Taxation, Recession & Recovery

October 5, 2011

Excellent summary of comments from the March 8th, 2011 hearing on Principles of Efficient Tax Reform before the Senate Finance Committee.  The statement comes from a powerful group within academia, and generally offers prudent, insightful and seemingly sound advice.  In fact some of it looks very familiar given recent proposals from Washington.  These are the people you want informing decisions.

However the more I read and hear, the more I am convinced that our democratic process may in fact be fueling our economic fire.  Partisan politics will be the only thing that gets in the way of meaningful reforms in time to help get our economy back on track in time to have an opportunity to “grow” our way out of all of this.

These notes are a must read for anyone interested in knowing where US Tax Policy may be headed under Obama.  Among the proposals I favor and have written about in the past is a larger estate tax with a higher minimum for enforcement and a VAT tax on carbon in some form.  These notes argue strongly against VAT taxes in general, but with some understanding that such a tax on carbon would dually encourage domestic energy security as well as help impact the US effect on Climate Change.  I would go further to uncover more VAT taxes on other externalities that currently exacerbate misallocation of capital and resources.  Cigarette smoking is already under assault by layers of taxes and yet these high levels of taxation have not impinged tobacco company profitability due primarily to the inelastic demand of cigarettes .  I think we could find similar programs that could directly fund areas in dire need of support.  i.e. carbon related taxation should subsidize grid parity (which is now on the horizon) for a host of alternative energy sources.  Nicotine, alcohol, junk food, and even drugs provide inelastic demand that would serve as great platforms for VAT taxes to support local sustainable food development and healthcare costs directly impacted by the negative health affects of consumption of those items.

Additionally, we ought to consider taxing post consumer waste to better account for the end of life and cost of land of retiring natural resources that will never be reclaimed (in anyone’s lifetime).  A better understanding of the cost of buying, owning and disposing of consumer goods would enhance R&D into cradle to cradle manufacturing processes and indirectly incentivize both corporations and consumers to make better capital allocation decisions in a more sustainable manner.

My extrapolation from an open dialogue in taxation is that taxes ought to be used to dis incent the unsustainable economy, and used to accelerate the sustainable economy.  Rethinking taxation on debt would likely have to be a large part of that kind of thinking.

Hearing on Principles of Efficient Tax Reform, March 8, 2011



What if Solar Energy was Subsidized like Fossil Fuels? [Infographic]

