Thursday, January 30, 2014

Back Home Again In Indiana

Anyone who has known me for long, knows I'm originally from Indiana, and that I've said I'd never go back.  I made Coastal San Diego my home 9 years ago, and have loved almost every minute of it.  Originally, I moved to California to attend school.  Though I didn't know what school, or even what part of California.  All I knew was that the state would subsidize my education - something Indiana was unwilling to do.  I applied for a few jobs, and was quickly hired sight-unseen by an online retailer, in a sleepy surf town, to update and maintain their website.  At the time, I had never even been to San Diego.  I had only visited California once on a business trip, and drove my rental car from LA down the coast.  I was probably 19, but that sealed the deal.  For me, Venice Beach may as well have been Venice, Italy.

By now, most of my friends have heard the story about how I got hired over the phone on a Wednesday, and was asked to be at work, 2000 miles away, on Monday.  The fact that I actually said yes probably went a long way in getting hired.  I packed my up my twenty year old, Toyota Corolla (that didn't have reverse), and arrived on Sunday night.  People told me I was crazy for driving that far without reverse.  I just laughed and said if they need reverse on the freeway, then they had bigger problems than me.  Over the last 32 years, people have told me I'm crazy for a number of reasons.  Only a handful were right.  I just figured they had their reasons keeping them from doing what I was doing.  On Monday, during my lunch break, I walked two blocks up to a bluff overlooking the ocean.  I'll never forget standing against the railing in that little park, not even being able to form a thought.  I had been in California for less than 24 hours, but I knew I was home.  I swore to myself and everyone I knew that I'd camp under a bridge before I'd go back, with my tail between my legs.

After the first year, I was officially a resident, and could attend community college at a steep discount.  I think my first class cost me about $50 or $60.  When I attended classes in Indiana, I could barely afford to go...  The more I worked, the less classes I could take.  The more classes I took, the less I could work.  It was a terrible cycle.  Later, I learned of a program that would guarantee my admission to the University of California if I maintained a certain GPA and curriculum.  I did just that.  A few years later, I was accepted and finished in two years with a bachelors in economics. That was about a year ago.. 

Over the years, there were so many profound experiences that would end up shaping my life.  I learned to surf.  I finished a few triathlons.  I climbed Mt. Whitney, though it took three tries.  I visited Joshua Tree, Sequoia, King's Canyon, San Francisco, Mexico.  I spent a few days chasing after the Tour of California.  A friend and I watched the pros ache up the summits, then roar through a rainy circuit finish outside the Rose Bowl Stadium in Pasadena.  I danced all night at a desert rave, and watched the sun rise over the Mojave.  I went to a "sewer party" in the basins under a freeway, where kids setup a generator and DJ stand.  I was tired that night, and just walked around in disbelief.  The walls were covered in graffiti and lit up by a kid who had a propane tank attached to an old aluminum backpack that he'd fashioned into a flame thrower.  The entire time, the climate was amazing.  You could snowboard the mountains in the morning, and hustle a few hours home to catch some waves.  There were more opportunities than I ever could have imagined.  The amount of wealth was overwhelming.  Everyone seemed to have a company, a big idea, and a million dollar home.  I  got used to the sight of Mercedes replacing Toyotas as daily drivers.  From the front yard of my small apartment, I could see the Ferraris go by, every weekend, as they cruised the coast.  I still sigh when I see a convertible Bentley two-door, but no longer break my neck just to catch a glimpse. 

