Mesmerized by Oil

Based on “America’s Oil Imports: A Self-Inflicted Burden,” by Vaclav Smil, University of Manitoba, Annuals of the Association of American Geographers, v101, no. 4, July 2011.

Americans are mesmerized by oil. A real addiction. Politicians fight to open ANWAR like junkies trying to figure out just exactly where they can get a reliable supply of drugs. Or, they cast about the continental shelf, like a junkie on his knees trying to find that last cocaine rock that rolled under the couch. Digging for change among the cushions hoping to scrape together enough money for his next fix. Really. Listen to the political tenor surrounding oil on Fox News. Then, turn over to A&E and watch Intervention. The discussions on Fox sound like the arguments that drug addicts use on Intervention.

Smil lays out an argument that America is to blame for its own dependence on oil. We, in fact, are our own worst enemies for driving up the cost of gasoline. Not OPEC, not British Petroleum (BP), not even the oil lobby. Just simple, average, everyday you-and-me Americans. We are addicted to oil as addicts are addicted to meth, or crack. Automobiles convey the drugs into our system, just as needles push heroine into the bloodstream of an addict.

Yes, America – we are oil whores.

We absolutely need our Hummers, and our Cadillacs, and our giant Suburbans. Those are God-given rights, laid clean-out in the U.S. Constitution and the Bill of Rights. Hey, I’m right there with everyone else; I drive a Dodge Durango, one of the very worst offenders. Yes, I see the hypocrisy. Do you see the hypocrisy in yourself, though?

During the first 10 years of the 21st century, Americans spent 1.7 trillion dollars on buying foreign oil. That is $1,700 billion dollars.

In 2008 alone, Americans spent $350 billion dollars on foreign oil.

In 1975, the United States was the world’s largest producer of oil. In this year, we would be passed by the USSR. In 1977, the United States would be passed by Saudi Arabia.

As of 2010, Saudi Arabia ranks first, Russia ranks 2nd, and the United States ranks 3rd. About 1.5 million barrels of oil per day production separates 1st place from 3rd place. If that sounds like a lot, it isn’t. In 2009, the United States was using about 18.7 million barrels of oil per day. So the difference between production in Saudi Arabia and the United States works out to be about 1hr 15minutes in usage time.

According to our own Energy Information Administration (link) the United States consumes more oil than China, Japan, Brazil, and Canada combined.

Let’s add up some populations: China (1,300 million) + Japan (127 million) + Brazil (190 million) + Canada (35 million) = 1.652 billion people. Or, roughly about 25% of the world’s population.

5% of the world’s population, that’s the United States, uses the equivalent energy of 25% of the world’s population.

And, if you listen to us on the television, you’d think that it was our Manifest Destiny, handed down by God, to consume as much as we want.

Here is what makes us appear even worse than we really are, according to Smil.

The United States is the 3rd largest country, in area, on the planet, behind Russian (1), and Canada (2). We are also the world’s 3rd most populous country, behind China (1), and India (2). One might think, “Hey, we have a big country. We need transportation in order to get around and do stuff. That takes oil. Therefore, we use a lot, and rightfully so.”

One fact in that statement is true: transportation is necessary. In 2009, transportation accounted for 75% of domestic oil consumption, i.e. fuel costs. That’s right, you and me, driving around in our giant pickups, and Hummers, and Durangos. We use 75% of the oil this country supposedly needs. Not the Department of Defense, not heating or cooling energy needs. Us, going to the grocery store, soccer practice, or our trucks moving objects from point A to point B.

Superficially, the argument sounds fine. But that argument is flawed. The United States is not uniformly populated. Most of us, in fact, live on the East Coast. OK, not really. But, look at this map:

Look at the red peaks. Those peaks tell the map reader where people live. As you can see most Americans live east of the Mississippi River. We could narrow that even further, really, and say that about 50% of Americans, 155 million people, or about the population of Japan, live north of the Ohio River and east of the Mississippi.