September 11, 2011

Self Explanitory


Lessons from Solyndra

September 6, 2011
There has been a lot of press around Solyndra, most of it has been creating more noise than anything else.  I don’t have time to research the statistics of how many companies fail each day, nor do I know how many alternative energy companies have failed since the initial boom in the mid 2000’s, but there is nothing new about dead bodies on the road to innovation and the creation of new industries.
Of course what is selling this newsprint is that the government was counted as a large investor in the company, and the failure of Solyndra has become a touchstone for failed Keynesian spending.
I take a bit of offense to those seeking click-through for the easy “headline” story here.  True this is a good example of wasteful spending, I will not argue that this was terribly wasteful.  However, I do not think the lesson should be that the government has wasted money on “solar energy”.  I think the lesson should be the government has no business making direct investments in any private corporation.
What the government does need to do, is to appropriate taxpayer money in a manner that is in line with possible public benefits rather than private ones.  Any business student can tell you that among Porter’s Five Forces is a satellite force often noted as missing from Porter’s original approach.  The sixth (or five and a half) “force”, after buyer power, supplier power, barriers to entry, substitution and rivalry is government.  Two of the ways governments exert influence on the competitive dynamics of industries are through regulation, subsidies.  There is plenty of literature to support the thesis that sovereign industry winners (i.e. home country advantages) are often a function of sovereign investment and support for those industries either due to national security concerns, or economic importance.  Consider nuclear energy in Japan, oil in the middle east, automobiles of defense in the United States, airlines in almost every country, etc….  These are all areas where at the end of the day, the sovereign will support (or bail out) an entire industry because of perceived importance to the domestic economy (jobs) or national security.  Anywhere you see close government support or intervention in an industry you generally have competitive advantages.  At its core this is due to lower costs of capital for companies nurtured by sovereign support for their industry.
The boondoggled Solyndra investment is the result of Obama’s “shovel ready” approach which I have commented on before.  Whenever the government makes “shovel ready” a requirement, you are going to see a lot of wasteful spending on every halfwit with a political connection and a shiny new shovel.
Our country does need to make new investments in energy infrastructure.  I am sure someone has done more recent math, but I know that for a fraction of the trillions of dollars we have spent in Afghanistan and Iraq, and even possibly Afghanistan OR Iraq, we would currently be entirely energy independent.  It’s absurd that we have waged two decade long wars over oil which has finite capacity, and which we do not have much jurisdiction over.  Moreover, as has often been said, when we convert US Dollars into Petro Dollars we increase our trade deficit, subsidize directly or indirectly our enemies, export jobs,  and further entrench deteriorating legacy infrastructure.  What the government does need to do is to use money it would have spent on individual projects to support entire new industries, not individual new companies. Rookie mistake I guess.
Government spending in the space program resulted in a proliferation of technological advancement that inspired entirely new industries, including computing and telecommunications.  No one company is large enough to make that kind of investment.  No one company can think big enough to take on that kind of challenge.  Additionally, no one company would probably have turned a profit developing our original space program.  I’m sure the direct accounting resulted in billions of “wasteful” spending.  The endeavor was one of national security and during the cold war the space program was also about national pride.  Nonetheless every American could get their hands around the common benefit (even if they did not conceive of the actual outcomes) of putting a man on the moon.
China just a year ago offered to provide $80 billion dollars to backstop their domestic solar industry.  This lowered the cost of capital for all participants, and helped lead to the massive cost savings that Chinese manufacturers have developed, and which in turn have put companies like Solyndra out of business.  I don’t want to point to China’s model as a best practice, because they still allocate capital along socialist lines, and not by free markets.  However, many advanced economies have created subsidy programs to incentivize alternative energy development, which is what truly catalyzed the industry in the first place.  Europe was on the forefront of solar and wind technologies, and Germany in particular with its large energy intensive manufacturing base heavily subsidized the development of alternative energy.  Q-Cells was the original large solar panel manufacturer, not coincidentally from Germany.  However with the massive sovereign investment from China in domestic solar industries, and the rapid rise in the Euro further exacerbating Q-Cells cost issues for buyers, the company now teeters on the brink of insolvency.   China is well aware that alternative energy is the future for the global economy and China has had both the political authority and capital to see that they “win” the great solar race.  In the future oil will inevitably rise again to levels that make alternatives even more attractive than they are today.  At that time our US Dollars will no longer be converted to Petro Dollars, but will eventually be supporting China’s Red Solar Dollars.
Ironically I am totally for the development of US leadership in alternative energy infrastructure, and while I do think that we should probably siphon big oil support into scalable alternative energy industries (to include natural gas and nuclear to some extent), I am not totally opposed to carbon solutions in the medium term.  We need to take a portfolio approach to domestic energy needs, based on domestic supply considerations and topographical opportunities.  Every part of the US has unique advantages and disadvantages, and the clear winner for domestic energy will be a safer more independent grid and energy network, not an individual company or technology.
It’s not the government’s role in a capitalistic democracy to pick the winners and losers within an industry, but to the extent that new technologies can advance the local economy, aid national security and create spillover benefits to other industries (lower energy costs), it is the government’s role to see that those technologies are incubated and succeed at home.
Article from the New York Times
September 6, 2011

A Third Solar Company Files for Bankruptcy


WILMINGTON, Del. (Reuters) — Solyndra, a solar panel maker that received $535 million in federal loan guarantees, filed for bankruptcy on Tuesday.

Solyndra, which also received more than $700 million in venture capital financing, said it would try to find a buyer quickly to avoid a fire sale liquidation.

The solar industry has been in turmoil this year as a glut of panels has sent prices plummeting 25 percent. Manufacturing capacity expanded just as government austerity measures in Europe eliminated subsidies and undercut demand.

Solyndra cut prices to try to compete but said in court papers that it had been unable to match the extended payment terms offered by foreign competitors.

The company, based in Fremont, Calif., said last week it had suspended operations and laid off 1,100 workers.