Now, after nearly a decade, I've decided to go back...  So what gives?  Change of heart?  Circumstances?  Context?  I guess a little of everything, with money playing a huge factor.  As time wore on, like those cute habits of a new lover, things became apparent and annoying.  While it was true that most people who had houses had $400-500K homes, many people didn't.  It wasn't that they were homeless, but lived in apartments with roommates or in trailers.  When most Americans think of trailer parks, they know they don't want to live in one, and certainly don't think of southern California.  However, there exists a certain charm here about living in a trailer or tiny studio by the ocean.  Rent was affordable, you could leave your beach cruiser in the front yard, maybe cycle to work, and life was good.  Many of the "trailers" had now been built on so many times, they were simply small homes, on rented land.  The whole idea of a home you own on land you don't baffled me.  I now realize many of these folks had other homes in places like Montana, Texas, or Colorado.  This was how they could have the best of both worlds.  Because it wasn't just that coastal CA homes are expensive, but that the mortgage is much more expensive than rent.  If you don't plan on upgrading to a new home after a while, the benefits of a house vs. a home started to disappear.  Of course there is always the option of going inland, but many forget - San Diego is a desert.  In the summer, the temperature will increase by 1 degree for every mile you travel inland.  I wasn't inclined to pay $250K for a "starter" home to live in Phoenix climate while paying for San Diego.  I shudder to think of the rent I payed in my 9 years on the coast.  Needless to say it would have paid for a few acres and bedrooms elsewhere in the country.  So...that is exactly what we've decided to do, even if we don't retire or send our boys to school there.

Since my wife and I own our own internet based company, there is no reason to pay the coastal tax for manufacturing space.  I tell people, if I owned a nail salon or coffee shop, it would be different.  However, as it stands, I could operate from Costa Rica!  California helped me with my education, but doesn't define my business. When combined with the logistics and costs of California incorporation, and California's staunch position on helping me stay safe, it's no longer worth it.  For the money we'll save on rent, and invest in tangible property, we can park a 5th wheel trailer next to the ocean anytime we want.  After all, California has some of the best state and national parks in the country, and the whole beach is public.  It doesn't even matter that they fill up a year in advance.  It just means we'll have to book a year in advance.  We will always have a place for California in our hearts, and California will always have a place for us. 

Now, just like when I left Indiana, and everyone told me how expensive California would be, everyone tells me how expensive California will be.  That once I leave, I will have a hard time coming back.  They forget I showed up here with a few credit hours and a couple hundred bucks. They don't realize most of our sales originate on the east and west coasts - you know, where the people seem to have all the money.  If those doubters could compare my corporate bills to their California mortgages, they'd faint.  So instead of staying, and struggling to afford a mortgage out in the dirt for the next 30 years, while paying rent on a warehouse, plus CA taxes and wages...  We're going to bail for a couple years, and build elsewhere.  This Indiana boy will be glad to repatriate that coastal money in the heartland, and build some equity.  Personally, I look forward to dropping 20% on a place where the barn is bigger than the house.  I look forward to letting my company pay me rent so I can double up on mortgage payments.  I look forward to building equity, then turning my starter home into a rental home.  But most of all, I'll be watching for the look on the doubters faces when we come back bigger and more flush than ever, as full-time tourists. 

Saturday, January 25, 2014

Obamacare and the Disincentive to Work

I suppose it was my fate to be an entrepreneur.  My grandparents owned and operated a hardware store for years, after my grandfather left the navy.  My father owned a few businesses throughout his life.  None of them made him wealthy, but a couple probably could have.  Growing up in this environment, I started my first business as a teen - designing websites.  I later moved to California and graduated from UCSD with a bachelors in economics.  During my time in college, I worked as a private tutor and began a small textile company selling directly to customers.

Over the four years I've been pushing my company, I've rarely paid myself a wage.  Sure, I've enjoyed some company perks - a used truck paid in full and free internet.  However, the benefits have been far less than I could have earned working for corporation.  My years of work have all been based on potential - potential earnings, potential deals, potential values.  Only after four years did all these potentials even begin to turn to tangibles - equipment, assets, revenues, profit.  A brand.  Perhaps it sounds like I'm complaining, but I honestly wouldn't know what to do if I wasn't busy.  I just knew that someday I could reap the rewards of hard work.  Now that the harvest season is approaching, I'm realizing many of my rewards will be accompanied by punishments.

