Tag Archives: economics

The Most Subversive Thing You Can Do Is…

Nothing.

Wait, what?  Nothing?

Yes, that is right, do nothing.  I do not mean do nothing in a political or activist sense.  Good lord no, please make sure that your elected representatives know very clearly what you think of their behavior in office and how that is going to make you vote in 2018.  Make their lives unpleasant by actually showing up to their town hall meetings—assuming they actually schedule town halls in their districts unlike Rod Blum—and let them know how displeased you are with their proposed legislation and Donald Trump.

When I say do nothing I mean stop participating in the consumer driven shell game.  Our consumption of stuff just feeds the beast.  We can rail against the political machine in Washington D.C. as much as we want but as long as we are filling our shopping carts the wheel will keep on spinning.

Do you think Exxon Mobil really cares about protests?  Not really.  They would care however if a measurable percentage of their customers stopped buying gasoline because they were commuting by bike.  How many?  Enough to flatten their growth curve and cause investors to panic.  Looking at the current state of oil markets a drop in demand of 5-10% is enough to cause major perturbations in price.  Could you reduce your personal consumption of gasoline by 5-10%?  Heck, all of us could probably do that without thinking.  No one is saying that you need to stop driving entirely, just reduce it by 5-10%.  The upside is that it costs nothing to do less driving.

Do you think WalMart really cares about anything other than its quarter versus quarter results?  Not really.  However, given that the counties that supported Hillary Clinton account for ~64% of the nation’s GDP if those voters were to stop patronizing WalMart the results would be staggering.  Remember, the game is now about growth and if companies cannot show a path toward growth the market will punish them.  Look at coal companies.  Once these companies could no longer show a clear path to growth, never mind declines in demand, the market punished the companies by withholding capital and the coal companies began declaring bankruptcy.  It costs nothing to not shop at WalMart.

Political activists constantly harp on us to “vote with our wallets,” but it is much more effective to vote by not opening our wallets.  Just shifting our spending from one faceless corporation to another is not going to create any kind of meaningful change.  If over a short period of time there was a measurable decline in consumer demand for stuff you would see some real change.  Granted, Republicans would probably start trying to pass legislation that guaranteed WalMart a certain amount of income because they love welfare when it is for corporations.

Doing nothing when it comes to consumerism is subversive because it goes against the dominant paradigm in modern America.  Heck, when we were facing the greatest existential threat to the United States in a generation George W. Bush implored us to go out and shop.  A stirring call to action this was not, but it does represent what passes for action in the minds of modern politicians.

Step back from the cash register and do nothing.  Put that book down and check out something from your public library.  Avoid that trip to the mall and see what unused items lurk in your closet that would be better served as a donation to the Salvation Army.  Resist the urge to go out for dinner and be truly revolutionary by cooking dinner for a group of people.  Heck, that may be the most revolutionary thing you could do because nothing smacks of “commie socialism” like sharing a meal with a group of people and expecting nothing return save for good conversation.  I can read the tweets from Donald Trump already “Sad.  Dinner without tableside service so un-American.  Mar-a-Lago will always be tremendous.”

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Friday Linkage 9/19/2014

It’s a little light on the links this week. Life has a way of getting in the way of research and blogging on my hobbies. Damn.

On to the links…

Duke Energy Invests Heavily in Solar—Duke Energy is a big player in energy. Now the company is making a $500 million investment in solar. A total of eight projects will deliver 278 megawatts of clean solar power to the grid in North Carolina.

There’s a Place in the World that is Fighting Poverty with Solar Power—Solar power can be big improvement for the lives of people who live in countries with limited or no grid infrastructure.

A New Government Report Shows More Coal Plants Are Retiring Than Previously Thought—There is not a war on coal, per se, because the economic argument for burning coal is a losing proposition. Take a look at the map and see just how much coal generating capacity is going offline.

U.S. Moves to Reduce Global Warming Emissions—This is one of those “boring but important” announcements. The Obama administration may not be able to make any progress through Congress, but at least they can try and make progress other ways.

