True Cost - in policy, economy, and society

The market is responding to energy prices with a raft of new fuel efficient commuter vehicles. I thought I’d mention a few here - many of these vehicles or modifications are competing for the X-Prize, and a few, like Hymotion’s BREM for the Toyota Prius, are available today. The automotive market is changing fast, and 100 mpg looks like it will become a realistic target for drivers in the next few years! Where available, each model’s projected cost, mileage (for commute purposes), and top speed are provided.

Available Today:

Hymotion BREM for 04-08 Toyota Prius - $9995 (plus the price of a Prius), 100mpg, 100+ mph top speed. Hymotion’s battery-range extender module converts a standard 46mpg Prius into a 100mpg plug-in hybrid for under $10,000, and is available today in a handful of major cities.

Tesla Motors - $100,000, 200mpg, 140mph top speed. You can have a high-performance electric car today that costs 2 cents per mile to drive, if you’ve got 100k to burn.

Available by 2010/2011:

Chevy Volt - Exact details unknown (more here), but GM is aiming for a 2010 release of the plug-in hybrid Volt, which will have an all-electric range of 40 miles, and effective mpg of 100+ when used as a commuter vehicle.

Phoenix Motorcars’ Electric Truck - $47,500, 100+ mpg (exact figure unknown), 100mpg top speed.  Phoenix has developed all-electric truck and SUV models that it is currently selling to fleets, and will release to the public in 2010.

Poulsen Hybrid - Poulsen is developing a conversion technology which can be installed on the rear wheels of any vehicle to turn it into a hybrid.

Nissan has announced work on an electric vehicle with a 2010/2011 delivery date, but few details are available.

Toyota is working on a plug-in version of the Prius with a 2010 deliver date as well.

Small Commuter Vehicles: Most available in 2009-2010

GreenVehicles Triac - $20k expected price, 200+ effective mpg, 80mph top speed, and 100 mile range. The Triac is a three-wheeled commuter vehicle designed to help urban commuters park their larger vehicles during the daily grind.

Aptera - $30k, 230mpg, 85mph top speed. Another three-wheeled vehicle, Aptera looks more like a plane than a car, but still has two seats plus space for a child car-seat in rear.

Venture One - $20-25k, 100+ mpg, 100mph top speed. This three-wheeled commuter vehicle looks more like a motorcycle, and incorporates technology that enables it to automatically “lean” as it moves through curves.

Commuter Cars - Tango T600 available today for $108k, T100 target of $20k, 100mpg+, 120mph+ top speed. George Clooney owns a T600, whose tandem seating allows for two passengers or a rear child seat.

Fuel Vapor Ale’ - $75k, 92mpg achieved to date, 100mph+. This is another three-wheeled commuter car, but it’s shaped a bit like a rocket and is designed for high-end performance.

This list is not exhaustive, though I believe I’ve covered most of the credible efforts currently afoot. Feel free to add others in the comments below if you feel they were erroneously omitted.

The US Bureau of Labor Statistics gathers detailed data on wages across the US economy, and even breaks it down by industry and occupation:

http://www.bls.gov/oes/current/oes_nat.htm

The data is updated annually, and is available by region and industry. Though it doesn’t include information on bonuses and benefits, which can be a substantial component of compensation, the BLS data is a great starting point for quality salary data. Keep in mind that these statistics tend to underestimate the total compensation of those in corporate jobs, since bonuses and benefits are generally greatest in large companies. Where available, the median wage is provided.

Here are some highlights:

Assorted Salaries by Occupation (Incomplete):

• CEO - $170,000 (Private sector only; since BLS data excludes bonuses, real CEO pay is somewhere between 2 and 10 times this number)
• Management Positions - $105,000 (For white-collar management positions, excluding CEOs)
  
• Doctors, Primary Care - $153,000 (Family Practice, Pediatrics, Internal Medicine)
• Doctors, Specialists - $180,000 (All other specialties)
  
• Attorneys - $125,000 (Private sector only)
  
• Petroleum Engineers - $114,000
• Pharmacists - $100,000
  
• Computer/Software Engineers - $85,000 (Excludes technicians and other less-skilled positions)
• Chemical Engineers - $82,000
  
• English Professors - $54,000 (All post-secondary teaching positions)
  
• Farmers - $54,000

This is too funny:

ESPN’s The Ultimate Race

When ESPN is covering peak oil and global warming, you know it’s starting to go mainstream!