As a small business owner, and non-student, no one is willing to "give" me insurance any longer.  There have been years that I spent without it.  My lack of coverage has never been a issue though.  Even when I was covered by my university, I only used to once for minor physical therapy relating to a car accident.  Frankly, I've been fortunate.  No catastrophes, conditions, health scares, tonsillitis, appendicitis, etc.  I've heard the horror stories about families losing everything due to hospital bills, and medical conditions.  I'd also studied the economics of healthcare in college.  I knew about the market failures and free rider problem caused by young people not buying insurance then relying on emergency care.  These free riders then increase the cost for everyone who voluntarily has insurance.  Though I knew the affordable care act would would affect me directly, I was anxious to see this gap closed.  As people around me cursed wondering "why the government is forcing me to buy something."  I sneered and wondered why they never asked "why does the government make me pay for others' healthcare" when the uninsured wander into an emergency room, where treatment cannot be refused.  I was then, and still am now, in favor of the individual mandate.

So what's my problem?  Where is the disincentive?  Well, as with many government programs, the implementation is flawed.  The government didn't simply pass a law requiring an individual mandate that would keep me out of the emergency room...  They created a program that required everyone (except those 29 and under) to have at least "Bronze" coverage.  While that doesn't sound too bad, the plan may include items which the customer does not want or need.  If it does include services the customer doesn't need, they may be included to use them anyway.  The "I paid for it, I may as well use it." mentality.  This is a different issues though.  As the program was being developed, the government quickly realized they had a problem - insurance would not actually be affordable to everyone, despite the Affordable Care Act's name.  Their solution?  Tax breaks.  Big ones. 

Now is where the disincentive comes into play...  As the coverage deadline looms, I began scouring the website to understand my options.  My wife and I have one young child, and another on the way.  She is currently covered by her employer, and I'm one of the 49 million uninsured.  I quickly entered our ages, insurance status, and annual income (middle 5 figures).  The result?  My children MAY be covered by various government programs, but for my wife and I only, the cost would be $367 a month premium with a $5,000 individual deductible, and a $10,000 family deductible.  That's   $4,400 a year, plus deductible.  If my wife or I were to get sick, in a bad way, our out of pocket expenses would be up to $9,400.  If this were a continuing condition, we'd pay that every year.  If our illness was a fluke, we'd be back to $4,400 the next year.  Those figures all assume our children are NOT covered by our plan. 

Realizing that my wife may change jobs, or that I may go back to school, I then decided to change our income down to $30,000.  Again, our children may be covered by government programs (they clearly would be for a family of 4 making $30,000).  However, things began to get interesting for my wife and I...  We were now eligible for tax credits.  Huge ones.  The government would now pay 100% of our premiums!  You may be asking yourself if we'd be willing to forgo $20,000 in income to save $4,400.  What you should be asking is if someone is willing to make an extra $20,000 only to see that income hit with a tax premium of about 22%!  That 22% is on top of the income taxes paid, that would not almost certainly be higher because they individual is making more money! 

The short answer is no.  No, we wouldn't give up $20,000 in income to save a few thousand.  But again, things get interesting.  I realized long ago that working hard for a W2 only increases your tax burden.  However, incorporating leaves you with a flat tax rate, despite your corporation's earnings.  You may even incorporate in a state that is more favorable to your businesses situation, without having to actually live in that state.  In the eyes of the government, it's not about how much money is coming in.  It's about how it arrives. So, if my revenue (income) comes to me directly, I'll be punished in the form of higher taxes, and higher insurance premiums.  However, if the revenues go to my corporation, they will be taxed at a flat rate.  My corporation does not need insurance, and is not subject to a progressive tax scheme. 

The important thing controlled by my corporation - my salary.  I may raise it very high, and even let my company take a loss.  I may decrease it and become just another member of the working poor.  The government cannot force me to take a "good" job, or to not work a crappy one - with the company I own.  At the end of the day, I still control the assets, while avoiding much of the liability.  I've long wanted to be a member of the upper class.  However, with the government making me choose between supporting them, and supporting my family, I feel it may be a very long time before I have the W2 of a CEO.

Sunday, December 01, 2013

F250 Bed Rail Cap Removal and Aftermath

 During the second phase of painting / bed-lining my truck, I decided it was time to pull the rail caps.

We are bed-lining our ENTIRE truck, not just the bed.  Since we're going to be using spray-on bed-liner (Monstaliner), the caps aren't important to protect against damage.  If you are just bed-lining the inside of the bed, I would NOT remove the caps.  You will probably destroy them, and there are dozens of holes underneath them.  I'll be filling mine somehow, like an idiot, but I've heard replacements are expensive.