Solyndra’s bankruptcy filing followed similar filings by Evergreen Solar and SpectraWatt, a private company that was backed by the Intel Corporation.

Solyndra said in documents filed in Delaware’s bankruptcy court that it planned to spend the next four weeks trying to drum up interest among potential buyers to avoid shutting down permanently and selling its assets piecemeal to repay its creditors.

If it finds a buyer, it could lead to the rehiring of some of its laid-off workers. One of those workers filed a class-action lawsuit against the company in the bankruptcy court, accusing Solyndra of violating the federal law that requires larger companies to give 60 days’ notice of layoffs.

Solyndra did not return a call seeking comment.

Reduce, Reuse, Recycle, Renew

June 14, 2009

Our leveraged economy made it easy to fill two car garages, put a flat screen in every room in the house, and to have a 2:1 computer to user ratio in most middle-income homes.  It allowed us to wait in line to buy iPhones that cost 5x another utilitarian cell phone, while sipping $5 cups of coffee just for the “experience”.  Leverage and all its ignominious glory put a Starbucks on nearly every crowded corner, allowed every Best Buy to sit across the street from a Circuit City, and allowed people who would otherwise shop at thrift shops–for furniture with character–to fill their SUV’s up with an abundance of home furnishings at Ikea.   Cheap money offered by leverage boosted the success of throw-away fashions and throw-away lifestyles. We ate out more than cooked, and as a result more and more five star restaurants flourished.  Leverage provided a level of corporate earnings and personal spending that fueled one another.  The symbiosis was a tango for airline companies, helping to spawn a brand new airline into a national player in less than five years.  JetBlue’s rapid ascent was fueled by a peripatetic population of work-hard, play-hard types who longed for leather seats and televisions wherever they jetted.  Leverage and all its misgivings provided economists the opportunity to dust off the century old phrase conspicuous consumption.  In short, until credit markets seized, we had no idea how leveraged we really were, and how much we over-bought, over-developed, over-retailed and over-consumed.

With New York City apartment prices dropping in half over the last year, the expression that $5 million is the new $10 million carries some weight, at least in and around Manhattan.  Today people no longer gloat about how much they have made in the market.  Today we gloat about who has lost the least.  Asset values of all shapes and sizes are deflating, and with less leverage at the consumer and corporate levels, demand for excess is being rightsized.  But we are at a crossroads.

The quantitative easing being provided by the current administration is a strategy to stop the insanity of deflation.  With few market participants willing to take or provide credit, the United States is using its own balance sheet to be the lender (and borrower) of last resort.  The hope is that the Treasury will begin to fill the shoes of now defunct investment banks, strained commercial banks, hedge funds, pension plans, and other large institutional investors, and lenders.

But what is the end game of such policy?  Sure stabilizing the pricing mechanism is an important goal, but is doing so without changing our pre-existing habits the best way to move forward?  We are and we have been a service economy for quite some time.  American wages grew along with our post WWII economy, fueling spending and leisure. Wages grew so much in fact that we realized we could no longer afford the goods we wanted if we had to make them ourselves.  We became so dependent on the the mass production model that instead of curtailing our consumption we learned to exploit cheap labor around the world.  As our standards of living improved, we could afford to “lift standards of others”.   Thus we began outsourcing to countries whose standards of living were low enough to attract the quantities of labor necessary for an economic model based on mass production and mass consumption.

Eco-doomsdayers like to note that at present we currently consume more natural resources than the earth can produce.  Considering that the top 20 countries ranked by GDP per capital by the IMF account for 50% of global per capita GDP, that leaves no room for sustainable growth in living standards around the rest of the world.  There is physically no way the whole planet can live the way Americans have over the last half century.  What is more important, is that Americans cannot afford to live the same way they have into the future.  The global compression of credit and asset values is really just a warning shot around the developed world that our lifestyles are not sustainable.

A bright side that I see is that we are adept in building and running a service economy.  The future of consumption is sure to be through subscription and through the pooled use of durable assets.  The planet cannot afford to waste resources, and as such we cannot afford to waste assets for conspicuous under-consumption.  A car that sits in a garage 80% of the year wastes materials and real estate that are precious and limited.  Washing machines, excess technology, and the billions of throwaway products are not efficient uses of resources.  Not to mention non-renewable energy sources and unsustainable sources and methods of food production.