Such a concentration of humanity in one place lends itself to multi-modes of public transportation, specifically high-speed rails.

And, I, being a geographer, should have thought about this point, and only by reading Smil’s paper, did this point reach my brain.

Despite this near-perfect environment for moving people from place to place, efficiently, and at a decent price point, and environmentally sound, Americans would, and have, elected to confined themselves to their shiny V8 chariots of selfishness. Remember, I drive one, too.

Imagine taking a nice, clean, safe, high-speed train (HST) from New York to Washington, D.C., or Boston, or Philadelphia. You would have uninterrupted cell phone and wi-fi coverage. Tokyo, Japan has that, why can’t we? Once at your destination, rent an economical SMART car, a Prius, or Honda Hybrid.

Imagine the jobs created from constructing these rail systems. The people then employed to operate them. The growth pole areas that would definitely arise at stations along the rail paths. Imagine the use of technology, advances in technology, the increase in productivity. And, ultimately, the resulting savings from not using petroleum. How much different could $1.7 trillion dollars have been used in the United States? How many jobs does that represent? Money literally burnt in engines around the country.

No. Americans do not want that. Not enough, anyway. Many of us are still stuck in the euphoria of the 1950s and early 1960s. Ideals and models of behavior that have been passed along, “inherited culture,” we geographers call it.

Drunk on our own kool-aid. Slimy, oily, kool-aid.

Technorati Tags: energy,oil,oil producers,high-speed rail,jobs,economic growth,china,japan,russia

James Webb Space Telescope Must Live!

The James Webb Space Telescope (JWST) will be the replacement for the Hubble Space Telescope. The JWST will be the coolest space telescope ever. Obviously, since it will represent the new and improved space telescope. The JWST will be larger, orbit further than HST, and have better optics and cameras. No telling what cool stuff JWST will be able to send us.

If it gets finished, that is. Republicans, and a few Democrats, want to kill funding the JWST. I hate stuff like this. For a number of reasons.

Chief among the reasons is the complaints people have about Science and Technology and our country's investment in Science and Technology. "Too expensive!" "Why do we need a Space Program!" "Why is NASA always over-budget?"

This is simply ignorance speaking. We've lost more money, literally lost billions of dollars in Iraq. I'm not talking the cost of the war.  I mean they drove a pallet of American bills off a C-130 transport plane and lost like $6 billion dollars. No one knows where it went. 

The Hubble Space Telescope was originally budgeted at about $3-1/2 billion dollars. 10 years after its due date, and at a cost of $11 billion dollars, the HST finally made it to orbit. And, the HST produced the coolest images ever seen by Humankind. (GeekDad.com)

Same thing happened with the Space Shuttle. Took a long time to get space-borne, and over-budget. But why?

Many moons ago, I had the opportunity to listen to a lecture presented by a NASA scientist, an engineer, really. I wish I could remember his name. I can't, but that should not diminish the message. He related many facets of the budgeting of space-related projects which I found amazing.

The Space Shuttle program, for example, was decades in the making. Engineers must plan nearly every detail in advance. Many, many details, for essentially two reasons. First, so that a budget can be constructed for Congress to approve. The second reason dovetails with the first reason, the budget is based on a baseline foundation of technology. Each Space Shuttle contains numerous computers. These computers do not represent the pinnacle of human achievement. At the time of this lecture, the Space Shuttles were operating using the equivalent of 486-based computers. You could buy Pentium IIIs, Pentium IVs, and Xeon processor computers at Walmart that were more powerful.

I was stunned. Why could they not use current technology? Because NASA needed to use tried and true technology. They needed chips that had been tested, and evaluated against numerous conditions that are not found in your home. Many other systems are also predicated upon tried-and-tested technology. Therefore, a baseline level of technology is established. So, technology from 3, 4, or 5 years ago may, in fact, be used in current space and weapons systems simply because scientists and engineers are very familiar with the properties of that technology, and the materials comprising that technology.