Nevertheless, if you're dying to remove your plastic caps, there are clips underneath that can be squeezed to release them.  HOWEVER, not all the clips can be accessed, so some require a bit of prying.  If you pull directly on the plastic, it will fold over and break, or the tear the clips right out of the caps (see photo).  Lastly, if you yank too hard, you'll bend the sheet metal in the rails.

The best bet is a long pry bar that you can slide under the caps, and get close to the clips.  Good luck, if you goof it up, you'll be left with this!

Saturday, November 16, 2013

Man Builds Bomb with Post-Airport-Security Materials

This video has started to make the rounds.  I've seen it posted on Gizmodo, Reddit, and more.  I wanted to make a few comments...on the comments.

The chemistry and setup is very straight forward.  This demonstration could be described as a "simple" example by a non-determined individual.  However, many are misunderstanding the implications on our actual safety and the TSA's purported goals..

"It's just a firework."
"Well, it wouldn't harm anyone except for some ringing ears."
"that explosion has way more bark than bite."

First, we've all heard of people making dry ice bombs with two liter bottles.  It's a similar method, in a plastic container, and no fire.  Here's the latest example of a dry-ice bottle-bomb arrest in LA. (It was done for fun, and just happened to be at the airport.)  Nevertheless, the charge is possession of a destructive device, and he faces up to 6 years in prison.  So to the people who argue the "FRAGGuccino" isn't dangerous, the LAPD disagrees with you, and says this about the less dangerous bottle bombs "This is a serious pipe bomb filled with shrapnel; it is a destructive device.”  There was also a fatal bottle bomb incident in LA in 1992.

Second, I don't know much about the type of mug used in this video.  What I do know is that the container makes a huge difference.  No one makes play-doh bombs.  The containers strengths  and it's ability to hold pressure are important factors - think pipes and pressure cookers.    I also know that I own two Thermos brand mugs made of stainless steel, are airtight, and seal VERY well.   I wouldn't be deathly afraid to approach either of these containers if I knew they were under pressure.  If two-liter bottle plastic shrapnel is fatal, I don't want to take my chances with stainless steel.  Am I concerned about FRAGGuccino on my next flight?  No.  I already know I'm not safe from a determined individual.  However, I take cold comfort in the low statistical probability of being harmed by a terrorist.  While this isn't the most powerful IED I've ever seen, I think we should acknowledge the proof of concept and examine the differences between security and security theater.

Labels: , , , ,

Tuesday, November 12, 2013

Making the most of your AdWords budget using negative keywords.

During an undergraduate economics class, I learned of a story about putting armor on WW2 planes returning home from war.  Many planes were getting shot down, and a man named Abraham Wald attempted to tackle the problem.  Wald's first inclination was simple; inspect the planes returning home, and document the location of the bullet holes.  His diagram looked like the one to the right.

From this point, the course of action may seem obvious, but may not actually be that intuitive.  Many people would probably suggest that you should put armor in the places where the planes were shot.  However, these bullet-ridden planes were actually the successful ones!  Remember, the pilots made it back alive.

Wald's theory was to put armor where there were no bullet holes.  Why?  Because the locations on his diagram showing no damage, corresponded to the planes that didn't make it back.  So...if a plane could return home after being shot in the wing, why reinforce the wing?  However, you may notice there are no bullet holes in the cockpit.  That's because there were no surviving examples of planes that had been shot in the cockpit.  Best solution; reinforce the cockpit!

This same approach can be applied to nearly any AdWords campaign, though I wonder how many actually try.  I've typically found that when someone is running a campaign with any success whatsoever, they usually want to grow that campaign, and rightfully so.  Sometimes this happens through adding new keywords, duplicating the campaign for a similar product or landing page, raising the bids on existing keywords, or raising the entire campaign budget.  While these methods are likely to increase overall sales or conversion volume, they will probably have negligible or negative effects on customer acquisition costs.  So rather than looking to expand positive trends first, it's best to eliminate negative trends, then expand. After all, why would anyone want to expand inefficient spending?  We'll examine a real world AdWords client and their data to understand how how this might be accomplished in AdWords.  