Why not build on our service economy?  Cooperative models can be successful, moreover they will be successful.  Reduce, reuse, recycle was a lifestyle choice of yesterday.  Tomorrow these movements will become the standard of living.  Cars need not be owned by individuals.  Fleet ownership is a much more efficient and effective use of materials and real estate.  I began writing this in March of 2009, but as I edit it today, I am inspired to note that last week ZipCar announced it will be going public in the next year.  Capital will be forced to flow into new business models, because as we put Chrysler and GM to sleep, we are now keenly aware that we no longer need that many new cars.  Mass transit is wildly more efficient than customized transit, and today’s technology is already providing an integration of the two through advanced car pooling social networks.  In the new economy, the government, national or local, needs to subsidize the fleet business model and mass transit.  It should be difficult and expensive to justify individual car ownership.  It should be financially burdensome and socially awkward for a single family under one roof to own multiple automobiles. Conspicuous consumers should be subsidizing sustainable consumption.  Employers should be supportive.

We are at a cross roads to permanently affect behavior and consumption patterns.  We need to seize this moment to change the economic model in this country from one of mass production and mass consumption, to one of sustainable production and cooperative sustainable consumption.  The transition will breed new growth industries, new business models, and ultimately create a sustainable middle class.  Car sharing clubs should be as common as individual car ownership is today.  Cradle to cradle product development can be accomplished if manufacturers are forced to dispose of the products they make.  Ownership should be through subscription for most products, and certainly those which are toxic to the planet.  We cannot be mass consumers and individuals.  Said another way, we cant have every emerging economy live the way we’ve lived for the last almost century.  We need to refine and enhance our systems of consumption.

The mass consumption model will need to accommodate aggregate consumption in a less individualized way.  Technology can help us feel like we are not dramatically changing our habits and patterns, but we cannot continue as we have.  We have to begin to understand that idle assets are wasted resources.

More than stimulus, and more than price stability, what we need from our leaders is the courage to help us all understand where we’ve been, where we are, and where we are going economically speaking.  Global crises don’t occur all that often.  When they do, global leaders have the opportunity to bend ears around the world.  At those moments in time global constituents are willing to consider change.  We maybe get one or two chances a century to educate the entire society, we cannot let this opportunity pass us by.  We need to replace our civilization with one that understands how to grow and succeed in a manner that is economically, socially, and environmentally sustainable.

When you finish reading this, start helping to create change, one person at a time.  Turn off your unused electronics, lights or other devices, when you leave the room (even if its not in your house).  Instead of throwing out things that may have value, try selling them on eBay or Amazon.  Before buying something brand new, see if you can find a decent used alternative.  Use the money you make from selling old items to buy new ones.  Take care of the things you own so that they retain more of their value.  Turn off the water while you are brushing your teeth. Before you buy a new car, consider leasing it.  Consider buying a used car.  Consider first if you even really need or want the car.  Today that is probably easier since so many people are forced to cut back.  Consider investing in a digital device if you don’t have one and choose to receive your favorite periodicals electronically.  If you have a digital device, consider canceling all of your paper subscriptions.  Make sure to cancel catalogs you don’t want or use.  Make sure to recycle as much as your local area will permit, and be bold enough to encourage new initiatives for the things that you know should not end up in a landfill. Give things away, don’t throw them away. If it is available find an ESCO for your electricity consumption.  Some utilities now allow you to choose the source of power you want to consume.  In New York City for instance you can choose wind and hydroelectric power over coal through Con Ed who now contracts with independent energy providers.  If you can afford it, eat organic, fair trade, and locally produced foods.  Choose to consume goods and services from companies whose business model is working towards a sustainable future, and boycott or try to avoid the most unsustainable companies on the planet.  When furnishing a home, the best thing is not to over-buy, the next best thing is to try to buy materials that have not, and will not hurt the planet, and that ultimately could be reused one day.  If you eat out, find restaurants that are environmentally conscious.  If you order in, ask them not to put in items you don’t need (cutlery, napkins, condiments).  Moreover, ask the worst offenders to start a new policy of asking customers if they want cutlery, napkins and condiments, so that they don’t automatically provide them to people who simply throw them out. Volunteer once in a while to keep your neighborhood clean.  Trash in the garbage can is less likely to end up in a waterway.  If your employer or town does not recycle, ask them to.  If you already watch what you put in your body, start watching what you choose to put in your home or office.  If you’ve learned not to overeat, try not to over-consume.  If you’ve learned to eat healthfully, then try to consume sustainably. If you see a business or industry that is run unsustainably, start your own company and build a model that is more sustainable, you will likely find a cost advantage and you will immediately have a loyal customer base.

