Philip Greenspun’s Weblog

… in price. Eclipse announced last week that they are raising the price of their original model from $1.65M to $2.15M June 2008 dollars (aero-news.net story). A Cessna Mustang ordered today would deliver in mid-2011 at a fixed $3.14M (maybe $2.5M in today’s dollars the way that inflation is going). The Mustang is a much larger plane, comes from a company with a history of meeting commitments, and is certified for flight into known icing conditions (i.e., the Mustang is useful for instrument flight).

Separately, Eclipse announced a four-seat single-engine jet that should be very fuel-efficient. They are promising to deliver the thing in “late 2011” for $1.35M (inflation from June 2008). If their company history proves to be a useful guide, the plane will be delivered in 2015 and cost closer to $2M. What about the fuel burn? The company says less than one pound of Jet-A, which is similar to diesel fuel, per nautical mile. That should be just under 10 mpg or about the same as an SUV when you consider that the jet flies in a straight line and doesn’t idle in traffic jams. Not too bad for carrying four people at nearly 400 mph.

More: very light jet comparison

[This price increase comes on the heels of Dow and Kodak announcing increases of up to 20 percent on thousands of products. Loose related to this posting on inflation in the price of luxury items, there is a New York Times story about the struggles of the no longer quite as rich.]

Full post, including comments

Here’s a piece from New Yorker about how restricting trade to help American workers ends up hurting the poorest Americans: “The Free Trade Paradox” (May 26, 2008). The point is that keeping imported calculators (for example) out of the U.S. would be great for a handful of guys who work in a calculator factory, of little consequence for the BMW-driving professionals, and ruinous for ghetto schoolchildren who would pay $100 for a calculator that used to cost $12 (though maybe they would learn how to do arithmetic?).

Harvard egghead Gregory Mankiw argues for cutting the corporate tax in a June 1, 2008 New York Times editorial. The stated goal of the corporate tax is to rake off money before it gets into the hands of wealthy investors. Mankiw cites studies from Europe that found that 92 cents of every $1 in corporate tax came out of the hides of workers in the form of reduced wages. Mankiw argues persuasively that the corporate tax discourages economic growth. The one example that he does not cite is the massive economic boom achieved by Ireland. You could argue that the Irish are simply much smarter and harder working that their counterparts in England and Western Europe. Alternatively you could note that a company in Ireland pays half as much corporate tax as one located anywhere else in Europe. (Artists, such as musicians, did not pay any tax for a long time. When Ireland tweaked the law to exempt only the first $320,000 per year, U2 and Bono moved all of their assets into an offshore trust (story).)

In 1948 we started laughing at Wile E. Coyote, but perhaps over time we have become him. Wile E. Coyote, unable to run as fast as the Road Runner, came up with elaborate schemes that invariably backfired. A Martian looking down at the Earth might think “the only way for the U.S. government to collect more taxes is to have a larger economy from which to slice off a share; the only way for the U.S. to grow is to work harder, improve education, streamline transportation, stop paying $1 trillion every year for oil that is mostly imported, etc.” Here in the U.S., though, we can’t get organized for the tough jobs. We watch kids come out of the school system barely able to write or do arithmetic and argue over whether or not their teachers should get a 5% raise or 10% pension increase. We watch cars burn millions of barrels of imported oil sitting in traffic jams and never ask ourselves why we can’t put down a wireless Internet along our road system so that the cars would have routed themselves around the problem. We watch our money and ownership of our assets disappear overseas to fill up cars whose engines operate almost exactly the same as the engine in a 1908 Model T Ford (25 mpg; somewhat more efficient than today’s average passenger vehicle) instead of thinking about investing our oil budget in technological innovation.