First a disclaimer, and a primer.  Disclaimer: If you do not have sufficient data (I'd say at least three digits worth of clicks for a particular campaign), you are taking a huge risk making future predictions from that minimal data.  If your ad has only been clicked 20 times, but hasn't converted yet, you don't have enough data to suggest that ad/keyword/combo is a loser.  If we have 1000 clicks on an ad and it hasn't converted, it is a loser.  Primer: The data we'll be using is a client who provides e-commerce software as a hosted service.  It is a technical market that is highly competitive, and keyword bids/clicks are very expensive .

Keywords like "shopping cart" are used, but obvious negatives like "metal" and  "wheels" are used to distinguish between between people searching for shopping cart software, and people searching for actual shopping carts.  However, after time, creative searchers will reward you with false positives and many more negative keywords to exclude.  So let's take a look

The first thing you'll need to do is go to Keywords > Details > All.  This will show you what your customers are ACTUALLY typing into Google!

Now that we can see what our customers typed when they found us, let's setup a filter to see who wasn't interested once they got there..  Filter > Create Filter > Conversions = 0.  From here you can sort your data by cost, or clicks, or whatever you're interested in improving. Just make sure you have enough data!  Zero conversion doesn't always mean zero effectiveness.  Since my client advertises against their competitor's brand names, we've decided to include an additional filter to show only queries that contained the word "vs."  OK, so now we have a list of terms that had clicks, but were unsuccessful.  While our total cost per lead and conversion rate was acceptable, the cost (over the period of a month) for these loser "vs." terms was $487!

Since we want customers to who are comparing our client to their competitors, we might hope to see queries like "client vs. competitor."  But remember, this is the loser batch, and thankfully, my client's name isn't anywhere to be seen.  All of these negative trends are mainly "competitor vs. competitor"  So what does this all mean to the client?  In short, if a potential customer is already comparing two of my client's competitors, the client's product doesn't stand a chance - It's just too late in the sales cycle.  Plus, we were paying to bid against both competitor names, possibly driving up the bid for these "vs." queries.

So...what should I do?  Add "vs." as a negative keyword?  No.  This would eliminate all searches for "client vs. competitor."  These are people who are already considering the software, so I need to make sure we reach them - maybe even increasing my bid on "client vs. competitor"  The real solution is to exclude every competitor brand against every other competitor brand.

A simpler example was done using a filter and setting the search term to "how" or "what" and turned up multiple queries like "how to customize url on 3dcart" or "how to install zen cart."  What we thought were potential customers researching software, were actually clueless competitor users clicking on my client's ads in an attempt to use them for technical support!  In the end, we excluded all who, what, when, where, and why queries.  After all, if we're looking for tech savvy users who can understand the value of the software, we need to be skeptical of those to talk to search engines like they're humans.

So there you have it.  By simply running a (conversions=0) filter on your ACTUAL Google queries, you can see what all the losers have in common.  These are negative trends, and should be eliminated in a manner that fits your goals.  I should also mention that Google has a conversion optimizer that SHOULD accomplish the same effect.  However, I doubt that Google has the financial incentive to, or understands your company as well as you.  Your end result may even be fewer clicks at a lower cost per click.  So asking Google to do it for you, is like asking a car salesman to find you the best deal.

Next time I write about AdWords, I'll discuss Gremlin rule #3, don't feed them after midnight.

Labels: , , , ,

Thursday, October 18, 2012

United States Energy Production (Natural Gas vs. Coal)

This election season, the economy has played a center role.  Obviously, energy is a pivotal component of economic growth, business development and also security.  Our energy powers our businesses, and cheap energy translates to cheap economic development.  In the United States, the majority of the energy produced comes from Natural Gas (NG) and coal fired power plants.  Personally, I grew up beneath the stacks of a coal fired plant in Indiana.  I've also heard a lot recently about the falling price of NG.  However, that's where my expertise ends.  Nevertheless, it has become a major issue within the 2012 election season.  It appears that many in "coal country" are vocal about the apparent decline in coal use, coal production and coal jobs.  Meanwhile, progressive voters are concerned with the environmental impact of burning fossil fuels (both NG and coal).  It should be assumed that both parties are concerned with economic development, relative costs, and security, but to varying degrees.  The endgame is that folks in coal country assert these factors should lead to a vote for Mitt Romney.  Progressives conclude that a vote for Barack Obama is in their best interest.  This negates the fact that they both may be voting for their own self-interests and not the interests of their country as a whole...