New Hydrogen Production Method Could Help Store Renewable Energy—The storage of renewable energy is a big deal because of the need for stable power and renewables inherent lumpiness relative to demand peaks. Maybe this is a way to “store” energy for future use.

Jatropha Biofuel Around the World: A 13-country Tour of Development Activity—Jatropha is an interesting feedstock for biofuels because the plant has some attractive qualities compared with more traditional feedstock like corn, soy, or palm oil.

California Drought: Dramatic Before-and-After Photos—If you do not believe in the severity of the drought gripping California spend a few minutes looking at these photos. If you are still not a believer, you are probably a Republican funded by the Koch brothers.

Zoos Weigh Pp the Costs of China’s ‘Pandanomics’—I am going to say it. Pandas suck. These obstinate little vegans are the absolute worst animals at the zoo. At least naked mole rats run around cool habitats. Pandas just sit there munching on bamboo and looking out with disinterested eyes. At least someone is questioning the value of playing into China’s hands when it comes to pandas.

The Truth about the Peer-Reviewed Science Produced by Japan’s Whaling—Regardless of the official numbers, the reality is that Japan’s whaling program has produced little if any scientific knowledge because it is a program designed to kill whales for consumption. It’s like asking the makers of “pink slime” about their scientific research of the sustainability of naturally occurring cow herds. It’s incongruous.

The Potential Impact of Local Food

Yesterday I wrote about the pending opening of the NewBo City Market and it got me thinking about the potential impact of local food.

“Shop local” is a mantra for a lot of people and it is a great way to help ensure that we have vibrant communities of businesses tied to the local economy.  Otherwise, everything will just be abandoned on the drive to WalMart.  Joy.

However, the next step is to not just “shop local” but to actually “buy locally made products.”  Why does this matter?  Even if you purchase goods from a local merchant, it is likely that those goods came from somewhere else not necessarily tied to your local economy.  In economic terms this is called leakage, as in your dollars are leaking from the local economy.  Granted, dollars are probably leaking from a lot of other local economies into your own but there are no guarantees.

Farmers markets and public markets, like the NewBo City Market, represent an opportunity to bypass to possibility of leakage because you are buying goods directly from local producers.  This puts the dollars in the hands of local producers without the loss of what a “middleman” would charge for distribution, etc.  But, really, how much of an impact can spending locally produce?

In Linn County there are ~214K people living in ~85K households with a median household income of ~$54K.  If each household could direct $10 of their food spend to local food merchants it would equal more than $44 MILLION dollars injected into the local economy.  At the median household income that level of spending could directly support over 818 households or just under 1% of the county’s households.

The local multiplier effect compounds the impact of this spending even more.  Depending upon the study a local merchant usually returns $52-58 to the local economy while the larger national merchants usually return $17-33.  At the low end, you are getting a three times return on the money in the local economy if it is spent with local merchants.  So, as the dollars you spent stay in the local economy the impact can be multiplied if those dollars continue to be spent with other local merchants.  Check out this study from the Idie Impact Study Series for a tidy summation of the impacts of local purchasing.

I don’t want to sound like some clown on late night television telling you to feed the children for the price of a cup of coffee, but $10 a week does not sound like too much to have such a great impact.  Plus, you can avoid shopping at WalMart where your soul is likely to get stolen or, at the very least, crushed by the depression that oozes from the bare concrete floor.

NewBo City Market and Local Food

On October 27th the NewBo City Market in Cedar Rapids, Iowa will open to the public.  I have watched the construction of the market with a lot of anticipation because I think it represents a golden opportunity to develop local food options.

Public markets have a long history in much of Europe—spend a morning wandering the Boqueria in Barcelona and you will understand the appeal—but the history in the United States is somewhat more checkered.  Our food culture is centered around the grocery store for better and for worse.  However, the growth of interest in food has pushed public markets to the forefront as a venue for local merchants and producers to have an outlet for sale to the general public without the overhead of a single owner occupied storefront.