Let’s look at Barack Obama’s economic policy idea page:

• he will raise the minimum wage, an action that economists find serves mostly to discourage the employment of teenagers
• he will give a mortgage credit to people who are not currently able to write off mortgage expenses, further transferring money from the pockets of renters to the pockets homeowners and further inflating the cost of buying a house in the U.S.
• he will “create a fund to help people refinance their mortgages”, i.e., more money taken out of the pockets of renters
• “ensure freedom to unionize”; our public school teachers have the freedom to unionize, but it doesn’t seem to have helped students learn anything; autoworkers in Michigan have the freedom to unionize, but it doesn’t seem to have made Detroit a vibrant growing city
• “fix NAFTA”; presumably this is cutting down on imports from Canada and Mexico
• “Obama will invest in rural small businesses”; tax people who walk around energy-efficient cities to help encourage folks to settle in places where the supermarket is a 30-mile drive away
• “Expand the Family Medical Leave Act”; companies with 25 employees will now be required to read through the fine print of this law
• “Obama will initiate a strategy to encourage all 50 states to adopt paid-leave systems. Obama will provide a $1.5 billion fund to assist states with start-up costs”; Americans who are working will be taxed to give money to Americans who aren’t working. Everyone will pay for the lawyers who draft and read these new regulations. Government employees who are currently paid not to work at their desks will now be paid not to work at home.
• “Obama will also make the federal government a model employer in terms of adopting flexible work schedules and permitting employees to request flexible arrangements.” Government employees who currently do no work 9-5 will be doing no work 10-4. Maybe this will cut down on traffic in D.C.
• “Obama will enforce the recently-enacted Equal Employment Opportunity Commission guidelines on caregiver discrimination.” More new regulations to read and argue over.

If one were considering emigrating to the U.S. to become a worker, some of this sounds pretty good, though maybe not as good as a 10 percent pay raise or 10 percent income tax cut. If one were trying to figure out where to set up a new business, it is tough to see how these proposals would provide an incentive to locate in the U.S.

Obama is supposedly our nation’s best hope and these are his best ideas.

How about McCain? His economic plan starts off with a section by Wile E. Coyote. He is going to cut gas taxes. He wants to tax renters to help homeowners. He wants to put more money into student loans (most of which ends up inflating the cost of attending college). He wants to tax people who suffer from infertility to give big tax credits to parents blessed with a bunch of children (combined with the gas tax holiday, that family of six can finally help boost the economy by buying a 7-passenger SUV). Buried after a couple of pages is a section that Ronald Reagan might have written, proposing to cut taxes in order to generate economic growth. The apparent schizophrenia is not addressed.

Full post, including comments

George W. Bush, with an eye toward influencing all of the Arab countries, recently lectured some folks in Egypt: “Building powerful economies also requires expanding the role of women in society”.

The May 28, 2008 New York Times carries an article on a Moroccan-born Belgian woman who has become a prominent Muslim leader. It isn’t clear that this is what W. had in mind…

Full post, including comments

How much would it cost to convert the entire U.S. fleet of passenger cars, which collectively burn 40 percent of the oil that we use, to electric cars? Let’s look at some numbers:

• total oil consumption in the U.S.: 21 million barrels every day (CIA Factbook)
• cost per barrel: $130
• days in year: 365
• total spent per year: $1 trillion
• percentage of oil consumed by passenger cars: 40 (source)
• total spent per year on oil for passenger cars: $400 billion [refining into gasoline, distributing, and retailing add even more to this; looking at the 138 billion gallons the U.S. consumed in 2006, at $4 per gallon this is about $552 billion every year (subtract perhaps 5 percent for gasoline used by non-diesel trucks; add 1 percent for oil used by diesel-powered cars)]
• at 5 percent interest, how much we could we borrow and pay $400 billion every year in interest: $8 trillion [current 10-year T-bill yields enable government to borrow at 3.84 percent]
• number of registered cars in the U.S.: 250 million (Wikipedia)
• cost of a new electric car, if mass-produced: $20,000
• value of a used car, if exported to Latin America or China: $5,000
• cost to upgrade average existing American car to a brand-new electric car: $15,000
• number that could be converted for $8 trillion: more than 500 million cars (i.e., twice as many as we have now)
• percentage of electricity in the U.S. currently being generated from burning oil: about 1 percent (the rest is coal, natural gas, nuclear, hydro, wind)

