needs addressing, in my opinion, and one I have not heard discussed.

A short history of FICA

A visual history of FICA rates (right), and of the salary cap (left). Medicare contributions were added in 1966.

As I write this, there is a debate about tax reform that mostly involves income tax, but not at all FICA. Income tax could be improved, in my opinion, and should be. We could remove some exemptions that are being abused, and we should lower the general rates, especially for foreign-earnings, but the current income tax isn’t that bad, in my opinion. Buffett likes to brag about the high rate he pays, but it’s not a bad rate compared to the rest of the world. And Buffett benefits from a lot of things we don’t. His income is taxed at a lower rate than a worker’s would be since most of it is unearned. And, like most rich folks, he has exemptions and deductions that do not apply to most. He can deduct cars, private airplanes, and interest; most folks don’t deduct these things since they don’t spend enough to exceed the “standard deduction”. I’m happy to say these issues are being addressed in the current tax re-write.

The current, House version of the GOP tax proposal includes a raise in the standard deduction and a cap on interest and other deductions. There is a general decrease in the tax rate for earnings, and a decrease for earnings made abroad and repatriated. I’d like to see tariffs, too but they do not appear in the versions I’ve seen. And I’ve very much like to see a decrease in the FICA rate coupled with a removal of the salary cap. Pick a rate, 4% say, where we collect the same amount, but spread the burden uniformly. Why should 7.65%-15.3% or the workmanship wages got to the window, the orphan, and healthcare of the poor, while 0% of Buffett’s go for this?

Some other tax ideas: I’d like to see shorter criminal sentences, especially for drugs, and I’d like to see healthcare addressed to reduce the administrative burden.

Robert E. Buxbaum, November 17, 2017. In the news today, the senate version puts back the tax exemption on private jets. The opposite of progress, they say, is congress.