Despite my personal political views, I began to wonder...  Is it logical for a coal driven community to vote for Mitt Romney?  Has Obama declared a war on coal?  Where does natural gas fit into the energy independence equation?  What are the benefits and drawbacks of both coal and natural gas from economic, environmental, and political perspectives?

Use of NG as percentage of U.S. Electrical Generation (5)
Well, let's start with facts and physics and work out from there...  As of this writing, the price of natural gas is $3.47 per Million British Thermal Units.  That's a mouthful, and we'll try to distill it down to something useful in a minute.  For our purposes, an MBTU is just an amount of energy stored in a fuel.  For $54 dollars we can buy a ton of coal which leads to 20MBTU (This amount can vary, but 20 is the assumption used by the EIA (1)).  This amount works out to $2.7 for one MBTU via coal, and for $3.47 we get one MBTU from natural gas.  As of this writing, natural gas is about 47% more expensive than coal.  During the spring of 2012, natural gas dropped all the way to $1.91 or 44% cheaper than coal.  So clearly, there is a fair amount of variation in comparing the two prices.  At face value, and currently, natural gas does not might not seem worth the trouble.  It's 44% more expensive, and more susceptible to price fluctuation.  Nevertheless, the graphic shows the increasing share of NG as a portion of energy generation.  For a brief period in 2012, and for the first time, energy production via NG even surpassed coal.  If it's 44% more expensive, why burn it?  Clearly we'll have to move on to factors like efficiency of the generation methods, the cost of the pollutants, the cost of plants, the permits, infrastructure, transport, etc.

Before getting into the economics of coal or NG, it's helpful to understand the physics of both fuels.   We need to know the energy density of each fuel.  Well, NG has an energy density of .05 MBTU per kilogram.  While coal contains .022 MBTU per kilogram.  This means that natural gas is a nearly twice as energy dense as coal, but that's only half the equation.  If natural gas was four times as expensive (as it was in 2008), the higher density would be irrelevant from a capitalistic perspective.  However, if coal released four times as much pollution, it would be irrelevant from an environmental perspective.  There must be some balance in between or else no one would be having this conversation.  So where does that leave us, other than confused?  Well, we don't need to worry about the pricing at this point because the market takes care of that for us.  What we need to know now is this; since NG is twice as energy dense, it means to get the same amount of energy from both, we'd need to burn twice as much coal as NG.  If we needed a kilogram of NG to heat a room, we'd need two kilograms of coal.  (Again, the pricing is irrelevant, but for curiosity's sake it would currently cost 47% more than coal to heat the room with NG.  In April it would have cost 44% less to heat the room with NG.)  If price were our only concern, we'd be done.  However, we know that a greater mass of carbon based fuel, will release a greater mass of carbon based byproducts (CO2).  Therefore, if we decide to heat the room with coal, we will generate approximately twice as much CO2.  Furthermore, coal burning releases approximately 100 times the amount of SO2 than NG.

Damage caused by acid rain
In regards to the amount of pollutants released, the EPA has said the following;  “The average emissions rates in the United States from natural gas-fired generation are: 1135 lbs/MWh (Mega Watt hours) of carbon dioxide, 0.1 lbs/MWh of sulfur dioxide, and 1.7 lbs/MWh of nitrogen oxides. Compared to the average air emissions from coal-fired generation, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides, and one percent as much sulphur oxides at the power plant.” (2)  The release of sulfur dioxide is an issue for a simple reason; it's a toxic gas.  "Sulfur dioxide is a major air pollutant and has significant impacts upon human health." (3)  " In addition the concentration of sulfur dioxide in the atmosphere can influence the habitat suitability for plant communities as well as animal life." (4)  Sulfur dioxide emissions are a precursor to acid rain and atmospheric particulates. Due largely to the US EPA’s Acid Rain Program, the U.S. has witnessed a 33% decrease in emissions between 1983 and 2002. This improvement resulted in part from flue-gas desulfurization, a technology that enables SO2 to be chemically bound in power plants burning sulfur-containing coal or oil.