Instead of sending $400 billion each year to countries such as Saudi Arabia and Venezuela, we could spend it on electric car production in the U.S., Mexico, and China. At current oil prices, it wouldn’t cost us a dime extra to stop importing and burning oil for passenger cars. In fact, if the goal were to end up with the same number of cars on the road, we would have a few trillion dollars left over. One or two trillion dollars would be sufficient to build nuclear, solar, or wind electric power plants to replace all of our plants that currently burn coal and oil (note that less than 1 percent of current electricity generation in the U.S. is from oil (source); most electricity that we use today is from coal, natural gas, or nuclear).

So… simply by stopping our purchases of oil we could finance the construction of power plants that emit no CO2 and electric cars that emit no CO2.

[Many folks quickly commented that I did not figure in the cost of electricity to run the electric cars. I thought that it was common knowledge that electric cars cost very little to run, even at today’s high electricity rates, somewhere between 1 and 4 cents per mile. The gas engine in a car is much less efficient than the generator in a power plant, about 20 percent for the car versus 40-60 percent for fossil fuel plants and 80 percent for hydroelectric. The electric motors in an electric car are often quoted as roughly 90 percent efficient. The U.S. has a near-infinite supply of coal for generating electricity and plenty of existing surplus electric generating capacity in the evening hours (see wikipedia). As noted above, oil is so expensive now that we could use the leftover trillions of dollars to build solar, nuclear, or wind-powered generating plants. http://en.wikipedia.org/wiki/Electric_car offers some numbers for electric car running costs. Periodically replacing the batteries in electric cars costs more than buying the electricity to run them. Of course, nobody has ever seen what would happen to battery costs and reliability if there were a multi-trillion market for batteries.]

[Some other folks noted that it might be tough to borrow between $4 and $8 trillion to finance this conversion. To that I would say that the Three Trillion Dollar War authors claim that the U.S. government has borrowed $2 trillion for our wars in Iraq and Afghanistan. Perhaps our creditors would be even happier to lend if it were for something that might pay some dividends.]

[Others have objected that selling our old cars to Latin America or China is not environmentally correct and would not cut down on CO2 emissions. That’s mostly true but remember that this posting was not about cutting CO2 emissions. It was about using the money that we currently spend on oil to pay interest on a loan big enough to replace all of our passenger cars with electric. Why not convert existing cars? A 7000 lb. SUV is not that amenable to electric power. If we leave the 7000 lb. SUV on the road, piloted by a fearless teenager, it becomes a serious hazard to anyone in a 2000 lb. electric car. Exporting the old cars and driving electric cars still saves quite a bit of CO2. Folks in developing countries are going to buy more cars, whether or not we sell them, and they will probably make more efficient use of any cars they have (a 7-seat SUV in the U.S. is occupied by one person; a 7-seat SUV in Peru would be occupied by 10 people). Folks in the U.S. are going to buy newer cars, whether or not they are gas or electric. The entire U.S. fleet of cars will be replaced within 10 years. Currently we are on track to replace our gas guzzling fleet with a newer shinier gas guzzling fleet. I’m not sure that qualifies as progress.]

Full post, including comments

File this one under “things are tough all over”… I know a guy whose booty from the 1990s bubble includes a mid-sized yacht in the Mediterranean, complete with full-time captain and crew. It hasn’t been a major cash drain during the past 8 or so years because he has chartered it out much of the time. With fuel and other prices going up and the number of people with the means to splurge going down, the boat has become a serious cash drain and, as I learned yesterday, he is planning to sell it.

Full post, including comments

J.R. Simplot, the architect of the modern American diet and major supplier of frozen french fries to McDonald’s, died peacefully at age 99, leaving a fortune estimated at $3.6 billion in 2007. According to Wikipedia, he was an atheist who dropped out of school during the eighth grade.

Full post, including comments

Joseph Stiglitz claims that our Iraq adventure will cost the U.S. three trillion dollars and the rest of the world an equivalent amount, for a grand total of $6 trillion (source). Can this be true? Let’s look at some numbers.