For programs that persist over time, like the Space Shuttle, like the Hubble, and like the JWST, and like any military weapons program, developers are obligated to establish a baseline technology. When contracts are written, they are further limited by rules that do not allow them to account for changes in the market costs for necessary materials. Developers cannot say, "We need to budget an extra 25% for costs over the next 10 years for this program." As I understand government accounting and financial rules, this is against the law. Or, at least against protocol.

Government contractors, and government agencies themselves, like NASA, chronically find themselves over-budget because they are simply not allowed to budget for the true cost of a program.

Even when bridges or roads are constructed cost overruns are incurred. The price of cement goes up due to increased demand in China. The price of road fabrics go up due to the increase in demand of oil globally. Therefore, as the price of the materials that go into the making of the road go up, the price of the road goes past its budget.

Same with nearly any government program that means building something. Doesn't matter if that something is an F-22, a Space Shuttle, or a space telescope. Budgeting for the cost of materials 5-10 years away is nearly impossible. Yet, the military and NASA are frequently asked to make such calculations, as if they can see the future.

The other complaint that is often voiced also hints at ignorance. "Privatize NASA. Sell it make them turn a profit!"

If a profit could be made from doing this, someone would have done it already. Also, we cannot have just anyone putting stuff in orbit around earth. The skies above us are littered with enough space junk already. These efforts generally do not make money. They are always operated at a loss. The European Space Agency, the Indian Space Agency, the Chinese Space Agency, and the Russian Space Agency are all government-run programs. These programs are expensive to operate, maintain, and simply do operate under normal supply-and-demand economics. 

Companies like GeoEye can turn a profit, but even that is extremely hard. GeoEye sells numerous products that people want, that government want. GeoEye collects images of the earth that people know how to use, can put immediately to use. 

Few people are talented enough or educated enough to put Hubble imagery to use. Yes, the pictures are pretty. If you ask someone what they are looking at, though, would they really be able to explain the nature of the object? Maybe, if they were cool enough of a person to have a Hubble image, they could possibly tell you about the image.

One of the benefits of a government is public and private partnerships that increase the knowledge of human society. Our GPS constellation of satellites is a good example. The United States has collectively worked with other countries to create the International Space Station. Other countries, however, will continue to develop a Space Program policy. Actually, the Chinese are pushing well into this, with plans to put people back on the Moon.

Many Americans need to wake up and smell the Shuttle exhaust. Technology, innovation, entrepreneurialism, dreams, ambitions, and the constant pushing of the envelop is what makes this country unique, not sitting back and waiting for people to do things for us, or without us.

Technorati Tags: Technology,NASA,Hubble,James Webb Space Telescope,budget,science

Gold Standard 2012: A Foolish Folly

Rand Paul and his father, Ron Paul, have many quotes and attributions stating they favor returning to the stable economic days when the United States backed all of its currency with either gold or silver.

I think before anyone jumps on this bandwagon to CrazyTown, we need to really examine the Gold Standard.

Gold and silver are like many things, they are commodities. Commodities have value because we, people, specifically brokers, assign those things "value." For example, we could use sand for currency, but that would be a bad idea. Sand is pretty much ubiquitous. For sand to have any value, sand would have to be protected, isolated, and sequestered in order to control the scarcity of sand. If everyone had sand, then sand would have very little value. If we control the amount of sand, then we control the value. We control the scarcity.

In 1805, the United States had considerable debt from fighting with the British. Gold and silver were in high demand since the U.S. didn't have the gold or silver to pay debts. People hoarded gold and silver as they saw the value go up. I'm sure some people even speculated in gold and silver, thinking that as long as the U.S. had a debt, the value of gold and silver would continue to climb.

Thomas Jefferson, in order to inflate the value of silver, told the government presses to stop minting silver coins. Scarcity drove the value of silver higher, and the market was manipulated by controlling the government minting of coins.