Local food’s primary challenge is access to customers.  Large grocery store chains have standardized supply chains that require large volumes of products on very consistent schedules.  A local producer cannot meet the volume requirements or, depending upon the climate, the consistency requirements.  One solution is to form a co-op that aggregates producers’ products.  Five Acre Farm in New York is doing just that with a whole host of farm fresh goods.

The other solution is to have stalls and storefronts that can sell direct to the consumer.  In the summer, in Iowa at any rate, the solution is the farmers market.  Any day of the week in my part of this great state I can go to a farmers market and have access to the most delectable of seasonal delights.  After Labor Day, however, the choices of markets begin to dwindle.  This is not a major concern for the purveyors of fruits and vegetables, but what about the suppliers of products like meat or baked goods that do not have the seasonal constraints?

This is where the NewBo City Market will come in.  Local vendors—including florists, meat sellers, bakers, wine merchants, etc.—will have permanent stalls inside the renovated warehouse, which is quite a stunning transformation to witness if you take the time to look at the pictures on the Facebook page.  There will also be temporary stalls in the warmer months for markets and events.  It is going to be great.

Unfortunately, I am going to miss the opening of the NewBo City Market because I will be out of town on travel.  Walt Disney World calls…

What gets me the most excited is a chance to buy pork from Rustik Rooster Farms. Carl Blake at Rustik Rooster is breeding a new pig based on the prized Swabian Hall. A cross between a wild boar from an island off the coast of Georgia and the Chinese Meishan these pigs look nothing like the ones you think roam Old Macdonald’s farm.  Dare I say that they are cute?

Sure, it looks like someone grafted the face of a shar pei onto a black pig, but I digress.  Apparently the quality of the meat is second to none—even beating out the foodie favorite Mangalista breed in a competition in San Francsico.  The Des Moines Register did a nice write up of what is going on down at the farm.

Big Boy Meats will be one of the vendors in the market and they will be carrying pork from Rustik Rooster.  Check out their Facebook page for some photos of a visit to the Rustik Rooster farm.

If you thought U.S. unemployment was bad…

The unemployment situation in the U.S. is ugly right now.  The Bureau of Labor Statisics has a site that will show you the rate by state:

There are some truly bad unemployment numbers in states like Nevada (11.6%), Rhode Island (11.0%), and California (10.8%).  The national average stands at approximately 8.2%.

Compare that to Europe:

The EU27 unemployment rate stands at 10.3%, but there are some truly horrible pockets.  Spain (24.3%) and Greece (21.7%) are true basket cases.  Heck, there are 8 EU27 member states that have a higher unemployment rate than the worst U.S. state.

Germany, the paragon of modern industrial export oriented economies, has an unemployment rate of 5.4% which would put it on worse footing than Iowa (5.1%), New Hampshire (5.0%), Oklahome (4.8%), South Dakota (4.3%), Nebraska (3.9%), and others.

Why is this important?  In the coming months there is sure to be a debate about the forthcoming sequestration that Congress enacted a year ago to beat the debt ceiling deadline.  It’s a debate that is sure to include the concept of increasingly austere government budgets as an economic way forward.  Europe was on the leading edge of austerity in this recession and the economies of these countries look worse for wear because of it.

Never let evidence get in the way of a good sound bite though.

What Else Moves the Price of Oil

Assuming my correlation analysis was correct, the price of oil—a globally traded commodity—is the prime driver behind the price of a gallon of gasoline.  No stretch there.

What else besides demand moves the price of oil?  What do you mean?  Markets for commodities can be subject to several factors not the least of which are the relative value of currencies and traders taking positions that make markets. 

Relative value of currencies?  A dollar is a dollar right?  Just like a dollar today will not buy the same amount of goods that a dollar did twenty years ago, it may or may not buy the same level of goods in another country.  However, oil is a commodity that is commonly denominated in dollars.  The theory goes that as the value of the dollar decreases vis a vis other currencies traded freely internationally that the price will rise regardless of supply and demand to account for this weakness.  The counter is true that as the value of the dollar increases vis a vis other currencies traded freely internationally the price of oil will decline.