The first number is population. Stiglitz talks about Iraqis being killed, emigrating, or being displaced. He cites the current population at 28 million, in agreement with the CIA Factbook, but fails to note that it was 24 million before the war. Iraq has a much lower death rate per 1,000 population than the U.S. and a much more rapidly growing population. The guy’s Nobel Prize was in economics, not in demographics. If we were worried about weapons of mass destruction and we’re sure which of the Iraqis were developing them, with $6 trillion we could have offered each of the 24 million pre-war Iraqis $250,000 to get them set up in a new country with no major weapons or Jihad industry (the typical Iraqi family has 4-5 kids, so that would be at least $1.5 million per family).

Let’s look at the economy. The CIA Factbook says that Iraq’s current GDP is $55 billion. The $6 trillion cost to the world would therefore be equivalent to 100 years of Iraqi GDP. Definitely not a very good bargain, especially since the world probably derives no more than 5 percent benefit from Iraqi GDP (i.e., it would take 2000 years to get a return on our $6 trillion).

Oil exports from Iraq are 1.67 million barrels per day, about $61 billion per year and, again, roughly 100 years to equal $6 trillion.

How about oil reserves? The CIA says 115 billion barrels. At $100 per barrel, this is worth $11.5 trillion, almost an entire year of U.S. GDP. Again, however, there does not seem to be a plan to confiscate Iraq’s oil and distribute it among the investors in this $6 trillion effort.

One thinks of government and the military as wasteful, but it is tough to believe that we are being this wasteful. When I first heard about the Iraq war and someone said “We’re spending $1 billion per day”, I thought “Who cares? The U.S. military spends about $1 billion every day in peacetime.” But $3 trillion or $6 trillion is real money.

In his essay, referenced above, Stiglitz cites a $2 trillion growth in U.S. debt as evidence for the cost of the war. This doesn’t make sense to me. As a nation, we’ve borrowed money for a lot of things besides Iraq. We’ve borrowed to pay for Medicare, Medicaid, and other entitlement programs. We’ve borrowed so that we could subsidize the melting down of corn into SUV fuel. We’ve borrowed so that we could give billions of dollars to America’s wealthiest farmers and agribusiness. We’ll soon be borrowing to bail out real estate and mortgage speculators.

Who has read this book? Is Stiglitz convincing? By winning the Nobel he has proven that he is smart. Could it be that the rest of us are actually dumb enough to spend $6 trillion on Iraq?

Full post, including comments

Folks seem to be upset that Hillary has brought up the name of Robert F. Kennedy. What should really make Americans weep is a comparison of RFK to our current crop of politicians. Let’s look at a few facts about RFK:

• fathered 11 children, thus providing some of the new taxpayers that we needed to support a government that was greatly expanded in the 1960s, most notably with Medicare and Medicaid
• served in the military
• from within the Johnson Administration, opposed the Vietnam War that LBJ was committing America to
• as Attorney General, promoted equal rights and opportunity for Americans regardless of skin color (his statements on equal opportunity would have been out of step with our government’s current race- and sex-based Affirmative Action policies)
• traveled to South Africa in 1966 to lobby against apartheid
• prosecuted organized crime, thus reducing some of its drag on the U.S. economy (much worse in the old days due to the fact that Mob-dominated New Jersey and New York were proportionately more important industrially)

Sample quote from 1968: “Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product … if we should judge America by that – counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. …”

There may be a lot of good reasons for not bringing up RFK, but probably the best one is to avoid reminding Americans that they once were able to vote for a guy like him.

Note: I wrote a bit about RFK in an earlier posting about the JFK Library.

Full post, including comments

The newspapers are full of happy news from Iraq, with U.S. military leaders saying that some of our soldiers may be able to come home in the fall. Might the long-term prognosis for Iraq be positive?