Oil prices have continued their steady march, breaking through $135/barrel (which implies gas around 4.25) and climbing. As noted previously, the fundamentals driving oil prices higher are steady growth in global demand for oil combined with flat supply - an Econ 101 recipe for higher prices. What’s a presidential candidate to do about the situation? John McCain and Hillary Clinton both expressed strong support for a repeal in summer gas taxes; Barack Obama chose not to hop on the bandwagon, but offered no immediate alternative. So what can we do in the short term in this regard?

First, eliminate the use of heating oil in American homes. Heating oil and diesel fuel are essentially the same product, so heating oil demand directly impacts the price of diesel and gasoline. Replacing oil heating with gas heating would replace demand for imported oil with demand for natural gas that is produced primarily in the US and Canada.

Eight million homes in the US still use heating oil, and it accounts for roughly 2% of all oil demand in the US. Since oil prices are decided at the margin, a 1% drop in demand could significantly impact price. A $4000 tax credit would convince most heating oil users to switch immediately, and would send a strong signal to gas utilities to expand their service areas. If four million homes switched to gas overnight, this would cost taxpayers $16 Billion in one-time tax credits, about the same as two summers of the McCain/Clinton tax holiday plan. But the additional natural gas demand would be manageable, and the market signal of reduced oil demand would have swift impact.

Second, buy out old gas guzzlers and crush them. Since new vehicles are much more efficient on average, buying old junkers that get less than 20mpg would be an efficient way to reduce oil demand, while potentially helping poorer consumers to find new transportation. For example, offering $2000 per inefficient old car would enable many drivers to retire their old vehicles and move to new, efficient vehicles by using the money as a down payment. 10 million cars could be retired by spending $20 billion, and if each 15mpg vehicle were replaced with a 25mpg vehicle, 210,000 barrels per day of consumption could be eliminated.

Replacing oil heat and getting rid of old gas guzzlers may sound wonkish, but together these ideas could reduce US oil consumption nearly 5%. Unlike many plans under discussions, these steps are feasible and can be implemented today. Of course, these are only steps in a larger energy plan - but it’s better than many of the steps that politicians are currently advocating!

Calculations:

8 million homes * 730 gallons per year / 42 gallons per barrel / 365 days = 381,000 barrels per day

Converting 200,000 bpd of heating to natural gas requires 7 BCF (billion cubic feet) per week of natural gas. Since this consumption is wintertime only, it’s probably closer to 20 bcf per week, which is large, but not unsustainable, given that the US draws roughly 100 BCF per week from storage during the winter.
For cars, if each old 15mpg car is driven 12,000 miles per year, it consumes 800 gallons per year, compared to 480 gallons for the same distance in a 25mpg car. This equates to a savings of 3.2 billion gallons per year, which is equivalent to 210,000 barrels/day.

With gas prices rising daily, Americans are focusing on energy issues of late, and Peak Oil is beginning to enter the common lexicon. Peak oil represents the moment of peak oil production on Earth, after which oil production will plateau and eventually decline. This does not mean that poof - one day the oil is all gone! Rather, it means that oil production growth will slow, and eventually become negative, causing ever higher oil prices until or unless demand also declines.

Many prognosticators now believe that an oil production peak is imminent or has already occurred. While optimists predict production growth for decades to come, and pessimists believe that oil production will soon crash, many forecasts suggest that oil production will soon plateau for a period before beginning to decline. This will indeed be the case if new oil exploration projects just manage to replace declining production in aging fields.

Can the world economy continue to grow if constrained by oil production of 85M barrels per day? The EIA (Energy Information Administration) has estimated that oil demand will grow to 120M barrels per day by 2025, with two-thirds of this total expected to be used for motor transport. These estimates are created using estimates of growth in total vehicle ownership and usage. But what about fuel efficiency? Worldwide vehicle fuel efficiency averages around 20 mpg today; what if this number could be doubled by 2030 using the latest technologies? Doubling worldwide fuel efficiency would reduce demand in 2030 from 120M barrels/day to 80M barrels/day, enabling significant growth in worldwide vehicle usage while keeping oil demand below current consumption! This assumes no fuel efficiency gains in industrial and other oil uses.