In 1857, more "manipulation" occurred as the U.S. struggled to find gold to buy more silver. Silver had become the preferred currency among countries for doing business. The hunt for gold created the Gold Rush and people headed West to discover sources of gold that could be sold to the government. The government would then use the gold to buy silver. The silver would then be used as currency by our country to pay debts to other countries. 

Again, people would hoard gold and silver, as the demand for each metal would rise and fall, depending on what the United States needed to pay its debts.

World War I would come along and force countries to examine how to pay for war needs. European countries were boxed in, not having enough gold or silver to use in order to buy weapons. Some countries had already abandoned the Gold Standard. Others countries, to pay for World War I, went off the Gold Standard in order to run up some debt to pay for war supplies.

And therein lies the rub. Countries needed financial flexibility in order to pay for stuff they could not afford without incurring some debt. Having to constantly maintain a physical store of gold/silver to pay for stuff was very limiting.

Around the turn of the 20th century, most countries either had a Central Bank or were thinking about developing a Central Bank. A Central Bank would establish the value of paper currency, and control the amount of paper in circulation, thereby controlling the value of currency.

Essentially, a transference of value has taken place. Gold has no more value than that which we give it. It's really an arbitrary and artificial value. So the same for paper money. But, paper money is much more easier to come up with than gold or silver. More on that in a minute.

Value is Faith.

People around the world trust the value of the U.S. Dollar. And the value of the English Pound. And the value of the Chinese Renminbi. And the European Euro. They trust these currencies because people have faith that these currencies will be traded and accepted.

Now, more things about the Gold Standard to think about.

In order for Rand Paul's Gold Standard to work, he has to be able to control the supply of gold. Again, supply is tied to value, and value is tied scarcity. If gold is commonly available, then gold cannot be worth very much, i.e. gold is not scarce. 

When the U.S. was on the Gold Standard, personal gold was against the law. The average U.S. citizen could not own more than 4 ounces of gold. We can't have everyone owning gold, if gold is the Standard. In order to control the amount of gold in circulation, Rand would (a) have make the ownership of gold illegal, (b) and collect the amount of gold already in circulation. People must not remember that only after 1972, when Nixon finished off the Gold Standard, was the ownership of gold made fully legal (Executive Order 6102, Dealings With The Enemy Act of 1933, Executive Order 6073, Gold Reserve Act 1933).

Gold markets can be manipulated just like any other market. Suppose China decides to flood the market with gold to undermine the value of U.S. gold value. Or Russia. Simply moving the U.S. to a Gold Standard does not make the U.S. financials immune to manipulation.

All countries currently use a Central Bank or Banks for moving currencies around. Germany, France, England, Italy, all have Central Banks. These banks keep money markets stable. While they may not seem stable now, markets could be much worse. All countries Central Banks know how to deal with financial markets, how to conduct country-to-country business. That is our global standard. Moving backwards to a Gold Standard would mean that all countries would have to figure out how to work with our finances. Not as easy as it sounds.

Furthermore, the U.S. is the world's most powerful economy. It is our currency against which oil is priced. If someone really wanted to upset global financial markets and create worldwide chaos, let him destabilize the current U.S. financial markets by changing all the rules of finance. 

Gold and silver are also valuable commodities in the technology sector. Consider your smartphone, your laptop, your LCD monitor, every bit of technology you can think off. These devices contain precious metals, gold and silver, among them. How will changing the economy of gold and silver affect the cost of production of the most ubiquitous devices in human history?

In summary:

1. Ask Rand what he thinks about all other countries still using Central Banks. Will they have to return to the Gold Standard, too?
2. Ask Rand how he plans on controlling the supply of gold, and maybe silver. Will he make personal gold ownership illegal?
3. Ask Rand how he feels about manipulating the price of gold, and how that might affect the cost of materials in the Technology Sector.
4. Ask Rand how the Gold Standard is supposed to make financials more stable when historically the price of gold has undergone several manipulations.

Technorati Tags: economy,gold standard,rand paul,ron paul,central bank