In many conversations (heated rants) I've wrote on the web, I've often had to inform people of the economic concept of externalities.  Externalities are simply when the market price of a good doesn't reflect the true price to society.  The classic example of an externality is pollution.  A company produces pollution in the course of doing business, this pollution does indeed have a measurable impact on society, yet we rarely pay for it when purchasing that good.  One example where we do is the tax paid on gasoline.  Externalities aren't all bad though.  A bee keeper may provide a positive externality to the surrounding farms.  However, we do not pay the beekeeper less when purchasing honey as a trade for his services.  We may however receive a rebate in the form of cheaper crops.  Another example is vaccinations.  The more people that get vaccinated, the lower our chances of getting infected.  However, the people who buy vaccinations do not get a discount for the positive externality they are providing to society.  This concept also applies to burning fossil fuels for electricity.  The true cost to society is often obscured by the low price in the market.  While many who advocate for free markets, they do not understand market failures, or that some intervention is the only to correct these failures.

Put simply, if our number one goal was job security, coal would be a great way to begin.  It's cheap, plentiful, and very polluting if unregulated.  The first two are obviously benefits to the labor market, but so is the last!  By increasing pollution, more people would get sick, more acid rain would fall, we would need more healthcare positions, more workers to repair corrosion damage, more jobs would open due to sickness and death.  One can see this policy would be akin to not releasing a cure for cancer because we would eliminate research jobs.  We could literally be abuzz with economic activity!  Would this activity actually increase our economic wealth, productivity, or standard of living?  Doubtful.  It's easy to see that the costs of a zero environmental policy would actually be higher than current policy.

On the other hand, what if we wanted to cut all, or nearly all, of our sulfur dioxide emissions?  Well, eliminating coal would be a great place to start.  Shortly afterward, the nation would begin to go dark as we were unable to ramp up alternate methods of electrical generation.  The prices of natural gas would skyrocket as demand surged.  As a direct result, the price of electricity would drastically increase.  Many factories would layoff thousands of workers.  Goods produced in the United States would increase in price.  Exports would drop, and so on.  Again it is obvious to see that a zero sulfur policy would also be more costly than the current policy.

U.S. imports and exports of coal
The only sane conclusion is that we as a society are willing to accept a certain level of sulfur dioxide and carbon dioxide in return for affordable energy.  However, to say that we should not regulate coal production would clearly be more costly than current policies.  If this seems unclear to you, so are the skies of China, to whom we export much of our coal.  China's government is obviously willing to pay a higher price for economic development than most U.S. citizens.  Harvard University conducted a study (Full cost accounting for the life cycle of coal (PDF)) examining the externalities of coal use for energy and estimated that the externality cost to the U.S. was from $175 to $500B per year (up to half of our yearly deficit).  They estimated that the true cost of coal, should be between $0.09 and $0.27 per kWh, which is 3-10 times greater than current costs.  Again, these costs are real, measurable, and tangible in terms of healthcare, pollution, opportunity cost, hospital visits, asthma, death, etc.  These costs are already being paid by the public, even if they're not reaping the benefits.  It has rarely been the policy of the United State to let the combined welfare of a few overrule the welfare of society as a whole.  While the government doesn't always allocate resources in the most efficient manner, these costs to the public are the rationale behind increasing regulations.  