Hybrid cars on the market today get in excess of 40 mpg, and new innovations like the Toyota Prius plugin modification (100+ mpg) and the coming VW Golf diesel hybrid (70mpg) push the boundaries much further. Buses, trucks, and other large vehicles are also joining the party, with major shippers like Fedex and UPS acquiring efficient vehicles for their fleets. The lifespan of the average vehicle is 16 years in the US today, so it will take time for high oil prices to cause a worldwide fleet turnover. But the the market signal of high oil prices is unmistakable, with manufacturers like Ford announcing cutbacks in SUV production and a focus on smaller vehicles. And if fuel efficiency can get us from today to 2030, that buys a lot of time for an economic transition to more long-term energy sources.

How many people do you know that can afford the American Dream? In the post-war America of the 50’s, the modern notion of the American Dream crystallized: families aspired to a single family home, an automobile (or two), and modern comforts like a television, refrigerator, and washing machine. These seem like modest goals now, until you consider that in the fifties, most families got by on a single income! What percentage of households today can afford a median-priced house, two cars, and common comforts on a single income, and how does that compare to yesteryear?

According to the Economic Policy Institute, the median family budget for a family of four was around $40,000 in 2004, including all major household expense categories and taxes paid. The EPI family budget must be adjusted for inflation, and to account for ownership of a home and two cars. Excluding housing and transportation, the EPI median budget would be roughly $33,000 in 2007 dollars. Two low-cost Honda Civics would add another $12,000 per year, and $1600 per month would pay for a US-median $200,000 house, for a total budget of $64,000 per year. The EPI family budget excludes entertainment, consumer electronics, vacations, and other discretionary spending. Padding the budget to $70,000 might account for these expenses. A family breadwinner making $70,000 per year is in the 88% percentile, making it clear why most families now get by on two incomes.

While it’s difficult to reconstruct an accurate family budget for 1950 using available data, data on the change in housing prices and median incomes can be used as a starting point. Median home values rose 151% from 1950-2000, and in 1950 a single family home cost only $53,000 in 2007 dollars. Median income was around $22,000 in 2007 dollars. This equates to roughly $4800 per year in mortgage, taxes, and insurance, or almost 75% less than in the modern example. The 1950’s earner would thus have to earn 2.5 times the median income to afford the American dream budget of $55,000. If one car is excluded (since few families at the time had two cars), this ratio drops to 2.2 times median income.

In 2007, an individual would have to earn 2.7 times the median income of $26,000 to afford the American dream. This ratio is higher than it was in 1950, and most of the difference can be explained by rising home prices, particularly in the last decade. At the same time, the ratio isn’t significantly higher, and even in the 50’s the idealized American dream was only affordable by a small percentage. Why then do many today feel the 50’s and 60’s were such better times? Perhaps, as this blog suggests, it’s because we’re working harder today to afford consumer lifestyles and modern luxuries, rather than sacrificing comfort for family time.

This question is actually fairly easy to answer. If we look at wholesale gasoline futures prices, we can see with pretty good accuracy what wholesale gasoline will cost in a month or two. It takes a couple of weeks (or longer) for wholesale gasoline to make it to your local gas station, so that we can look out and see mid summer gasoline prices today.

Take a look at Bloomberg’s Energy Prices page, and you’ll see that NYMEX gasoline futures are trading at just under 3 dollars (297 cents) as of April 18th, 2008.

On average, federal and state governments add another 47 cents in taxes to this figure. The federal government adds 18.4 cents in taxes, and each state’s total gas tax is listed here.

Gasoline storage, distribution, marketing, and retail markup add a bit more than 10%, or 30-35 cents to the final price.

All told, that means that $3.80 regular unleaded is on the way for the summer in low tax states, with gas just over $4 in California, Nevada, and other states with higher gas taxes.

But don’t think I’d have it any other way - just as in the late 70’s, high gas prices will be Americans’ best incentive to ditch their gas guzzlers and start conserving.

Plastic grocery bags have been banned or taxed to discourage their use in other countries, and recently San Francisco approved similar measures. While reusable bags are touted as an obvious alternative to disposable bags, paper bags are also seeing a resurgence, and are the standard bags at upscale grocers like Trader Joe’s. Paper bags are often assumed to be more environmentally friendly, which begs the question: what is the true cost of both bag varieties?

Numerous reports have been published on this topic, with the Washington Post and Environmental Literacy Council providing particularly good comparisons. On most counts, plastic bags come out ahead, even after comparing the true cost of two plastic bags against one paper bag (to make up for differences in bag size). Plastic bags require 50% less energy to produce and cause significantly less pollution during manufacturing. Paper bags are recycled more often, but over 85% of paper and 97% of plastic bags end up in landfills, where neither biodegrades, and where plastic bags take 90% less space. Plastic bags are criticized for endangering certain marine animals, and because they often end up as litter since are easily blown about.