All in all, at this point there is nothing terribly revolutionary that has to be created or invented.  All we need now is the revolution to begin.

Amory Lovins on the Freakonomics Blog

February 10, 2009

While I enjoyed the book, I’ve been meaning to check out the Freakonomics blog on the New York Times website.  Well I finally stumbled on it and to my pleasant surprise I found a picture of and a guest post by Amory Lovins.  Amory Lovins is Chairman and Chief Scientist at the famed Rocky Mountain Institute, a think tank dedicated to weening us off of oil, improving the efficient use of energy and materials, and generally enlightening our senses to the massive amounts of waste embedded in the DNA of the industrial age.  In it Amory eloquently exposes the simple logic supporting distributed energy over our antiquated and now quickly aging energy infrastructure.  An excerpt is below with a link to the full article.  As usual Amory simplifies complexity with a smile and a giggle.

Global competition between big and small plants is turning into a rout. In 2006, nuclear power worldwide added 1.44 billion watts (about one big reactor’s worth) of capacity — more than all of it from uprating old units, since retirements exceeded additions. But that was less capacity than photovoltaics (solar cells) added in 2006, or a tenth what windpower added, or 2.5 percent to 3 percent of what micropower added. China’s nuclear program, the world’s most ambitious, achieved one-seventh the capacity of its distributed renewable capacity and grew one-seventh as fast. In 2007, the U.S., Spain, and China each added more wind capacity than the world added nuclear capacity, and the U.S. added more wind capacity than it added coal-fired capacity during 2003 to 2007 inclusive. [More]

This blog just gained points in my book!

Does a Big Economy Need Big Power Plants? A Guest Post
Stephen J. Dubner & Amory Lovins, Freakonomics Blog, February 9, 2009

Fuel the Film

January 23, 2009

So I got to preview a new documentary, called Fuel.  It’s another thread in the quilt for sustainability.  Apparently the film won at Sundance, and was considered for an Oscar.  It is an incredibly powerful film hinged on the personal life experiences of the filmmaker who does an excellent job bringing the audience into his world in order to help them see their own more clearly.  It’s chock full of a number of OMG moments and laughs, and leaves you with a greater sense of hope than doom as many of these types of films do.  With a great list of cameos from Willie Nelson and Julia Roberts to Sir Richard Branson, the film uses celebrity well, and should help it gain a broader appeal.

I’d certainly recommend it for an eco-geek and for anyone still grasping to learn more about alternative energies, the environment, and specifically bio diesel.

Also looks like they are going to get their first push onto the big screen in NYC on February 6th.  If you can make it, check it out.

AMC Loews Village 7
66 3rd Ave.

New York, NY, 10003
Event date:  02/06/200902/12/2009
Showtimes:  TBA
Sales Hotline:
(212) 982-2116

Profitable Price of Oil

December 13, 2008

The chart below are from the most recent weekly e-letter from John Mauldin.  Something that I have been speaking to recently is the idea that oil cannot sustainably remain low, if for no other reason because oil producing countries cannot maintain their balance sheets with oil as cheap as it is now.  The chart below shows the price at which each oil producing country needs to sell its oil in order to balance its national accounts.

As John intelligently points out, this does not imply that oil cannot go lower from here, but this point certainly creates are compelling argument for tremendous upside to oil once global slowing eases. The entire letter is worth reading, and is available at Investors Insight.

Price of Oil Needed to Balance Budget

Some Things That Just Should Not Be
John Mauldin, Investors Insight, December 12, 2008