In conclusion, politicians have definitely made it more expensive and more difficult to build and run a coal fired power plant (Just how much, and if it's justified is subject to another post).  However, it is also estimated that new construction of coal fired power plants are based on a 35 year operating horizon.  Since the quality of the remaining coal has been dropping for years, new technology has made natural gas much cheaper than the past, and increasing regulation may be immanent; building a new coal plant carries a lot of risk along with expense.  While it may be true that some progressives have declared a war on coal, the market clearly plays a much larger role.  For instance, if the war on coal has already had such a large impact on the use of coal, why hasn't the price for natural gas risen with the increased demand?  If the answer is that natural gas supplies have also been rising to meet increasing demand, without an increase in cost, then why not transition to this cleaner fuel?  After all, the hallmark of capitalism is efficiency.  Obviously this market explains both the reduction in domestic use, and the rise in exportation (other country's willingness to burn coal).  I would even go as far as to say that some are using the free market to further their political agenda.  For instance Robert Murray of Murray Energy has said that “President Obama is responsible entirely for the closure of that mine and the loss of those jobs,”  Well, while it's true that the U.S. has increased regulation of coal fired power generation, exports of coal have clearly risen.  So...if exports are rising, and China is buying, why would Murray need to shutter an operational mine?  Easy; price pressure from natural gas.  Murray needs to meet his break even price, and he's not.  So instead of facing a new energy dynamic caused by changing market technology, or operating more efficiently against competitors - Murray can just blame Obama for not keeping domestic coal demand high.

So regardless of how you punch your ballot, I would expect the increase in use of natural gas to continue, along with the decrease of coal...


Labels: , , , , , ,

Saturday, June 16, 2012

Deep Breaths

Sometimes, that's what it takes.  Deep breaths.

I took my last final, of the semester, this morning.  I shook my professors hand, and thanked him.  Hopefully I didn't thank him for a fail.  For someone who specializes in numbers, I'd be disappointed to give you a "probability of that outcome."  Let's just say it's probably lower than losing to a vegas slot machine.  So I shook his hand, walked up the stairs, stepped outside, and took a deep breath.  It's out of my hands, now.  All bets are off.

At any rate, I've been a little busy, so it looks like I'm taking a vacation, for the first time in 18 months or so.  These past few months have been hectic - due to both circumstances of and beyond my control.  (Anyone who doesn't take, at least partial, responsibility for their own life is reckless, irresponsible and should not be trusted.)  The incident that I don't claim control of was my car accident.  I've been alive 30 years, and taken some chances, but I've never had an airbag go off in my face - till a month ago.  I keep joking about the number of life events I've either racked up, or plan to in the next year.  (Did anyone ever tell you how much houses are in coastal California?)  It seems that I've been going hard non-stop as a full time student (including summer school).  Tutoring my students (including summer school).  And, doing my damnedest to keep a textiles company from exploding either inward or outward.  Sorry I haven't written much!  What can I say?  In some ways, I just got a late start.  If you consider it differently, I'm right on time.  Again, it probably just depends on your perspective.

It's amazing how important perspective is.  That might sound like some sensitive-hippy talk, but even with a regard to physics, or econ.  Are you the fly, or the swatter?  The seller, or the buyer.  It all depends on YOUR perspective.  With as much negativity as I've seen lately - from people driving on the street, bumper stickers, internet shenanigans to Facebook - I just don't understand what perspective they're operating from.

For instance, I was in a Target store, yesterday.  As a capitalist, that place already scares me.  Nevertheless, I find myself there, with my son.  Now, he's a little guy (two going on twelve), but he's past the carrying stage.  So we're walking through the store - He and I.  We cruise through the store like this, he behind I, and soon we're on our way out.  He's walking behind me, and a little out to the side, but close.  A woman in her 30s or 40s is coming towards us, on our side of the aisle, to avoid a cart.  She sees me, and takes appropriate action.  She sees him, and nearly takes him out.  Are you kidding me?  She's in such a hurry to get into the housewares section of target that she's willing to mow down my toddler son?  I can't imagine what perspective she's operating from, but I feel bad for her.  Not because I have any empathy for her perceived situation, but for her unperceived situation - that her life contains that little happiness.

To be frank, the same goes for some of my digital friends.  In physical relationships, I guess we can just choose to not visit certain friends as often as others (CLICKS HIDE).  Either way, when I get cut off at an on/off ramp, get treated rude, hear my friends complaining about makes me thankful.  Thankful that everyday I can deal with their crap, is another day I work up breathing.  Everyday that I can shovel bull sh!t, is another day I have the power to wake up and live my life as I see fit.  Them too, apparently, but I guess it goes unnoticed.  So this is for all of you who go hard day in and day out with a smile on your face.  It takes much more bravery than being a negative jerk.