According to the CIA Factbook, Iraq has 28 million people and a birthrate of 31 new babies for each 1,000 population, which translates to nearly 1 million new babies every year (compare to the U.S. with 14 births per 1,000 and the U.S. has a much higher death rate) and a very rapid rate of population growth.

What are these new Iraqis going to do with themselves? With a literacy rate of 74 percent, they are not going to compete in the global workforce with the Chinese (literacy rate of 91 percent plus some of the world’s better universities). Watching Western and Chinese oil companies pump dinosaur blood out of the sand is not going to be a major source of new employment.

Two scenarios seem most likely. Suppose that oil becomes cheap again. Iraq is already having trouble importing enough food to make its people happy (see this article where Iraqis blame Americans for the fact that food is expensive). As the population grows and we’re still over there, it will be American taxpayers who have to pay to feed all of those new Iraqis.

Suppose that oil grows in price to keep pace with Iraqi population growth and our puppet government over there distributes all of the oil revenue uniformly. Iraqis will join Palestinians and Saudi Arabians in not having to work in order to obtain food, shelter, and clothing. With Palestinians and Saudis, who share a common Arab culture with the Iraqis, quite a few idle young men have decided to fill their days by taking up arms (or bombs) against the West. Our Islamic antagonists have not come from poor regions where daily survival is a struggle, they’ve mostly come from places where all of the necessities are taken care of and the only daily challenge that young men face is how to occupy their time.

One might argue that the solution is to build schools and educate Iraqis to a competitive world standard. Unfortunately we’ve tried that here in the U.S. and, despite bleeding taxpayers white to support the world’s most expensive schools, we don’t seem to be succeeding.

Let’s cut and run from Iraq. No matter how bad it is now, one of the world’s highest birthrates coupled with idleness is going to make it a lot worse in the future.

Full post, including comments

As this entry is being typed, Congress is overriding King Bush II’s veto of the $300 billion farm subsidy bill. All of the money is going to be collected from working Americans and (a little bit) handed out to the poor via food stamps and (a lot) handed out to millionaire farmers. This made me wonder how hard the average American is going to have to work for the next five years. Let’s look at some major items that primarily benefit those who don’t work…

• $300 billion farm handouts
• $1.4 trillion($250 billion per year and growing) for Medicare (health care for those over 65)
• $1.6 trillion ($300 billion per year and growing) for Medicaid (health care for poor Americans)
• $500 billion, estimated remaining cost of our effort to make Iraq safe for Iraqis (some estimates and comparisons to previous wars)
• 13 percent of wages for Social Security, includes employer-paid portion (Social Security is billed as a savings program, but it is really pay as we go and depends substantially on taxes from current workers)
• about 1 percent of wages to pay for all the people in prison (roughly 2 percent of the working age population)

We have approximately 150 million workers in this country. Running the numbers, over the next five years, each of those workers will have to generate more than $25,000 plus 13 percent of wages. An employer of American workers would therefore have to pay at least $5,000 per year per person just to enable that person to pay enough taxes to cover farm subsidies, health care for the old and the poor, and our misadventures in Iraq. Then the employer would have to pay another 14 percent on top of whatever else was being paid to cover Social Security and prisons.

Given that a fairly well educated worker in China can be employed for $5,000 per year, it is tough to understand how the American economy is sustainable unless we believe that our workers are vastly better educated than Chinese workers.

Let’s not forget that the working slobs are soon to be taxed another $1 trillion to bail out real estate and mortgage speculators (higher end of Standard and Poor’s estimate of the ultimate cost to the taxpayer).

The prevailing wisdom at the New York Times (editorial) seems to be that our economic future will be assured if we start selling houses to each other at ever-higher prices. All we need to do to grow our economy is build more and larger houses and sit inside them watching big-screen TVs that we import from Asia, occasionally getting up to drive our imported car to the supermarket to buy more chips and beer, stopping on the way home to fill up with imported oil.

Given all of the burdens that the American worker has to shoulder compared to his counterparts in younger countries, could the truth be a lot more frightening? Might we have to work harder? Study at night instead of watching TV?

Full post, including comments