Another good measure of cost is the price of the two items, since neither is heavily subsidized, and since the price that stores pay for bags represents the direct cost involved in production. Plastic bags cost 50% less than paper bags in the US (2 cents for two plastic bags versus 3-4 cents for one paper bag). Advantage plastic.

On most counts plastic is the clear winner for the consumer, the environment, and businesses. In fact, after weighing the costs and benefits, the Natural Resources Defense Council recommends plastic bags to everyone unable to use a reusable bag, and recommends paper bags only for those living on the coasts (to protect marine wildlife). Perhaps, as with ethanol, paper bags have just become another easy way for politicians to score points for being green, rather than taking more beneficial (and difficult) steps to protect the environment.

As the fifth anniversary of the start of the Iraq war comes and goes, the Bush administration touts the success of the “surge” in American force levels begun last year, while those opposed to the war point to a litany of failures to denounce the entire enterprise. Both the administration and presidential hopeful John McCain contend that success in Iraq will pay huge dividends for future generations. Which side is right, and how can we measure the true cost (and benefits) of our Iraq engagement?

An estimate of the Iraq War’s return on investment can measured by weighing estimates of its total cost against its current and projected future benefits. On the cost front, the most conservative measure of the cost of the war is $600 Billion, roughly the amount directly spent on the war over its first five years. The benefits of the war can be measured in terms of its effects on US national security, US political relations, US energy security, and potential social and economic benefits for Iraq.
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When something aggravates you at work, wouldn’t you like to be able to walk into your boss’s office and quit with no ramifications? That is the dream of financial independence - when a person has saved enough that he can meet all the needs of daily living through investment income alone. A whole industry has sprung up around the idea, with authors, talk-show hosts, and the like extolling the virtues of living on invested money. But is this really an achievable goal for most people?
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05/22/2008 Update: As this article has become far and away my most-read, and since oil is now cruising towards $140 a barrel, I thought an update was deserved. For those without the time to explore the links below, oil is rising for a simple reason: oil production has not risen significantly since 2005, while demand for oil worldwide continues to rise rapidly. The simple law of supply and demand is moving oil prices up, and no number of Congressional hearings will change that.

With news of crude oil prices topping $110/barrel today, it’s no surprise that the price of gasoline and oil are once again on people’s minds. As an introduction, here are a few links on the global transportation energy (oil) situation today, and on various risks that we might face in the future.

What is Peak Oil? - This Wikipedia article on peak oil outlines the notion that oil production must someday hit a peak, since oil is a finite resource drawn from Earth’s crust.

Export Land Model - Jeffrey Brown, an independent oil geologist, and others at The Oil Drum provide insight into the effects of a simultaneous plateau or drop in oil production coupled with rapidly rising oil consumption in oil exporting countries. The ELM is a simple model that graphically illustrates some of the forces driving energy prices rapidly higher.
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Diabetes has risen to epidemic levels in the United States, and in certain subgroups diabetics and pre-diabetics (those showing early signs of diabetes) exceed 50% of the population. Diabetes is the fastest growing major disease in the US - a major study conducted by the New York City Dept. of Health showed that 12.5% of all New Yorkers have diabetes, and another 23% are pre-diabetic. More than one in three New Yorkers is likely to get diabetes in their lifetime, and these numbers are similar for the nation as a whole.

Among South Asian peoples, multiple studieshave found that more than half of South Asians living in the West either have or are on their way to developing diabetes (roughly 20% have diabetes, and above 30% are pre-diabetic). These rates of incidence are so high that diabetes is perhaps on the verge of becoming normal for South Asians, with non-diabetics being the exceptional case!
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Barack Obama looks ever more likely to take the Democratic nomination for President this year, having won every race since Super Tuesday, and with polls showing him closing the gap with Hillary Clinton in the upcoming races in Ohio and Texas. This raises the question: in a general election, will Americans vote for a black candidate to be the next President of the United States?