Does the data bear this out?  Without reinventing the wheel I will map the price of oil and the U.S. dollar index (DXY).  DXY is a measure of the U.S. dollar’s strength relative to a weighted basket of currencies.  Here is what the chart looks like:

Nothing to see here?  Not so fast.  Just as things can be positively correlated, as was the case with the price of gasoline and the price of oil, things can also be negatively correlated.  In this case the correlation coefficient is (0.77).  Which says that as the value of DXY increases the price of oil decreases.  It is not as strong as the correlation between the price of gasoline and the price of oil, but it is still strong.  Especially considering the size of the data set.  NOTE: As a rule, DXY trades in a much more narrow band than the price of oil, so the graphical representation is less than illuminating.

Getting at the concept of speculation’s impact on the price of oil is much more difficult.  There is no accepted metric that measures the level of speculation in a market in any concrete way.  Market watchers like to point to volatility as a measure of speculation or the level of trading, but those metrics fail to have a great level of correlation with the underlying price data.

Given that environment, the disconnect between the price of oil and the common levers of demand or dollar strength/weakness gives rise to the feeling that speculation is now one of the levers that impacts the market up and down.  I think that you see this in the massive decline in the price of oil in the second half of 2008 as speculators got out of positions and the price bottomed out.  Apparently, Bernie Sanders thinks there is a problem and I tend to agree with him.

More on the Price of Gasoline

After posting my rant on the use of the price of a gallon of gas a political cudgel, I sat back for a moment and thought about the relationship some more.

Using the same data sets available from the U.S. Energy Information Administration I came up with these two charts that show the close coupling of the price of a gallon of gas and the price of a barrel of oil:

How coupled?  How about a correlation coefficient of 0.921.  These numbers can be interpreted a lot of different ways, but anytime a correlation coefficient is above 0.9 in the social sciences, which is where I place economics, it is considered “strong.”  In this case, I will take it as fact that there is a strong correlation between gasoline prices and the price of a barrel of oil.

At this point, most people would leave things well enough alone.  However, given the political heat that the President is taking on the price of gas and the rhetoric from the right—again “drill, baby, drill”—I feel it is necessary to go one level deeper.  If the price of gasoline and the price of oil are strongly correlated, it begs the question—what is driving the price of oil up?

If you are Sarah Palin or any number of politicians on the right, you automatically assume that the problem is a lack of domestic production.  Really?  In the U.S. the production of crude has remained relatively stable from the period starting in January 2008 and ending October 2011:

In fact, if you look at U.S. production in January of 2008 compared with October of 2011 the U.S. is actually producing 10.8% more crude oil.

What about demand?  For the same period as the two previous charts here is gasoline demand in the U.S.:

From January of 2008 to October of 2011, the same period for which the U.S. production of crude rose 10.8%, demand decreased 8.4%.  Yet, over the same period the price of gasoline rose 10.3% and the price of oil actually declined 2.0%.  No one ever said ferreting out root cause would be easy.

The key to this riddle resides in the fact that oil and, to some extent, gasoline are commodities traded on the world market.  A barrel of oil pumped out of the ground in Alaska can be sold in California or China or India or Botswana.  Again with these crazy ideas regarding the free market.

The International Energy Agency’s Oil Market Report estimates that worldwide demand for crude oil will increase from 86.6 million barrels per day in 2008 to 91.2 million barrels by the end of 2012.

Therefore, the demand for oil globally is rising despite a decline in demand in the U.S.  Thus, the price for a barrel of oil will continue to rise because demand will likely outstrip the ability of oil producers to meet the increases in demand barring major new discoveries of easily extracted energy.

I realize that this can get a little dense at times, but given the times I think it is necessary to take a reason and global outlook on events in order to cut through the fog of stupidity that envelops our country from time to time.  It seems to happen in four year cycles.  I wonder what that is correlated with?