Polls done on this topic in recent years have shown that an overwhelming percentage of Americans (94% according to a recent Gallup Poll) are willing to vote for a black candidate. While this sounds encouraging, it is important to look at this number from another perspective. What percentage of Americans are willing to vote for a white, Protestant male? Though polls on this are unavailable, the implicit answer is close to 100%, since every president but JFK (and arguably Thomas Jefferson) has been a white Protestant male, and since almost all Presidential candidates fall into this group.
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It’s 2008, and it looks like the US (and the globe?) may be headed for recession. Even if the economy doesn’t actually enter a recession (defined as two quarters of negative GDP growth), it will enter a period of slower growth during 2008. Just how much will that slower growth affect the US worker and population at large? While GDP measures the size of the total economy, it’s GDP per capita, the slice of GDP that an “average” American has, that really matters. While GDP per capita doesn’t take into account income inequality and other measures that impact individual well-being, it does a much better job of measuring how economic growth is impacting our lives over time.
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The Census Bureau recently released the results of its 2006 Services Industry Survey, which shed light in particular on where US healthcare dollars are spent:

Census Bureau Press Release: “Doctors and Dentists Account for 27 Percent of $1.6 Trillion in Health Care Revenue”

Full tabular data on US healthcare spending in 2006

The second link provides some detail on where US health care spending goes. It’s worthwhile to note that $117 Billion in Social Assistance is included, with line items like children’s daycare, community housing assistance, and other rolled into the overall Health Care and Social Assistance category. Without Social Assistance, health care spending is actually 1.45 trillion, or 11% of US GDP.
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My son Vishnu was born a bit more than three months ago - and what a wonderful whirlwind it has been! Being a father doesn’t leave much time for introspection, but now that I find myself thinking further into the future, I wonder: what sort of world are we leaving our children? The usual laments can be heard throughout mainstream media, that we are running up an insurmountable debt to be born by our children, that Medicare and Social Security are both going bankrupt, that global warming will wreak havoc, and so on. While it’s obvious that the media tends toward hyperbole to draw an audience, some of these are real concerns. Here’s my short list of major American and global issues, and why I’m an optimist with regard to most:
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What happens to perishable products (particularly milk) when it hits its expiration date at a grocery store? Do they just throw it out, or do they do find a more worthwhile use for it? This article implies that some expired foods have an afterlife, but I’ve read or heard elsewhere that expired milk is simply thrown out.

Why not buy milk from grocery stores on the morning of its expiration date, and sell it to restaurants, bakeries, and hotels that use large volumes of milk? Since these institutions use large volumes, they could use their daily supply up every day, thus ensuring no spoilage issues. If you could buy expiring milk for 50% off wholesale, and sell it for 75% of normal price, the margins are obvious.

Does anyone already do this? It seems like a simple, environmentally sound business idea. Maybe the logistics costs of gathering just a few gallons at each grocery store make this unworkable. Still, it seems like a reasonable idea… anyone know if this is already done, or why it wouldn’t work?

Louisiana is not generally known for its success in economic development terms, and post-Katrina the nation’s view of Louisiana as corruption-ridden and inefficient has (justifiably) grown considerably worse. Update: I hope Bobby Jindal’s election represents a turning of the page in this regard!

I thought I’d highlight an area of economic development success for Louisiana government and for the current governor’s administration in particular. Kathleen Blanco appointed Johnny Bradberry, a former energy company executive, as head of the Louisiana Department of Transportation at the beginning of 2004. Bradberry has done an excellent job at the La. DOTD, and has specifically driven forward the TIMED program, which is responsible for widening key highways throughout Louisiana from two to four lanes.
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Summertime Arctic sea ice is indeed vanishing faster than anyone previously predicted, as this graph makes clear. The National Snow and Ice Data Center at UC Boulder concurs, and there is no disputing that 2007 was a record year for Arctic sea ice melt. That doesn’t bode well for future temperature rises, since the ice acts as a giant sun reflector, and helps cool the oceans.

But hey, looking at the bright side, at least the fabled Northwest passage is now open in summertime!

What is Peak Oil, and why am I so excited about it? Peak Oil theory owes its start predominantly to the work of M. King Hubbert, who correctly predicted in 1956 that US oil production would peak in the early 70’s. Hubbert was a research geologist for Shell, and in his research noted a bell curve distribution in the rate of discoveries of new oil fields. He predicted that the later exploitation of these fields would follow a similar curve, wherein oil production would reach a peak rate at some point in time followed by a steady decline. While highly controversial, Hubbert’s theories proved correct in his own lifetime, and have spawned a generation of Peak Oil theorists who are predicting an imminent peak in world oil production.
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